A. Dale “Bud” Mayo, Founder and CEO of Digital Cinema Destinations Corp. (NasdaqCM: DCIN), talks with the Opportunist’s Managing Editor Leslie Stone about how his company is redefining the movie theater experience and his vision to build a media powerhouse.
Digital Cinema Destinations Corp., also known as Digiplex Destinations, is reinventing the American cinematic experience by converting movie theaters across the country into interactive entertainment centers. Each theater the company acquires will be set up to receive Hollywood films digitally via satellite and offer audiences a full range of programming in addition to the latest 3D blockbusters—from live sports, concerts, opera and fashion shows to conferences, auctions, religious services and more. Leading the effort is New Jersey-based entrepreneur and digital cinema pioneer Bud Mayo, who says the possibilities are endless. “We are redefining what it means to go to a movie theater. It’s a very dynamic model that is beyond the conception of what anyone else is doing. We look at a movie theater chain very differently. You have to flip it over and think of it as a platform of a media company that is acquiring content after it’s produced and helping to distribute it and making sure it gets to the audience most interested in it.”
Mayo has enjoyed a successful career in the film exhibition industry spanning nearly 30 years. He has founded several groundbreaking companies along the way, including Clearview Cinema Group and Cinedigm Digital Cinema Corp. (NASDAQ: CIDM). With Mayo at the helm, Clearview Cinemas became the largest independent theater group in the Metropolitan New York area and was eventually sold to Cablevision. Cinedigm Digital Cinema Corp. (NASDAQ: CIDM), which he directed until his retirement in 2010, became a leader in digital programming and has transformed more than 12,000 screens in more than 1,000 sites across the United States and Canada to digital formats. In 1994 he helped establish the Mayo Center for the Performing Arts, a nonprofit organization based in Morristown, N.J., which hosts more than 200 world-class performances per year in every genre. “When I retired from Cinedigm, I was ready to move on and hand the baton to a movie studio executive who could take advantage of the digital platform we created,” he says. His retirement was short-lived, however, and within seven months he had founded Digiplex.
Opportunist: What inspired you to trade your retirement for Digiplex?
Bud Mayo: I thoroughly enjoy leading a team that I have helped assemble as the coach and the quarterback. Clearview, Cinedigm and now Digiplex have been about collaboration and helping the other guy succeed. It’s not about just one person. It’s about 10, 15 or 20 people who are interacting and rooting and cheering for each other when somebody does something exceptional—and that happens every week. Those are my sources of inspiration. Our motto is: Be the kind of person that others want to succeed. There are people on staff who started with me back at Clearview and I have watched them grow both professionally and personally and raise families. We all learn from each other and, ultimately, the greatest inspiration for an entrepreneur is to see a vision unfold. Our team has invested their lives into making that vision happen.
Opportunist: What is your vision for Digiplex and how do you plan to achieve it?
Bud Mayo: We want to build a theater circuit that has a presence in at least 75 of the 100 top DMAs [designated market areas] throughout the country. Our goal is 100 locations and 1,000 screens. We are doing a combination of what we did before with Clearview and using many of the same tools to create a different model. We buy movie theaters that have been around for years and have made money. Instead of concentrating on Metropolitan New York we are concentrating on the entire United States.
Opportunist: What are the advantages of digital conversion?
Bud Mayo: There’s a much crisper image on screen that doesn’t deteriorate. Sound comes right off the digital file and is consistent and higher quality. That’s the standard of what we at Cinedigm helped to create. Cinemas used to rely on 35 mm film projectors that could be 50 years old and held together with bubblegum and scotch tape. [Laughs] With digital you don’t have anything moving through sprocket feeds in the film, so you have a pristine image that is the same the first night as it is four to six weeks later when the movie leaves. 3D features are enabled by digital cinema, and choices of content for consumers and sponsors are far greater.
Opportunist: How many cinemas have you acquired so far?
Bud Mayo: We bought two theaters in January 2011 after setting up our digital format, followed by another in February of 2011 and another five in April of 2012 that were bought with the proceeds of an IPO. We grew from three locations and 19 screens in April of last year to our current position of 19 locations and 184 screens. As we move forward with our acquisition strategy we need to obtain good theaters and at least one destination theater in each of those markets.
Opportunist: How do you select them?
Bud Mayo: First, we need to find theaters in top DMAs and in free film zones, meaning they can play any movie they choose without competition for content. Next, we are interested in demographics. The broader, the better. We determine how many years they’ve been in operation and whether they are making money and are available at a reasonable price. If a cinema meets that criteria we are ready to make a deal. We have to kiss a lot of frogs to find those theaters that we really do want, that make sense to us and that are accretive. We have a traditional rollup strategy and a spread between what we pay for the theaters and the cash flow that comes with them and what we trade at as a public company as a multiple of what we do. We ensure that the digital platform is complete and we install our own means of capturing and playing back alternative programming. That is the promise of digital cinema ... to attract the audience that wasn’t there before and fill unused capacity.
Opportunist: Which metropolitan areas are you targeting first?
Bud Mayo: We are currently targeting Metropolitan New York, New Jersey, Connecticut, Los Angeles, Chicago, Atlanta and various parts of Florida. We would like to move up the West Coast and we have a significant presence in San Diego and one on the fringe of Los Angeles. We are in Phoenix DMA with an Imax theater. We will need to move down the East Coast as well and begin to fill in areas opportunistically. The theaters must be available and we do best when we are able to sit across the table and negotiate with the owners. We have enjoyed an excellent reputation for doing what we say we are going to do. That really helps when you’re negotiating.
Our acquisition targets are in the universe of about 20,000 independently owned screens. They aren’t part of Regal or AMC or Carmike or any of the other larger chains, but they still equal about 20,000 screens and certainly on an average of 8 to 10 screens per location we have plenty to choose from. The pipeline is very robust and exceeds 600 screens and we are actively negotiating for at least 250 of those. Obviously not all deals will be made. We are either going to find through a deep dive in our due diligence that these theaters are not for us or we simply cannot buy them at a price that makes sense to us.
The Amazon model in our business became a very important element. We believe that if we could use technology to reach audiences we could also use it to reconnect with them when we have something else to offer. In other words, people who bought this might also be interested in that.
Opportunist: Please tell us more.
Bud Mayo: Once we know who our audience is the next thing we do is stay in touch with them and try to find quality content we can offer, starting in our theaters and later via download or DVD sales. Those affinity audiences are an extremely important part of our business plan and our data mining capability, which is growing rapidly.
We are looking to reach targeted audiences and we are the first and only movie theater chain to be built to operate this way. Alternative programming does not come with Hollywood marketing budgets so it’s on us to create our own marketing.
Opportunist: What is your marketing strategy?
Bud Mayo: We do local PR and social networking and outreach with local media, affinity groups, radio stations and even tour the theaters themselves. Managers, assistant managers and members of our staff are trained to be part of the marketing team and dress up in costumes and promote the event.
Studios have lots of bites to the apple before they even go to the downstream. That’s what’s driving studios to make these huge budget movies. If those blockbusters do well here they will do well throughout the world. This has created a tremendous void for counter programming for movies more targeted to senior citizens and empty nesters and people who aren’t particularly interested in blockbusters. Those are our bread and butter opportunities. In that scenario the customers win because they get choices never available before in a comfortable local venue. There’s an audience for other things besides great blockbusters like ‘Man of Steel’ or ‘World War Z’ or ‘Despicable Me.’ Targeted audiences enjoy ballet and the opera and other cultural content. Our programs are not just a one-off. Opera, for example, has a full season. Once we know the audience is there we can capitalize on that by bringing them more of the content they are interested in. We can do this with live Q&As with our audiences and so forth.
Opportunist: What prompted you to get into the business of buying movie theaters?
Bud Mayo: My affinity for technology started in college. I went to work for IBM right out of business school at NYU Stern and sold large-scale computer systems for them and also led some teams in converting businesses from their old-fashioned bookkeeping to computers. I also launched a computer services business, which I sold when I was about 27. Then I went to Wall Street and joined a group who took over a regional NYSE firm and brought in some investors. While on Wall Street I did lots of work with leasing and technology companies and I eventually started looking around for something else to invest in. Real estate seemed like a good opportunity and I found a great site for a mini-mall in downtown Tenafly, New Jersey. It happened to be an abandoned movie theater, and the mayor said over his dead body would he agree to a mini-mall so we reopened the movie theater and converted it into a four-plex. Everybody in the area loved having their theatre back and within a year that business threw off very good returns. Fast-forward a few years and we began to see additional opportunities. By 1993 and 1994, we got serious about it and started building the Clearview Cinemas circuit. It became the largest cinema chain in Metropolitan New York. After I sold the business to Cablevision at the end of 1998, I stayed with it for a year and learned a lot about how Cablevision combined technology and content to take advantage of target audiences and content ownership. I was inspired by that and discovered that if we could get digital systems installed we could take advantage of off-peak periods—essentially Monday to Thursday—when most people are at school or work and theaters are empty. We figured this would be a good opportunity to feature other kinds of content targeted to audiences that are interested in something other than action movies.
Opportunist: Are cinemas able to compete with all the choices for in-home entertainment?
Bud Mayo: There are many competitive forces for in-home entertainment, but whether it’s a video game or a Netflix movie or a TV series of any kind you’re still sitting at home. People are social creatures who need to get out of their houses and enjoy communal experiences. Movies are still one of the least expensive choices, especially when you consider arena and sports events that will cost many multiples of what a movie costs even with concessions. It’s still the best deal in town for a night out and that’s the reason why, despite the variety of technology that has evolved in the last 40 or 50 years, the movie business is steady.
Let’s go back to 1970 when the first VCR was released. Everybody at that time assumed the movie exhibition industry was done and nobody would go to a theater if they could stay home and watch a VHS or Beta tape. Since then, the audience of movie theaters has been at least flat every year to the last 40 years or so but throughout that time there has been a substantial box office growth year over year. In fact, last year was a record year. And 2013, even after a very slow start in the first quarter, has caught up with last year and could break last year’s record if the coming releases do well. We are very much a participant in all of this and we are going to offer more variety and choice of content.
Opportunist: What about the overseas market?
Bud Mayo: The overall international presence, driven by South America and China and Japan—and even throughout Europe—has grown dramatically to four or five times what it was just 10 or 15 years ago. It is now at least twice the United States domestic market. We are in the content acquisition business and we are looking at content from around the world—not just content in English. We are also going to make Hollywood blockbusters available once or twice a week in Spanish. Using the digital file and choosing the Spanish language version enables us to accomplish this. We are looking at Asian versions too. As we reach those audiences, getting back to the Amazon model, we are able to communicate with them. We have had great success with Bollywood products and reaching Indian and cultural audiences throughout our circuit, and that has been a big factor in our success.
Opportunist: Where do you get your content?
Bud Mayo: What we are doing is complementing the lineup that comes steadily from the major studios and finding the gold that is out there in the form of independent products from distributors like Fox Searchlight, Focus Features, Weinstein and Miramax and any other source around the world.
Most of the time we work with third-party distributors who have acquired rights to those features. We are also going to festivals and acquiring those rights and participating in all of the revenue streams from DVD sales to downloads, TV cable and international sales. We are building a very important direct-to-consumer platform that is simply a microcosm today of what we will be doing in the future. We guarantee the filmmaker a theatrical release and provide them the ability to download and stream DVDs and promote them even after they leave our theaters.
Opportunist: What are some of the other events you will offer?
Bud Mayo: At Cinedigm, we introduced groundbreaking events like the first-ever 3D sports events live in movie theaters, the NBA All-Star Game, the BCS National Championship, NCAA finals, FIFA World Cup soccer, concerts from Dave Matthews, Phish and others. So we have been doing this a long time. I have been co-creating live performing arts centers in the not-for-profit world for 30 years. We know about programming and technology and how the two converge and can benefit each other. We think we have a very different story from others in the movie theater business, we are growing much more rapidly than they can and were organized from the ground up the day we started with a digital platform and all the advantages that come from that core competence.
What we are doing this season is looking for more broad-based content that will reach larger audiences and be more profitable for us. You don’t need to have a $100 million budget to release a movie or even have an audience that is so broad. We have a live prizefight coming out in September from Las Vegas. If history is any indication, we will sell out those kinds of championship fights. The audience is mostly male but includes some women and is so varied that we might have doctors and firefighters and construction workers watching. We tell the audiences: ‘This is not a movie. Do not sit quietly in your seats. Do not turn off your phones. Go ahead and text your friends … have fun!’ It’s the same with rock’n’roll concerts. We want people to get up and do a little dancing in the aisles and sing along with the artist. We have a Springsteen concert coming up very shortly and there’s no doubt the audience will sing along with the Boss. [Laughs] And we have an issue-based documentary entitled ‘The United States of Football’ supported by the Gridiron Greats. It will open exclusively at Digiplex theaters August 23 and go nationwide August 30.
Bud Mayo: Our goal remains 300 screens by the end of this year and that suggests 30 locations as opposed to 18 that we currently have. We are on our way to reaching our goal of 100 sites and 1,000 screens in a few years. Exactly how long will that take? Well, I believe it will go very quickly depending on the cost of capital. We have to make sure that each acquisition is highly accretive and for that we need to market our stock and the availability of debt to complement that equity at reasonable prices.
As we grow we expect to be doing more and more independent feature films. We aren’t aiming for big Hollywood blockbusters. There are thousands of independent films that deserve an opportunity to find their way to movie theaters and we think there will be dozens each year that we can show on our screen and foster their distribution throughout the world on our digital platform.
Opportunist: Where do you see Digiplex five years down the road?
Bud Mayo: We will have achieved our goal of having a national theatrical platform and possibly some elements of international. We expect to be doing 20 percent of our revenue from alternative programming and half of that will be content that we have been distributors for. We expect to have literally hundreds of features in our library that we will continue to own the worldwide exploitation rights. We also plan a classic film series. What I see is a media company that will provide content owners and consumer products companies from all over the world the ability to interact with target audiences interested in their content or products.
As we grow and add theaters the core is already there so it won’t cost us as much to operate them at the corporate level. The growth associated with each acquisition from now on will be very accretive. We expect to be very large and profitable five years down the road, making a change in the media industry at large and helping to launch all kinds of products and services. It goes back to the Amazon model again.
Opportunist: Is there anything you would like to say to potential investors?
Bud Mayo: First and foremost we can promise that we are going to continue to grow rapidly. Our revenues and bottom line are already cash flow positive as a starting point and I believe we have sizzle that comes along with our technology and rapid growth story that follows the trajectory of Clearview this time on a national basis. Because we know how to use the digital tools available to us, we are applying them daily. We intend to be a media powerhouse and influence content that plays not only at our theaters but also at theaters around the world. It’s a pretty grandiose plan but we have done it before. We have had wonderful successes with shareholders in the past and hope to duplicate that using all the technology that we understand. Every level of our senior management team has worked together for almost 15 years, throughout our days at both Clearview and Cinedigm and has collective experience in the digital and technology side. At Clearview we went public about two years before Cablevision bought us and within six months of the buyout, the stock, which was offered as part of the exchange, more than doubled. That proved very successful for Clearview investors. Many of the theaters we acquired took stock in Clearview, which is a model that worked for them because they made two and three times their initial investment. Cinedigm went public at $6 per share and peaked at almost $15 a share.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in the Orlando area. Follow her on twitter at @les7989.
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