Q & A About NATO's New Cinema Buying Group
By G. 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.