Digital Cinema: Transforming The Moviegoing Experience
Bud Mayo, Chairman/CEO
Digital Cinema Destinations Corp.
ACG New Jersey Breakfast Meeting
November 16, 2010
Notice
Statements included in this presentation, which are not historical in nature, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act''). Forward-looking statements include
statements that are predictive in nature, which depend upon or refer to future events or conditions, which include words
such as "expects'', "anticipates'', "intends'', "plans'', “could”, “might”, "believes'', “seeks”, "estimates'' or similar
expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or
growth rates), ongoing business strategies or prospects, and possible future actions, which may be provided by the
management of Digital Cinema Destinations Corp. d.b.a. Digiplex Destinations (“Digiplex”), are also forward-looking
statements as defined by the Act. Forward-looking statements are based on current expectations and projections about
future events and are subject to various risks, uncertainties and assumptions about Digiplex, its technology, economic
and market factors and the industries in which Digiplex does business, among other things. These statements are not
guarantees of future performance and Digiplex has no specific intention to update these statements. This presentation
shall not constitute an offer to sell nor the solicitation of an offer to buy the common stock nor shall there be any sale of
securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under
the securities law of any such state.
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and purport to offer, tax, investment, regulatory, accounting or legal advice, and this information should not and cannot
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inaccuracies or errors in such information and all analysis is considered preliminary. Valuation, borrowing availability,
and projected results are subject to a more thorough examination of historical and current financial information.
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Film Exhibition
Industry
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Film Exhibition Overview
• Film industry still dominated by major studios
− Major studios distribute ~82% of domestic films (Fox, WB, Disney, Universal, Sony,
Paramount)
− Mini-majors represent ~13% (DreamWorks, Lionsgate, Summit, Weinstein, MGM)
− Content is key driver with studios seeking strong franchises for revenue growth
• Exhibition industry remains strong
− Over 39,000 total screens in the U.S. with top ten theatre circuits operating ~55%
− The next ten operators represent ~6%
− The remaining 16,000+ screens are operated by 749 different operators with circuits ranging
from 1 to 180 screens
− Patrons consider movies as relatively inexpensive entertainment making the industry resilient
to recessionary pressures with 2010 domestic box office 3.4% ahead of 2008 and 2009
record years
• Conversion to digital
− Industry is in the process of converting from showing films using 35mm projectors to using
digital projectors
− Conversion ongoing internationally and is capital intensive
− Provides benefits across the industry
35mm
Projector
Digital
Projector
Industry in Midst of a Significant Technology Conversion
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Studio Market Share
Lionsgate
7%
Summit Weinstein
1%
1%
Indies
4%
Warner Brothers
17%
DWs SKG
3%
MGM/UA
2%
Disney
10%
Fox
16%
Sony
11%
NBC Universal
13%
Paramount
15%
Major Studios Distribute Over 80% of Film Product
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Domestic Theatres
Regal Entertainment
AMC Entertainment
Cinemark
Carmike Cinemas
Rave Motion Pictures
Marcus Theatres
Hollywood Theatres
National Amusements
Harkins Theatres
Dickinson Theatres
Top Ten
Malco Theatres
Georgia Theatre Company
Great Escape Theatres
Goodrich Quality Theatres
Southern Theatres
Clearview Theatres
Landmark Theatres
Starplex Cinemas
Cobb Theatres
Marquee Cinemas
Next Ten
40+ Exhibitors with 50 to 180
Screens
All Other Exhibitors
No. of
Screens
6,388
5,605
3,687
2,341
1,035
678
536
457
432
346
21,505
320
275
274
271
268
250
228
226
204
190
2,506
Market
Share
16.4%
14.4%
9.5%
6.0%
2.7%
1.7%
1.5%
1.2%
1.1%
0.9%
55.1%
0.8%
0.7%
0.7%
0.7%
0.7%
0.6%
0.6%
0.6%
0.5%
0.5%
6.4%
~3,900
10.0%
~ 11,090
28.4%
55%
16%
Source: Box Office Mojo
Source: NATO Encyclopedia of Exhibition
55% of Screens Owned by Top Ten; Tier II Exhibitors at 16%
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Gross Box Office Sales, in billions
Annual Box Office Comparison
$12.00
$10.00
$8.00
$6.00
$10.60
$8.78
$9.63
$9.66
$9.21
$4.00
$2.00
$0.00
YTD 2010
2009
2008
2007
2006
Source: Box Office Mojo through November 1, 2010
2010 Domestic Box Office is 2.9% Ahead
of 2009 Record Year
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Exhibition Recession Analysis in U.S.
12
8.00
7.00
10
5.00
6
4.00
3.00
4
2.00
Average Ticket Price ($)
8
2
1.00
Box Office
Revenues
Tickets
Sold
'09
'07
'05
'03
Jan-05
'01
'99
Average
Ticket Price
Jan-00
'97
'95
Jan-95
'93
'91
Jan-90
'89
'87
'85
Jan-85
'83
'81
Jan-80
'79
'77
Jan-75
'75
'73
Jan-70
'71
'69
'67
0.00
Jan-65
0
'65
Box Office Revenues ($Bs)
Attendance (Bs)
6.00
Recession
Period
Box Office Has Performed Well During Recessions
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Box Office Trends With New Competition
U.S. Box Office (in billions)
Commercial Penetration of New Media Forms “Competing” With Box Office:
Cable
•Cable
VCR
Internet
DVD
•
* Red bar indicates a recession year.
Source: SNL Kagan
Continued Box Office Growth Despite Introductions of New Video Media
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Digital Cinema
Overview
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Digital Cinema Background
• Digital cinema is the use of digital technology to distribute and project films.
− The most common medium for projecting films today is 35mm
− The industry is seeking to convert to digital projectors; primary benefits are significant
decreases in distribution cost for film studios and increased revenue opportunities for movie
theatre operators
− Digital process involves sending digital prints utilizing satellite or hard drive to theatres
equipped with digital projectors, servers and software applications
• To date, over 11,000 screens have been converted (cost at ~$70,000 per screen)
− With ~39,000 screens in U.S. and ~110,000 worldwide, financing need exceeds $2.8 billion and
$7.8 billion, respectively
− First major conversion was Cinedigm’s deployment of 3,724 digital screens utilizing a $217
million debt financing led by GE Capital and $93 million of equity raised by Cinedigm.
− Digital Cinema Implementation Partners (DCIP) closed a $660 million facility earlier this year for
converting ~10,000 of Regal, AMC and Cinemark’s 15,000+ screens
Satellite Film Delivery
Digital Projector
Digital 3-D
• Digital cinema provides platform for 3-D films and alternative theatre content
− 3-D films have been yielding an average ticket price premium of $2 to $5
− 3-D screens have been yielding ~2-3x the attendance of 2-D screens
− Digital cinema allows showing of other content such as concerts and sports
Sports in Theatres
Conversion Progressing with Significant Financing Needed
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Digital Cinema Conversion Progress
• Conversion cost being paid from various sources
− Senior debt financing primarily based on virtual print fee (“VPF”) payments made by studios each time a
digital print is delivered to a theatre screen
− Exhibitors pay one-time up-front fee that includes equipment installation costs
− Vendors have provided limited equipment financing and/or mezzanine financing
− Equity is more difficult to raise since returns are lower than normally expected
• Conversion process has been slower than expected
− Negotiations for studio agreements to pay virtual print fees were prolonged
− Most major studio agreements finalized in late 2008, which was unfortunately when the capital markets
collapsed. This delayed any related financings for over a year.
• Transactions
− Cinedigm announced a commitment from GE and Societe Generale for a $100 million senior debt facility to
convert approximately 2,100 screens. (This transaction has yet to close.)
− As previously mentioned, DCIP closed on $660 million for Regal, AMC and Cinemark earlier this year
(JPMorgan led debt process; Blackstone led equity raise)
− Sony is also converting screens
− International conversions continue in Europe and Asia with groups such Arts Alliance and GDC
Cinedigm and DCIP Are Only Large Scale Transactions
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Digital Cinema Delivery Process
Post-Production Site
Digital
Film Print
Studio
1
Studio
2
Theatre Site
Film
Digital
Master
Produced
Studio
3
Administration
and Reporting
Digital
Film Print
Screen
1
Theatre
Servers
And
Projectors
Satellite
Uplink
or
Screen
2
Screen
3
Hard
Disk
Delivery
Administration
and Reporting
• Post-production site receives 35mm film or
digital film from studio
• Encrypted digital film print received by theatre
operating systems either via satellite or hard disk
• Final film mastering is completed and digital film
print is created
• Encryption keys sent separately for security
purposes
• Digital film print sent to theatres via satellite or
hard disk drive
• Reporting of each film’s usage for theatre circuits
and film studios through the use of digital cinema
software
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Digital Cinema Benefits
Studio Benefits
Theatre Benefits
• Primarily distribution cost savings - estimated at ~$1
million per movie with such amount increasing after
equipment financing is repaid
• Improved security measures against piracy
• Faster and easier delivery via satellite or hard drive
• 3-D presentation: Marketing differentiator and ability to
charge higher ticket price
• Ability to present alternative content (e.g. concerts,
live sports events)
• Operating flexibility to more easily move films among
screens
• Ability to capitalize on release of 3-D movies
Film Maker Benefits
Consumer Benefits
• Reduced time needed from post-production to release
• Sharper image allows for advanced special effects
• Improved experience as digital easily enables 3-D
content and alternative content
• Better resolution with no deterioration in quality over
time
• Large view format for alternative content
Digital Cinema Benefits Are Across Film/Theatre Industry
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2010 Major Releases ( 7of 12 in 3D)
3D
3D
March 2010
June 2010
3D
3D
3D
3D
March 2010
April 2010
3D
3D
3D
3D
June 2010
July 2010
3D
3D
May 2010
May 2010
May 2010
3D
3D
Nov 2010
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Nov 2010
Dec 2010
15
Announced 3D Releases
20 3D Films Scheduled in 2010 and Over 30 Planned for 2011
Select Upcoming 3D Releases
Release Date
Title
Director
Cast
March
Alice in Wonderland
Tim Burton
Johnny Depp, Anne Hathaway
March
How to Train Your Dragon
Peter Hastings
Gerard Butler, Jonah Hill, America Ferrera
April
Clash of the Titans
Louis Leterrier
Liam Neeson, Ralph Fiennes, Sam Worthington
May
Shrek Forever After
Mike Mitchell
Cameron Diaz, Eddie Murphy, Mike Myers
June
Toy Story 3
Lee Unkrich
Tim Allen, Tom Hanks
July
Despicable Me
Chris Renaud, Pierre Coffin
Steve Carell, Danny McBride
July
Cats & Dogs 2
Brad Peyton
Chris O'Donnell, David Milchard
August
Step Up 3-D
Jon Chu
Sharni Vinson, Rick Malambri
August
Piranha 3D
Alexandre Aja
Elisabeth Shue, Jerry O'Connell, Richard Dreyfuss
September
Guardians of Ga'Hoole
Zack Snyder
N/A
October
Alpha and Omega
Ben Gluck
Christina Ricci, Hayden Panettiere
October
Saw VII 3D
David Hackl
Tobin Bell, Tanedra Howard
November
Megamind
Tom McGrath
Ben Stiller, Tina Fey, Robert Downey Jr.
November
Harry Potter 7
David Yates
Daniel Radcliffe, Emma Watson, Rupert Grint
November
Tangled (AKA Rapunzel)
Dean Wellins
Kristin Chenoweth, Mandy Moore
December
Yogi Bear
Eric Brevig
N/A
December
Tron Legacy
Joseph Kosinski
Jeff Bridges, Michael Sheen, Olivia Wilde
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Alternative Content Samples
2008
2009
2010
Distributor
Title
Distributor
Title
Distributor
Title
NCM
Metropolitan Opera Series
Live
NCM
Metropolitan Opera Series
Live
NCM
Metropolitan Opera Series
Live
Cinedigm
San Franciso Opera Series
Cinedigm
BCS National Championship Florida
vs. Oklahoma Live 3D
NCM
Boxing: Mayweather Mosley
Live
Cinedigm
The Beatles Love
Cinedigm
NBA All Star Skills Contest
Live 3D
Cinedigm
NCAA Basketball Championship
Live 3D Duke vs. Butler
Screenvision
The NY Mets Theatre Simulcast
Cinedigm
Jonas Brothers
Cinedigm
Phish 3D Concert
National
Geographic
U2 Vertigo Tour
Cinedigm
The Narrows Film Live Interviews
with the Stars at Premier
NCM
Interviews with 'Lost' producers
Live
Cinedigm
David Gilmour In Concert
Cinedigm
Michael Jackson Funeral Services
Live
NCM
Drum Corps Int'l Competition
Live
Cinedigm
Three Days of Grace at the Palace In
Concert
Cinedigm
Dave Matthews Band 3D
NCM
Black-Eyed Peas Concert
Live
Cinedigm
David Crowder Band In Concert
Sony
Video game event
NCM
UFC Championship
Cinedigm
Toby Mac Live In Concert
NCM
Lance Armstrong race and interview
NCM
Bill O'Reilly and Glen Beck
Live
Cinedigm
Queen & Deep Purple In Concert
NCM
Boxing: Mayweather Marquez
Live
Cinema
Events
Dr. Dyer motivational presentation
NCM
Drum Corps Int'l Competition
Live
Cinedigm
FIFA World Cup Final
NCM
'Forever Plaid' Live
Screenvision
Stevie Wonder concert
Sporting Events and Concerts are Increasing Theatre
Revenue Sources
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APPLYING TECHNOLOGY TO CREATE VALUE
FOR INVESTORS AND CONSUMERS
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Mission Statement:
Digital Cinema Destination Corp. is dedicated to
transforming movie theaters into digital
entertainment centers. DCDC provides consumers
with uniquely satisfying experiences, combining
the full promise of digital technology with
engaging, dynamic content that far transcends
traditional movies. Beyond more “passive”
theatergoing, DCDC allows its customers to
actively engage in live and lively events. Its
applicability and appeal are as unlimited as the
number of these events held worldwide and the
customer segments who enjoy them.
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Objectives and Model
Company Objectives
• The Digiplex business model is to transform movie theatres into digital entertainment centers or destinations.
• The strategy to execute this model is to acquire existing cash flow positive theatres in strategic markets, convert
them to a digital format, and proactively program/market all forms of digital alternative content, such as sports and
concerts, in addition to first run 2D and 3D movies.
• The accretive cash flows associated with 3D films and alternative content will increase attendance, per capita box
office, concessions and sponsorship/advertising revenues with high incremental EBITDA margins.
Business Model
• The traditional theatre model provides that weekly seating utilization is only 10-15% of capacity and less than 5%
from Sunday to Thursday.
• Utilization and margins will increase by providing more alternative content choices made possible with digital cinema
technology. Such content can include sports, music, lectures, religious and video gaming, most of which will be
shown during non-peak times.
• Movies remain the “bread and butter” of the industry; however, all movies should not need to play five shows per day
and seven days a week. Popular alternative content can be shown during specific show times that match audience
demand and fill seats during days/times that are traditionally slow for theatres.
• New technologies allow for significant upside, exploiting new opportunities deriving from more choices of content,
including 3D films, live events and even live 3D events.
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Marketing
Marketing Strategy and PR
• Marketing “with an attitude" will bring consumers to theatres for reasons other than just viewing movies.
• Social media (e.g. Facebook, Twitter, YouTube) will find and attract targeted audiences to new forms of content, thus
building a new community of theatre goers.
• Interactive technologies in theatres (e.g. text messaging, Megaphone, Bluebite, video gaming) will engage
audiences and sponsors.
• Alternative programming will be “eventized” (e.g. tailgate parties for sports events, hawking concessions and
selectively serving alcoholic beverages) with related food, drink, staff uniforms, atmospheres, audience and local PR
outreach and radio/TV trade outs.
• Local and extended audiences will receive regular, virtual and viral communication (e.g. email newsletters, social
networking, special offers), which is comparable to how arenas and performing arts centers market today.
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Value Creation
Value Creation for Consumers
• At a fraction of the price to attend a major event ($15 to $25) consumers will be able to see events from major
sports arenas throughout the world in 3D (e.g. World Cup, Super Bowl) as well as other genres such as The
Nutcracker from Lincoln Center, Opera from La Scala or the Met, and pop concerts (Dave Matthews,
Phish) from Radio City, the Paladium, or Staples Center.
• Customers will experience larger than life live images along with exceptional seats … each seat can be “the best
seat in the house!”
• Corporate, religious and professional groups will save time and consume less energy and money using Digiplex
Destination theatres as a meeting place.
• Live auctions and fundraisers will take place in reserved auditoriums across the U.S.
• Fashion shows and other VIP-only sponsored events/parties will target demographic profiles and interact with
local retailers.
• Fun factor increases in these alternative content events when “shhhh” is replaced with “let’s get loud!”
– Events will be brought to life with theme uniforms (e.g. baseball/umpire uniforms).
– Events attracting a huge number of individuals gathering to experience something together builds excitement
and a sense of community.
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Value Creation (continued)
Value Creation for Investors
• Manage risk by acquiring existing, cash flow generating movie theatres in and around top DMAs, managed by team
with proven track record of success.
• Add value by converting all screens to digital 3D and opportunistically add screens where feasible and profitable.
• Add screens to existing complexes where feasible.
• Transform the theatre into an entertainment destination using marketing and programming strategies described
above.
• Produce incremental box office revenues from 3D premium priced programs and movies.
• Increase per capita concession revenues accompanying alternative content music programs and sports events with
food packages and per event (or regular, where possible) alcoholic beverage service.
• Increase advertising and sponsorship revenues on:
– Movie screens
– theatre websites and location/event specific websites (i.e., Lincoln Center, Rolling Stone website)
– Interactive technologies in lobbies
– Outdoor signage
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CONTACT INFORMATION:
BUD MAYO
BMAYO@DIGIPLEXDEST.COM
Q & A TO FOLLOW A BRIEF VIDEO
THANKS!
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