Net: low budget, high hopes /
Film investors bet Web will house a new independent spirit

Feb. 28, 2000

By Cathy Dunkley

Several months before the 20th annual American Film Market kicked off, one of the veteran players on the independent film scene, Union Patriot Capital president Mike Mendelsohn, sat down with his backers to map out an unusual scheme: He would create a multimillion-dollar fund to back a series of pictures budgeted at $50,000-$250,000.

Why would Mendelsohn venture into territory that has become the kiss of death in terms of feature filmmaking -- the very kind of low-budget movie that is generally accepted to have little if no market among significant distributors?

True, "The Blair Witch Project" turned that assumption on its head, but everybody knows that the horror film was a unique phenomenon, as unlikely to be reproduced in the indie field as Fox Searchlight's "The Full Monty" or PolyGram's "Lock, Stock and Two Smoking Barrels."

The answer is quite simple: Mendelsohn is betting heavily on the future of the Internet.

"The creation of a new digital film fund to make product for the Internet reminds me of some of the independent spirit of days of old, when video first popped on the scene and we were financing pictures like 'Reservoir Dogs' and 'sex, lies, & videotape,' " Mendelsohn said. "That spirit has disappeared over the past five years, whereas the Internet offers filmmakers the opportunity to create a new art form -- the digital-film art form -- whose product is cutting-edge, unique and exciting, which hasn't been available to the studio production system for a while."

Like it or not, the Internet has become a force to be reckoned with.

In a world that has increasingly felt the economic pinch of video and television markets becoming mature, the Internet has become a hope for salvation for the many sales companies that dominate the annual markets: Cannes, MIFED and AFM.

"E-commerce is becoming a very big player dealing with bricks-and-mortar commerce, and media revenue is currently an adjunct of that," said Peter Block, Trimark Pictures executive vp distribution, acquisitions and new media. "Promotion and marketing on the Internet is already driving revenue in other areas for film companies, and eventually it will become a broader revenue stream once the jurisdictional and legal hurdles are overcome."

The Internet is one of several new-media outlets that are being touted as lifesavers to help sustain the post-theatrical market. Along with the Internet, many insiders hope that DVD will expand the market for anyone who has a film to sell.

A quick look at DVD statistics admittedly gives backing to that argument. Total sales of DVD players have risen to 3.9 million from 349,000 in two years.

The rate of expansion of DVD into consumer households has paralleled that of video -- which was introduced into the United States via Beta and VHS during the late 1970s -- and has outstripped any other consumer technology launch.

Indeed, it was no coincidence that the rise of the markets coincided with the rise of video, because a seemingly insatiable need for product allowed filmmakers to sell almost anything they chose to make.

Such companies as Avi Lerner's Nu Image and Sumner Redstone's Viacom were built on the promise of straight-to-video titles. And that promise created a veritable tsunami that propelled the independent field into previously unknown riches and affluence.

That tsunami peaked five years ago. As the straight-to-video market has matured, retail outlets like Blockbuster, on the back of revenue sharing, increasingly chose to stock vast numbers of studio event films in favor of low-budget indies, and the movers and shakers of AFM found it harder and harder to fill their coffers.

So will the Internet prove to be as significant a new ancillary market as video?

"When video came out, everyone predicted that the revenue from video would cannibalize the revenue from theatrical. But in reality, what it created was a brand-new revenue source," Destination Films founder Steve Stabler said. "It's everyone's hope that the Internet will do the same, but the question is where the window for Internet distribution will fall."

Revenue issues aside, most insiders point out that the impact of a new distribution window created by the Internet, wherever it falls, will not be felt for another three to five years until high-speed access, or broadband, becomes an established presence on home computers.

"Clearly, as the market moves toward full broadband delivery, the Internet becomes a significant channel of distribution, especially for video-on-demand, because it means every consumer can get the movie he wants on a video-stream basis at a very high quality," ICM chairman Jeff Berg said.

Without it, watching movies via the Internet is an unsatisfying experience for most people, according to Jupiter Communications analyst David Card. Jupiter research shows that about 20% of households with computers will have the broadband access that permits high-quality video streaming by 2003.

Currently, the Web's strengths lie more in its utility as a promotional vehicle for movies through trailers, auctions, chats with actors and e-commerce offerings, said Internet.com analyst Tom Taulli. "It's great for interaction you don't get when you see a film," Taulli said. "But as a replacement for the silver screen, that's not in the near future."

Laura Randall contributed to this report.