Digital player sells electronic distribution biz to Technicolor

Seeking to reshape alternative content in theaters, digital cinema programmer-distributor Cinedigm announced on Wednesday an important deal to help it refocus on its new strategy.

Cinedigm aims to become primarily a programming provider, with its content debuting in theaters but then heading to ancillary markets such as VOD, homevideo and TV.

“We think we’re taking the best of the television model, which is recurring programmatic presentation, and taking the best of the film release model, focusing on categories that have robust ancillary potential,” Cinedigm chairman-CEO Chris McGurk told Variety.

To support Cinedigm’s new focus, it has agreed to sell its physical and electronic distribution business to Technicolor, including at least 300 satellite roof rights deals with Cinedigm’s current and future exhibitor customers.

“As the market moves towards electronic delivery, roof rights for satellite delivery become increasingly valuable,” said Technicolor CEO Frederic Rose.

Cinedigm had been third in the d-cinema distribution business, trailing Technicolor and Deluxe.

Sale is expected to close in September. Financial terms were not disclosed.

“The delivery business was a non-core business for us,” McGurk said. “We’re cutting a deal with Technicolor that we think strongly supports the two growth businesses that we’re focusing all of our energies on — our software and alternative content.”

Among Cinedigm’s strategic plans in alternative content: themed “channels” for alternative content as well as subscription pricing for theatrical event series; regional and niche programming; and an indie film channel.

Cinedigm will face competition from several other alternative content distribs.

For years, NCM Fathom, thanks to the success of the Metropolitan Opera, has maintained a stronghold on the alternative market — last year NCM had 40% of the alternative market share, with 2010 earnings at $48 million from 74 events. Other players include Screenvision, Rave and Microspace Digital Cinema.

Overall, alternative programming grew 50% from 2009 to 2010, according to Screen Digest, but the total gross for all alternative content last year was $112 million — about the same as one mid-sized summer tentpole.

Cinedigm’s pact with Arc Entertainment (Daily Variety, July 26) is a step is a step toward boosting content via its indie channel.

McGurk said that with d-cinema deployment set to pass 50% in the U.S. and Canada, a critical milestone has been crossed.

With studios making fewer films, and uncertainty in the indie film business, he said, “(Exhibitors) want more alternative content now.”

That marks a sea change from the early days of d-cinema, when exhibs dismissed alternative content.

In those days, theaters were getting a fatter stream of studio pics and plenty of indies. Now, said McGurk, theaters are currently selling just 5% of their seats Monday through Thursday. “Just moving the needle a little bit,” McGurk said, “could create a gigantic new business.”

McGurk said domestic box office is about $11 billion, even with less than 20% total capacity in use. Thus each additional percent of utilization represents $110 million. “And that doesn’t even take into account the ancillary revenues from that content,” he said.

McGurk said he sees three success factors for the alternative content business.

•Do recurring events, not one-off events. The success of the Met in movie theaters is one example, he said, of recurring programming that is thriving in theaters. “We’re saying Monday night is a destination night in theater,” said McGurk.

• Choose programming categories that can thrive in ancillary markets.

• Make network arrangements with exhibitors. Under Cinedigm’s model, exhibs will share in ancillary revenue, including VOD.

McGurk said Cinedigm is “deep in negotiations” with major chains on its network proposal and expects to announce his first deals with circuits in 30-60 days. “We want to get going on all this by the fourth quarter,” he said.

As for the studios, McGurk says they are “neutral to positive” on Cinedigm’s strategy.

“What we’ve seen is that the studios understand that putting that content in there and strengthening exhibition financially is only going to help them, because it takes the pressure off the relationship between exhibitors and studios, in terms of the studios being the sole supplier of product and trying to fill all that unused capacity,” he said.

The Technicolor deal clears the decks for Cinedigm to focus on programming while Technicolor expands its digital distribution biz and becomes Cinedigm’s preferred provider for post services.

Claude Gagnon, president of Technicolor Creative Services, said, “For us (the Cinedigm deal) is very important because we’re going to reach over 90% of digital cinema sites with satellite connectivity in the U.S. and Canada.”

Cinedigm is also building up its software business, which focuses on d-cinema management tools. Under their pact, Technicolor will license Cinedigm’s CineSuite digital production software and CineXpress, Cinedigm’s tech for delivering trailers to theaters via broadband.

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