Market Failure or Public Good?

What the Nonprofit Cinema Ecosystem Does

Photo by Tommy Lau

In my previous post I offered a perhaps oversimplified formula illustrating the basic conditions responsible for the existence of the US Nonprofit Cinema Ecosystem. To repeat:

Late stage capitalism + minimal federal arts funding + nonprofit tax code

=

US nonprofit cinema ecosystem

It’s an attempt to provide a quick and dirty answer to the “Why?” of it all: Why does this sector exist in the first place?

Here I want to dig a bit more deeply into the WHAT. What does the US Nonprofit Cinema Ecosystem (AKA USNCE) do? What are the unique functions of these mission-driven orgs and funders? What role does it play in the context of a market-driven entertainment industry?

The answer we often give is “market failure.” It’s shorthand for a case we make for the nonprofit sector writ large, that it exists to step in and provide the things the market fails to when left to its own devices. In the case of the United States, it can also stand in for failure of government to cover the essential needs of its citizens.

Even though the word “failure” is a knock on the market, I also think that it implies a second-tier status for the nonprofit sector. “Failure” suggests that market-driven success is the gold standard, and anything that relies on tax-exempt donations to sustain its business has missed the mark. I don’t personally love the terminology. My experience on the board of The Roxie Theater turned me into a big believer in the benefits of a healthy mix of earned (box office & concessions) and contributed (donations) revenue. Providing myriad ways for stakeholders to support an organization is good business practice; for a community-driven independent art house cinema, for example, donations are how a community demonstrates its support and enthusiasm. So perhaps we do away with “market failure” and instead focus on “public good:” after all, that’s what the tax exemption is for in the first place.

With that frame in mind, I think it’s useful to parse out the functions of the USNCE in an attempt to build a shared understanding that can then help shape conversations about its current and future role in a rapidly shifting independent cinema industry. Each one of these is a subject worth much deeper exploration on its own, which I look forward to shepherding in the future. But, for now:

Risk capital

I’ve often said (and others share this view) that philanthropic capital is the most extreme form of risk capital there is. The IRS provides tax incentives ostensibly to motivate the transfer of capital from a person that has more than they need (or can at least spare a little bit) to an entity that is performing a social good. Nobody is relying on a financial return on investment from charitable donations to pay their kid’s college tuition, home mortgage, or medical bills. The financial benefit is built in, guaranteed, and divorced from the market performance of the recipient organization or project.

With this pressure off, philanthropy can fund experiments that have very little to no current market value but possible future market uptake. Pilot tests can help take ideas from the white board into the real world, test hypotheses, and gather data. Learnings are incorporated into the design and decisions are then made if there’s a market “there there.”

Distribution Advocates FilmADE fund is a prime example of this type of activity in the cinema landscape. Distribution used to be where an independent filmmaker could derive a healthy income from the marketplace, but massive disruption has rendered that pathway much less lucrative nowadays. Distribution Advocates uses grants to support experiments in the present to spur healthy market-based distribution revenue for filmmakers in the future. FilmADE grants to run distribution experiments with future market potential, requiring grantees to share learnings via comprehensive case studies that benefit the field at large. Their work has inspired other funders such as Ford Foundation and Perspective Fund to also support distribution experiments, so we can look forward to a lot of learnings coming from this space in the upcoming months.

Creative independence

Imagine a world in which movies only came out of the corporate entertainment industrial complex, with the half dozen studio heads that have held those jobs for decades greenlighting projects they determine “the market” wants. In the nonfiction space, we would be served up a steady diet of self-executive produced celebrity docs, true crime series, and maybe – if we’re lucky – a film about a musician. The vast majority of these would go straight to streaming and the space for “cinematic nonfiction” (my love language) would shrink to near nonexistent.

Maintaining a protective shield from market pressure around a film for as long as possible - from development, through production, and even beyond – via grants and nonprofit artist support (see below) can help nurture artist visions deemed “risky” or “out of the mainstream,” and, for some, nonprofit film festivals (also, see below) become the first opportunity for these works to meet an audience. I could name so many examples, but here’s a recent one I’m connected to: what major studio exec or streaming doc division head would’ve said “yes” to Brittany Shyne’s pitch over 10 years ago when she embarked on the project that would become Seeds: a two-plus hour, lyrical, black-and-white immersion into the lives of Black farmers in the southern United States? A film that screened around the globe in 2025, picking up award after award, and landed on the Oscar Documentary Shortlist. Lucky for us, a collection of nonprofit funders and individual donors said “yes,” because they wanted this first-time feature director and her team to realize a unique creative vision, trusted they could pull it off, and believed there would be an audience who would love it.

Artist support

As far as I can tell, the bulk of filmmaker support and development happens in the nonprofit sector. Seems the financial ROI for labs, fellowships, training, networking and community-building just isn’t there, so market-driven entities aren’t incentivized to devote resources to these activities. Nonprofit organizations often form as interventions, addressing lack of opportunity for artists from underrepresented populations by fostering community and career pathways. Initiatives that center artist affinity such as women and gender nonconforming, BIPOC, Indigenous – just to name a few – specifically work to provide resources and mentorship to bring these filmmakers’ stories into existence, and one day shift the balance of the industry at large.

I put “artist-led professional support networks” in this category, too. The past 10 years has seen the rise of organizations like Brown Girls Doc Mafia, Fwd-Doc, the Documentary Producers Alliance, and A-Doc, among others, that are either standalone 501c3 organizations or fiscally-sponsored projects that can take tax deductible donations to power the work they do for their members and the field at large.

Distribution

My first encounter with the doc film world took the form of an introduction to Diana Barrett in May 2014. Some readers may recall Diana as the founder of the Fledgling Fund, a private foundation that from 2010 to 2019 made grants to documentaries in support of their impact campaigns. I suspect other organizations and individuals engaged in similar work long before Fledgling’s launch, but in my mind that date signals a moment when the idea to use philanthropic dollars in service of film distribution that includes social, legislative, or cultural change goals really started to catch on. The Global Impact Producers Alliance history is also, in large part, the history of how impact producing came to be.

Because the goals are primarily mission-driven, impact campaigns are almost entirely funded by grants. Both film-focused organizations like Perspective Fund as well as “issue funders” (groups that work in the domain that the film addresses, like climate, reproductive rights, racial justice, etc.) support the work with the belief that engaging with the story will move the needle on the issue presented in the film.

While impact may not look 100% like traditional distribution, they both use a lot of the same tools to reach audiences, such as theatrical exhibition (including four-walling), direct-to-audience platforms such as Gathr and Kinema, and placement on other streaming services. In a time when traditional distribution pathways for independent film are becoming scarcer and less remunerative, I’m curious if philanthropic capital will play a larger role in distribution: both in supporting issue-based change and in the broader public good of indie cinema writ large.

Exhibition

My totally unscientific hunch is that the vast majority of film festivals – especially regional and special-interest fests – are nonprofits or programs run by umbrella 501c3 organizations. It seems the bigger and more “market-driving” they get, the higher likelihood they are corporate entities, with one major exception being Sundance. For some percentage of independent films, their festival run is their theatrical run, which means that portion of the film’s distribution is subsidized by US taxpayers.

Another absolutely unverified guess is that over three-quarters of US independent arthouse cinemas are nonprofits. In a time when megaplex theater chains are struggling and shuttering, more eyes are on these standalone cinemas as the keepers of the in-person movie-going experience in communities across the country.

Notable here is that professional organizations supporting festivals (Film Festival Alliance) and art houses (Art House Convergence) are also – you guessed it! – nonprofits.

Extremely Imperfect

This is as good a place as any to wrap up this little tour of the USNCE. Like the system itself, what I’m sharing here is imperfect, but I hope it is at least helpful in getting a conversation started. I’ve refrained from evaluating the work (there’s plenty of time for that) in service of describing it. I believe it’s important to have clarity about the WHAT before engaging in an analysis of the HOW.

The beauty of this exercise is that this picture can continue to develop over time with your input. So, tell me: does this resonate with you? Is there something missing? This is a funder-driven analysis; if that’s not your perspective, how do you see it? Please share your thoughts in the comments. Thank you!