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Cinedigm and its Paradigm Shift

January 2011 by Michael Karagosian

Cinedigm named Chris McGurk as its new Chairman and CEO this month, formally ending the void left behind after the board ousted Bud Mayo from these roles. Chris is an exceptional choice, having been CEO of Overture Films, and a former COO of MGM. Overture, founded in 2007 by John Malone’s Liberty Media, was dissolved in July 2010 after failing to find a suitable buyer. But Chris is a content guy, not a technology guy. His hire clearly shows where the company is heading.

As reported on several occasions in this journal, Cinedigm is the poster child for why a digital cinema deployment entity should never go public. Investors need to be educated in the business model, and deployment activities in and of themselves do not generate the profits that an ordinary investor wants to see. To put a spotlight on it, Cinedigm this month received dubious recognition as a member of the top 5 software application companies with the highest debt-to-capital ratio. While deployment activities are a good way to get a foot in the door of cinemas, one has to be prepared with a plan for how to profit from that relationship. This is not so easy to do. Studios will not allow a deployment entity to lock up the distribution channel to exhibitors, for either keys or content. But in its early days, Cinedigm is said to have had ambitions for both, which wouldn’t have led to a happy surprise.

Following Bud’s exit, it has been apparent that Cinedigm is focused on learning its potential. It took steps to productize its very capable Theatre Management System and backoffice software, but it lost its bid to win a major Australian exhibitor. Europe is teeming with competition, so Latin America appears to be its best bet for growth. But Latin America is a slow market for digital cinema, and may not produce the results a public company needs to see.

It’s easy to see why McGurk would make an excellent hire. His legacy at Overture is that he made a small budget studio appear as a big player. McGurk has an understanding of both production and marketing, bringing a degree of executive experience to Cinedigm that it hasn’t had up to now. The company can present a plausible story to the street, and build from there.

McGurk’s lack of experience in technology may have little impact on the company’s direction. The likely step for Cinedigm is to jettison its software division, while negotiating rights for continued use of the software until it completes its deployment obligations.

The evidence of change should be enough to get the wolves excited. Who would a likely buyer be? If the next wave of software for cinema follows the “cinema in a box” model, then the likely buyer could be Vista Entertainment Solutions, based in New Zealand. Cinedigm announced a pact with Vista a year ago for international distribution of its software. The next question, of course, is what’s the price?

Filed Under: Deployment Entities Tagged With: Cinedigm

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