COMPANY TOWN : Independents’ Daze : For Non-Mainstream Movies on Video, It’s Harder Than Ever to Sell to Stores

Mitch Lowe prides himself on catering to a sophisticated clientele. Lowe, who operates in what is an increasingly hit-driven, chain-dominated business, notes that his nine Video Droid stores, in the Bay Area, derive only 30% of their rental dollars from the top 100 videos.

“I like to invest in a movie, and try to see different ways to get more activity,” Lowe said. “And that’s best done with a movie you see value in. We supported ‘Drunks,’ from BMG, like an ‘A’ title, and last year we brought in more copies of ‘Red’ than we did of almost any other movie--and we made tons of money on it.”

Still, Lowe concedes that marketing independent films on video is getting tougher. And few video stores are as willing as Lowe’s to make as much effort to market independent films. Most stores derive nearly half their revenue from renting videos of Hollywood’s major theater hits. Most stores are less willing than in the past to risk stocking titles unfamiliar to consumers.

Suppliers of independent films on video say they are in more of a squeeze than ever.

“There has always been a limited home video market for independent films,” said New Line Home Video President Stephen Einhorn, “but there is no doubt that demand has significantly declined in the last few years.”

Independent films may have scooped up most of the Best Picture nominations this year, but on video they are becoming an increasingly hard sell, much like their poorer cousins, direct-to-video titles. This is especially true for independentfilm titles that are handled by independent distributors.

Industry analyst Tom Adams says the typical independent film--defined as one financed, produced and distributed outside the major studio system and which typically grosses less than $5 million at the box office--rarely sells more than 30,000 units for video rental. That’s a far cry from average sales of 60,000 units just three years ago.

And as sales continue to plummet, that could have an impact on independent film production.

“Video for a long time has been a very necessary element in the independent producer’s ability to raise money to make his film,” said Glenn Ross, senior vice president of Hallmark Home Entertainment. “If videocassettes are not being sold, then that source of revenue slows down, and with it the flow of creativity. And what you end up with is a world of nothing but ‘Jurassic Park’ and ‘Independence Day.’ ”

New Line’s Einhorn agrees.

“Video is often a leading source of financing for independent filmmakers,” he said. “And, almost as important, video is a showcase for the talents of these filmmakers, and it’s a way for us to promote and publicize them and provide an opportunity for people to see these films who otherwise wouldn’t have the chance, unless they lived in New York or Los Angeles.”

Independent films, analyst Adams says, are getting bogged down by the same trend that all but sank direct-to-video product in the early 1990s: Video retailers are spending more of their money on the big theatrical blockbusters, which they believe bring consumers into their stores, and are cutting back on everything else.

At the same time, industry observers say, consumers, bombarded everywhere by ads for the latest Mel Gibson or Brad Pitt release, aren’t nearly as adventurous as they were in the early days of home video.

Some suppliers say retailers have given up too easily.

Says Jeff Fink, executive vice president of Live Entertainment: “Retailers are so focused on the big box-office hits they claim drive customers into their stores that in a crowded marketplace they tend to lose sight of movies that may have made less at the box office but that can still generate a lot of rental demand.”

This thinking, he maintains, “isn’t wrong, just a little distorted. The video store customer typically wants to rent more than one movie at a time. So if, indeed, the theory is true that big box-office films drive traffic, customers are still looking for a second choice--something they either missed in theaters or something that didn’t play in their market but got great reviews. And retailers who are not providing their customers with that second choice are missing out on some very lucrative rental opportunities.”

Both Fink and Ross contend that over the long run, small pictures can be more profitable for video retailers because the demand doesn’t die down as quickly as it does for the latest hit. Research has shown that independent films and even direct-to-video releases continue to rent long after the big hits have landed in the bargain bin.

“I think retailers have not taken the longer view of this,” Ross says. “They want to see quick turns in a short period of time, and this goes back to how people buy stock. Some stocks you buy because you want to make a profit really quick and then sell, while others you buy because you want to hold on to them and make a lot of money in the long run. Retailers need to buy videos the same way.”

New Line Home Video continues to release about a dozen independent films to video each year, alongside such blockbusters as “Seven,” “The Mask” and, most recently, “Austin Powers,” “but we sell them in very small quantities,” Einhorn said. The profits are generally very small as well, he added.

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“Crash,” a controversial film about people who become sexually aroused by watching or being involved in car accidents, is a good example. The film--based on the 1973 novel by J.G. Ballard and directed by David Cronenberg and starring James Spader and Debra Kara Unger--picked up a Special Jury Prize at the Cannes Film Festival and grossed $3 million in its limited art house theatrical run.

Yet on video, “Crash” sold just 60,000 copies for rental, “significantly below” the normal video shipment of a film with a theatrical take of $3 million, Einhorn said.

Einhorn doesn’t blame retailers. In fact, he acknowledges that they have “very pragmatic economic reasons” for making conservative choices.

“You also have to take into account the fact that most independent films have no recognizable names, so there’s nothing in terms of cast or box art that’s appealing. And very few of them are comedy or action--the two most popular genres on video.

Despite the obstacles, suppliers of independent films on video believe there is an audience for them and say they intend to up the marketing ante, if necessary.

BMG Video, known primarily for its best-selling fitness videos, two years ago launched a subsidiary label, BMG Independents, that releases only independent films. Label executives have been working with retailers and retail buying groups to set up sections in their stores for independent films.

Retailer Lowe is doing his part. “We’ve just gone to this maitre d’ concept at our stores,” he said. “We’ve hired people who are total film fanatics, these quirky characters who are great at conversation, to walk the floor on Friday and Saturday evenings and just talk movies with our customers,” he said. “And so far, the return on our investment per hour is just phenomenal.”