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

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

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.

It is pasted in full below.

Good morning. I want to especially thank Sean McManus and Josh Welsh, the co-presidents of Film Independent, for inviting me to speak here today.

I want to thank Sean and Josh … but I really don’t know if I can.

You see, in preparing for this talk, I read through the keynotes that were delivered at the last few Festivals. When I was done, I felt like I wanted to shoot myself. Virtually all of those keynotes were so depressing that, to cheer myself up, I threw on a DVD of “Cries and Whispers.”

Each of the previous speakers pretty much said that the world of independent film was coming to an end. One noted indie producer who keynoted a couple of years ago literally stated, and I quote: “The sky really is falling.”

He went on to say:  “The accumulation of bad news is kind of awe-inspiring.”

So, Sean and Josh, I’m not really so sure I can thank you for inviting me to speak at this historically rather glum keynote session.

Of course, the LA Film Festival is hardly unique in hearing such messages of doom about the film industry. If you listen to a lot of the so-called experts, you will be convinced the end is nigh.

In this regard, these negativists are actually following in one of the grand traditions of the movie business. For 100 years, Hollywood has thrived to such an extent that today Entertainment is America’s second greatest export. But, throughout this century of success, the only thing Hollywood has done better than building an industry is predicting its imminent demise.

Back in the 1920s, Mary Pickford prophesized that “Adding sound to movies would be like putting lipstick on the Venus de Milo.”

In the 1950s, film executives were certain that television was going to destroy motion pictures.

Two decades later, in one of history’s great ironies, Disney and Universal sued Sony Electronics in an attempt to stop home video from becoming a reality. Luckily for the studios, the U.S. Supreme Court ruled in favor of Sony.

The resistance to home video was still so great that, by 1989, Disney was planning to put “The Little Mermaid” back into the vault for seven years before ever releasing it onto VHS. Talk about a long window!

I was Disney’s CFO at the time and had to argue long and hard to put “Mermaid” on video the following year. This decision helped fuel a complete resurrection of the art and commerce of animation, with “Beauty & the Beast,” “Aladdin,” “The Lion King,” “Toy Story” and so many more great animated titles that followed.

And now, the naysayers are again foreseeing disaster. They list a wide range of disturbing trends, such as:
•    The competition from entertainment in the home and on mobile devices.
•    The drastic reduction in the number of independent studios because many have gone out of business while at the same time the big studios have shuttered their indie units.
•    And, most troubling of all, there’s the decline in the DVD business, which has hurt indie films particularly hard.

Like the prophets of old, these doomsdayers seem to be proclaiming the Seven Signs of the coming Indie Apocalypse.

To be sure, the issues they raise are legitimate. But, just as industry observers have done so many times before, I believe they are letting some recently overturned trees obscure the view of a cinematic forest that is filled with opportunities.

So today, I’m not going to be another speaker who talks about the ruination of the independent film business. Rather, I’m going to talk about what I see as the Seven Signs of its Renaissance.

With this in mind, if you’re one of those people who has the latest Mayan Calendar app on your smart phone and believe it’s all over this December 21st, then it might be more to your liking to head around the corner and take in a screening of “Chernobyl Diaries.”

But before I deliver this message of hope, I should give you some of my background. I believe it will help assure you that, while I may be up here interpreting signs, I’m a pretty grounded guy. Indeed, no one would ever mistake me for a Pollyanna.

I’ve spent the last 25 years in virtually every aspect of the entertainment business. I’ve been involved in financing, marketing and globally releasing entertainment projects as diverse as big budget blockbusters, low-budget films, social action documentaries, horror pictures, and network and syndicated TV series.  

In doing all this, I’ve had a pretty unusual career, since I’ve seen the film business from BOTH the big budget studio side and the indie side.  I was President of Walt Disney Studios, President and COO of Universal Pictures, Vice Chairman of the Board and COO of MGM.  And, I’ve also run or been responsible for overseeing Miramax, October Films, the indie version of United Artists, Overture and Anchor Bay.  

In all these roles, I do admit I’m a tailor-made candidate for what you might call a corporate suit, with a pretty cold eye toward the bottom line.  

That’s certainly my reputation:

Just look at how Peter Biskin described me in DOWN AND DIRTY PICTURES, his 2004 treatise on the indie film business: -quote- “McGurk had been an executive at Pepsico before coming to Disney, and he was a numbers guy, almost the definition of a suit, with a Grant Wood face, long and narrow, thin lips. He looked like he belonged behind the counter of a dry goods store in Nebraska at the turn of the century.”

Let’s just say that those two sentences wiped out years of effort on my part to convince my three kids that their Dad was cool.

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.

But if exhibitors want to really fill their lungs with the fresh air of independent film, I believe they’re going to have to consider revising some of their policies. Until now, exhibitors have uniformly opposed narrowing the window between the time movies are first released in theaters and the time they go out on DVD. I agree that this window should stay firm for wide-release studio movies. However, it is actually in the interests of exhibitors to now allow shorter windows for those indie films that are released on only, say, 250 screens. These films need quicker transition to ancillary markets in order to survive.

So, exhibitors have a choice: They can either stick to their current policies and, as a result, not get these smaller films at all because most will go straight to DVD … or they can adopt a more flexible approach and open up their doors to a whole new stream of independent content.

Which brings me to the Fifth Sign of the Indie Renaissance: Narrowcasting.

The fact is that, for the right program and the right price, those empty seats can be filled and that popcorn can be sold.

Everyone’s talking about 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!

I saw it. It’s a great film and it deserves all of its success. But 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.

For example, 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.

For distributors, instead of spending millions on blanket TV ads and billboards, we can target our messages much more efficiently, so that every marketing dollar has a high probability of putting a butt in a seat or a download in the cloud.

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.

Now, I realize that there are those who think that the business side of the movie industry is crass, and that auteurs should just be free to do their thing. But, even with today’s reduced production costs, film is still the most expensive art form on the planet … unless you count the $10 million being spent to lift a big rock into the air at LACMA, but that’s another story.

Other artists just need to afford the cost of their canvas or clay, and then they can go create their art in solitude. By contrast, independent filmmakers need hundreds of thousands or millions of dollars, along with the collaboration of many other talented people in order to express their 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.

I know, I know … time and again, we’re told by the Sky is Falling folks that film is an antiquated experience that’s being crowded out by all the new entertainment options that keep emerging.

But think about it: When you see someone and are looking for a conversation topic, what do you typically ask – “Have you seen any movies lately?” Invariably, you get one of three answers:
•    I saw “The Avengers” and loved it.
•    Or – I saw  “The Artist” and hated it.
•    Or – No, there’s nothing in the theaters I want to see.
I maintain that all three answers are positive for our business, because all three embody the emotion we feel for movies. We either love them or hate them or we wish there was a film in release that would draw us into the theater so we could either love it or hate it.

Yes, 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. As all eight signs are predicting … an Indie Renaissance is indeed on the horizon.

On that note, I can now officially say, thank you Sean and Josh for inviting me … it really has been a pleasure speaking here today.

Thank you very much.
And now, if there are any questions…

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