EkaLore uses the Alien Invader framework to look at companies that seemingly come out of nowhere to dominate a market space. They come from another market or geography, confound their competition by not playing by the “rules,” and suck the most profitable business out from underneath their competition.
Alien Invaders quietly took over a key movie business in a few years, starting in October 2013. The transition moved Movie Theaters from receiving cans of movie film/disks to all-digital distribution from 55 content providers to 3000 theater sites across 420 exhibitors and 33,100+ screens in the USA. The Digital Cinema Distribution Coalition (DCDC) was started by exhibitors to manage and move the content. The Alien Invaders used new capital, technology, and a new business model to achieve a successful invasion.
Theater-grade movie films on media were expensive - $1,500-2,000 per print. The number of theater screens a new ‘hot’ movie could premiere on was limited by how many prints companies like Deluxe Media made. As movie theaters wanted to show a hit more times on more screens in the first weeks, the costs to producers became headache-grade risks. Deluxe Media made money producing the film copies at four plants across North America. Even as films became digital, the costs were still present as hard-disk drives were distributed via Fed-Ex to theaters for access just-in-time for movie critics, special previews, and then feature presentations. The business model split the costs of distributing copies between the movie distributors and exhibitors. At 3-4,000 copies for a large release distributing copies was a significant money risk for a movie producer. Transformation by Alien Invasion moved capital risk for film distribution from movie producers to an expense line item.
The DCDC changed the business models. Starting in 2010, theaters used $660M in seed money to equip a critical mass of 14,000 theaters with digital projection. By 2014 only 30-40 ‘film prints’ of a movie might be made. By 2017 migration to digital projection was essentially total. DCDC moved to a model with no membership, no licensing, no installation costs, no equipment costs, no maintenance costs, and no distribution fees. It owns all the equipment from end-to-end, right to the on-premise delivery computer servers. The primary Internet delivery mechanism is satellite with terrestrial broadband also used.
DCDC’s service provider, Deluxe Media’s operations, started in 1915 and transformed as the entertainment media industry transformed. Deluxe Media went from silent films to ‘talkies,’ to large-format movie film duplication, to producing a billion video cassette tapes, to DVD production. The same progression to streaming Netflix on cell phones devastated earnings at Deluxe Media (and Technicolor), with Deluxe Media a pre-planned bankruptcy in October 2019 just before Covid-19 devastated the theater business. Massive film and media duplication has transformed into Internet-based content management and delivery service using satellite connections (from EchoStar/Dish) and broadband. Instead of distributing massive quantities of encrypted hard drives, the content can now move across wirelessly.
Even as AMC and other movie theater chains became the darlings of “MEME investing,” the fundamentals of the movie business were being changed by an Alien Invasion – direct-to-theater distribution of movie content to theater premises. Physical logistics (encrypted hard disks delivered and then placed into digital storage units on demand) were replaced by digital logistics – a change from an operating cost driven structure to an upfront capital cost with a consistent operating cost.
The Alien Invaders used:
· capital (development and deployment of a digital distribution architecture),
· new technology (satellite, fiber/cable, wireless), and
· a new business model (multiplex theaters with multiple showings not dependent on physical film prints)
to invade and disrupt a highly profitable business driving the structure of an entire industry.
Look for our next Alien Invader piece at - www.ekalore.com/alien-invaders
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