Martin “Marty” Greenwald, CEO of Los Angeles-based Digital Development Group (OTCBB: DIDG), talks with the Opportunist’s Managing Editor Leslie Stone about his company’s web-based platform for distribution of entertainment content over the Internet to a variety of electronic devices.
Back in the seventies, VHS tapes were the best thing since sliced bread. Consumers were thrilled to be able to record their favorite TV shows and watch them at leisure. Then along came cable TV—with dozens of channels and 24/7 access—and viewers had even more options for watching and recording their favorite shows. The home entertainment industry really took off in the eighties and nineties, when people bought their favorite movies on VHS tape and then DVD—a successor to the unpopular Laserdisc—and movie rental businesses like Blockbuster popped up everywhere. Who knew that DVDs would slowly but surely give way to better-quality Blu-ray discs or that, thanks to the emergence of the Internet, many consumers would opt to download movies, music and TV shows online to watch via home computer and handheld devices?
“Technology is basically road kill; content is king,” says Marty Greenwald. Let’s say you released a title in the days of videotapes. That title outlasted the technology, didn’t it? Many times, people look back and think I cannot believe I bought that gadget—whether it was a TV set, a hairdryer or a microwave oven. The hottest thing right now is the single-cup coffee maker. Keurig, Cuisinart and even Starbucks have come out with one. But, as clever as these one-cup machines may be, that is not where it will end. Technology will keep changing and getting better. You don’t want to own a company that makes coffee pots because somebody else is going to make a better one and you’re always going to be chasing the technology. What you want to own is a coffee plantation. That’s basically what we are doing with DigiDev. We are acquiring libraries of content. We don’t care how people want to watch it on their desktop, laptop, and tablet or even on a mobile phone—we just make our content available for delivery, however they want it.”
Greenwald’s company, Digital Development Group, known as DigiDev, is focused on the opportunity presented by over-the-top (OTT) Home Entertainment Media, which targets DVD players and video game consoles, Smart TVs, stand-alone Internet connected devices such as Roku, Apple TV and Google TV—plus mobile devices—with built-in Internet connectivity. “These devices piggyback on existing network services in consumers’ homes and offices,” Greenwald says, “pulling content from the Internet and delivering it to straight to the consumer’s TV set or other display unit.” This method is often referred to as “over-the-top” because the services ride on top of the service that users already have, such as Cable TV and/or Internet, and it doesn’t require any business or technology affiliations, or additional subscriptions with their network provider.
Opportunist: For those who don’t know, can you explain what Over-the-Top (OTT) Internet TV products are and how they work?
Greenwald: Sure. Part of the problem is they are strictly virtual. You can’t put your hands around it. You can’t see it. You aren’t going to trip over it on the floor. [Laughs] It’s a virtual player that doesn’t physically rest over-the-top but exists spiritually, so to speak. I liken it to one of those little fish that nibbles off a shark. It isn’t dependent upon Cox or Time Warner or anybody else to make the delivery. I like the digital space best of all because you don’t have to physically manufacture anything.
We have become so lazy with digital availability, which is the reason why retail stores are disappearing. So, we are not the guys who make the screens or deliver the product. We are the product and every one of those guys needs product.
Opportunist: How did you become involved with Digital Development Group?
Greenwald: I used to be the CEO and chairman of a company called Image Entertainment, which was perhaps the largest independent DVD licensor and distributor in the United States. We aggregated content that didn’t quite meet the radar screen for the majors, including documentaries, comedy, children’s programing and urban programming, etc. We released probably 10,000 titles and did about $125 million in revenues per year over 25 years of operations. We went into deals with people who wanted to bring their programming into the marketplace. They went through us and we were a co-op. Nobody was really doing that because everybody else was looking for ‘The Girl with the Dragon Tattoo’ or ‘Skyfall.’
What happened was, in 2007 a gentleman named Joe Bretz tried to buy Image Entertainment. He almost got it done and then the market crashed in 2008 and his financing fell apart. We stayed in touch ever since, and a year ago he came to me and said he had developed a technology that he wanted me to help exploit. Now, I am not a tech guy at all—my expertise lies in development, acquisition and sales—but I was curious so I asked him what it was. He explained it to me and I was sold on the idea. He had worked on various media start-ups in Silicon Valley during the dot-com boom of the late nineties and his resume includes the title of feature-film producer to high-tech incubator.
Opportunist: Please tell us more.
Greenwald: Joe wanted to develop a web-based platform for distribution of entertainment content over the Internet to a variety of electronic devices.
There are several layers to this industry. One is obviously the guys who make the boxes. Major companies in that area are Apple TV and Google TV. Each of these is actually a little box that plugs into the wall for electricity. There is an HDMI [high-definition multimedia interface] cable between the box and the TV to deliver, effectively, the Internet. Your TV set becomes a monitor and you can even go online and send emails as if you were on your computer. Another box, which is the hottest box out there, is called Roku.
There is another layer of technology that delivers programming to those boxes—we have our relationships already tied up with them—and you pay for the right to use their equipment. Our core business is the aggregation of content to be played or streamed on Internet TV and that is defined as everything from desktops to smartphones. The destination itself does not matter. The content is delivered to each destination exactly the same way. The only thing that changes is the size of the screen. In theory, you could carry it around with you on a 60-inch TV screen if you wanted to.
Opportunist: What is the difference between being a program supplier and an aggregator?
Greenwald: If you are a program supplier you have to go out and produce a master for each of the boxes—20 different masters or more—to capture the marketplace for 20 different brands of boxes. It was a very exclusive club, initially, with Netflix shows and feature films and Hulu for TV shows.
Opportunist: How do you make your money?
Greenwald: We make our money by aggregating content. We have a built-in unique niche of channels for that content and also for capturing the people who are aficionados of that particular niche. Historically, these people have really only been able to get their niche in bits and pieces. For example, they may have to go to NBC, a cable channel, the Internet and also DVD to watch a show in the niche.
What is great is that we have no accounts receivables and no inventory. No depreciation. No amortization. If we have $18 million of revenue, for example, we could make $9 million pre-tax. My complete overhead is less than $150,000 monthly. So, you can take the numbers and strip them down. Let’s say I’ve got people paying a subscription fee of $5 a month and I have 30 channels in operation. At just 3,000 people per channel, that would equal $450,000 per month. So, my break-even is less than 30 channels and I believe I will have considerably more subscribers per channel. The reason we will be successful is, as we will roll out more channels and as the marketplace continues to expand, our revenues will continue to climb. My former company, Image Entertainment, did $125 million year in the U.S. and Canada alone. The Internet is worldwide, which means our programming is available across the globe.
The short-term or long-term success of this company is our ability to aggregate tens of thousands of pieces of content. A year and a half from now someone who wants to get into the business can start from square one or look at DigiDev and realize, ‘Wow, they have 55,000 titles in their library—maybe that’s a really good place to start.’ So, the value we are creating for our shareholders is the content we have, the number of stations we have, and the diversity of that content. That’s pure value. When Sony bought MGM they bought it because they wanted their library to exploit. They got the James Bond series and the ‘Pink Panther.’ That’s why you buy other companies—for the content in their library. It doesn’t matter if you listen to music on an MP3 player or on an old Victrola—it’s the same music that gets sold over and over again.
Opportunist: Tell us about your programming.
Greenwald: Our programming is generated by independent program suppliers and includes libraries of one-offs and all kinds of good stuff. We inundate our channels with a wide range of niche programming. After we launch a channel, the metadata we get from that channel tells us what people are watching while they’re watching it. I get immediate market research, which allows me to populate that site with stronger programming that’s going to work and pull that programming down from the channel that does not work.
At Image we were lucky with our programming. Sure, we had our share of flops, but we also had many success stories. Our model was to acquire smaller programming while aggregating tens of millions of dollars of business. Nobody else is doing that. DigiDev is not looking for 100,000 people per channel. We are comfortably targeting up to 10,000 people subscribing per channel. This will make us the leading aggregator of independent Internet programming.
Opportunist: Who is your competition?
Greenwald: It’s surprising. We don’t really have competition in the aggregation side of the business because most companies don’t get excited about a channel that delivers $300,000 a year. But if you generate that amount 100 times it’s a big deal. Netflix, for example, is basically in the motion picture industry. They just closed a deal with Disney to release Disney programming exclusively on Netflix starting in 2016. Four months after Disney releases it theatrically, they will pay an enormous amount of money—well over $100 million for those rights.
Opportunist: How is your acquisition programming going?
Greenwald: We have signed approximately 20 contracts to deliver programming. Our first channel was launched at Thanksgiving, Something Weird Video, Inc., and we just launched two more channels, Synapse and the Sci-Fi Channel. In the coming weeks we plan to roll out programming in mixed martial arts, silent films, children’s animation and a host of other unique categories.
Opportunist: What are your goals and objectives for the company in 2013?
Greenwald: As I said, next week we are launching a silent film channel—movies from 1910 to 1934, during the heyday of Charlie Chaplin, Rudolph Valentino and other greats of silent movies. In all, I expect DigiDev to be a $15 million revenue company by the end of next year, with between 60 and 80 operating channels and a library of 30,000 to 40,000 titles. That will position us as a potential merger or acquisition candidate.
Opportunist: What do you enjoy the most about this business?
Greenwald: I love film and content and I love marrying content with people who want to see it. Digital TV allows you to watch any program when you choose to watch it. You don’t have to acquire a cable subscription and pay for hundreds of channels you’ll never watch. That is ludicrous. If people watch a channel it should thrive. If not, it needs to be off the air. Internet TV’s objective is to give consumers specifically what they want to see.
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.
Digital Development Group - http://www.digidevgroup.com
Joe Q. Bretz, President & Martin W. Greenwald CEO - http://youtu.be/z0FI5BSicTM
Martin Greewald on BigBiz Radio with Sully Sullivan - http://youtu.be/hUzrh5yAEj4