Should Criterion become a nonprofit?

The scuttlebutt on Criterion, Eclipse, and Janus Films. Lists and polls are STRONGLY discouraged.
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AisleSeat
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Re: Should Criterion become a nonprofit?

#51 Post by AisleSeat » Sat Jan 13, 2018 5:55 pm

movielocke wrote:allocation of labor hours is the principle cause behind eclipse falling off. michael koresky and Jason Altman were producing the series, but koresky was also writing all the copy for the full collection (which increased production from 50 to 60 new releases a year during the time of the eclipse decline) and Altman worked on the numerous large projects over the last five years, taking time away from eclipse. Additionally for Altman, there were several titles pseudo confirmed as “coming to eclipse” like Pierre Etaix and Les blank (among others) that were bumped up to main line releases. And they’ve gotten access to the major studios over the same time frame and have been trying to exploit that resource while it is available, since it may not always be.

The scarce resource in question is time—labor hours—and criterion isn’t hiring, so there are only so many labor hours a company or producer can allocate, and eclipse just hasn’t been competitive given the other options for what one wants to work on.
This is informative and confirms to some extent my conjecture. The allocation of labor hours probably does play a crucial role in the falling off of the Eclipse line. Allocation of labor hours plus "criterion isn't hiring" = tight budget. To produce more Eclipse sets, it appears they need additional personnel, but they're not hiring. Why? In all likelihood, budget constraints, which, in turn, is causing labor to allocated. Again, if Eclipse was generating the revenue to cover the costs of production and marketing, we'd have more Eclipse sets.

AisleSeat
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Re: Should Criterion become a nonprofit?

#52 Post by AisleSeat » Sat Jan 13, 2018 6:10 pm

movielocke wrote:
AisleSeat wrote:
movielocke wrote:Well I assume VC is funding film struck ...
I tend to think not. In the About Us section on FilmStruck's website it says: "FilmStruck was created by the movie lovers at Turner Classic Movies (TCM) and The Criterion Collection, giving you access to some of the world’s greatest films, shown uncut and commercial-free, just as the director intended."

Rather than venture capital, it's more likely the initial funding came from the Turner Broadcasting System, which itself is owned by Time-Warner. It's also possible it's Time-Warner money that got FilmStruck up and running. It's interesting Criterion is listed as a founder. Whether they put up any initial funding is unknown. If Criterion does own a piece of FilmStruck, however small, it's a major feather in their cap as they move forward into the on-demand realm.
That’s funny, I think that copy indicates VC is funding, with criterion and tcm as the “talent” meant to draw in viewers. Warner’s already has WA streaming, and there’s not much corporate synergy in play with WB title Availability on FilmStruck.
We're going to have to agree to disagree, as I don't see any suggestion of VC in that statement. The Turner Broadcasting System probably had enough cash on hand to do FilmStruck. Why would they get into bed with a venture capital firm that could easily become an outright wolf when their expected returns fail to materialize? A company almost needs to sell it soul to get VC funding. I don't see TBS or Criterion doing that.

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matrixschmatrix
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Re: Should Criterion become a nonprofit?

#53 Post by matrixschmatrix » Sat Jan 13, 2018 6:52 pm

Is there any particular reason to believe that FilmStruck, or any of the other boutique streaming services, is doing especially well? If anything, I would say the content diaspora (you now need Amazon Prime, Netflix, Hulu, and a bunch of other things to approximate the level of depth you used to get with Netflix) means that the obvious one stop shop appeal streaming used to have is no longer there, meaning its edge over physical media may have diminished.

It's certainly true that the big labels don't give a damn about home media anymore, but given that there have been half a dozen boutiques with great releases popping up or expanding lately- ClassicFlix, Arrow US, Indicator in the Uk, etc- so it seems to me that boutique home video is probably a reasonably profitable business right now (particularly since the existence of more labels doesn't hurt home video releasing he way splitting librarians hurts streaming.)

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Shrew
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Re: Should Criterion become a nonprofit?

#54 Post by Shrew » Sat Jan 13, 2018 7:13 pm

University Presses are tax-exempt because their parent organizations (universities) are. So are religious presses. That said, they can lose tax-exempt status if stray too far from distributing educational or religious texts (i.e., they publish a new Dan Brown book), or even if the profits become too large and attract the interest of the IRS. They may even create a separate private (non-exempt) business to handle more profitable/questionable material. For example, the Harvard, MIT, and Yale presses have a joint private LLC which handles distribution for their books.

Here's a link to IRS guidelines on determining exempt eligbility. One the requirements is "The manner in which the distribution is accomplished must be distinguishable from ordinary commercial publishing practices." Currently, I think Criterion would fail to prove that their model is clearly distinguishable.

Also, Criterion makes deals with other publishers, but it is also a competitor to them. Becoming non-profit would likely endanger those relationships (because Criterion's exempt status would give them an unfair advantage in the market). It would also be hard for Criterion to justify releasing a lot of studio films that would probably be put out with or without their involvement. Criterion also doesn't own its films outright, but licenses them from various overseas entities, i.e., Janus doesn't own the Bergman or Kurosawa films, but has good long-standing relationships with their respective owners and the US distributors of the films. I don't know the full legal and business implications a change in tax status would have on those films, but it would probably be pretty complicated.

Again, one of the reasons for the early pile-on was the implication of Criterion was only publishing the Hughes films as a cashgrab, as if in an ideal world they would be publishing only WCP boxes and obscure Eclipse sets. But that's naive and supposes Criterion's interest in Hughes and other "mainstream" films is purely mercenary. Criterion could possibly try to spin-off a non-profit subsidiary specializing in films that otherwise wouldn't be released, but such an enterprise would be at the mercy of the IRS's discretion.

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FrauBlucher
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Re: Should Criterion become a nonprofit?

#55 Post by FrauBlucher » Sat Jan 13, 2018 7:22 pm

AisleSeat wrote: Even though it is privately owned, Criterion operates much like a nonprofit today. Almost all excess proceeds, if any, are plowed back into the company, to pay for more acquisitions and to cover salaries. I'd be surprised if this was not the case. The company is run by people as a labor of love, rather than to simply derive a return on investment.
I don't know. This sounds like the way any small business is run. Cover cost, overhead and salaries and everything else goes back into business. I would think that if non-profit would have benefited Criterion/Janus then they would have become a NFP already.


Thanks Shrew. His post suggest that selling through retail outlets is a bit of a problem for a NFP as I thought it could.

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Re: Should Criterion become a nonprofit?

#56 Post by AisleSeat » Sat Jan 13, 2018 8:51 pm

FrauBlucher wrote:
AisleSeat wrote: Even though it is privately owned, Criterion operates much like a nonprofit today. Almost all excess proceeds, if any, are plowed back into the company, to pay for more acquisitions and to cover salaries. I'd be surprised if this was not the case. The company is run by people as a labor of love, rather than to simply derive a return on investment.
I don't know. This sounds like the way any small business is run. Cover cost, overhead and salaries and everything else goes back into business. I would think that if non-profit would have benefited Criterion/Janus then they would have become a NFP already.
All is well when generated revenue covers costs. It's when it doesn't that problems arise. We all know significant changes are underway in how cinematic product is delivered to viewers. How these changes may affect Criterion and its DVD productions is unclear. Forum member movielocke gives Criterion a max five years before it will have to "pivot" to an adjusted business model that better monetizes on-demand streaming. I tend to agree with this assessment.
FrauBlucher wrote:Thanks Shrew. His post suggest that selling through retail outlets is a bit of a problem for a NFP as I thought it could.
Just checked Amazon for books produced by the nonprofit organizations AARP and the American Public Health Association, and found that several are available through Amazon itself and not 3rd party vendors. The principal reason why nonprofit-produced materials are usually not found in typical retail outlets is that it tends to be esoteric and relevant to only a handful of customers. Just because an organization is nonprofit doesn't preclude it from marketing and selling items. Sales tax is still applied when items are sold retail. It's how the proceeds are handled afterwards that determine nonprofit status. Unlike a traditional company, the proceeds, a part of which is usually profit, is not distributed to shareholders. Nonprofit organizations do not have shareholders (owners). That's what separates them from for-profit entities.

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Re: Should Criterion become a nonprofit?

#57 Post by AisleSeat » Sat Jan 13, 2018 9:32 pm

Shrew wrote: Again, one of the reasons for the early pile-on was the implication of Criterion was only publishing the Hughes films as a cashgrab, as if in an ideal world they would be publishing only WCP boxes and obscure Eclipse sets. But that's naive and supposes Criterion's interest in Hughes and other "mainstream" films is purely mercenary. Criterion could possibly try to spin-off a non-profit subsidiary specializing in films that otherwise wouldn't be released, but such an enterprise would be at the mercy of the IRS's discretion.
Hey, I'll admit the structure of my initial post could have been better. What I was trying to convey is that it now appears Criterion needs to release spine numbers featuring more mainstream product, such as The Breakfast Club and Ferris Bueller's Day Off, in order to generate necessary revenue to offset the more esoteric films. Nothing wrong with that. Both of the aforementioned movies are representative of certain style of filmmaking that captured the essence of 1980s teenage life. It's important to have that in the Collection, and I don't consider putting spine numbers to these films a "cash grab." More of reflection of realty that the DVD market isn't what it used to be. Ask yourself why Universal would license out The Breakfast Club instead of producing another edition itself.

Most forum members who have followed Criterion over the years have noticed a subtle shift in Criterion's offerings. The company has to do what it needs to do to stay viable. If it means a Benjamin Button here and there, that's the way it is. My concern is that lower sales of Criterion's DVDs—and in all likelihood they are dropping due to on-demand streaming—will adversely affect the company. I think it's happening now and will only worsen in the years ahead. Maybe I'm wrong, I hope so.
Last edited by AisleSeat on Sat Jan 13, 2018 9:45 pm, edited 1 time in total.

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movielocke
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Re: Should Criterion become a nonprofit?

#58 Post by movielocke » Sat Jan 13, 2018 9:45 pm

domino harvey wrote:
The scarce resource in question is time—labor hours—and criterion isn’t hiring
What are you basing this on?
releases have had the same seven people (arosteguy, clubb, Hendrickson, et al) as producers for years and years with nobody climbing the ladder to join them.

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movielocke
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Re: Should Criterion become a nonprofit?

#59 Post by movielocke » Sat Jan 13, 2018 9:58 pm

AisleSeat wrote:Ask yourself why Universal would license out The Breakfast Club instead of producing another edition
From universals perspective, they can keep their edition in print, and also license to criterion (plus probably collect a royalty per copy if more than x copies are sold). So if criterion is willing to pay say, $100,000 to license breakfast club, and the universal actuaries say that criterion’s previous universal releases have not materially impacted sales of in print competing in house editions then the license fee is basically free money.

Secondarily, they’re seeing disc sale numbers and they could see that a criterion might wind up moving more units than their own editions so they want to license if the opportunity comes up because they’ll make more money.

Additionally, many of the studios are constrained by iatse contracts, so they need to pay union staff to crew special features they are shooting and union editors to cut the features, and of course the union fringe (health insurance and pension contributions), by licensing out, they can avoid those overhead costs because they’re not creating the new editions themselves.

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Shrew
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Re: Should Criterion become a nonprofit?

#60 Post by Shrew » Sat Jan 13, 2018 10:11 pm

What separates non-profit entities from for-profit entities is the IRS's acceptance of an organization's application for exempt status based on certain criteria, and that goes far beyond how profits are handled. As FrauBlucher mentioned, plenty of privately owned small businesses do not have shareholders, and put all/most of their profits back into the company for expansion. Owners may give themselves or their employees bonuses or shares of profit, but that's not terribly common except for periods of high profit margins. Rather, the status pertains to the organization's goals and distribution models. An NFP has to be either formed with a "charitable" goal, or be part of an organization already exempt for educational or religious reasons (in which case the "charitable" purpose is furthering the educational or religious goals of the parent).

In Criterion's case, they could try to form the "Criterion Foundation," say with the charitable goal of "furthering film appreciation and access." However, if the IRS decides that one of their goals is to sell DVDs, they would not get exempt status. Criterion could claim that it's part of the greater goal of "furthering film access," but the IRS would then consider if their model is "distinguishable" from a for-profit business (this relates not just to "where" a product is sold, i.e., in retail stores, but also to the profitability of the material and prices). To qualify as a non-profit, Criterion would need to change its model, giving away DVDs or selling them at below-market prices to libraries and rep theaters. Or, they'd need to focus on making available unavailable films, basically becoming a glorified distributor of the WCP.

For reference, Newman's Own, which donates 100% of its profits to charity, is still considered a for-profit business by the IRS.

The home media market may be shrinking, but it's far from become a profitless wasteland, as Matrix noted. Becoming an NFP would entail massive changes for Criterion and severely limit its ability to release the range of films that it does, and would likely only be a viable solution after the market craters, when any home video business model would fail to turn a profit.

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Re: Should Criterion become a nonprofit?

#61 Post by AisleSeat » Sat Jan 13, 2018 11:44 pm

Shrew wrote:What separates non-profit entities from for-profit entities is the IRS's acceptance of an organization's application for exempt status based on certain criteria, and that goes far beyond how profits are handled. As FrauBlucher mentioned, plenty of privately owned small businesses do not have shareholders, and put all/most of their profits back into the company for expansion. Owners may give themselves or their employees bonuses or shares of profit, but that's not terribly common except for periods of high profit margins. Rather, the status pertains to the organization's goals and distribution models. An NFP has to be either formed with a "charitable" goal, or be part of an organization already exempt for educational or religious reasons (in which case the "charitable" purpose is furthering the educational or religious goals of the parent).

In Criterion's case, they could try to form the "Criterion Foundation," say with the charitable goal of "furthering film appreciation and access." However, if the IRS decides that one of their goals is to sell DVDs, they would not get exempt status. Criterion could claim that it's part of the greater goal of "furthering film access," but the IRS would then consider if their model is "distinguishable" from a for-profit business (this relates not just to "where" a product is sold, i.e., in retail stores, but also to the profitability of the material and prices). To qualify as a non-profit, Criterion would need to change its model, giving away DVDs or selling them at below-market prices to libraries and rep theaters. Or, they'd need to focus on making available unavailable films, basically becoming a glorified distributor of the WCP.
This is a good rundown on certain aspects of nonprofit status as it might apply to Criterion. I would like to add that the 501(c) nonprofit world is more complex and broad than it appears at first glance. For instance, consider the National Restaurant Association, which represents foodservice companies like McDonald, etc. They lobby on Capitol Hill, they host one of the largest trade fairs in the United States. Considering the NRA's (the "other" NRA) very substantial revenue—millions—you'd think it's a typical corporation, but it isn't. It's a 501(c), just like the hundreds of other associations located in the Washington, DC metropolitan area.

Here's Wikipedia introduction to the 501(c) nonprofit:

"A 501(c) organization is a nonprofit organization in the federal law of the United States according to 26 U.S.C. § 501 and is one of 29 types of nonprofit organizations which are exempt from some federal income taxes. Sections 503 through 505 set out the requirements for attaining such exemptions. Many states refer to Section 501(c) for definitions of organizations exempt from state taxation as well. 501(c) organizations can receive unlimited contributions from individuals, corporations, and unions. For example, a nonprofit organization may be tax-exempt under section 501(c)(3) if its primary activities are charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, preventing cruelty to children, or preventing cruelty to animals."

The work Criterion does could be construed as "educational" and "literary" as well as "charitable." Supplements are, for the most part, educational. Restoration work is, of course, literary, as well as charitable, to some extent. If the company could prove that its purpose in selling DVDs is to further film access and to bring new literary expressions (films) to the public, it may have a very good chance at winning a 501(c) exemption. Moreover, it would look even better if it priced its product slightly below market standards. I think it would be hard for the IRS to deny Criterion nonprofit status if they decided to move in that direction. To be sure, the company would have to adapt, adjustments would have to be made, and certain business relationships might no longer be appropriate.
Shrew wrote:The home media market may be shrinking, but it's far from become a profitless wasteland, as Matrix noted. Becoming an NFP would entail massive changes for Criterion and severely limit its ability to release the range of films that it does, and would likely only be a viable solution after the market craters, when any home video business model would fail to turn a profit.
The home media market is indeed not what it used to be. The "big" money that used to be had in the DVD business is no longer. What we have now is smaller companies giving it a go because the larger firms show little interest in chasing a buck in a rapidly shrinking market. On-demand streaming is where the money is right now. And that's not going to change anytime in the near future. Criterion might be able to make a go of it in this changing market or they may not. Time will tell.

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