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(Note to reader: The downside of running two companies during a recession is that you get twice as many fires to put-out.  That has been the modus operandi for us since last fall.  There hasn’t been any extra time to contribute to this blog, and things were getting stale.  Two months ago, I asked our people to posts articles from the January newsletter to this blog.  It was a lesson in “beware what you ask for”.  There were several posts, mostly for the benefits of our clients, and probably made not much sense to the general public.  Those have since been removed, and we’ll do our best to blog open topics–recession or not.)

How has the recession affected DIY?  The most obvious change is decreased sales.  While the official government marker placed the recession start date began in December 2007, Neoflix clients in general did not see any adverse effect to sales during 2008.  In fact, the whole year, including the fourth quarter, was very strong despite the slate of poor news coming from Wall Street and the financial sector.  Then came January and February 2009; sales fell off a cliff.  The sales numbers per client, as well as the aggregate, were dismal.  There were some speculation that home video purchases may increase as people shifted discretionary spending from watching movies at the theater to watching movies at home.  Actually, movie rentals went way up (see Netflix’s FY results) and the numbers for ticket sales at the movie box office remained surprisingly strong (at least the blockbusters).  From our sales data, a discretionary shift–if there was any–did not benefit our indie films whether they were docs or not.  In March the numbers began to improve, but are still lower than what we projected at the end of 2008.  My guess is that we will see it bounce back after summer.  There are still some clients doing well, but those are the ones actively doing outreach.

Over the next a couple months, we’ll be able to track if the consumer sentiment improves as Magic Rock is launching a direct-to-consumer website at www.indierush.com (note: the website is still work in process as of today 10apr09).  We’re doing a test with an affiliate marketing company; the goal is to see 20 indie films + 300,000 hits = how many sales.  I’ll blog the results in a couple months…stay tuned.

Magic Rock has been on a roll since September, and we’ve been very busy despite the challenging economy.  We’re  fortunate to be working several new clients and their films–including “The Singing Revolution“, “Spirit of the Marathon“, “Supercharge Me!“, “Soy Andina“, “Long Green Line“, “The Black Candle“, “Open Windows“, “Pond Hockey“, “Schooled” “Schraders Exorcism“, “Beyond the Call“, and about a dozen others who are just launching.

This quarter we’ve also worked on several feature improvements, including our Indie Clix affiliate marketing application.  We also began our public and high-school library distribution program, which we’re calling Library Orders, and is currently on beta-test with a handful of clients by invitation-only.  We’re very hopeful that LIBO will increase sales into the under-served public and high school library market.

During the October and November, several clients had successful pre-order DVD launches (both within a 3-4 week window).  One client garnered over $60k in pre-sales, and another surpassed over $100k in pre-sales.  In both cases, all orders were online from their own websites where they keep over 90% of the product revenues!

We’re also seeing clients find new customers by changing  merchandising and licensing strategies.   Emmy winners Almudena Carracedo and Robert Bahar of “Made in LA” came up with a fantastic idea for a community screening kit that we’re enthusiastically recommending to other clients.  I believe in the first few weeks that Tommy Haines and Andrew Sherburne of “Pond Hockey” offered their kit, a couple of hockey clubs approach them to buy them so they can use it for fund-raising.  It’s a “win-win” for both the filmmaker and their fans.

We’re learning a lot from many clients who are finding unexpected self-distributing channels.  They are creating these unique deals by combining their marketing outreach with services and tools Neoflilx provides, and selling hundreds of DVDs.   As a result, we’ve processed more offline sales into corporations and government institutions in the last two months than the previous 12 months combined.

It’s also exciting to receive inquiries from filmmakers outside the USA asking questions  about international self-distribution.   Despite the numerous challenges and obstacles facing both our clients and us, these are exciting times as new avenues are discovered and new markets opened.

As much as possible, we’re trying to share that knowledge here and at our other the self-distribution user forum.  Brian and I are looking at other ways to share this information more quickly with other clients and other filmmakers who are out there trying to make independent distribution work for them.  Stay tuned…

An earlier blog touched upon this topic, but offered no pricing guidance for our clients pursuing independent distribution of their films.  At the time I didn’t have enough data to offer a meaningful comparison on how our self-distribution clients were pricing DVDs.  Since that earlier post, we have added another hundred DVDs titles and have shipped a few thousand more orders, so the data presented below has more weight.  However, it is far from conclusive, and we plan to update the data quarterly.   I would caution new clients (or existing ones who are considering self-distribution) not to change their original pricing plan solely from the information presented today, but rather they should use this as one reference point in the decision making process.

Of the 150+ films by current Neoflix clients, 90% offer a “private home use” version.  We have excluded the DVDs (1) sold “on-demand” and (2) Amazon-specific priced DVDs, in order to remove low-volume products and double-counting the same DVD title sold at different prices to multiple channels.  I also excluded DVDs with special circumstances (such as shorts, or being sold on our European Union or United Kingdom transaction systems) that may skew the data.

General Summary

Sample size: 63 films
Sales Period: Average 3 months
units sold: 11,938
Median price: $22.95 (half of the DVDs in the sample are above this price, half are below.

Regardless of duration)
Average price: $22.55

Comparison by Pricing

Under $10
Number of films in the group: 2
Units sold: 52
Equals 0.4% of total sales

$10 - $14.99
Number of films in the group: 3
Units sold: 54
Equals 0.5% of total sales

$15.00 - $19.99
Number of films in the group: 23
Units sold: 6604
Equals 55.3% of total sales

$20 - $24.99
Number of films in the group: 24
Units sold: 3779
Equals 31.7% of total sales

$25 - $29.99
Number of films in the group: 8
Units sold: 1289
Equals 10.8% of total sales

$30-$39.99
Number of films in the group: 3
Units sold: 160
Equals 1.3% of total sales

No private use home editions were were priced over $40.

Comparison by Film Duration

(Note: Under 30 minutes Not included.)

30-39 minutes
Number of films in the group: 4
Low Price: $9.95
High Price: $24.95
Average price: $21.20
Equals 0.3% of total sales

40-49 minutes
Number of films in the group: 2
Low Price: $19.95
High Price: $19.95
Average price: $19.95
Equals 0.8% of total sales

50-59 minutes
Number of films in the group: 2
Low Price: $19.99
High Price: $27.95
Average price: $23.97
Equals 1.6% of total sales

60-69 minutes
Number of films in the group: 5
Low Price: $14.95
High Price: $30.00
Average price: $20.98
Equals 0.4% of total sales

70-79 minutes
Number of films in the group: 8
Low Price: $19.95
High Price: $26.95
Average price: $22.97
Equals 9.0% of total sales

80-89 minutes
Number of films in the group: 16
Low Price: $12.99
High Price: $29.99
Average price: $22.77
Equals 23.9% of total sales

90-99 minutes
Number of films in the group: 13
Low Price: $9.99
High Price: $39.95
Average price: $21.05
Equals 41.2% of total sales

100-109 minutes
Number of films in the group: 9
Low Price: $19.95
High Price: $29.99
Average price: $24.98
Equals 14.9% of total sales

110-120 minutes
Number of films in the group: 0
Low Price: N/A
High Price: N/A
Average price: N/A
Equals N/A% of total sales

120-179 minutes
Number of films in the group: 1
Low Price: $24.98
High Price: $24.98
Equals 5.1% of total sales

180-210 minutes
Number of films in the group: 3
Low Price: $29.95
High Price: $34.98
Average price: $31.46
Equals 2.8% of total sales

There were no films in the sample over 210 minutes

Lets call the day you start selling DVDs “ID Day”, what are the steps leading to that point? Here is a road map, walking backwards, of the major steps.  Each project may have its own twists and turns, and there are many little steps within each of these major steps.  Here’s what you’ve been doing for the last 120 days leading up to this point:

5 to 2 days before IDD: ship DVDs and store merchandise to the fulfillment center (or back to your own office/home if you’re doing the fulfillment)

15 to 5 days before IDD: Manufacturer is making the DVDs. Ask for proofs (digital proofs) before they begin mass-manufacturing.

20 days before IDD: Send to the replicator/DVD manufacturer2 “golden” masters, disc artwork, print artwork

30 to 5 days before IDD: Clean up your email list.  If you have a long list, hire an auto-responder company to do the e-blast (or a service like www.boxofficewidgets.com with no monthly fee)

40 days before IDD: Get quotes from DVD manufacturers.

45 to 20 days before IDD: If developing your own e-commerce store and shopping cart, apply for a credit card merchant account and processing gateway.
50 days before IDD: if you’re planning to outsource fulfillment, start looking for and interview vendors

50 to 10 days before IDD: Decide on product pricing, merchandising strategy (t-shirts, posters, etc.), and image branding.  Start manufacutirn t-shirts and posters 2-3 weeks before store opening.

50 days before IDD: submit artwork, graphics, source material to the authoring house to create and encode the DVD

60 to 30 days before IDD: Decide on the DVD package type (plastic case, cardboard sleeve, etc.) and then create corresponsing artwork that goes on the package and disc

80 days before IDD:  If outsourcing DVD authoring, start searching for vendor.  Get acquainted with the artwork and files needed, as well as the steps for DVD authoring and encoding.

90 to 30 days before IDD: Start to create e-commerce store/shopping cart
(if you go with a service like Neoflix, the e-commerce store/shopping cart step can wait until 15 days before IDD)

120 to 90 days before IDD: Enhance and improve the website to make it professional, attractive, image and content rich, biographies on filmmakers, about the production company, and otherwise marketing-ready.

Greater than 120 days:

a. Reserve a domain name for website
b. Create the website and be sure to have a join-us email list
c. Cut a trailer to host on the site and put on YouTube, Myspace, Facebook, etc.
d. Start a blog on the project
e. Make sure music rights and other royalty issues are cleared-up before posting trailer
f. Define your core audience on paper and then present that to your marketing team; list your addresable market (Addressable market is a group of people or organization that have similar characteristics that you can reach using advertising or other outreach methods.  For example, the local chapter and regional chapters of the American Legion)

Here is the answer I provided to a client asking the question: “Can you explain to me how it works that I get more setting it up through you (Neoflix) than going directly to Amazon.  Thanks.”

For independent distribution purposes, there are two programs offered by Amazon that are relevant in this discussion: one is called Advantage, the other is Marketplace.

Both programs are fully searchable on Amazon’s site, but with Advantage, Amazon more actively place the product on keyword searches and referrals.  They also require that the fulfillment is done by them.  For their “marketing” efforts, they take about 45-55%, depending on whether they surround the offer with promotions and discounts, such as free shipping.  Our clients have discovered that if you add the cost of shipping the products to Amazon, their net is approximately 40-50%.

The Marketplace program allows a merchant (in this case, Neoflix) to open up a store and place products on Amazon for sale.  The main drive to the product will be keyword search and product ranking (which improves over time as long as the product is selling).  There isn’t the product referral marketing (for example offering people who bought this item also bought that…), but you have a full independent product page where description and reviews are available.  Amazon takes 20% from the sale.  After the shipping and processing fees (Neoflix ships using USPS 1st class vs Amazon shipping using standard mail) are deducted, most clients receive about 65-70%.

The monthly marketplace store fee is about $50, which Neoflix pays.  This saves clients a lot of money–especially if the volumes are not there to justify it.

It’s also possible for clients to be in both the Advantage and Marketplace programs.  We have two clients who are trying that now.

The previous blog touched upon eco-friendly packaging solutions. Here’s an excerpt from marketing materials we distributed along w/ our go-green packaging solutions during Q1 2008.

Eco-Friendly Features:

• Forestry Stewardship Counsel (FSC) Certification – (from the FSC website) FSC Is a non-profit organization devoted to encouraging the responsible management of the world’s forests. Carrying the FSC-certification logo on your print products tells the world that you support the highest social and environmental standards in the market where you use paper. Your purchase of FSC-certified paper and print products contribute to conservation, responsible management, and community level benefits for people near the forests that provide your paper. (for more information, please see http://www.fscus.org)

• Tree-Free Paper (made from mineral composite!) – i-Pak DVD discovered this solution by chance at a trade show for a completely different industry. We are working with them to provide a lower volume solution that can be applied to jobs from clients in the entertainment and educational industries. The paper is of the highest quality, and has a velvety feel and touch.

• Post Consumer Waste (PCW) papers and cases (from 10% to 50%) – Wherever possible, we try to find paper with higher PCW content, without compromise to the quality of the print. PCW in paper content is typically 5-20%, yet every little bit helps. For DVD cases, especially black color cases, we are able to inject cases with up to 40-50% PCW materials WITHOUT compromising the integrity or smell (yes, as in odors sensitive to ones nose) of the case.

• Environmentally friendly, recyclable adhesives – Unlike the conventional pressure sensitive adhesives (PSAs), recyclable adhesives are more dissolvable in water, which is the principal medium used for dissolving paper back into pulp. This makes a better recycle product and lowers the cost of the paper recycling process.

• Soy-based inks – Soy inks is environmentally friendly because it takes less energy manufacture than petroleum-based inks, and theoretically, makes paper its printed on more recycle-friendly. Soy ink also possesses lower level of volatile organic compounds (VOCs), which helps reduce air pollution. Some say soy inks results in sharper and brighter color images. The main challenge with soy ink is finding printers who use it on a regular basis. We have located printing partners who are committing to this route.

• Compostable, corn-based label films – While looking over the entire manufacturing line we noticed that a stream of waste was being generated from our labeling process. The label backing film is made from paper with a thin film or a clear film, which we discovered was not recyclable. Luckily we came across a company that produces labels on a corn-based film which was not only recyclable, but also compostable. So theoretically, we can put it into any compost pile and watch it turn into plant nutrient in 3-4 months.

This entry will cover print and packaging for CD and DVDs.

But first, let me quickly address the “hybrid” solution mentioned last time for filmmakers or bands who want to make only 500 units, but can’t seem to find someone who would give them a decent price under 1000 units. (Have you noticed when you get a quote for 500 pcs, its usually only about $150-$200 less than the 1000 pcs pricing?) What you do is ask the replicator or broker to quote a hybrid job: replicate 1000 discs, print 1000 inserts, but package only 500. The secret with most replicators is that their 500 piece price is basically this model I just outlined here, but after you pay them, you only walk away w/ 500 completed products (no extra discs or prints). And the next time you go in for reorder, you’re paying from scratch again and paying over 1.20-1.40 per unit. Using this hybrid solution, you’ll walk away with an additional 500 DVDs and print, so next time when you reorder, you’ll only pay for the packaging, which is usually about 0.25 to 0.30 per unit–saving you over a dollar a piece!

Three commonly used CD and DVD package types:

a. Plastic cases (jewel case, amaray-style case)

b. Digi-pak (plastic tray glued to cardboard), Vacuum formed binders and sleeves

c. Cardboard sleeves

DVD and CDs are traditionally packaged in petroleum-based cases (jewel cases, amaray-style cases, digi-paks), costing between 0.07 to 0.15 each. That is a difficult price point to beat. Cases are mass produced in the hundreds of millions, achieving economies of scale that enables a case made in China to be shipped to the US to be sold–at a profit–for 0.08ea. For most budget-challenged projects, this is the way to go. Add printing for the DVD cover sheet or CD booklet & tray card, you can have a market-accepted print & packaging solution for less than $0.50 for a DVD and $0.60 for a CD, at a relatively low volume of 1000 units.

However, more often now clients are considering ecological alternatives like cardboard sleeves, folders and envelopes with some or no plastic content. The type of packaging you consider is largely determined by the distribution channel or product use. For products that ultimately will go on a shelf in a store, the prevailing standard is a petroleum based jewel case/DVD case. Unfortunately for the environmental movement, in general, the most cost-effective solutions are also the ones that use the most plastic–the traditional solutions like the jewel case and plastic DVD cases will be around for a while. Industry and retail giants like Sony and Walmart are going green so there is movement away from these type of cases. Since there is still a large investment of store displays and shelves designed for plastic cases that it’ll dictate the size and dimension of up-coming alternative packaging. Keep your distribution strategy in mind as you design the product. If you’re planning to go retail, then a plastic case or something similar to it in size, is probably on your horizon. To be fair, many of these cases also use post-consumer waste content, so they’re not totally evil. However, when compared to cardboard sleeve solutions that often don’t have any plastic content, the contrast is blatant.

A kind of a “in-between” solution is the digi-pak. The price is on the high end ($1.80 - $2.50 per piece for 1,000 pcs), but many clients still use digi-paks to present a product that has a higher perceived value. The package consists of a clear or black plastic tray glued to a cardboard sleeve. (here is a image of a digipak from a Wikipedia article) I’ve seen digi-packs designed to hold up to as twelve DVDs. The “Friends” DVD release contained eight or ten discs, in a handsome digi-pak. The cardboard sleeve can be printed on environmentally friendly paper/cardboard, but the tray is typically virgin material petroleum and not recycled material.

Cardboard sleeves are most commonly 4-paneled, called wallets, holding a disc. A single-pocket, 5inch x 5inch, 2 panel, cardboard sleeve commonly used for samplers, but not retail products. Keep in mind the point made earlier about the retail environment. If you want to make a retail-bound CD or DVD in cardboard sleeve, it has to be dimensionally similar to a DVD case or CD jewel case. The 4-panel wallets can be printed in color both sides, offering plenty of room for art, copy, and other information. The sleeve has a inside pocket for a disc. When you design this pocket, make sure it’ll fit a disc snugly, not loosely. We had a client recently who sent us a wallet where the DVD slid up and down the extra large pocket. During shipping that has the potential to scratch the disc. Another implementation of the cardboard is actually not a sleeve, but an adhesive applied foam or plastic hub in the center to hold the disc. The best part about this solution is that in terms of overall cost, a cardboard sleeve solution falls in between a digi-pak and a plastic case, so its kind of a “best of both worlds” approach. I like it also because if you choose the vendors carefully, you can create a very eco-friendly solution. (Read the next blog for more details about green-friendly components in CD/DVD packaging.)

Manufacturing a DVD suitable for selling consists of 2 primary steps, (1) manufacturing the disc and (2) making the “package” that houses the disc. These are the steps after you have an authored disc. For clarification, by “DVD” I mean the combination of the disc PLUS the print material PLUS the labor to package everything together into what is referred to as a “retail-ready” product.

There are two options for manufacturing the disc itself: (a) duplication and (b) replication. Duplication refers to burning the data from a master disc onto a recordable blank disc. Replication involves making a “glass master” or “stamper” from the master disc and then pressing and laminating plastic from some very large and expensive machines. Most replicators charge $150-$250 for manufacturing the glass master, so there is a built-in floor price to replicate. As a rule of thumb, up to 300 DVDs, duplication should have a lower total dollar outlay than replication. Between 300-500 units is a gray area where the duplication price inches closer to replication, and for over 500 units, it makes more sense to pursue replication.

(Duplication equipment for small volume runs from 25 to 300 units.)

The decision drivers for duplication are volume and budget. If you plan to have only few DVDs made for press kits or a small run “1st edition”, or have a budget of less than $1000, then duplication is the better choice. Although the per-unit cost for duplicating a disc is higher than replicating it, your up-front cost will be lower. For example, if you duplicate 100 DVDs in a standard black case, you can expect to pay anywhere from $3.50 - $5.00 per DVD (disc + the packaging). This price range should include the duplicated disc, 4-color printing on the disc itself, a 4-color single-sided cover-wrap for the case, packaging of the case with poly-wrapping (the same clear plastic wrapping material used for cigarette and perfume boxes). For replication of 1000 DVDs with the same printing and packaging specifications outlined above, the price range is $1.20 - $1.40 per DVD.  If you want to see if a quote you received is competitive, you can see our price list here.

(There are different type of DVD cases, choose ones with higher composition of virgin materials vs. recycle materials. Better yet, go w/ 100% virgin.)

Duplication is similar to burning a disc on your computer, except that professional duplicators use faster and higher quantity burners. The major draw-back associated with duplication is the real and perceived quality issues. Duplicated discs results in higher playback failure rates than replicated discs. The three factors that govern quality in duplication are: the quality of the master, the quality of the blank media, and the quality of the equipment. The mastering quality you can control, the blank media you can specify (Phillips, Ri-Data or Memorex are all good brands, and the gold standard is Taiyo Yuden), and you can choose better equipment by proxy by selecting a duplication company with an established reputation. Most duplicators are able to turn-around jobs in 2-5 days, depending on the quantity and time for approval on the artwork. The artwork approval is normally done via a digital file (most common is a PDF). The on-screen color will vary from monitor to monitor, and you should expect the final print on the disc and cover-wrap to have a slight variation. This is true for most low volume manufacturing jobs, so don’t beat-up the duplicator too badly if the colors are not exactly as you had designed it.

Replication begins to make sense when you can commit at least a $1000 budget for the DVD manufacturing. Replication is an entirely different process, with a first-time job requiring the making of a glass master (or “stamper”). The entire process from submitting your master to receiving the finished DVD takes from 7 to 15 business days, depending on the replicator, seasonality, and the time it takes to approve artwork. Replicators are much more insistent about clients submitting an intellectual property rights declaration document which states you have the authority or own the copyright to the content (including soundtracks) being replicated. There are also a host of middlemen “brokers” in the industry whose business is to acquire clients, then source the jobs to replicators and printers. If you are able to work directly with the manufacturer, you will likely save money. However, since you are a small client, you may not receive the customer service or turn-time that a broker who has twenty jobs with the replicator would receive. There are replicators out there who offer a complete package deal, where they will perform the replication, printing, and packaging to give you a finished product just like a broker would. With increased competition the customer service gap has narrowed dramatically over the last three to five years between replicators and brokers, so you’re likely to experience a parity in customer service from either.

Here are pictures of the replication and printing equipment, if you’re curious to see what each looks like.

Replication Machine

High Volume CD and DVD Printer

These are generic questions I would ask a potential duplicator or replicator:

• How long have they been in business under their existing name? (Some less scrupulous duplication and replication companies with the same owner close and reopen under another name to avoid licensing fees or lawsuits.)
• How many projects do they do per week?
• Do they have any pricing specials and what is their most economically priced offering?
• (if duplicator) What blank media brand do they use?
• How many colors can they print on the disc?
• (if duplicator) Does their blank disc have a white base coat or is it silver?
• (if duplicator) Is the disc face printing direct to the blank media or onto a peel-and-stick label that is then applied to the disc?
• What type of paper is the case cover-wrap printed in house or out-sourced? (typical paper is glossy 80 or 100 pound weight)
• What is the composition of virgin and recycled material that is in their DVD cases? (the more recycle material, the smellier and more brittle. I recommend 60-40 higher virgin material or 100% virgin content. It may cost more but the perceived product quality is noticeably higher.)
• Do they over-wrap or shrink-wrap the case? (do not opt to go with shrink-wrapping because placing the DVD case in the heat-tunnel will cause the plastic cover on the DVD case to warp or crease)
• Besides the traditional DVD case solution, what other packaging solutions do they offer?

Next time…

In the next post I’ll cover the printing and packaging aspects of DVD manufacturing and different packaging–including eco-friendly solutions–as an alternative to the traditional black petroleum-based DVD case. I will also explain a hybrid manufacturing solution to reduce the overall price a 300-500 replicated DVD job.

It’s important to draw a distinction between activities that merely sell a DVD and those that help build a business over the long term. For those who pursue DIY, it would be a shame–with all the effort that goes into the process–to come away with only a sale but not a foundation for a long-term business. The former concludes when you hand a buyer the receipt, whereas the latter has no terminal point. A business survives only because of its customer base, for artists, its the fan base.

DVDs can be sold in many ways–on Amazon, in a video shop or even out of the trunk of the car. On the other hand, there is only one way to build a business: by building a customer base. Selling DVDs is a function of marketing, advertising, placement, and promotions. Customer base building includes all the activities of mentioned above melded with a whole other set of activities for finding, building, and maintaining a customer base whose loyalty you keep for life.

DIY filmmakers can take a few inexpensive steps to build the tool set necessary to reach out to a broader fan base. Developing a wide presence via website, blogs, write articles, a social network site, contribution to forums.. Read Brian’s post to see how you can set all this up for about $10. Much of this activity can be automated and maintained by an assistant.

It is also important to create product licensing and merchandising strategies that will enable you to sell to different type of customers (e.g. private individuals, institutions, libraries, and their international variants). With a broad product strategy, you can now implement some creative sales strategies to move the variations through different sales channels, such as wholesale, retail, reseller, affiliates, etc. By doing so, you leverage other people’s efforts to help you build your customer base.

As for selling DVDs, we encourage clients to put DVDs in as many online retail outlets as practical, such as Amazon, so they can sell incremental units to that company’s customer base. However, we strongly advise clients against sending any fans that come to your website away to some retailer’s website. When you send your buyers to a online retailer’s website to buy your DVD, you’re really building their business, not yours. If there is one company in the world that will survive just fine without your help to build their customer base…it would be Amazon.