by Dorothy Pomerantz at Forbes.Com

The Improving Economics of Independent Film
Jan. 20 2011
By DOROTHY POMERANTZ

What will be this year's 'Little Miss Sunshine'?

Thousands of people are converging on Park City, Utah, today for the start of the Sundance Film Festival, the biggest independent film festival of the year. Sundance is where films like Little Miss Sunshine, The Usual Suspects and The Blair Witch Project made their debuts.

For the past few years though, Sundance has been at the center of an industry in trouble. Like the rest of the economy, the independent film world got hit hard by the global crisis. Before 2008, Wall Street bankers with more money than they knew what to do with were directing extra funds into the film world in the hopes of turning a profit or at least getting to meet Scarlett Johansson.

That created a glut of independent films that were competing for limited theater space and audience attention. As a result marketing budgets started to exceed production budgets. The economics of making independent films fell apart around the same time Wall Street crashed. Independent film branches like Paramount Vantage and Warner Independent closed their doors.

But today, things are starting to look up for independent films. The glut is gone. And with fewer players, those left standing can focus only on quality films that have box office potential instead of making a grab for any movie with any buzz at all.

And it’s getting easier to finance movies than it was two years ago.

“The amount of equity required to finance a film has diminished,” say Steven Beer, a lawyer at Greenberg Traurig who is helping to sell three films at the festival this year including a documentary about A Tribe Called Quest. “The Jobs Creation Act gives filmmakers a federal tax credit for qualified production. Couple that with state incentive programs which can offer up to a 40% return on a per project basis.”

Plus filmmakers have more outlets than ever to show their films. It was once seen as a Scarlet Letter to have your movie go straight to DVD. But video on demand and streaming through iTunes and Netflix don’t carry the same kind of stigma.

“Theatrical release is no longer the Holy Grail for the independent film community,” says Beer. “You’re better off using a limited release to raise awareness. VOD streaming and digital downloads are much more fertile ground for revenue.”

As part of the Comcast/NBC merger which was approved by the FCC earlier this week, Comcast agreed to work with the Independent Film and Television Alliance to allow for more independently-produced shows and movies on NBC stations. As part of the deal Comcast will meet with the IFTA to help independent producers “license their content to Comcast Cable for distribution on new media platforms.”

And as movies like Black Swan have shown, independent films cam be quite profitable. Made for only an estimated $13 million, the film has so far grossed $76 million. That’s better economics than something like How Do You Know which cost an estimated $120 million and has brought in only $30 million to date.