The State of Online Film Distribution Having first established solid beachheads in communication and commerce, the Internet now barrels into digital entertainment like a runaway freight-train. There, however, the medium remains a raw frontier, luring prospectors and pioneers hoping to strike first gold and find creative freedom. If Internet-based entertainment generally is the Wild West, however, then online film exhibition and distribution specifically could be considered the Web's Dodge City: a wild and exciting place where the risks are great, the rewards are mainly theoretical, and the paradigm is constantly shifting.

In other words, with a plethora of technical, creative, business, security, and philosophical issues to consider, no one can be sure what form the industry of online film distribution will take in the new century. But many current players jumping into "the space" do know that this fledgling industry will play some role in permanently changing the film landscape. They want to be part of it and hope that if they stake solid pioneer claims now, they'll profit someday.

Thus, several dozen Web sites billing themselves as "online film sites" or "online film festivals" have entered cyberspace in the last year-and-a-half, some with a great deal of fanfare and resources, others on a shoestring. These sites seem to encompass two general categories: pure entertainment sites heavy on streamed and/or downloadable films and animation, targeting consumers in various demographics; and "industry" sites, dedicated to helping filmmakers find resources, financing, tools, and connections to make, buy, and sell films.

Netmedia recently talked to principals involved with several sites about the key issues they think will make or break their businesses, and their industry, in coming years.

Perilous Path Those involved with such Web sites understand the pitfalls of their endeavors. They say the basic drawback is that broadband has yet to penetrate deep into consumer homes, despite the recent burst of DSL activity around the country. Therefore, the viewing of downloaded or streamed short films on computers remains a time-consuming and awkward experience. Also, at present, only short-form material can reasonably be streamed or downloaded by most Web-savvy consumers-a niche market at best. Thus, there's hardly a crushing consumer demand for the Webcasting of short indie films, let alone long-form material.

There are, however, lots of forecasts about how this dynamic might shift in the near future. "Right now, broadband is limited to probably less than two million households in the United States," says Jeff Morris, CEO of www.yack.com, a comprehensive electronic programming guide that Morris hopes will become the TV Guide of the Internet. "That's a relatively small number, compared to the number of households television or theatrical films can impact. The excitement about using the Web as a [film] distribution medium comes from the belief that this dynamic will change and that broadband will eventually become ubiquitous. We think it probably will, but it might take three to five years. In the meantime, several companies are trying to find, license, and distribute low-budget product now, with the belief that they can build an audience for this type of material and be the major distribution venue for it when technology issues fade into the background."

AtomFilms (www.atomfilms.com) and IFILM (www.ifilm.com) have become the best-marketed examples of the many film sites on the Internet. Both launched in 1999 with major financing and high-profile investors. (Atom's board of directors, for instance, includes such entertainment-industry heavyweights as Frank Biondi and Warren Littlefield.) Thanks to technologies such as digital video players (mainly Real Player, Apple's QuickTime, and Microsoft's Media Player) and Shockwave software, which has caused an explosion of streamed Web animation in recent months, such companies can offer Web surfers hundreds of independently made short films of wildly varying quality for home-computer viewing.

But, at least for now, what programming they offer and how they cash in on it are often two different things. Atom Film officials, for example, concede that most of their current revenue comes mainly from offline distribution of their online films: compilation tapes and DVDs, and licensing for cable TV and airline exhibition.

"We realize that most people still have 56k modems or below," says Matt Hulett, Atom's marketing director. "But we are learning a lot from our site, [like] how to package films and what types of product interest consumers. We're also using the site to promote our really hot films and build a line of products around them. Our view is that the technology issues will sort themselves out, and then we'll be positioned to take advantage of online revenue opportunities as they develop."

Meanwhile, it's a survival game for new film sites. "You have to start somewhere," says Bart Cheever, executive producer of both a traveling festival called The Digital Film Festival and its Web site, www.dfilm.com, which offers downloads of digitally produced indie films. "We look at video on the Web as being similar to the nickelodeons or kinescopes that people watched in the early twentieth century. They are exciting because we realize the potential this technology has and where it's heading. Right now, it's not a significant venue to watch long films, but it is a significant venue for people to launch businesses and filmmaking careers."

Indeed, business launches and maneuvers in the Web film space have been continuing hot and heavy in recent months. Most major players in the game are currently pursuing corporate alliances and initiatives in order to lure financing for their broadband strategies, technology, and acquisitions. IFILM's January announcement of a strategic partnership with Sony Pictures, Vulcan Ventures, Kodak, and Liberty Digital, which combined to collectively invest about $35 million in IFILM, exemplifies this recent binge. Atom Films, meanwhile, has announced similar funding ventures, and recently, a strategic partnership with Blockbuster to "Web syndicate" selected short films.

"The Community" Outside financing and relationships are clearly needed, because representatives of the various sites readily admit their ventures are not yet profitable. They point out that typical Web-based revenue streams like banner advertising are currently marginal at best. The model for making money from such sites has yet to be sorted out, and some are obviously doomed to failure.

Certainly, several sites are replicating Atom's strategy of offline film and merchandise distribution. Many are also exploring partnerships with technology manufacturers such as Microsoft and Apple to reduce the costs of digitizing films and offering them online. Others are trying pay-per-view "screening rooms," corporate sponsorships of films, or advertising within films.

But a growing group of sites is targeting indie filmmakers and would-be filmmakers as their core client base-offering services, information, and software to aid their movie-making endeavors. To that end, such sites are aggressively acquiring online and offline assets related to filmmaking. Case in point: IFILM owns not only its consumer-targeted site, but also www.ifilmpro.com, which is aimed at the filmmaking community as a "professional resource," offering a variety of services. Since January, IFILM has also been involved in a flurry of announcements regarding a wide range of acquisitions targeting filmmakers. Early in the year, the company announced acquisitions of Lone Eagle, a company that publishes an online database and print publications targeting indie filmmakers, and another major industry database, the Hollywood Creative Directory. IFILM also announced in May that it is joining with "premiere partners" like ReelShort.com, RSUB.com, WireBreak.com, and several others to offer what it calls "a comprehensive film portal and directory" in the form of extensive editorial information and links to more than 4,000 Internet-based films available across the Web.

Roger Raderman, CEO of IFILM Corp., hopes that the service site will lure young filmmakers and make them its core customers, on top of consumer traffic. "Our mission is to enable filmmakers, so that meant we needed a large consumer Web site to build awareness for [them], but it also meant we needed to provide methods to connect [them] to industry resources," says Raderman. "Therefore, on ifilm.com, fans can stream short movies and learn about our filmmakers. Ifilmpro.com, on the other hand, is a membership site for industry professionals. The idea is to provide business-to-business applications for filmmakers: a place where they can meet studio people, agents, managers, technical people, and so on."

Many online film-community members feel the industry should aggressively pursue this concept of "helping" indie filmmakers. This means providing services, contacts, and tools to anyone interested in making a low-budget film. While others might think this sounds disingenuous in light of the current Internet IPO frenzy, these people insist that building and servicing an online film community is compatible with growing a revenue base. Their view is that, with the advent of low-cost digital filmmaking tools, the time is right to build a true online indie community.

"My partners and I started our site because we couldn't get distribution for our own film," says Amine Bitar, co-founder and senior VP of Always Independent Films (www.alwaysif.com). "We decided to work on promoting the film ourselves and built a Web site. Then we talked to [filmmaker] friends of ours, and they had the same struggle, so we started posting their films. We launched the site in 1999 with just 10 films. We now have 375, and that includes some features as well as shorts. Some films are better than others, but we feel that using this new medium to develop young filmmakers and showcase their work can only help our industry."

Quality Control But what about the quality of such works? Can anyone with a digital video camera become a successful online "filmmaker"?

Many films distributed on these sites are less than professional, to say the least. Representatives of most sites claim they "carefully" hand-pick the films they distribute based on widely varying criteria. But some in the film community argue that the current Internet IPO orgy is prompting a drive to stock sites with hundreds of films, regardless of their quality, in hopes of luring investors with promises of "product."

Some filmmakers feel such sites could eventually do the indie-filmmaking cause a disservice. They say that the only successful long-term approach will be the one that, in addition to offering helpful information and resources for true indie filmmakers, emphasizes the craft of filmmaking over quantity. After all, the novelty will wear off and IPO dust will settle.

"Many of these sites are run by people who are not part of the film industry," points out Steven D. Katz. Katz is a principal in PitchTV (www.pitchtv.com), a critical online magazine aimed at the independent-film community, which also showcases short films on the Web. "A lot of them are [merely] pursuing public offerings. The long-term prognosis of such sites has to be seriously evaluated. Considering that many sites are offering films rejected by major festivals, you have to wonder if consumers will be interested in anything other than good films that are simple to view once technology improves. Right now, to watch a film online, the quality of the video is generally disappointing, and most consumers don't have proper bandwidth. So why would they go through all the time and effort it takes to view material if that material is not satisfying? Therefore, the true test over time in this medium, like all others, will be the quality of the material."

DFilm's Bart Cheever agrees. He claims that his company's strategy of cross-purposing its Web site with its traveling film festival has allowed it to be selective with its offerings. "When the technology improves, we'll probably make the Web site our major focus," he says. "In the meantime, the site and the festival are about equal, and combined, they do help [create] interest in the art of digital filmmaking because we get lots of submissions and we really go through them. Only a handful make it into either the festival or the Web site. Certainly, there is a lot of competition for content out there, and there aren't that many quality films. We think a slow process of handpicking will be more beneficial in the long run."

There are also questions about how to compensate filmmakers for their work on the Web, since most sites showing their films are not yet turning a profit. And then, there are issues of security-prevention of illegal copying and misuse of digitally transmitted films on sites that still take the download approach, of which there are several.

Nevertheless, in the last year, a handful of unknown filmmakers have earned critical praise, agency representation, and in a few cases, studio deals through online exposure of their work. The exposure factor alone has caused some filmmakers to rave about their early experiences with the new medium.

"I made a student film to get a director's calling card," says Stuart Archer, director of a short film called Bobby Loves Mangoes that has been playing on AtomFilms' site. "When my film launched on the site, an amazing thing happened: It was suddenly exposed to thousands of people, something I could never have done on my own. As a young director, I believe feedback is the most important thing I can get, and this medium provides that in a way unlike any in history."

Technological Freedom Most online-film folk believe that technological roadblocks won't hinder them long, since they consider broadband's proliferation inevitable. Always Independent Film recently joined the Microsoft Broadband Initiative, which VP Bitar says has allowed the site to wave the flag of broadband awareness.

"Microsoft collected a group of Web partners who offer different types of material, from news to sports to films," says Bitar. "They created an access Web page (www.windowsmedia.msn.com), which links to the sites of all their partners and offers education about broadband and information on how to get it in your area. Meanwhile, we stream our films so people with 56k modems can get them, though it takes longer. We think as people see the benefits of broadband, they will go out and get the technology."

Many sites prefer to wait until streaming technology proliferates and are allowing users to download films in the interim. That option has not dampened the enthusiasm of people involved with such sites. "Since we launched in November, we've found that our average user has stayed for a long visit," says Mike Kelly, co-founder of Underground Film (www.undergroundfilm.com), a site offering downloads of films, trailers, clips from works in progress (a private feature for selected industry users), and even screenplays. "That means they are taking the time to download films, along with generally exploring our site. Essentially, what we offer is `pseudo streaming' by letting typical modem users view the film in QuickTime while they are downloading. It's a small screen size and the video is very compressed, but it gives filmmakers a chance to get their work seen."

Ironically, some of those creating the technology spurring this revolution are also moving into the creative space resulting from their breakthroughs. In particular, Macromedia's Shockwave site (www.shockwave.com) earned major headlines in recent months by signing major animation talent like South Park's Matt Stone and Trey Parker to create original programming for its site, using Shockwave animation software. Another site, from Brilliant Digital Entertainment (www.bde3d.com), licenses established properties like Superman in order to showcase animated shorts made with the company's proprietary Web animation technology. There are dozens of others dotting the Web-companies showing off their technology by streaming films on their web sites.

Enter the Studios Looking ahead, a key issue industry pioneers are facing is the arrival of "latecomers" to the dance: major Hollywood studios. Currently, only Warner Brothers' new entertainment site (www.entertaindom.com) is promoting shorts on the Web, while DreamWorks' announced site (www.pop.com) is expected to, but won't be operational for some time. Major independent studio Trimark Pictures likewise leaped into the game a few months ago with a site, www.CinemaNow.com, that it calls an "interactive and virtual film studio" designed to link indie film fans with indie filmmakers by offering both streamed shorts from Trimark's film library, and a variety of services aimed at aiding filmmakers. CinemaNow and other filmmaker-targeted sites, including Ifilmpro and Reel Universe (www.reeluniverse.com) represent the growing trend of trying to lure established filmmakers to the Web as a bedrock customer base above and beyond general consumer traffic.

Despite the attention paid to so-called "indie filmmakers," some fear the involvement of studios portends an unhealthy trend for true independent filmmaking. These people worry that the might of monolithic entities (Warner Brothers' merger with America Online, for example) will eventually outmarket smaller sites and gobble up all the quality films. Indeed, many indie purists wonder if, in the long run, truly "independent" fare will enjoy any higher a profile in cyberspace than it does in traditional film venues, where studios obviously rule the roost.

But other online film-community watchers think the Internet might be the one place where smaller players will hold their own with major studios.

"The Web might be the place for true independence," says Michael Gnojewski, VP of new media for the Sundance Channel and the man in charge of its Web site, www.sundancechannel.com, which began showing short films in 1999 to supplement core programming on the cable TV channel. "There is no doubt the studios will get into this game, but it might be in the same way they got involved in indie film on the theatrical side-by buying existing companies already producing this content. In any case, they are late to the arena in the sense that the studios have always viewed the Web more as a promotional tool for major theatrical releases, so they have some catching up to do."

IFILM's Raderman agrees, pointing out that the infant Web is, in general, already a different species when it comes to hits and misses. "We're learning about the differences between the Internet and traditional Hollywood," says Raderman. "If you look at the Internet, most of the well-known brands-companies like Yahoo, eBay, and Amazon-all began as Internet start-ups, not as branches of traditional companies. In the film space, I expect the same thing to occur, where those who got in early and did the job correctly will be the ones who are the most successful."

Another difference between the Internet and traditional venues with regard to indie-film promotion is the fact that the Web is better suited to what Yack's Jeff Morris calls the "nichification of interests." "[It's] because the medium offers a global approach and instant access for users," says Morris. "So while people may wonder how much general interest a site offering only short, animated films can gather, it can become a serious resource for almost every person in the world who does have that particular interest. Therefore, these sites are getting hits, and as the technology improves and people become better skilled at finding these sites, I think the good ones will get even more attention."

Morris points out that whatever the Web's future regarding film distribution, the medium is "clearly not CB radio or the hula hoop. It's changing things in a profound way."

Among the growing number of heavy entertainment-industry hitters entering the online film-distribution business is former Universal Studios CEO Frank Biondi. One of the finance companies affiliated with Biondi, WaterView Partners, was among the original investors in Seattle-based AtomFilms. Biondi also serves on Atom's board of directors along with Warren Littlefield, ex-president of NBC Entertainment. (Biondi also recently formed a partnership called Massive Media Group, aimed at helping content creators find revenue and distribution opportunities on the Web.) He says his main role with AtomFilms is to advise management about securing capital and structuring deals.

Biondi says that in the Internet entertainment business, success for some players is inevitable. "I've believed since my days at HBO that the single most important driver in the entertainment industry is the consumer's innate desire to see what they want to see, when they want to see it, not when someone else schedules it for them," he says. "The Internet will be the ideal solution to this problem once bandwidth gets robust enough."

But what is Biondi's prognosis for making big bucks in such ventures? "Profitability is dependent on two factors," he explains. "First, the number of viewers is obviously crucial since there is already an advertising model on the Net, so marketing will be important. Second, the potential for short films to occupy a greater space in conventional media gives distributors like Atom a chance to reap greater returns from areas of conventional distribution (like DVD and video sales)."

Meanwhile, Biondi says, sites like AtomFilms have to build brand awareness and follow economic growth patterns similar to pay-cable-TV services. "Technology will improve quickly, but it won't be cheap at first, so there will be a segmentation of the potential population much in the same way that HBO is not in every cable home," he says. "But sites like Atom should be able to survive and prosper nicely in a market of 20 million households that can afford the technology, plus the university market, which is close to another 10 million viewers who will shortly have high-speed access."

Finally, Biondi notes that Web sites like Atom can survive even when traditional studios begin aggressively competing with or trying to purchase them. "When issues of bandwidth and security are solved, I'm sure most of the big players will make their product available on the Web," he says. "The big difference is that bandwidth and/or distribution will no longer be a limiting factor, so there will be many more players, and they will succeed or fail on the quality of their content and their ability to make the consumer aware of that content. For now, big players have a big advantage in that area - marketing. In terms of content, though, the Web of the future may eventually level the playing field between indies and the big entrants."