Part of the fun of SXSW is not just the sessions, the films, the Chevys and the parties but the people you meet, waiting in line for films. Such was the case for Jonathan Marlow of online distribution platform Fandor and me. We were waiting to see press screeners at this year’sSXSW and voila an interview was born! Check it out below. It’s in 5 parts. This is Part 2. Check out Part 1.
BTBO: How does it work?
JM: Nearly all of our agreements are non-exclusive. However, we have a number of what I refer to as de facto exclusives where individual filmmakers have made a licensing arrangement with us but they have no great desire to do any other deals. Or, perhaps explained somewhat better, filmmakers who have otherwise been reluctant to distribute their work digitally are ultimately convinced to do a deal with us and then they’re not inclined to work with anyone else. We also have a number of folks who approach me after they’ve done a deal with Fandor and ask, “Is it okay if somebody approached us about making our film available elsewhere?” We encourage our partners to license their work whenever and wherever they’re able. If I were someone that made shoes, I wouldn’t try to sell them only in one place. I’d want them available wherever people who were looking for shoes would go. If you’re a filmmaker, you should want your work in front of the people who want to see films.
BTBO: You mentioned that your model is very different. How do filmmakers get paid? Is it a lump sum?
JM: I would say that there are as many slight permutations to our agreements as there are deals to be made. But they generally take a very similar shape from one partner to another.
In our primary arrangement, deals are structured as a pure revenue sharing agreement where half of the subscription revenues go directly to the partner (whether it’s a distributor, a filmmaker or a producer). When the deal is structured in this way, we absorb all of the costs for making the film available on the service. This is an important component because there are services out there which give you a greater royalty split but they have hidden costs. They’re extracting money out of their partners in the expectation that this is where most of their revenues will be generated. It is a different type of business. Ours is predicated on curation and, therein, we’re making a sort of investment in the films we license by covering these costs.
With the iTunes store, for example, you usually cannot go directly to them and make your film available. You have to work with an aggregator. Part of the reason that the iTunes split is generally more generous is they recognize that films are passing through aggregators and those partners are already taking their own cut. With most aggregators, you often have to cover the costs to prepare your film for the iTunes store as well. That usually is not an insignificant amount of money for most filmmakers. But there is no denying that it is a worthwhile option if you want to be on the iTunes store.
The important thing for Fandor was to really create the lowest barrier to entry as possible for our partners. Part of that process involves absorbing all deliverable costs. We make sure that there are no costs to our partners whatsoever. “Day One” they’re generating royalties.
Out of our 50:50 split, 50% goes to the partner but the royalty is divided 80:20. This is something that no one else’s doing. 80%, as you might expect, is allocated proportionally based on whatever our audience is watching each month. But the remaining 20% is distributed purely on its inclusion in the library. It was an essential aspect of a curated service that every film we offer had to be making some amount of royalties. Every single film in the library is making some amount of money every month.
BTBO: So Fandor is a subscription based service?
JM: It is primarily a subscription service. Subscribers pay ten dollars a month and the resulting pool is divided amongst all of our partners. If we have a licensing agreement directly with the filmmaker, the royalties go directly to the filmmaker. If we’re working with a distributor, it goes to the distributor and the distributor pays the filmmaker or producer themselves.
Most digital delivery companies are just paying a flat-fee for some period of time. Flat-fees are essentially identical to the traditional television licensing model. A company will license the film for generally two years and they’ll say, “In our estimation, this film is worth ‘x’ to us.” It could be hundreds of dollars. It could be thousands of dollars. It could be tens-of-thousands of dollars. It just depends on the film, based on whatever metrics they happen to be using behind the scenes and you’re never going to know exactly how they arrived at that figure. “Based on the numbers that we’ve run, your film is worth this much to us and you can take the deal or not.” And, if you agree, you’ll never hear anything more about it for however long the film was licensed. You’ll never know how many people watched it. You’ll never know anything about how well the film has performed. In our case, it is important for us to share those details. From a philosophical point of view, we think that this is valuable information for our partners. There are other services which have determined that a film watched less than a certain amount of time will not generate any royalties at all. That model seems absolutely horrible on a number of levels. For Fandor, every second that a film is watched is compensated. Every second. In the subscription environment, I think that this is fundamental.