Cinedigm CEO Chris McGurk broke from the traditional gloom and doom many Los Angeles Film Festival keynoters have expressed regarding the future of showbiz. Noting that one previous speaker said, “and I quote: “The sky really is falling”, McGurk pointed out that “the only thing Hollywood has done better than building an industry is predicting its imminent demise.” Once again “doomsayers seem to be proclaiming the Seven Signs of the coming Indie Apocalypse” but McGurk said he sees “the Seven Signs of its Renaissance” — thanks to lower production and distribution costs because of the “digital revolution.” Despite having what he described a reputation as being “a suit” he said “I think I’ve actually become somewhat of a softie in regard to at least one aspect of the film business. Somewhere along my corporate ride in Hollywood, I fell in love with independent film.” McGurk sees enormous targeted opportunities for filmmakers, distributors, marketers and exhibitors. And variety that can satisfy broadly different kinds of people who love movies.
Summarized and paraphrased, here is McGurk’s speech:
My current role again has me highly focused on independent film, as chairman and and CEO of Cinedigm, an end-to-end digital distribution company for indie content. Digital distribution is a godsend, McGurk maintains, and not the enemy as some content.
“It is estimated that by the end of THIS year over 80% of theaters in the U.S., and over 60 percent of theaters in the world will be digital. For you, the audience, the big advantage of digital theaters is that every print is as pristine as the ones that studio executives see in their screening rooms. And those digital prints will ALWAYS remain that way. No more movie experiences where the images are so scratched, the entire movie looks like the climactic scene in The Shawshank Redemption.
But, digital goes way beyond improving the look of films. It will soon be key to delivering a far greater and more vibrant variety of content into theaters.
The studio system deteriorated in the 1960s because the huge overhead of backlot filmmaking was making movies prohibitively expensive. Expenses soared again in the early 1990s resulting in 1991′s Katzenberg Memo, which cautioned against what he called the Blockbuster Mentality that was driving runaway production costs. He was motivated to write the memo because of the enormous budget of the Disney film, Dick Tracy, which cost a grand total of … $46 million.”
These days, the major studios consider $46 million an arthouse budget. Tentpole film productions routinely run $250-$300 million, with marketing costs to match. As a result, even major blockbusters are only generating single-digit returns. And when one of those films tanks, the write-offs can be devastating, and we have seen a couple of instances of that recently.
There a signs that this business cycle is once again repeating itself, setting the stage for the Seven Signs of the Renaissance of Independent Film, which I would now like to share with you.
Sign Number One: The Production Revolution. High-resolution digital cameras and computers mean that the cost of of making a theatrical quality movie has plummeted.
Sign Number Two: The Distribution Revolution
Just like the indie boom of the 80s and 90s, new forms of distribution are central to the coming resurgence. Digital is the friend and not the enemy of the filmgoing experience. It has done much more than give you scratch-free prints. It is also the enabler of Sign Number One – the drop in production costs. And it is underpinning Sign Number Two, which is completely transforming distribution.
First of all, there is digital distribution into theaters. Massive numbers of film prints — at $1200 a pop plus freight charges — are no longer necessary. The process has been replaced by satellite and hard-drive delivery at less than one-tenth the cost.
The impact of digital distribution goes far beyond the theaters … and into the home and mobile platforms. There is cable and satellite Video on Demand, Amazon, iTunes, Xbox, Hulu, Vudu, Netflix, TVOD, AVOD, FVOD, SVOD, regular VOD — All those VOD acronyms that everyone talks about and very few understand what they really mean.
This “digital revolution” means that, just as happened in the ’80s, there is an exploding demand for filmed entertainment and huge competition among digital retailers. It’s an “arms race” to ensure that each one has a high quantity of high quality content to drive viewership, whether ad-supported, subscription-driven or transactional.
Margin Call as a landmark example. It wasreleased last October 21 on just 199 screens. That same day, it was also released on VOD, allowing in-home viewing for about $8. Two months later, it was put out on DVD. The movie cost $3.5 million to make and took in $4 million on VOD, $5 million in domestic theaters and another $5 million internationally. So it was solidly profitable before it even went into other ancillary markets… something that rarely happens with major studio releases. Margin Call provides a glimpse of the kinds of distribution opportunities that are now available for independent films.
The coming renaissance of indie film will be advanced by the same driver that propelled the first one in the ’60s – lower production costs – and also the same driver behind the second one in the ‘80s – expanded distribution platforms. That’s an incredibly powerful combination.
On to the third sign: Big Talent is Into Small Films. There’s been a very interesting phenomenon underway recently. Bigger and bigger stars are willing to make smaller and smaller films. In addition to Margin Call, which starred Kevin Spacey, Demi Moore and Jeremy Irons, there’s Bernie with Jack Black, Shirley MacLaine and Matthew McConaughey, or Hysteria with Maggie Gyllenhaal, or A Dangerous Method with Keira Knightley and Viggo Mortensen or Melancholia with Kirsten Dunst or the upcoming 360 with Jude Law and Anthony Hopkins or The Paperboy with Nicole Kidman, John Cusack, Zac Efron and Matthew McConaughey.
Major talent behind the camera is also attracted to indie production, including directors such as Ron Howard, Paul Thomas Anderson and Darren Aranofsky, and screenwriters like Scott Frank, Mark Boal and Peter Morgan.
One reason is the dramatic drop in the total number of theatrical releases. In 2010, about 100 fewer movies with budgets above $1 million were produced than in 2008. This is almost a 25% decline. Unavoidably, fewer movies result in fewer jobs. Talent at all levels has to look beyond the major studios for work.
Secondly, the emphasis on big budget comic book films has actually reduced the demand for big name actors. When you’re counting on Thor to open a movie, you don’t need Tom Cruise.
Third, actors want to, well, act. So, even if they get a high-profile part playing a Marvel character, they often still want to take on the challenge of something less … muscular. So, many are willing to take serious pay cuts for the chance to play a more complex, challenging and less mainstream role.
All of this increases the viability of independent films.
Then there is the Fourth Sign of the Indie Renaissance: Exhibitors want independent films … desperately. Less than 5% of seats are occupied in theaters Monday through Thursday … and only about 15% on an annualized basis. Yes, over a 12-month period, movie theaters are 85% empty! This resulted in the two largest theater chains – AMC and Regal – forming a new indie studio, Open Road Films.
Exhibitors also will need to be more flexible about release and DVD windows. Blockbuster franchises need a longer theatrical window, but indie films that are released on a few hundred screens need quicker transition to ancillary markets to survive.
Which brings me to the Fifth Sign of the Indie Renaissance: Narrowcasting. For the right program and the right price, those empty seats can be filled and that popcorn can be sold. He cited the record-breaking performance of The Avengers. An incredible 22 million people in the U.S. and Canada saw the film during its first week. But that leaves 323 million people who didn’t!
There are a whole lot of people who aren’t so excited about watching highly pain-tolerant men save the world. They are instead interested in a wide variety of other subjects that they’d like to see up on the big screen. Look at the success of live, digitally-delivered productions of the Metropolitan Opera, which have been booked into targeted theaters near where opera-lovers live. Or, at the other end of the branding spectrum, there is the Kidtoons series, which our company distributes, that are targeted to children and their families and play exclusively at weekend matinees.
The creative possibilities are endless: Action sports series, comedy nights, educational extension programs during the day, ballet, Broadway and other cultural programming, and so on. The idea is to fill seats by precisely aligning content with avid audiences in a communal setting.
In essence, the strategy is to program a targeted digital theater footprint by day and daypart almost like a TV network.
And it doesn’t have to be top-down programming. There are innovative new services like Tugg, Gathr and Cinedigm’s own crowd-sourcing platform that allow people to vote online for content they’d like to see in theaters. Once enough people sign on, the movie is booked and seats get filled.
All of this will require a modification of expectations on the part of filmmakers. They have been conditioned to believe that getting “validation” for their films requires a release into more than 500 screens. That model rarely works anymore because it’s very unlikely there will be a financial return on the cost of the big national TV media buy that’s required to support such a wide release.
The new narrowcast release strategy, combined with the kind of creative windowing we saw with Margin Call, will get filmmakers access to more eyeballs under an economic model that is more likely to generate real rewards.
Of course, narrowcasting won’t replace blockbuster filmmaking. The 20 million people who want to see Avengers 10 during opening week can still get their fix. But there are millions more who want something else. And they want to see it together in a theater. We can give it to them.
The Sixth Sign of the Indie Renaissance complements the Fifth: Targeted Marketing
Once you narrowcast into a theater, it is invaluable to then use targeted marketing to make the right people aware that the right programming for them is in their local theater.
And the best tool for doing this is social media.
Or, let me put it this way – Those of you who bought the Facebook IPO, hold on to your stock. Social media is still the future.
And movie marketers have a big advantage in this space. Just consider old-fashioned TV commercials. Nowadays, millions of people speed through them on DVRs. However, there’s one kind of commercial for which viewers regularly hit the stop button on their DVR – ads for upcoming movies.
This is because everybody hates commercials, but everybody loves movies. That’s why people stop to watch the spots for upcoming films. And that’s why people will also stop what they’re doing on a computer or mobile device to click on an appealing piece of movie marketing.
And that brings me to the Seventh Sign of the Indie Renaissance:
More dollars … and, by the way, more euros and yen and pounds and pesos and rubles. Because, make no mistake about it, the same hopeful signs that we are now seeing at work in this country are at work around the world.
I’m sure you’ve all heard the truism that cinema exists at the intersection of commerce and art. Well, I’m originally a numbers guy and, in our business, there’s a foolproof equation: More commerce equals more art.
So, if you like the art of film, you should like anything that helps the commerce of film. And that’s what all of the other six signs of the Indie Renaissance do: They help generate more of the money filmmakers need to make films.
• The first sign makes it cheaper to shoot a film,
• the second makes it easier and more efficient to distribute a film on multiple platforms,
• the third brings in bigger stars to act in a film and better writers and directors to create it,
• the fourth addresses exhibitor demand for independent film,
• the fifth makes it possible to narrowcast a film into high-yield theaters,
• and the sixth allows for targeted marketing directly to the people most likely to go see a film.
All of these add up to a more profitable business, which inevitably adds up to a more productive and expanded business. Which means that, as in the first golden age of independent film that started in the late ‘60s and in the second one that started in the late ‘80s, all of you movie lovers will have more movies to love at the multiplex … or on your TV or your computer or your iPad … or other devices yet to come that will provide even more digital canvasses for today’s cinematic artists.
Because we’re dealing with a bright Renaissance and not a dark Armageddon, I’m going to depart from apocalyptic tradition and add an eighth sign.
It’s really nothing new, and that’s why it’s so important. I hinted at it when I was talking about marketing, and it’s simply this: People love the movies.
This is why the Oscar broadcast is still one of the highest-rated shows every year.
This is why magazine covers still feature movie stars. This is why, even with our big-screen high-def, surround-sound TVs, we still want to go out to watch a movie in the dark with a bunch of strangers who BOND with us over the film… laughing, crying, being scared together … in a social experience that is almost tribal in nature.
So, I will confidently predict that we are about to see cinema history repeat itself yet again. In the past, whether it was the arrival of sound or TV or home video, each time new technology came on the scene, it was initially viewed as the enemy. Instead, each time it led to new paradigms of success. I am confident that the same will be true of digital technology … and the sky will continue to remain right up there where it belongs.