Just last week, Shooting Gallery founder and Sling Blade producer Larry Meistrich announced his return to the movie business with Film Movement, a mail-order club offering subscribers new American independent, foreign, and documentary films on DVD. Never mind the reported million dollars in debt, snubbed vendors, and hundreds of employees and handful of films left in the lurch when the Shooting Gallery collapsed in June 2001; Meistrich believes, according to the company's Web site, that his new venture can flourish by providing underserved audiences with undiscovered films straight to their digital disc players.

When Madstone Films launched in 1999, the start-up independent film studio dreamed of an all-digital future: a slate of DV features from untapped talents and a "Digital Distribution Network" of 50 screens around the country to showcase their discoveries (as well as alternative programming such as concerts and fashion shows). But since the company kicked off, production has been limited to the recently completed Rhinoceros Eyes—and as for exhibition, old-fashioned celluloid still reigns.

"I'm still confident that digital projection will happen," says Chip Seelig, founder and co-CEO of Madstone, the first exhibitor to purchase a digital projector. "It's just that the cost of the projectors hasn't gone down nearly as fast I would have hoped." (According to Seelig, the price tag remains at roughly $250,000.)

The venture has since reverted to more traditional means. In April, Madstone acquired New Yorker Films, the venerable 38-year-old distributor, along with its library of more than 500 titles. "This has given us stability," says Seelig, a Goldman Sachs veteran. "Our original intention was to build our acquisition business from scratch, but it's much easier to take over and meld with another company."

After a bid to buy bankrupt art-house theater chain Landmark fell through in 2001, Madstone's distribution network (sans digital) has also finally picked up speed. In addition to booking the Screening Room downtown with second-run indies like Monsoon Wedding, Madstone Theaters, the company's exhibition arm, is currently operating six-screen art-house multiplexes in Cleveland, Denver, the Raleigh-Durham area, a suburb of Phoenix, San Diego, and Albuquerque, with Ann Arbor opening up later this month and at least three additional venues by year's end, according to Seelig. "We've got a theater chain that's doing well and it works fine in a 35mm format."

In fact, buying and renovating defunct theaters outside of the A-list art-house cities, where hundred-thousand-dollar newspaper ads are unnecessary, has proven to be Madstone's most successful endeavor. "I can open in four or five cities around the country for what it costs for me to open a film in New York and Los Angeles," says Seelig.

"What we're trying to do for exhibition," explains Tom Brueggemann, Madstone's senior vice president and film buyer, "is a little bit like what Miramax tried to do 10 years ago by pushing specialized film out of the art-house ghetto." Also reviving the early days of indie-film exhibition, the theater chain is mounting local promotion efforts (an in-house DJ recently kicked off 24 Hour Party People in Denver), and because of the number of available screens, they're able to sustain a movie's run and in turn generate word-of-mouth. Such targeted approaches have worked so far: Bollywood pictures Devdas and Mujhse Dosti Karoge lured Indian audiences in Cary, North Carolina; Spanish-language films fill slots in the Southwest; and second-run American indies (Diamond Men) and Hollywood classics (Citizen Kane) are finding audiences, according to Brueggemann.

Ira Deutchman, founder of Cinecom and Fine Line Features, is also returning to "the old model," he says, "of using grassroots publicity and a membership mentality to put films in places where you don't have to spend ad money to get a modest audience." But Deutchman's new independent studio Emerging Pictures is closer to realizing Madstone's original vision of a "digital distribution network": Starting in small cities, he plans to take cultural institutions and performing art centers and outfit them with digital projectors—supplied at low cost by manufacturers eager to show off their equipment—and tap into mailing lists of existing art-minded residents.

"Our contention is that if we can string together these various institutions and supply them with digital files rather than prints concurrent with their major city releases," explains Deutchman, "not only is the theater in Scranton going to screen the same flawless copy of the film, they're going to show it when all the publicity hits." The company already has an alliance with the League of Historic American Theaters to house their digital projectors and interest from distributors Miramax and Sony Pictures Classics, and foreign film promotion bodies such as Unifrance and British Screen to supply the venues with content. Deutchman will set the project in motion this November at the New Brunswick State Theater complex in New Jersey and hopes to have 40 more locations on the Eastern Seabord within the next 18 months.

While Seelig and Deutchman both see digital projection as inevitable, they agree it will take time, mostly because Hollywood doesn't have much to gain. "The studios are purposely trying to slow down the shift to digital," says Deutchman. "Once a theater can show anything, it's not dependent on 35mm and the barrier of entry is not as difficult. The studios no longer have a stranglehold."