How Cinedigm is leveraging its business model to build new cross-border audiences
Chris McGurk, Chairman of the Board & Chief Executive Officer at Cinedigm
People under 35 are watching less traditional TV and accessing more digital content. That’s old news, but it’s too early to throw in the towel for TV content. Did you know that there is now higher collaboration and strategy between traditional television and online distributors? By the end of 2017, there were approximately 120 million aggregate over-the-top (OTT) subscriptions in the U.S. OTT refers to the delivery of content through the Internet or mobile broadband, and more brands are finding ways to leverage this service to provide niche content to niche audiences for higher subscription numbers and profit margins.
Take pro-wrestling, for example. World Wrestling Entertainment (WWE) launched its first streaming network in 2014 in order to further engage with their viewers. “Back in 2012 and 2013, we started doing research among our fans, and we found out pretty quickly that WWE fans were consuming a lot of digital content online—about five times the national average,” Michelle Wilson, WWE co-president, told Adweek last year. The WWE network today has almost 2 million paid subscribers.
“There are so many OTT content opportunities, and we see that marketplace growing to the over $60 billion over the next few years,” says Jeffrey Edell, chief financial officer of Cinedigm. “Those will be the platforms where a majority of content will reside.”
Cinedigm’s over-the-top content business model
As one of the largest independent studios and a leading content distributor in the U.S., Cinedigm boasts a library of tens of thousands of films and TV episodes from a number of brand-name suppliers, such as Hallmark Channel, Shout Factory, Scholastic, Corus Entertainment, Discovery, The National Football League, The NHL, among others. And given the recent Bison Capital investment and relationship, they are seeing even more opportunities for growth. “Cinedigm, right now, is an independent full-service distributor of content across all platforms,” says Edell. “We can take a piece of content and put it into a movie theater on platform release basis, or make deals on the physical side [DVD and Blu-rays] for all the Amazons, Targets and Walmarts of the world. At the same time, our focus is to also license the content to streaming platforms like Netflix and Amazon, or make deals with downloadable platforms like iTunes and inevitably our own OTT channels.”
While Cinedigm’s current method for content licensing and OTT distribution remains profitable, Edell is aware of the lost opportunity cost. “Currently, we are becoming more proactive in our business model, where in the past we would take other people’s content and license it. In the future, we would like to have more control over the content and ensure we can obtain the digital rights at higher margins, says Edell. “At the end of the licensing period, the content generally reverts back to the licensors, and in the future we may want to take better advantage of owning copyright if we can, while not posing a huge financial risk to the company.”
Cinedigm, as with many other distribution companies, is trying to put the OTT and digital aspects of their business at the forefront. “We are moving toward co-financing, co-creating, and actually owning copyrights when we can, to some of the content that we’re creating,” says Edell. “We could then release it on our own OTT channels for a premium to garner higher viewership, and then roll it out to other aspects of our distribution business. That’s one of our important goals.”
The playing field and viewer accessibility to various types of content have changed drastically since the arrival of digital content and distribution. With a plethora of outlets and low-cost solutions to producing content, more brands like Netflix and Hulu, that once used to simply host content, have become successful in making their own award-winning original entertainment.
Tapping into Chinese content
As part of the 8th Beijing International Film Festival in April, Cinedigm announced its cooperation agreement with six Chinese film content providers. With plans to launch a U.S. OTT channel dedicated to Chinese content, Cinedigm is confident in answering a demand for streaming Chinese content to a niche audience. “The ability to deliver films and other programming directly to audiences whenever they want to view them, at whatever time they choose, on whatever device they prefer through digital streaming, is a catalyst that is revolutionizing entertainment,” says Chris McGurk, chairman and chief executive officer of Cinedigm. “It’s the ideal way to begin to change global perceptions of Chinese entertainment and culture.”
In addition to Asian Americans being the fastest growing population segment in the U.S., comprising about 20.5 million people, Nielsen found that Asian Americans are also some of the earliest adopters of new ways of viewing content. Fifty-one percent of Asian American homes had streaming devices, such as Apple TV, Roku, Google Chromecast, and smartphones connected to TVs, which is the highest penetration percentage of all racial and ethnic groups in the U.S.
“The end goal is to have a two-way connection,” says Edell. “We want to showcase China in a more favorable light and present content that’s more appealing to American and Asian populations that exist here in the United States.” Cinedigm plans to also have a U.S.-based OTT channel launched this year for China that could appeal to the U.S. marketplace, and in the future, Cinedigm would also like to have an OTT channel in China to showcase mainly American content.
Cinedigm has so far successfully launched a number of Chinese films that resonate in the U.S., such as “Ip Man,” “Aftershock,” and “Extraordinary Mission.”
Future of digital and what it means for companies like Cinedigm
“Netflix and Amazon are spending billions of dollars on new original content,” says Edell. “They’ve gone from leveraging companies, like Cinedigm, as a runway, until their own content could be produced internally and distributed on their platform.” Digital streaming content today is being made by the companies that once hosted them, and Cinedigm is no exception. “Our goal is to create and distribute more prominent independent films and shows that can fit within certain genres—such as westerns, sports, or family-friendly content—that we can co-finance and take co-ownership of their copyright if possible,” adds Edell. “Once we establish the content for each of these genres, the viewership will follow.”
Striking a balance in their business model remains a priority for Cinedigm. “We’re trying to put OTT and other digital aspects of our business at the forefront of the revenue stream, but that doesn’t mean we’re going to discontinue the traditional methodology of distributing physical content since there is still a great opportunity out there,” says Edell. According to a study by Morgan Stanley, while consumer adoption of Internet distribution is growing, the vast majority of U.S. households still consume TV through traditional bundles, in addition to OTT apps. Licensing content and selling DVDs are still profitable, although Edell believes that, over time, the physical business side will continue to shrink as digital and streaming OTT grow into the primary mode for distribution.
Cinedigm currently has launched five OTT channels in distribution including DOCURAMA, ConTv, Dove and Dove KiDS, and Wham! a new and exciting e-sports and e-gaming channel. In addition to announcing their first exclusively Chinese streaming channel in the U.S., Cinedigm is actively participating in the gold rush to establish digital content.
–This article first appeared on Reach Further, East West Bank’s digital news magazine covering U.S.-China Business.
