2010 will witness the rebirth of the deployment entity. Over the years, the concept for how to operate a deployment entity has sharpened. Some deployment entities have renegotiated agreements to better meet the needs of the market. With the credit markets loosening up, and exhibitor appetite increasing for conversion, the action in digital cinema will move to the deployment entities over the coming years.
A few factors have changed the temperament of exhibitors. Many converted a few screens to 3-D, and learned that digital cinema works. They are learning the value of having an all digital complex as digital cinema increases the flexibility for scheduling. And they don’t want to pay out-of-pocket for conversion of a full complex. Better to get the studios to chip in.
Sony and GDC are also prominent deployment entities, but discussed elsewhere in this report.
Digital Cinema Implementation Partners (DCIP) announced the completion of $660M of funding for the rollout of digital cinema at AMC, Cinemark, and Regal. The financing arrangement will pay for approximately 10,000 screens. Collectively, the exhibitors own 16,000 screens, so a second round will be needed. In addition, Cineplex of Canada would like to join in, adding another 1300-1400 screens.
The DCIP deal has been described elsewhere in mkpeReport: http://mkpereport.com/2010/03/dcip-finally-announces/.
Arts Alliance jumped into the lead in Europe by signing up 790 screens with UK-based Cineworld in June, more than doubling AAM’s screen count to approximately 1540. Simultaneously, it announced closing of €50M in funding through Sankaty Advisors, LLC, a fixed income and credit investor.
UK-based Arts Alliance Media has several operations, including funded deployment, promotion of alternative content; digital cinema mastering, distribution, and theatre management and back office. It has systems in UK, France, Italy, and Spain.
Arts Alliance Media is a division of Arts Alliance, with sister company Arts Alliance Productions. Arts Alliance’s founder, Thomas Høegh, is a venture capitalist with holdings in various online and storefront ventures.
US-based CBG is a buying cooperative organized under the National Association of Theatre Owners (NATO). CBG is not a deployment entity, as it does not have deployment agreements with studios. (But we include it in this section anyway.) CBG has agreed to purchase systems through Cinedigm.
CBG’s primary purpose has been to educate and shuttle exhibitors to Cinedigm. Considering the large number of small exhibitors that CBG services, this is no doubt a valued service to Cinedigm.
The distinction between working directly with Cinedigm and working with CBG is a fine one. CBG touts that its members will generate weekly VPFs for their screens. However, the concept of recouping CBG systems separately from other Cinedigm systems is not a healthy one. By moving in such directions, NATO has focused more on the political value of CBG than the actual monetary benefit to its members.
If fair deployment of digital cinema systems to US exhibitors was the goal, then NATO would have pushed its major members to include the smaller members in their deployment deals. Having failed that, the best NATO can do is attempt to look like its doing something to help its smaller members. CBG is that effort.
With little fanfare, Bud Mayo, founder of the company, stepped down as Chairman in June. Taking over as co-CEOs are Adam Mizel and Gary Loffredo. Adam Mizel has served as Chief Financial Officer and Chief Strategy Officer since 2009. Adam remains the only employee required to publicly state company ownership, owning over 5% of the company. Gary Loffredo has been with Cinedigm since 2000, serving as SVP Business Affairs and General Counsel.
Cinedigm is the poster child for why a digital cinema deployment entity should not be a public company. While it now will support exhibitor financing, most of its deals require it to carry equipment debt on its books. It continues to wrestle with its debt, having recently refinanced it.
In spite of its cozy relationship with CBG, Cinedigm has been slow to sign up exhibitors in its Phase 2 program. Projector companies complain that they waltz exhibitors in the door, only to find that details of its deployment deal turns them away. Cinedigm is often accused of burdening exhibitors with excessive fees. To see what would motivate a deployment entity down this path, it’s useful to understand that only certain revenues are counted by studios towards the recoupment of equipment costs. If one is operating a business to generate profits, they will look for ways to increase revenue that’s not counted towards recoupment. That’s where the fees come in.
Cinedigm remains the only deployment entity in the US that is open to working with the general population of exhibitors and is not operated by an equipment company.
Digital Finance Limited
Ireland-based DFL is a pure-play digital cinema deployment entity in Ireland and the UK. It has signed agreements with four major film studios. Like Film & Kino, its approach for Ireland has been to convert the entire country. Unlike Film & Kino, DFL will do so without the benefit of government monies.
DFL is somewhat unique in that its only purpose is to finance digital cinema equipment. Its roots are in Avica, which originally set in motion the effort to convert Ireland as a country. Digital Cinema Limited, the original Irish entity set up to deploy systems, now functions as a service provider to DFL for installations and network operations.
Film & Kino
Norway’s government is unique, and in many ways envied, in having the ability to subsidize a digital cinema rollout plan that will include all of the country’s cinemas. Film & Kino, the Norwegian cinema association, has signed deployment agreements with all six US majors. Studios will only contribute around 40% to equipment costs.
UK-based Odeon Cinemas have announced digital cinema deployment agreements with five major studios: Disney, Fox, Paramount, Universal, and Warner. Plans are to complete the digital rollout roll-out in 2012 to its approximately 1450 screens.
Belgium-based XDC has had roots in the digital cinema industry since its inception, having been spun out of EVS Broadcast, who owns 47% of the company. XDC has an installed base of approximately 750 screens and a committed screen count of approximately 1500. In May, XDC closed a €50M funding deal with BNP Paribas Fortis Bank. The company has deployment agreements with all 6 US major studios.
XDC offers alternative content and digital cinema mastering services, and employs its own TMS and server in its systems. XDC does not build its own media block, instead buying from 3rd party supplier Mikrom.
France-based Ymagis is becoming an important deployment entity in Europe. It’s CEO, Jean Mizrahi, was the former CEO of Éclair Group, described as Europe’s largest independent film house. The company has signed deployment agreements with all 6 US major studios, allowing it to operate in 10 countries. Ymagis does not carry equipment debt on its books, instead requiring the exhibitor to carry the debt. The exhibitor either self finances, or finances through a bank introduced by Ymagis.
The company is sparse in its other offerings. It provides content mastering and distribution services, but does not have its own TMS. It does not offer alternative content or maintenance services.