Channeling Cinedigm: Focus on core strategies includes exhibitor participation
It has been a busy time at Cinedigm Digital Cinema Corp. since Chris McGurk joined “the global leader in the digital-cinema industry” as chairman and chief executive officer in January 2011. “From a strategic, operational and financial standpoint, fiscal 2011 was an outstanding year,” he noted during the quarterly report in June. During its tax year ending March 31, 2011, the company reported “strong fiscal operating results” with increased consolidated revenue and adjusted EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) of 15.8% and 20% to $79.9 and $45.4 million, respectively.
Also substantially up—“a multi-exhibitor record for the company,” in fact—were signings of more than 1,400 screens during the first three months of 2011, bringing the total number to 119 exhibitor partners.
In our May edition, McGurk championed the potential of digital content to our readers, and he continues to focus on that promise. “There is too much emphasis being put on this whole battle between exhibition and studios about windowing and other things like 3D,” he tells Film Journal International today. “Instead of so much tension,” McGurk’s idea for “that partnership between exhibition and distribution [is] making sure that we have economic models out there where both sides can make money and be healthy. That is a big, key difference in our strategy and really, really important right now at this critical point in the business.”
In addition to signing several content agreements that have already brought the likes of Sarah Palin in the doc The Undefeated, Foo Fighters shaking the rafters in 3D, and nothing short of the world’s Life in a Day to theatres nationwide, Cinedigm negotiated software agreements with American Multi-Cinema for its Exhibitor Management Solution (EMS) and for the domestic deployment of Cinedigm’s Theatrical Distribution System (TDS) at Warner Bros. Entertainment. The most momentous deal involved Technicolor acquiring the assets of Cinedigm’s physical and electronic distribution business, including satellite connectivity to some 300 movie theatres.
“As Technicolor takes over our delivery pipe, so to speak, our hard-drive business and satellite delivery,” McGurk advises that Cinedigm will continue “to distribute all of our alternative content going forward” through that same network. “Technicolor is just a great, great partner and I’ve known the folks over there for a long, long time,” he says, singling out the trio of Dave Elliott, Curt Behlmer and Claude Gagnon. “They are the perfect partners for us. Technicolor can be our ‘big brother’ in the delivery space because of a larger footprint and market share and because they have built great relationships around the world.” For McGurk, the international market “represents another whole area of growth for our software and technology.”
McGurk also struck an agreement for joint software design between the two companies, which “will help us expand our software business pretty dramatically.” The collaboration covers both licensing and marketing of Cinedigm’s existing digital distribution/management platforms and the development of next-generation products. “I think our software technology and content distribution married with their expertise, contacts and technology is a great alliance and very good things will come of it. On both those fronts—content distribution and software development—the deal supports our strategy very clearly.”
Theatre owners and operators are still very much part of that strategy, McGurk assures, and good things will come to them too. “Right now, the tools that we developed for exhibition are more of what I call ‘operational software.’ Using the digital platform, it enables them to run their theatres, both on an individual basis and from a circuit level, in a much, much more efficient manner. When they buy our Theatre Command Software,” he explains, “they can effectively run their entire complex off of an iPod—all their trailer play, library management, everything.”
Looking ahead at what’s in store, McGurk believes the “next phase” of development will involve the ticketing and marketing sides, and mentions audience analytics and collecting data as examples. “Who is my audience and how can I market to that audience in a more clinical, precise manner? That is the second generation of tools that we are looking at…the tools that make the most sense for both exhibition and distribution going forward.”
McGurk also expects Cinedigm and Technicolor to forge more partnerships on that front. “It would be nice to ultimately have one with a major exhibitor and another one with a major studio.” In that respect, he calls the recent agreements with AMC and Warner Bros. two “very notable” and “big deals going in that direction.” As for the reasons, he notes that while Cinedigm did not take AMC Theatres digital (DCIP-Digital Cinema Implementation Partners did), the circuit selected Cinedigm software to run the show. “Gerry Lopez and his team at AMC are viewed very much as one of the more progressive exhibitors from a management and systems standpoint. The fact that they selected Cinedigm as an overall enterprise software solution was like receiving the ‘Good Housekeeping Seal of Approval’ from the second-largest chain in North America.” He feels similarly proud of the agreement with Warner Bros. on the distribution side. “They are the largest studio and they are viewed as extraordinarily progressive in terms of being on the cutting edge of software and technology.” In McGurk’s view, “Dan Fellman and his entire team selecting us to jointly develop distribution software” is another endorsement for Cinedigm.
McGurk’s plans for expanding the Cinedigm content business have received enthusiastic support as well. That includes new ideas about alternative content, expanded programming and even feature films. “I said from the beginning that we were going to be in the indie film business. We know exhibitors want more of that content category because they are getting fewer movies from the studios and a lot of the indie suppliers have gone out of business. Yet there is a glut of independent film product just sitting out there that needs a theatrical release. Every exhibitor I’ve talked to has said, ‘The more films you can get me, the merrier.’ And we’ll be doing this under a new model where, for the first time, exhibition is cut in on our share of the back end.” In other words, theatres who are part of the Cinedigm Network will actually participate in profits created in ancillary markets, if they are Cinedigm’s to share. “This is the right way to run the railroad,” McGurk declares. “The product is there, exhibition wants it and we think we have a new model that can really make it work for indie films.”
What about making alternative content work? McGurk still has not found a better name for a term he feels is ill-defined. “I’m telling you again,” he reiterates, “I’m trying…very hard, but the term is so engrained out there. When you look at the whole alternative-content arena to date, most of what was done—with the notable exceptions of The Metropolitan Opera and our own Kidtoons program—has been more like one-off events, be it concerts, sports or other special presentations, little indie films and promotions. The two successful exceptions that have worked use a different approach. Going forward, that ‘channel-like’ approach to programming different times at theatres with the same type of content is really the way to build a sustainable business.”
In creating those thematic channels, McGurk expects to implement two main strategies. “You are going to see seasonal programming like opera, and some on an ongoing annual basis with one presentation of new content every month.” One such program that Cinedigm is in conversations about is an “action-sports channel” presented by a branded sponsor. “Every first Tuesday or Wednesday of the month, for instance, you’d show a full-length action-sports presentation, such as a movie or a live event. Some of it might be in 3D and/or have an interactive component between the audience and the action-sports star of the show. The following three Tuesdays or Wednesdays, you would repeat the show and then you’d have a different event,” he envisions. “There is enough content so that we know we could program for two-and-a-half years at least.
“We got the plan in place,” he continues, “making sure that we have the capability to launch all this. We are looking at some merger and acquisition opportunities in the space that can help accelerate the process, but we do have our plan to grow it all organically as well. We are not trying to do this like the wide-release film business where you grab 2,000 to 3,000 screens,” McGurk chuckles. “No, we’re talking about a targeted approach where we try to pick the 250 to 1,000 best screens that are most appropriate, geographically and demographically… You know there is a very avid audience that wants to go see that type of content. So that you know you are going to fill that theatre up.”
Hand-in-hand with that comes “precise marketing, viral, with social media and whatever kind of subscription list that you and your potential brand partners might have developed.” The idea is to reach the audience in a “much more efficient way,” as opposed to spending “tens and tens of millions of dollars on TV media in much more of a shotgun approach.” Cinedigm wants “to be much smarter and clinical about finding the audience that will go see this programmatic alternative content on a recurring basis. That is the crux of our approach.”
And sharing the rewards in the process? We just had to make sure and ask McGurk again. “I really think that cutting exhibition in on the back end of any content that debuts in their theatres is the absolute right thing to do,” he happily obliges. “First, this acknowledges that theatrical is the marketplace that basically sets the pricing for product in the ancillary markets. Theatrical is absolutely vital to making sure that content has a robust after-market. Because of the awareness and publicity created, the theatrical release is worth its weight in gold. When you release anything theatrically, it enhances its value and makes a cut above other product that doesn’t go to theatrical. Number two, sharing revenue aligns incentives in the right way. If exhibition knows that they are getting cut in on the downstream, they are going to do the right thing for that content in their theatres.” He mentions trailer play, displaying posters and promoting the product on circuit websites as examples. Most importantly, “in the case of indie films where it is so important that they’ll get a chance to breathe,” he hopes, “exhibitors will show them a little while longer because they are participating in the ancillaries that will be generated.
“Whenever you are having any kind of partnership in trying to launch a new business,” McGurk concludes, “to have the incentives aligned between exhibition and distribution is the right starting point. It doesn’t exist right now between exhibitors and other content providers like the studios.”