Assurance contracts and the indie film market
In some ways, there has never been a better time for fans of independent film. The video on-demand revolution has led to thousands of titles becoming available for viewing at-home by subscribers of services like Netflix and Hulu. When it comes to instant streaming options offered by Amazon, iTunes, Google Play and the Movies On Demand service offered by the major cable companies, home viewers can in many cases rent indie titles while (or even before) such films are still in theatres.
Alas, if you want to take in such films on the big screen, availability still depends largely on where you live. Many films screen only in New York and Los Angeles, often for just a single weekend. There’s a second tier of major markets – Washington, Chicago, Austin, San Francisco – that do get most significant independent releases, at least eventually. But beyond those, it’s very much catch-as-catch-can.
Living in one of those third-tier markets myself, I was pleased to take part last night in a film screening offered through a fascinating new service called Tugg. My wife and I saw “An Honest Liar,” the documentary about the life of famed magician The Amazing Randi (born Randall Zwinge) who under the name James Randi has, for the past 50 years, been among the world’s most prominent debunkers of self-proclaimed psychics, mentalists, faith healers and other purveyors of flim-flammery. (My capsule review: it’s a solid overview of a fascinating life, though I’m not sure the revelations of the third act were handled as deftly as they could have been.)
Though it won the audience award for best feature at last year’s AFI SilverDocs festival in Silver Spring, Md., the film has gotten only very limited distribution and was not slated to play any of the local indie houses, like the Tampa Theatre or the Burns Court down in Sarasota. Local retired psychology professor Barry Silber managed to address that unfortunate oversight with Tugg, which allows users to arrange for local showings of its library of classic, independent and foreign films once a certain base threshold of interest is met.
Essentially, what Tugg offers is what is known in game theory circles as an assurance contract. (That’s ASsurance, not INsurance.) As my old colleague Alex Tabarrok, who has done some pioneering work on the subject, explains:
In an assurance contract, people pledge to fund a public good if and only if enough others pledge to fund the public good. Assurance contracts were not well-known when I began to write on this topic but have now become common due to organizations like Groupon and Kickstarter, which work on this principle (indeed, I have been credited with the ideas behind Groupon, although sadly for my bank account, I don’t think that claim would stand in a court of law). Since no money is paid unless the total pledges are high enough to fund the public good, assurance contracts remove the fear that your contribution will be wasted if other people fail to contribute.
With Tugg, a user chooses a film and the date, time and the theatre where he or she would like it to be shown. If the theatre approves the request, Tugg creates a personalized event page for the user through which tickets can be sold. If sales meet a set threshold goal before the set deadline, then the screening is on; if not, it’s cancelled and those who bought tickets are refunded their money. As a bonus that provides ample incentive to promote screenings, users who organize events get to keep 5 percent of the gate.
The economics of the film industry, and particularly independent films, long have been both fraught and complex. While the Corporation for Public Broadcasting plays an indirect role in the market for documentaries, generally speaking, the U.S. federal government does not fund independent filmmakers in the same way many other Western countries do. (There are, however, a variety of state and local incentives and tax credits that amount to an unsustainable beggar-thy-neighbor system for film and television productions.) Only a tiny fraction of independent films (generally defined as those made for less than $5 million) ever will make as much as $20 million at the box office, but the occasional $100 million hit can be sufficient to cover an entire specialty studio’s budget, earning multiples that big-budget blockbusters envy.
Given these unusual incentives, and the emergence of video on-demand as a viable new platform, major studios have upped the ante in recent years, pushing for greater and greater volume of independent productions, essentially laying more bets on the table in hopes of hitting a lucky seven. But at the same time, the specialty distribution market has been streamlining and consolidating, such that a shrinking portion of that growing slate of features are likely ever to be seen in actual movie theatres. Services like Tugg just might offer a viable new way to reverse that trend.
