| Digital Deal
Imminent: Independents Get Strength in Numbers |
| by Kendrick Macdowell |
| NATO Vice President, General Counsel and Director of Government Affairs |
| |
I want to talk
about digital cinema for independent theatre operators—and it may be the
last time I do so. Matters are moving to resolution, and you’ll be on
the digital bus, or not. If you have a friend operating an independent
theatre, who does not yet know what he or she plans to do with the
advent of digital cinema, please do them a favor, and pass along this
column.
I have nothing
to sell and no money to make or lose in the digital market. I can’t
predict what will happen in two, five, or ten years (except that it
probably won’t be what anyone predicts). But I can certainly urge you
take steps—sooner rather than later—to ensure that you’re equipped to
exhibit digital movies.
By the time
you read this column, the Cinema Buying Group-NATO (CBG) will have
issued a Request for Proposals (RFP) to all interested digital vendors.
Managing Director Wayne Anderson hopes to obtain bids from interested
vendors and complete the process of selecting a digital vendor for CBG
members this year.
Please note:
once a vendor is selected, you may not be able to join the CBG and
participate in the digital deal negotiated for CBG members—at least not
on the same terms.
I have to ask
myself—why would an independent theatre operator not join the
CBG? A few possible responses to that question warrant scrutiny.
First, you may
have already arranged to procure digital cinema equipment and service on
fair terms. If so, and if you are reasonably certain of your ability to
anticipate all your needs, obtain Virtual Print Fees, and negotiate a
better deal than CBG members will get, then Godspeed, you do not need
the CBG.
Second, you
may have joined with other independent operators in another buying
group, and thereby obtained some enhanced negotiating and buying
strength in numbers. I have not heard of any such buying group. If I
knew of any other credible buying groups or cooperatives, I would
certainly tout them along with the CBG. The point is to bring something
more to the table with numbers. If you have a way to do that apart from
the CBG, then you may not need the CBG (though at 4,000 screens and
growing, I doubt any other group of independents will acquire equivalent
strength).
Third, you may
not like the fact that the CBG is now a NATO program. I’ve actually
heard this one once or twice, and it frankly mystifies me. CBG
management asked to become a NATO program and CBG members voted in
overwhelming numbers to come back into NATO because insurance and
related legal and accounting costs would have been crippling without the
NATO umbrella.
Moreover, the
CBG program enjoys substantial autonomy. The program has its own
separate bank account, administrative functions, office location and
management authority. NATO is legally required to exercise some
oversight—for example, ensuring that CBG financials are included within
the NATO audit process. But such fiduciary-mandated oversight is simply
an extra level of protection and comfort for everyone, not a NATO
usurpation of CBG decision-making authority.
The people
running the CBG program are independent theater owners and operators
like yourself. Their interests are perfectly aligned with yours in
terms of procuring the best possible digital deal for independents.
They have skin in the game. If they don’t obtain the deal from heaven,
it won’t be for lack of enormous motivation, integrity and competence.
Fourth, you
may be shy about signing the CBG Participant Agreement because you don’t
want to be tied down and surrender the flexibility to respond to market
opportunities. I can understand that anxiety. Some very sensible
people have shared that concern. Let’s talk about it.
Most
importantly—and I cannot emphasize this enough because the contrary
misconception seems to have remarkable sticking power—nothing whatever
prevents you from simply quitting the CBG at any time. CBG cannot force
you to take a digital deal you don’t want.
Let’s get into
the weeds of the CBG-NATO Participant Agreement. Section 6(g) contains
rules specific and unique to the acquisition of digital cinema
equipment. Subsections 8, 9, and 10 contemplate three different ways to
reject participation in the digital cinema part of the CBG-NATO program:
(1) Join the
CBG as a “new participant”—but opt out of the special digital rules.
That way, you can participate in the buying program for everything
except digital cinema.
(2) Be a full
CBG-NATO participant—but then later decide you don’t want to participate
in the digital part of the buying program. That is, you still want to
participate in the CBG-NATO buying program (for things like bulbs), but
you don’t want to be bound by the special digital cinema rules. So you
petition the Managing Director to opt out of Section 6(g).
(3) Quit the
CBG altogether.
Importantly,
nothing prevents you from quitting CBG-NATO at any time.
When we
crafted the CBG Participant Agreement, and particularly the rules
pertaining specially to digital cinema, we sought to strengthen the
negotiating and buying power of the Managing Director to the maximum
extent possible, consistent with the best interests of all CBG-NATO
participants.
Unlike the
on-going purchase of xenon bulbs, candy and other theatre supplies,
digital cinema is a one-shot, time-sensitive, third-party-financed
transaction that is critical to the survival of independent theatres.
The only way for independent theatres to have a shot at a good digital
deal is for Wayne Anderson to know how many screens he is bringing to
the table and to be secure in negotiating accordingly. So we sought to
avoid the fatal circumstance of multiple members getting involved just
long enough to learn confidential information, then quitting and cutting
separate deals—whereupon Wayne would be cut off at the knees and unable
to fulfill commitments to third-party financers and vendors.
We want to
avert the dire scenario of a fragmented and vulnerable independent
community. Nevertheless—can’t say it often enough—you can always just
quit the CBG. If you quit, you’re still bound by the confidentiality
provisions so that good-faith, dues-paying CBG members are not exploited
or abused.
If you’ve got
digital covered some other way, well done. Otherwise, there are strong
reasons, we believe, for all independents to join CBG-NATO and stick
with it through the digital transition.
CBG-NATO Contact Information
Cinema Buying Group-NATO
Attn: J. Wayne Anderson or David Phillips
c/o R/C Theatres Management Corp.
P.O. Box 1056
Reisterstown, MD 21136-7056
Phone: 1-800-416-0077
Fax: 410-526-6871
wayne@rctheatres.com
davidp@rctheatres.com
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