Digital Cinema Network (DCN) of Australia gained major wins in its much socialized lawsuit against Omnilab Media and former DCN director Michael Smith. Omnilab Media, as previously reported, is a major media conglomerate in Australia, engaging in a wide range of services in content production, post production, and delivery. DCN was to be a startup digital cinema deployment entity. Michael Smith, a board member of DCN and owner of cinema supplier MGS Group, was convicted of violating the Australian Corporations Act by willfully sharing DCN’s confidential draft VPF agreements with Omnilab Media. Mr. Smith also was sited for wrongfully giving permission to Omnilab and Independent Cinema Association of Australia (ICAA) to publicly state that DCN had not been in prior negotiation of virtual print fee agreements. In addition, Mr Smith had negotiated substantial private payments from Omnilab for assigning DCN’s VPF agreements over to them. Omnilab was not given full indemnity as it was judged to be aware of Mr. Smith’s wrongdoing. However, DCN’s request for an injunction against Omnilab’s ability to further negotiate VPF agreements was denied. (Omnilab to date announced the signing of at least one VPF agreement with a major US studio.) Mr. Smith’s violation of the Corporations Act could place him in jail for up to 5 years. DCN is allowed to claim relief from both Omnilab and Mr. Smith, which is pending further resolution.
DCN, operated by Martin and James Gardiner, was well underway in negotiating digital cinema deployment agreements when the misdeeds took place. DCN’s target market is independent exhibitors, of whom most are members of ICAA. ICAA was on the sidelines while the misconduct happened, having thrown its weight behind Omnilab Media as the deployment entity for its members. For DCN to rebuild a position as a credible deployment entity would require ICAA’s endorsement, which it is unlikely to get. This leaves DCN with little more than dated drafts of VPF agreements, and the judgement in its favor that it now received. It took considerable effort on the part of the Gardiner brothers to demonstrate that wrongdoing occurred. Having now achieved that, at least in this decision, all that is left for DCN is to pursue compensation from both Omnilabs Media and Michael Smith. It will not gain its business back.
In putting together its case, DCN left no stone unturned. Depositions were taken from top players in the studios responsible for negotiating deployment agreements, including Richard Aseme, Director of International Distribution in Europe, Middle East, and Africa for Paramount; Julian Levin, EVP Digital Exhibition and Non-Theatrical for Fox; and Nicolas Zylberstein, Director Worldwide Digital Cinema for Disney.
For all the notoriety this case has achieved, there are no real winners in this decision. DCN may be vindicated, and may receive compensation, but it will not be able to conduct business as a deployment entity. Omnilab Media is left with a scar and presumably damages to payout (pending the result of an appeal). Last of all, Michael Smith, not in disregard of the judgement against him, is a long time player in the cinema supply business, whose talents are unlikely to be of benefit to exhibitors for some time.
Fortunately, independent exhibitors will only be ruffled in the wake. While settlement between DCN, Omnilab Media, and Michael Smith remains to be determined, nothing in this decision prevents the Omnilab Media Cinema Services group from moving ahead with its plans to become a digital cinema deployment entity. Its relationship with ICAA should be expected to continue. It’s only barrier to providing independent exhibitors in Australia and New Zealand with VPF-financed digital cinema systems is the completion of its negotiations with the major US studios.
At the time of publication of this report, it was announced that Omnilab Media will appeal the finding that it is guilty of wrongdoing against DCN. There has been no word at this time that Michael Smith will also appeal.