Cinedigm Acquires Stake in Chinese Entertainment Company

Home entertainment distributor Cinedigm has signed a stock purchase to acquire about 29% of Chinese entertainment company Starrise Media Holdings Limited. In exchange for the stake, Cinedigm is giving a total of 54,850,103 shares of Class A Common Stock worth about $44.5 million. The company expects to close the acquisition in the first quarter.

Cinedigm, which is majority-owned by Hong Kong based investment firm Bison Holding Co., says the deal would help its presence and leverage in both the Chinese and North American markets.

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“These are the two biggest entertainment markets in the world,” Chris McGurk, CEO of Cinedigm, said in a statement. “Following the close of this transaction, Cinedigm will be uniquely well positioned to grow our content distribution and OTT streaming businesses in both key territories.”

The company expects to obtain the approval of the acquisition by a majority stockholders, in addition to any regulatory issues — the latter no small matter in today’s hyper-charged trade environment between the Trump Administration and China.

“This proposed transaction is a strong additional measure of support for Cinedigm by Bison Capital, our largest shareholder,” said CEO Gary Loffredo. “We look forward to working with Bison to identify additional opportunities to build our business, particularly in the fast growing AVOD OTT streaming segment as well as further strengthening our balance sheet.”

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Cinedigm has already been working with Bison to develop strategies and forge partnerships to release entertainment content and develop OTT channels in China while, reciprocally, releasing Chinese content and new OTT channels in North America, such as the recently launched Chinese language content channel, Bambu.

In calendar year 2018, Starrise reported about $139 million in total revenue and gross profit of $31 million, a 97% increase from 2017 revenue and 196% increase in gross profit. In the first half of calendar year 2019, the Starrise reported revenue of about $67 million and gross profit of $19 million, a 11% increase in revenue and 104% increase in gross profit.

Starrise’s film/TV business segment mainly invests in film, television and other short-form content. It distributes film content theatrically and to all key media platforms in China and is committed to significantly growing its investment in entertainment content for the rapidly expanding Chinese theatrical and digital marketplaces.

Recent prominent film investments by Starrise include The Wandering Earth, one of the most successful Chinese films ever released, generating almost $700 million at the box office in China in 2019 and The Grandmaster of Kung Fu, a successful Internet-released action movie.

Cinedigm Eyes Super Bowl Discs, China, Hallmark to Help Turn Fiscal Corner

Cinedigm is banking on a pending Super Bowl DVD/Blu-ray Disc release, in addition to expanding streaming video distribution through its Chinese corporate owner, to help it turn the fiscal corner.

Speaking on the third-quarter (ended Dec. 31, 2017) fiscal call, CEO Chris McGurk said he expects the March 6 retail release, Philadelphia Eagles Super Bowl LII Champions, to generate 20% to 30% more than last year’s Super Bowl release.

“While we focus on growing our digital business, we also recognize that we can selectively and opportunistically generate increased profits as a last consolidator in the declining physical DVD and Blu-ray business,” McGurk said.

The executive said sales of Hallmark Christmas titles increased 43% in the quarter from the previous-year period due to online sales driven by Amazon.

Last December, Bison Capital infused a $10 million low-interest loan to Cinedigm as part of a $40 million investment, making the Chinese investment group majority owner.

“In connection with that closing, we retired the remaining approximately $50 million in convertible notes that we have been carrying on our balance sheet, completing the full elimination of the $64 million in notes issued in 2015,” McGurk said.

He said the company continues to streamline packaged media operating costs — $11 million slashed over the past two years, while focusing on select brands such as “Hitchcock,” “Gangster Land,” “Hallmark” and NFL.

McGurk said Bison’s capital infusion for content investment, underscored by a “much more open playing field competitively due to industry consolidation,” would help entertainment distribution going forward.

Specifically, Cinedigm plans to generate “significant distribution fees” by releasing select indie films theatrically and delivering home entertainment content to Chinese platforms, including mobile, TV and online.

“Our advantageous position in China and new joint venture with Starrise Media should help us bring in more premium high-return content, McGurk said.

The executive believes the Starrise agreement could generate upwards of $15 million in annual revenue.

Meanwhile, Cinedigm reported a fiscal loss of $5.9 million on revenue of $18.5 million, compared to a loss of $481,000 and revenue of $24.4 million during the previous-year period.

Through the nine fiscal months, net losses increased to $18.7 million from $5.7 million last year. Revenue fell to $50 million from $70.8 million.

 

Cinedigm Expands Chinese Distribution

Cinedigm Jan. 19 announced an alliance with leading China-based Starrise Media Holdings Ltd. to release movies in China theatrically and digitally. The deal also paves the way for Cinedigm to distribute Chinese films in North America.

Los Angeles-based Cinedigm is majority-owned by Hong Kong private equity group Bison Capital.

Hanks He, executive director of Starrise Media, will lead the entertainment fund in the partnership. Chun Chen, who recently joined Cinedigm as the distributor’s China representative and is based overseas, will help coordinate the activities of the two companies.

Cinedigm says it will be one of a few American companies with access to the Chinese theatrical market, where U.S.-produced content generated $3.26 billion dollars at the box office from just 64 releases in 2017. In addition, Cinedigm will gain access to the fast-growing streaming content sector in the country, which generated $7.7 billion in video ad revenues and $1.3 billion in subscription revenues from 535 million video consumers.

In addition to theatrical titles, the partnership plans releasing content into the home entertainment marketplaces in China and North America – focusing on digital platforms.

In addition, the two companies will evaluate opportunities to jointly produce Chinese/American film co-productions.

“Following last year’s key investment by Bison Capital, this deal with Starrise is an important step in implementing our plan to become the first true China/North American studio, strongly and uniquely positioned for high-quality content distribution and OTT channels and services in both hugely important territories,” CEO Chris McGurk said in a statement.

Each company will contribute expertise in local content evaluation and acquisitions, key talent relationships in each territory and quality, comprehensive entertainment distribution and marketing services.

While the initial focus will be on feature films for each territory, future plans also include television and short-form content for planned OTT channels in China and in North America.

“We believe Cinedigm’s unique position in the entertainment marketplace, coupled with their significant experience in OTT channels and digital aggregation, serve as the perfect complement to our strengths in premium content production and distribution in China,” said He.