Maybe we’ve been watching too much reality TV. Maybe we’ve collectively started to care more about our fellow human beings. Maybe we’re sick of Hollywood. Whatever the underlying case, the past few years have seen a substantial rise in the number of documentaries being produced, particularly documentaries that focus on social issues. The percentage of documentary releases compared to total films has increased, with the trend gaining traction around 2004 (all figures for this article come from Box Office Mojo, unless otherwise indicated).

For committed filmmakers, new technology has made it easier and cheaper to create beautiful stories. For social activists, documentaries add a compelling narrative element to their struggle for social change. Film festivals buzz with exciting new non-fiction stories. Yet for the average filmgoer, the growing number of documentaries may fail to register amid Hollywood’s blockbusters. The percentage of box office revenue from documentaries remains minimal, representing only 1.7 percent of all movies at its highest peak in 2004.

This observation should raise some questions. Given their relatively small budgets and even smaller profit margins, why are more and more documentary films being made? It’s likely that there’s no single explanation, but our research explores a number of factors that contribute to the growth in documentary production. To address this seeming contradiction, we turned to a variety of data sources.

Unsurprisingly, our findings weren’t clear cut. Documentary film, like many entertainment industries, is undergoing massive shifts in terms of production, distribution, and consumption. Though these platforms will continue to evolve, we’ve noticed a few patterns and trends that paint a clearer picture of today’s landscape and provide direction for the future.

One important observation is that documentaries exist outside some of the same market forces that govern Hollywood blockbusters and larger independent films. Because documentaries often seek to benefit the broader public, they can generate alternative revenue streams through grants from foundations and NGOs. Searching records from the Foundation Center we found that in the period from 2002-2011 there were about $70 million in grants made to documentary filmmakers with a median grant size of $50,000–a significant source of funds in this low-budget field. While 2007 saw 81 grants awarded, totaling over $7 million, there were only 36 grants awarded totaling $4.5 million in 2011. Outside of these institutional funds, filmmakers have turned to crowdfunding platforms such as Kickstarter and Indiegogo to help cover production costs.

Among film distributors, documentaries have recently found strong support among a variety of independent backers. Newer distribution companies, including IFC and Magnolia Pictures, have emerged during the past decade with strong track records of backing documentaries. In some cases, documentaries have generated large revenues for the companies, even outperforming their fictional counterparts. Documentaries have regularly accounted for more than 30 percent of Magnolia’s revenues while representing only 18 percent of their portfolio. In 2011, IFC released only seven documentaries, but these films generated 70 percent of the distributor’s revenues.

The past few years have seen a substantial rise in the number of documentaries being produced.

Although large and mid-sized distributors drive the market for high-grossing documentary films, the overall increase in the number of documentaries is attributable to even smaller, independent companies such as First Run Features and Zeitgeist Films. Since 2000, 80 percent of all documentary films have been released by small distributors that average less than $1 million in revenue per film, yet these same distributors only account for 20 percent of documentary film’s total revenue.

These two sources of funding and distribution, while important, ultimately fail to account for the discrepancy between the increasing number of documentaries and the flat revenue streams. At a certain point, documentary films still need to generate revenue. As Sylvester Stallone once said, “There’s a reason they call it show business, not show art.”

This is where emerging distribution methods, such as online streaming services and video on demand (VOD) provide an important source of income. Initial signs are promising. At the end of 2011, market research firm In-Stat reported that revenues for on demand video are expected to double by 2015. Citing an increase in the penetration of connected televisions and the presence of leading digital companies, including Amazon, Netflix, and Apple, In-Stat and others expect revenue to greatly increase in the short term. Although it’s reasonable to expect that the usual hits and blockbusters (Hollywood comedy Bridesmaids is often cited as the most successful VOD release in recent times) will account for most of this growing pie, this low-cost distribution method may favor documentary filmmakers working within “the long tail” of less popular, special interest content.

Still, getting a clear picture of this space has thus far proven difficult, due to the proprietary nature of the data. For example, Netflix does not widely release streaming numbers or the details of their deals with distributors for competitive reasons. Completing this puzzle with more rigorous quantitative evidence will reveal details of financial dynamics within the long tail.

So, what can filmmakers and producers do?

Though the process of making and distributing documentary film isn’t straightforward (and never has been), recent academic and market research in the film industry provides some starting points. The latest work has begun to take changes in distribution and consumption into account. Writing in the Harvard Business Review, Harvard Business School professor Anita Elberse offers analysis and advice to filmmakers working in a connected, digital world. Specifically, she questions whether or not producers should invest in the long tail.

Elberse, who studies both music and film distribution, concludes that investing in the long tail isn’t a viable strategy for producers, whose business continues to be driven by hits and blockbusters. In some cases, digital distribution has even increased the gap between the most and least popular titles. Elberse observes that “from 2000 to 2005, the top 10 percent of weekly sales dropped by more than 50 percent—an increase in concentration that is common in winner-take-all markets.”

For those working at the end of the tail, Elberse’s advice is pragmatic: keep costs as low as possible because the odds of success are long. This wisdom will sound familiar to documentary filmmakers who have long had to make the most out of tight budgets.

Yet, by considering the problem only from the point of view of the Hollywood producer or retailer, Elberse fails to address how and why most documentary filmmakers make their films. In many cases, filmmakers are more concerned with social impact rather than financial success. In these situations, filmmakers often start without funding from a major producer or distributor, and instead raise funds throughout the filmmaking process from a variety of sources, such as grants and increasingly, crowdfunding platforms.

Making money from—let alone finishing—a documentary remains a great challenge, but their evident proliferation over the past ten years should encourage cautious optimism for the future. The long tail may not hold large profits, but it contains the seeds for influence and impact.

Image: Still from Food Inc./Magnolia Pictures