Screen Australia released the latest figures for the 2011 Australian cinema box office this week. Unsurprisingly, it was dominated by major Hollywood studio films. The top box-office performer was none other than the final instalment from golden wizard, Harry Potter and the Deathly Hallows Part 2, which took $52.6 million, followed by Transformers: Dark of the Moon with $37.5 million and The Hangover Part II with $32.7 million.

Forty-four Australian titles were released. They accounted for $42.9 million of the $1.09 billion in total box-office takings. The top Australian film was Red Dog, which came in 11th with $21.3 million.

“Last year we had some great achievements with Red Dog leading the way. But the other notable performance that deserves praise is Bob Connolly’s and Sophie Raymond’s feature documentary Mrs Carey’s Concert, which took over $1 million at the box office to become the fourth highest grossing documentary of all time,” Fiona Cameron, Screen Australia’s acting chief executive, wrote in the presser. Cameron also pointed to the critical acclaim achieved by Julia Leigh’s Sleeping Beauty, which screened in competition at Cannes.

Overall, though, the general picture for the box-office popularity of Australian features remains one of niche interest. Across the past decade, Australian features have rarely captured by than a one-20th of the general motion picture audience in this country, despite the significant subsidies spent on production by Australian taxpayers.

Some in the media will no doubt jump to conclusions. You’ve heard it all before: Aussie films are boring, or depressing, or too arthouse, or whatever. Actually, as Screen Australia has argued, with some statistical support, Australian features punch above their weight given their typically small production and marketing budgets, and the fact that few if any Australian films can genuinely compete in the blockbuster market populated by the likes of Transformers and Harry Potter.

In fact, the most interesting current trend for Australian features is at the other end of the market, with more and more small arthouse features being made for niche audiences.

There was a welcome ray of sunshine this week in just this segment, with the announcement that four of the major Australian film festivals will collaborate to market local features seeking to find niche releases. With dedicated subscriber bases and an email list approaching 100,000, the Adelaide, Brisbane, Melbourne and Sydney film festivals together represent perhaps the best available audience development resource for local releases.

According to the Adelaide Film Festival’s Katrina Sedgwick: “Arthouse Australian films can really struggle to get audiences, and yet in the context of our festivals, Australian titles that we world premiere are almost always the first to sell out.”

Sedgwick explains to Crikey that “there are quite a number of very good films that can’t survive” in the current distribution and exhibition model, in which, as Greg Jericho recently pointed out, the vast majority of box-office takings flow to cinemas and distributors, and not to producers and filmmakers.

“We’ve all worked very, very hard to develop strong and loyal audience bases, and they’re also people who are active participants in film culture, they come and see a lot of work each festival,” she said. “Our average audience member comes and sees eight films, so we’re talking about committed people to film culture. So the plan is to leverage the cultural subsidy that we get to get those audiences mobilised, into the cinemas, and engaging with Australian film culture year round.”

The new initiative will begin by supporting two films: Jim Sharman’s Warhol biopic Andy-X and Closer Production’s acclaimed documentary about choreographer Tanja Liedtke, Life in Movement.

“We aren’t distributing, we are working with the distributors,” Sedgwick clarified. “What we’re bringing is communication to a cinema-friendly audience at no cost. It’s something we’ve been dabbling in for a while, we worked with Madman for the South Australian release of Exit Through the Gift Shop and it worked extremely well.”

Sedgwick argues that by working this way, the effect is to encourage a national simultaneous release for a film, particularly in the arthouse cinemas in the four capital cities, which has been a difficult deal for many releases to seal.

“I suppose because all of us are pretty closely aligned with the films that we all love in our festivals, we can tell the kinds of titles that will benefit from our support, so we can approach them on a case-by-case basis, and then I think that what will happen is that distributors will start to approach us,” she added.

Sedgwick believes the business model for cinema is undergoing radical transition, driven by video-on-demand.

“Inevitably these models are going to shift and change as video-on-demand kicks in. We really need to get cranking here for arthouse titles of day-and-date release. It’s working very well with IFC in the US, they buy in American and international arthouse titles and they have five cinemas across America, two in New York, one in LA, and some in other capitals. They release theatrically and video-on-demand on the same day, and it changes how the pieces of the pie get cut up.”

Sedgwick tells Crikey that Animal Kingdom producer Liz Watts has just come back from a Churchill Fellowship exploring the IFC model of day-and-date release. “She’s got some solid factual evidence that it’s very beneficial for the exhibitor to do day-and-date releases.”

Sedgwick says “there’s still a huge amount of concern here from exhibitors about that model, there’s a belief that it’s going to take away from the theatrical audience”, but these fears are largely groundless. “It’s been shown again and again internationally that that’s not the case. But we’re still stuck in the old mould here, and we need to get cranking into the future fast.” She argues once the NBN comes online later in the decade, “things will really shift”.

Sedgwick points out that Mrs Carey’s Concert was distributed by the filmmakers themselves. “So that’s a really different model,” she argued. “The ecology of the industry is going to shift, and that’s going to be a really healthy thing. In the long term I hope it will benefit producers, investors and funders a little bit more, because in parallel, budgets are going to come down — a lot.

At the same time, we will have to rethink models of distribution and really accept that we do no have a natural, hungry, large cinephile audience in this country, and the audience needs to be led to the work in a lateral way, and that is going to require subsidy.”

It’s a bracing vision of the future of the industry. Sedgwick is stepping down in her role as the Adelaide Film Festival’s director, where she has been a long-term and successful leader of the local scene. “I’ve got two more weeks here. I’m doing a handover with Amanda Duthie who I’m really excited about coming in,” she said, not being drawn on where she’s headed next: “It’s still in flux.”

“It will be a year of significant change and I’m really ready for it, I need to be thrown into the deep end somewhere else.”