I sat down earlier this month with Chris McGurk, chairman and CEO of Cinedigm and a long-time Hollywood veteran, to talk about the state of the business and where it’s going. Along the way, my former MGM boss wanted to talk about where we’ve been, and how that should shape the thinking of entertainment companies going forward. In a few words, change is constant. If you’re not rethinking, you’re sinking. 

“The one constant has been a profound change on a recurring basis, caused by new technology that goes all the way back to talkies, TV, color TV, cable, satellite, VHS, DVDs, streaming …” McGurk said. “In the face of continued technological change, if you don't rethink your business every year or every two years, and be prepared to fundamentally pivot your business, and do the right thing for your business in the face of naysayers and traditionalists who want to continue to save their job and save their business, you're going to die.”

The setting was the opening keynote of the OTT.X Fall Summit in Los Angeles, a gathering of dozens of companies focused on streaming, particularly the niche services that have proliferated in recent years. And McGurk had three pivotal moments where he was personally involved in Hollywood’s dramatic evolution the past 30 years. 

The first example was in the early 1990s, when McGurk was CFO for Disney Studios, and Jeffrey Katzenberg dispatched him to a warehouse in Emeryville, California. There, Steve Jobs was holed up after being kicked out as Apple CEO, and having shuttered NeXT Computer, in arguably one of the lowest points of his storied career. All Jobs had left was a small computer-animation company called Pixar, which wanted Disney to distribute its first feature-length movie. 

“So the first thing I said [to Jobs] was, ‘You know, some people at Disney don't want to do this deal because they think getting involved in [computer-based animation] is blasphemy,’” McGurk recounted. “And he looked at me and he said, ‘You know what? Some people at Disney are idiots.’ And he actually added, you know, an ‘F’ word to it. But I tried to be polite.”

Jobs then spent an hour “in typical Steve Jobs fashion,” explaining why those traditionalists actually were idiots ignoring technological transformation. Using a whiteboard, Jobs broke down animation’s economics, the scalability and efficiencies of 3D computer animation, and why Disney needed to evolve beyond the 2D cel animation that had built its reputation over the previous half century. 

“So we went back (to Disney), and we debated it,” McGurk said. “And we got in the CGI business because it was the right thing to do for the company, the naysayers be damned. And you saw what happened.”

Toy Story went on to smash box-office records for an animated movie, earn three Oscar nominations (and a “special achievement” Oscar for director/co-writer John Lasseter) and spawn multiple sequels. Arguably, McGurk said, Toy Story and the technology that enabled it transformed not just animation but the entertainment industry as a whole.

His second example came while McGurk was chief operating officer of MGM, after a run as a senior executive at Universal Pictures. 

It was Kirk Kerkorian’s third run as MGM’s owner. McGurk was brought in to help turn around the studio, which had been losing “losing tens, if not hundreds, of millions of dollars because they were trying to compete in the traditional theatrical way with the other major studios, even though they were very, very undercapitalized.”

The new team focused instead on acquiring film libraries, and the burgeoning market for DVDs of its 4,000 movies and thousands of hours of TV episodes, including the James Bond, Rocky and Pink Panther franchises. The DVD revolution enriched all of Hollywood, but perhaps no studio more effectively mined the opportunity than MGM.

“And then, when 2005 came along, Kerkorian called us in and said ‘Hey, guys, guess what? DVR penetration in the U.S. is 95%. In Western Europe, it's approaching that. It’s time to sell the company for a lot of money,' " McGurk said. “And we sold the company for $5 billion to a consortium headed up by Sony, [Comcast] and some private-equity firms. They took over the company and two to three years later, they went bankrupt because they went back to the old traditional, theatrically focused business that we had shied away from.”

Kerkorian, one of the 20th Century’s great if under-sung moguls, personally realized $2 billion from the deal (half of it tax free; have your accountant call me). More importantly, McGurk said, Kerkorian understood that newer technologies were about to decisively end the DVD gold rush. It was time to move on, before everyone else figured out the gold mine was largely tapped out. 

Flash forward to 2017, and McGurk had become CEO of Cinedigm, a company previously focused on helping movie theaters convert to digital projection. As that transformation plateaued, the company had shifted to streaming, with “three or four” highly focused subscription services. But competition was getting stiffer, with Netflix and Hulu beginning to invest in expensive original programming, not just licensing old shows.

“We began to see that, possibly, that was a losing proposition for us, because we were a little guy,” McGurk said. “We had a really good group of executives … who were willing to step back and say, ‘Hey, what are we going to do at this point?’ We saw the rising cost of the subscription business and content and marketing costs. But we also were looking at the growth of connected TVs, new technology, and how that really enhanced the lean-back experience sitting there, like you traditionally watch TV, where consumers would be much more willing to sit through ads when they saw streaming.”

That led to a big pivot, away from subscription to ad-supported services. By 2018, Cinedigm had launched its first FAST channel. Now it has 30 ad-supported FAST and AVOD channels, including the Bob Ross Channel, Fandor, the Elvis Channel, Dove, Bloody Disgusting and ScreamBox. Those latter two, horror-focused services have also spawned about 20 podcasts.

“It really has worked to our advantage,” McGurk said. ”I think we've had eight straight quarters, maybe more, of triple-digit advertising growth. And it's really been the engine that's propelled our business now.”

Looking forward, McGurk said it’s pretty clear that advertising will continue to drive growth, especially as international expansions try to reach audiences with less disposable income for pricey subscriptions. 

“I think it's a given that the ad dollars flowing into the streaming business are going to continue to escalate and make the ad-supported business the fastest growing business out there,” McGurk said. “It's just a given that those dollars are going to flow away from traditional TV and basic cable, and into streaming.”

But also coming is fewer big, general-appeal services, as the financial strain of competing overwhelms some. McGurk said he expects two of the big ones, and a lot of niche services, won’t be around within just a few years. 

“I think the the six major streamers right now are losing $10 billion” combined per year, McGurk said. “So there has to be consolidation. And you know, there are some obvious candidates to be consolidated that I won’t point out, but those that have huge debt loads, and are actively thumbing their nose at the creative community, because they can't, they can’t.”

For its part, Cinedigm is making like MGM in the late ‘90s, building a library beyond the 46,000 titles it has, especially looking for international rights beyond North America, and strong local operators to help drive overseas expansions.

But McGurk closed on a strongly hopeful note, saying it’s the best possible time for indie creators willing to take advantage of the new opportunities provided by new technologies and niche streaming services.

“You've got hundreds of opportunities to get access to eyeballs for your content,” McGurk said. “And I think that's a great thing.” ■

The pomp and pageantry for the latest round of Apple’s inventions drew hordes of smartphone and tablet fans, but most eyes were watching for the technology giant’s latest gambit into the TV business.

Without a hint of hyperbole, Apple said the latest iteration of Apple TV — its new, shiny TV-connected device — represents “the future of television.”

While a bona fide over-the-top pay TV service from Apple remains a no-show (there’s still not a lot of “TV” in Apple TV), the CE giant believes its latest, greatest box is poised to transform the television business in ways less obvious, but more meaningful.

The late Apple chairman and CEO Steve Jobs famously called Apple TV a “hobby” back in 2007, when the first-generation product was launched, but comments from his successor, Tim Cook, indicate that the company is ready to take its video game to the next level and create some competitive headaches for traditional pay TV players.

“It really is the golden age of television,” Cook proclaimed at the media event in San Francisco. “As important as TV is, the TV experience itself hasn’t changed that much in decades … Today we’re going to do something about that.”

While analysts and industry watchers didn’t see the new Apple TV as something particularly earth-shattering, the platform does represent a quantum leap when compared with Apple TV’s previous generation.

A major difference is Apple’s decision to open up its ecosystem for apps that can run on the new Apple TV, which will use a new operating system, tvOS, that is based on iOS but optimized for the big screen. That should open up the floodgates for apps, creating a conduit for more over-the-top video, games and other services.

Apple has more than 11 million developers. “We can’t wait to see what apps they bring to the big screen,” Eddy Cue, Apple’s senior vice president of Internet software and services, said.

“Our TV vision is simple and provocative,” Cook said. “We believe the future of television is apps.”

That future also involves Siri, the voice-recognition technology that has been integrated into the new Apple TV, and a more-capable remote that also features a touch-based navigation interface that will let users swipe at will. Early on, Apple TV search will sift across the libraries of iTunes, Netflix, Showtime, HBO and Hulu, with more to be added later.

But what the new Apple TV has also contrasts with what it still lacks — no support for 4K, and nothing in the way of an Apple-delivered pay TV service.

Apple is reportedly developing an OTT “skinny bundle” TV service that will focus on broadcast-TV channels, but the company has been bogged down with negotiating rights to offer a service that can be offered nationally. Delayed, that offering is not expected to see the light of day until sometime next year.

By comparison, Sony PlayStat ion Vue’s multichannel-TV service currently lacks national distribution (it’s currently available in seven markets) and still doesn’t carry ABC. Sling TV, Dish Network’s OTT TV service for cord-cutters, has yet to add any broadcast-TV channels to its lineup.

ALSO MISSING: THE ‘WOW’ FACTOR

Some analysts were not blown away by Apple’s new entrant, holding that it needed a “wow” factor that can help it stand out from the pack.

“It was exactly as we expected,” Colin Dixon, founder and chief analyst at nScreenMedia, said. “This was, in my mind, a me-too upgrade. This is Apple catching up with the competition. It gets them back to parity to everybody else in the market … If I’m Roku, I’m probably taking a deep sigh of relief.”

Granted, some of the luster was off the new Apple TV before its debut, as many (accurate) details about it leaked in the weeks leading to the event.

“First and foremost, every product was foreshadowed in the press,” music-industry analyst and critic Bob Lefsetz noted in a newsletter entry about Apple’s event, which also saw the intro of the iPad Pro (and a stylus called Apple Pencil), new Apple Watch gadgetry and two new smartphones — the iPhone 6s and iPhone 6s Plus.

“If Jobs were still running the company tyrannically, heads would have rolled,” Lefsetz said. “Where was the element of surprise?”

Dixon found the fusion of Siri and the Apple TV interesting, but said other OTT platforms have already taken the concept further. By way of example, Roku’s crossplatform search spans at least 17 video sources, including Amazon Instant Video, Hulu, HBO Go, Time Warner Cable’s TWC TV app, Netflix and Vudu.

Apple TV’s jump onto the gaming bandwagon, a move that represents a possible threat to console makers, also mimics what’s being offered via the Amazon Fire TV and (to a lesser degree) on Roku players. Games are also expected to play a key role on a new family of devices powered by Android TV. But adding a Wii-like gyroscope to the remote could help Apple “offer some pretty powerful games with this platform,” Dixon said.

Bringing an actual TV service to the Apple TV and tightening that experience “could make it much more interesting than it is today,” though, Dixon added.

PLAYING CATCH-UP

While it’s debatable as to whether the Apple TV had fallen behind from a capability standpoint, it’s clear that it has lost ground to the competition. While Apple has shipped more than 25 million Apple TV units so far, Roku held 34% of the streaming device market at the end of 2014, giving it the lead on Google Chromecast (17 million units shipped at last count) and Amazon Fire TV, with Apple TV bringing up the rear, according to Parks Associates.

“Given the pricing, Apple is targeting a premium market, rather than market share, so we would not expect to see significant lifts in overall share of sales but would expect to see a strong showing among a premium market segment,” Barbara Kraus, director of research at Parks Associates, said.

She believes, however, that the new Apple TV could steal some gaming share from platforms such as Xbox and PlayStation if it can carve out a niche between the core and casual gaming markets.

Still, the Apple TV’s open app approach could put pressure on Roku, Microsoft, and even pay TV operators to do the same.

PRESSURE TO OPEN UP

Apple’s decision to go with an open ecosystem for the new Apple TV “is a bold statement,” Jason Flick, the CEO of You.i TV, a maker of a crossplatform user interface platform that counts Sony Crackle and Corus Entertainment among its clients, said. “It’s a blow for others that are using a closed, more template-based approach. People will need to open up. It will raise the bar quickly for TV apps.”

That could create concern for multichannel video programming distributors (MVPDs) pushing forward with IP-based platforms and technologies such as the Reference Design Kit, which are designed to foster innovation and help operators create systems that support their own apps as well as those from third parties.

But so far, MVPD app lineups are relatively small. For example, Comcast’s X1 platform, which uses the RDK, supports a few apps from outside developers, including Facebook, Flickr, Pandora and a new set-top gaming service offered in partnership with EA.

BTIG analyst Rich Greenfield said he believes Comcast has something to worry about, particularly when it comes to Apple TV’s revamped interface. The new Apple TV UI and remote, he tweeted, “make Comcast’s X1 look ancient.” Ouch.

CABLE CONCERNS

But if cable operators are harboring fears about Apple’s new platform and the potential OTT TV competition it represents, they are showing it in a measured way.

“Apple is another competitor for us, a serious competitor for us,” Cox Communications president Patrick Esser said soon after the debut of the new Apple TV during an interview on Fox Business Network’s Closing Bell With Liz Claman. Traditional pay TV providers and their packages still provide more bang for the buck than what consumers can create on their own using OTT options, Esser said.

“I think our product is the best value on the market, and often customers go out, and by the time they buy a number of over-the-top services, they find out that [with] our multichannel video product they actually get more for the money they pay than they do if they go and try to pull it off of the Internet,” he said.

But is Esser “dreading” the adoption of Apple TV?

“No, I’m not,” he said, though he acknowledged that the video market is more fragmented than it has ever been. He said, Cox, like Apple, has opportunities to innovate over broadband. Cox has already created over-the-top offerings delivered outside its cable footprint, including flarePlay, a subscription gaming service, and a recently released free, video streaming aggregation app for youngsters called flareKids.

But the new Apple TV could open up more doors for programmers, a group that is increasingly going over-the-top and direct to consumers, though some are still trying to make heads and tails of it.

The new Apple TV is “more exciting than terrifying … It’s a little of both,” AMC Networks CEO Josh Sapan said last week at an event in San Francisco hosted by technology website Re/code. “All of this technology means you can choose more and be dictated less by a bunch of people who work in television programming.”

Tale of The Tape: The New Apple TV

Price: $149 for a 32-GB model; $199 for a 64-GB model. Apple is still selling the older Apple TV model for $69, making it the low-end entry-level model of the lot

Availability: End of October

Size: 3.9 inches by 3.9 inches by 1.3 inches

Weight: 15 ounces

Ports and interfaces: HDMI 1.4, 802.11ac WiFi with MIMO, 10/100Base-T Ethernet, Bluetooth 4.0, IR receiver, USB-C (for service and support)

Processor: A8 chip with 64-bit architecture

Video formats: H.264 (up to 1080p and 60 frames per second)

Remote: Bluetooth 4.0 wireless (for non line-of-sight), IR transmitter, researchable battery (three months on a single charge), Siri integration, built-in accelerometer and gyroscope

Content: OTT offerings on board with the new Apple TV in the early going will include MLB.tv, HBO Now, Showtime, Netflix, Hulu, Watch ABC, YouTube, CNNGo, NBC Sports Live Extra, Fox Now, PBS Kids, PBS, USA Now, WatchESPN, Watch Disney, and NHL GameCenter

— Jeff Baumgartner