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LAFF Keynote Speaker Cinedigm CEO Chris McGurk: Production and Distribution Revolution

Photo of Anne Thompson By Anne Thompson | Thompson on Hollywood June 16, 2012 at 1:18PM

Continuing an honorable tradition, CInedigm Chairman and CEO Chris McGurk, who has been around the block a few times, from Disney/Miramax and Universal to MGM/United Artists and Overture Films, gave the Los Angeles Film Festival State of the Independents keynote speech Saturday morning. He sees this year as a watershed transition to digital: we are in the middle of a production and distribution revolution, he says.
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Well, Biskind and others may consider me a suit, but 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.

Looking back, a personal turning point was when I oversaw Disney’s acquisition of Miramax in 1993. This exposed me to those two mad movie men – Harvey and Bob Weinstein – and the passionate world of independent production.

This was what you might call my “sugar water moment.”  

Let me explain. It is part of Silicon Valley lore that Steve Jobs persuaded my old boss John Sculley in 1983 to leave Pepsico and come to Apple, by saying, “"Do you want to sell sugar water for the rest of your life? Or do you want to come with me and change the world?"

Well, I also sold sugar water at Pepsico, and I left for Disney because, at the end of the day, hawking Pepsi was indeed not very satisfying. By the way, if there are any sugar water salesmen out there, please don’t take this personally.

During my first five years at Disney, we released an almost unprecedented string of profitable comedies. These were  all fine, light entertainment, from “Down and Out in Beverly Hills” to “Honey, I Shrunk the Kids” to “Three Men and a Baby” to “Pretty Woman.” A bit like sugar water. When I started working with Harvey and Bob, I was introduced to the more nutritious side of the business.

Independent films challenge us, they make us think … and sometimes they change the world. Just consider these titles: “Farenheit 9/11,” “Brokeback Mountain,” “The Passion of the Christ,”“sex, lies and videotape,” “THX 1138,” “Supersize Me,” “The Terminator,” “Drugstore Cowboy,” “Sideways,” “An Inconvenient Truth,” “The King’s Speech, “Bowling For Columbine”, ” “City of God,” “Precious.” These are all important, varied, distinct, thoughtful films.

Independent films meet a tremendous need for the filmgoing public and society at large. But, in the end, I believe no one needs them more than the major studios.

Like all large organizations, the majors suffer from a great deal of inertia. They gravitate toward what they feel is safe and predictable. Fortunately, this inertia keeps getting pricked by indie films. After a “Reservoir Dogs” comes along, it’s hard for a studio to ever again make a heist film in the same old tired way.

Independent films also provide the majors with a steady supply of premium talent. People like Matt Damon, Paul Giamatti, Vince Vaughn, Jon Favreau, Christopher Nolan and, yes, Woody Allen all got their starts in independent film.

Indie films remain the creative lifeblood of the business, and without regular infusions, the entire industry’s health and vitality will suffer terribly.

So, after working with Harvey and Bob, I stopped drinking the sugar water and directed my career whenever possible toward the indie market. Over the years, I’ve been very proudly involved with scores of indie films, including “Pulp Fiction,” “The Apostle,” “Shakespeare in Love,” “Bowling for Columbine,” “No Man’s Land,” “The Visitor,” “Sunshine Cleaning,” “24-hour Party People,” “Ghost World,” “Hotel Rwanda,” “Saved,” “City Island” and “Capote.”

My current role again has me highly focused on independent film, as chairman and CEO of Cinedigm, an end-to-end digital distribution company for indie content.

OK, I realize I’m talking to a dedicated film audience and, to many of you, the term “digital distribution” represents another world from, if not an outright enemy to, the theater-going experience. Digital distribution is associated with the Internet and DVD and cell phones and tablets and, any day now, chips embedded in our ears and retinas so we can be cyber-connected 24/7. These are some of the trends that previous years’ speakers have cited to support their dire scenarios about the imminent death of the film business.

Well, what they missed is that digital distribution now includes cinema. 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.
 
We are fast approaching a time that, in important ways, is reminiscent of the previous two great flowerings of independent film.

The first was in the late ‘60s and early ‘70s, when movies like “Easy Rider” and “Five Easy Pieces” were being made. Technology was a key enabler of that sea change, thanks to smaller, more portable equipment that allowed films to be shot inexpensively on location.

Then came the second golden era of indie film – the late ‘80s and ‘90s. This, too, was enabled by technology. But this time, growth wasn’t driven by the technology of production, but rather the technology of distribution. On the television front, instead of just three broadcast networks, there were suddenly hundreds of cable channels offering both free and pay services. And, of course, the very same home video technology that the major studios had once fought entered the market in a big way, first with VHS and then DVD and Blu Ray. All of this drove huge demand for high-quality content. And a wealth of wonderful indie films were produced to help meet that demand, like “sex, lies and videotape,” “Roger and Me,” “Clerks,” “Reservoir Dogs,” “My Left Foot” and many many others.

There was one other big factor underpinning those earlier two eras when indie films flourished:  The big studio model was breaking down.

In the ‘60s, the huge overhead of backlot filmmaking was making movies prohibitively expensive, resulting in almost every film backlot being sold off. My own office in Century City was once the site of Fox’s giant lot.

Then, in the early ‘90’s, the cost of studio filmmaking was again getting out of hand. As some of you may remember, in 1991 it prompted my then-boss Jeffrey Katzenberg to write the famous 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.

Now, 21 years later, 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.
 
Plus, of course, as Jeffrey critiqued in his memo, many of these event films tend to be very limited creatively, with most of them being action movies and/or remakes and sequels.

And so, I believe in 2012 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.

One of the great oddities about the film industry today is that as production costs of major studio films have skyrocketed, the actual threshold cost to make a theatrical-quality movie has plummeted.

It used to be that to make a studio-quality film, you needed a studio. Today, equipped with a Red camera and a computer, any filmmaker can cheaply and quickly produce a motion picture suitable for theatrical release.

So, in this regard, the coming Indy Film Renaissance is like the one of the ‘60s and ‘70s, which was driven by lower production costs.  

However, also powering this Renaissance is 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.

As I said, 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. This transformation is taking many forms.

First of all, there is digital distribution into theaters.

In the old days, studios had to manufacture a massive number of film prints in a very short timeframe and physically ship them to theaters across the country and around the world. This could cost in excess of $1200 to get a single print made and into a theater. Now, this expensive and involved process has been replaced by satellite and hard-drive delivery at less than one-tenth the cost.

And this change has happened almost overnight.

In 2008, there were fewer than 6,000 digital cinema installations in North America – that’s less than 15% of the total 40,000 screens.

Now, we expect over 90% of North American theatres to be digital by the end of next year.

Our industry is certainly known for hyperbole, but when you look at the incredible speed of the changeover to digital, you can see why the term “revolution” is not an overstatement.

But, of course, 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.

And, just as there are more ways to distribute content, there are more ways to view it. Hard as it is to believe, the iPhone is just five years old and the first iPad came out only two years ago. Yes, we are indeed in the midst of a digital revolution that is touching every one of us.

All of this means that, just as happened in the ‘80s, there is an exploding demand for filmed entertainment. There is huge competition now going on between all of these 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. This dramatically increases the demand for content, including indie film. And this time, because this demand is driven by digital, we are seeing the rise of distribution strategies that are as creative as the content.

Just look at the film “Margin Call,” which was released 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.

As you can see from Sign Number One and Sign Number Two, 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.

Just look again at “Margin Call,” which starred Kevin Spacey, Demi Moore and Jeremy Irons. Or “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. The list goes on and on.

And the same has been true for major talent behind the camera. In recent years, independent films have attracted such top directors as Ron Howard, Paul Thomas Anderson and Darren Aranofsky, and screenwriters like Scott Frank, Mark Boal and Peter Morgan.

There are a number of reasons for this. The first, which may surprise you, is the dramatic drop in the total number of theatrical films released over the last few years. 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.

Recently, the heads of two of the top five North American theater chains told me, “We need more independent film and alternative content like we need air.”

And there’s a good reason they’re having trouble breathing.

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!

I can just imagine how an exhibitor feels on a Tuesday looking at a state-of-the-art 300-seat stadium theater with four people in it. That’s a lot of empty cup holders and unsold popcorn!

Exhibitors are so eager for independent films to address their capacity problem that, last year, the two largest theater chains – AMC and Regal – jointly created a new indie studio, called Open Road Films.

This article is related to: Festivals, Festivals


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