Distributor Shooting for Stars on Bigger Screens

Gravitas expanding into theatrical releases for bigger upside.

By Jonathan Polakoff

After building a sizable video-on-demand distribution business, Gravitas Ventures of El Segundo is making a play for the art house.

Gravitas, which distributes movies to cable operators’ video-on-demand platforms and digital outlets, last week announced the launch of a new theatrical division that will distribute about 12 indie films a year to theaters. The company hired Dustin Smith, formerly vice president of acquisitions and business affairs at film distributorRoadside Attractions, to lead the division.

Gravitas Chief Executive Nolan Gallagher said theater releases, in addition to on-demand-distribution, will help Gravitas acquire titles with known talent at festivals such as Sundance.

“Being able to handle theatrical in-house enables us to find stronger, cast-driven films,” Gallagher said. “Cast-driven films are the kinds of films that can overperform.”

Gravitas is hoping to find movies that will not only play well theatrically, but also contribute to its core video-on-demand business, which distributes films, for example, to Apple Inc.’s iTunes and Comcast Cable.

It’s always tough to know what will catch on with theater audiences, but Gallagher said the company is targeting three types of movies: documentaries, films with known actors and genre films with a built-in appeal to a cult audience, such as horror fans.

The strategy will be on display late this summer when Gravitas releases cop thriller “Felony” into theaters. The movie premiered in October at the Toronto International Film Festival and Gravitas closed the acquisition earlier the month. The plot centers on three Sydney cops played by actors including the movie’s screenwriter Joel Edgerton, who played Tom Buchanan in the recent “Great Gatsby.”

Terms of the “Felony” acquisition were not discloded, but Smith said Gravitas’ typical budget for an acquisition is in the low-to-mid-six figures. Releasing a dozen films a year is expected to run up between $1 million and $3 million in upfront acquisition expenses and marketing costs.

Recouping those costs at the box office is no sure bet, said Eric Wold, a media and entertainment analyst at B.Riley & Co.’s San Francisco office.

But he agreed that theatrical releases have other advantages for a video-on-demand company, as they can open doors to bigger movies and help spur downloads and other purchases in the future.

“You may be able to get your hands on films that you otherwise might not be able to,” Wold said. “Movies you can monetize downstream.”

“Felony” will be the first theatrical release Gravitas is handling entirely in-house, but it has partnered with other distributors to release movies into theaters before. For example, Gravitas teamed up with Submarine Deluxe of New York last year to release “Dear Mr. Watterson,” a documentary about the creator of the “Calvin and Hobbes” comic strip.

Gallagher said the positive results of those releases helped lead to the decision to launch a theatrical division. He said Smith will help the company book theater screens, for example, which is just one challenge for an upstart independent distributor.

At Roadhouse, Smith worked on the release of movies such as “Margin Call” and “Arbitrage.” Both pioneered the strategy of same-day video-on-demand and theatrical release.

“This hybrid model, where movies are available all over the country at the same time, is where the indie business is heading,” Smith said.

Smith said he still likes that model, but Gravitas will also consider other release strategies, including one that upholds the traditional 90-day waiting period between a theatrical release and home distribution.

Being flexible could be important, since some theaters, especially big chains, refuse to show movies that also debut on the same day on-demand.

Competition is also tough within the art house circuit. For example, Landmark Theatres, partly owned by Mark Cuban is known to set aside screens for movies from the distribution company co-owned by Cuban Magnolia Pictures. One logical outlet for Gravitas’ movies is L.A. art house chain Laemmle Theatres.

Gravitas will also handle theatrical marketing campaigns, which can cost the major studios tens or even hundreds of millions of dollars. Competing on those terms is all but impossible for independent distributors, so Gravitas and the other rely instead on low-cost marketing tactics, such as participating in screening series – or garnering positive reviews from movie critics.

Gallagher said he’s planned the expansion for the long haul. It’s being financed by the company’s core video-on-demand business, which he said is profitable and has grown rapidly since he founded the company in 2006.

Gravitas now has 11 employees and operates in a low-profile building among several bars and restaurants on quiet Richmond Street in central El Segundo. It posted two-year revenue growth of 618 percent in 2011 to rank No. 3 on the business Journal’s list of Fastest Growing Private Companies in 2012. That pace has since slowed.

The company has released about 2,000 titles to on-demand platforms, according to its website. Now, Gallagher said he’s planning to build up a similar level of experience in the theatrical world.

“Theatrical is so important to the indie film world,” he said. “We want to be able to glean that knowledge ourselves.