NEW YORK (TheStreet) -- Magnolia Pictures may not arrive at the Sundance Film Festival this week with the deepest pockets, but the distributor of such recent hits as Blackfish and The Hunt, might be seen as the smart money.
As major Hollywood studios such as Universal, a unit of Comcast (CMCSA), and Viacom's (VIA) Paramount produce fewer in-house films and choose to pick-up fewer independent movies, distributors such as Magnolia, IFC and Open Road Films have filled some of the void, buying the rights to movies unlikely to play in mainstream theaters.
Magnolia, which was formed in 2001 by Bill Banowsky and Eamonn Bowles, buys 30 to 40 films a year, and approaches festivals such as Sundance, which begins on Thursday in Park City, Utah, with the goal of securing films likely to explore edgy characters and controversial issues.
"The studios are getting bigger and broader, having to cater to this worldwide market," Bowles said in a phone interview in New York. "That frankly leaves more room for people like us who do more nuanced, complex films, which allows us to attract people dissatisfied by the one-size-fits-all kind of movie."
Over the past year, Magnolia, which distributes documentaries as well as features and foreign-language films, has had success with a variety of movies. Blackfish, a blistering expose on the treatment of killer whales at sea parks, has grossed more than $2 million, according to Nash Information Services, since being released domestically by Magnolia in July. CNN Films shared in the rights to the movie which was aired on the channel in the fall before becoming available on video-on-demand and Apple's (AAPL) iTunes in November.
Blackfish began airing on Netflix (NFLX) in December. No one will be surprised if it gets an Oscar nomination.
Magnolia also done well with A Royal Affair, an 18th century historical drama that earned an Oscar nomination for best foreign-language film, and brought in $901,000 in box-office sales last year. The Hunt, a taut portrait of a kindergarten teacher wrongly accused of being a pedophile, generated more than $687,000 in sales, according to Nash Information. Other Magnolia breakouts include Terrence Malick'sTo The Wonder, and the documentary Muscle Shoals, about the small Alabama city's place in rock 'n roll history.
Bowles declined to say which films he's targeting at this year's Sundance, but offered that whatever the film, it has to hold it own.
"No. 1 for us is we hope it's not a film that's full of shit," Bowles said. "That's not as easy as it sounds but we try not to insult our audience's intelligence."
The market for Magnolia-distributed films usually begins with a theatrical release, though the typical run at art houses and in college towns isn't what it used to be. The migration to streaming and the sheer variety of leisure choices has lowered total box-office receipts. In response to a shrinking market, Hollywood is making fewer films, focusing its energies on so-called "tentpole" features of sci-fi thrillers and already established properties. The sequel has become the safe bet.
Magnolia, by contrast, serves as the theatrical and home-entertainment unit of 2929 Entertainment, a group of media properties co-owned by Todd Wagner and Mark Cuban, and looks to spend a comparatively modest sum, generally under $1 million for a film's distribution rights though Bowles said Magnolia has paid into the seven-figures.
"If you're only in it for a million dollars or less, you might not be profitable during the North American theatrical run but there are others ways you can make money," Phil Contrino, chief analyst at BoxOffice.com, said in a phone interview. "Blackfish posted respectable numbers in theaters, it's already been on CNN and now it's on Netflix. Let's hope that business model continues to exist because there's got to be a diversity of choices for movies."
The big studios remain in the independent game even if they're more careful about how they spend their money. Fox Searchlight, a unit of 21st Century Fox (FOXA), remains a major player along with Universal's Focus Features and Sony Classics, a unit of Sony Corp. (SNE). Not to be outdone, Regal Entertainment Group (RGC) and AMC Entertainment Holdings Inc. (AMC), the country's two largest movie theater chains, started Open Road Films in 2011 to acquire and release independently-produced movies.
Magnolia may not get its choice of the consensus breakout hit at Sundance, but often that's not a bad thing. Last year, Fox Searchlight reportedly spent $10 million to acquire the distribution rights to The Way, Way Back, a coming-of-age film that included a couple of recognizable Hollywood names, Steve Carell and Sam Rockwell.
Searchlight then spent a similar figure marketing and shepherding the film through distribution. Ultimately, The Way, Way Back grossed $23 million, according to Nash Information. Hardly worth the time and energy for a company the size of 21st Century Fox.
"Sometimes being outbid isn't a bad thing," Contrino said. "Magnolia has a niche -- the more risque films, those with hard 'R' ratings. They're not afraid to take on films others will shy away from either because of content, or controversy in the case of Blackfish."
For independent filmmakers and distributors, the near evaporation of the DVD market has given video-on-demand outlets led by Netflix, an outsized role in the latest incarnation of the industry's business model. And though the theatrical release is important to establish a movie's bona fides in the mind of the consumer, a deal with Netflix or Hulu or Amazon, is essential to turn a profit.
"A lot of the independent film audience of days gone by has gravitated to Netflix and VOD," Bowles said. "We're reaching this bifurcation thing where there's the huge tentpoles that the studios are putting out, that are marketed like toothpaste, and then there's all the other films. For us, VOD has become a huge component, its been transformative and we've been able to maximize profits off of it."
Bowles said he plans to be in Sundance this week looking for a film that's not full of itself.
--By Leon Lazaroff in New York.
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