Distributor Sees DVDs as Blessing

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It’s not easy being a DVD distributor in the budding era of streaming video. Sales of discs have been falling for years and many of the format’s major retailers have gone out of business.

But rather than abandoning discs, Image Entertainment Inc. is putting its faith in a new division called Slingshot Pictures that will distribute religious DVDs.

The Chatsworth company hopes to capitalize on an audience that appears willing to continue shelling out for DVDs.

“What gives a film life on DVD is word of mouth. A title that has an evangelical message catches on like wildfire,” said Suzette Schafer, who previously launched Weinstein Co.’s faith-based division and was hired by Image to run Slingshot.

Image, which distributes straight-to-DVD feature films, along with a range of TV series and classic movies, is starting off slowly with one release in DVD and Blu-ray during the holiday season, when sales of faith-based movies peak. The film, “Alleged,” stars one-time presidential candidate Fred Thompson and tells the story of a romance set during the 1925 Scopes trial, which placed a high school teacher on the stand for teaching evolutionary theory. The division plans to release six films over the next two years before scaling up operations.

In entering the religious market, Image is taking on both major studios and independent companies. Many of the studios have divisions dedicated to the genre, such as Sony Pictures Entertainment properties Provident Films and Affirm Films. Those divisions recently marketed and distributed “Courageous,” a Christian film about law enforcement officers struck by tragedy, produced by Sherwood Pictures of Albany, Ga. Retail sales take place at religious stores and big-box retailers such as Target Corp.

The move comes as Image has been trying to find a business model that works amid declining DVD sales at its distribution outlets, including Amazon.com, Wal-Mart Stores Inc. and Costco Wholesale Corp. The company has recorded net losses of $8.5 million for the last two fiscal years after paying preferred shareholders. Its stock trades for just 10 cents over the counter.

San Francisco private-equity firm JH Partners acquired a majority stake in Image last year for $22 million. It then brought in new management, including Chief Executive Ted Green, a home entertainment industry veteran.

Under Green, the company has been negotiating deals with production companies and studios to gain digital distribution rights that it can sell to outlets such as Netflix, which also is a buyer of Image’s DVDs.

But while streaming video is a growing part of Image’s business – sales grew 50 percent to $6.3 million in the fiscal year ended March 31 – DVD sales still accounted for 65 percent of Image’s $89 million in revenue for the last fiscal year.

Peter Broderick, a film distribution consultant, said that starting the faith-based division makes sense and sales of such films could have a measureable impact on the company’s bottom line for some time.

“If families are going to watch a film together, it’s less likely that they’ll be doing it through their Apple TV or Roku player,” Broderick said. “It’s more likely to be a DVD that they can stop, start and rewatch.”

Disc moves

Schafer said she has been talking to Apple Inc. about launching downloads of Slingshot’s faith-based material on iTunes and branding it as “inspirational” content. But she expects most sales to still come from DVD, which the faith-based market has stuck to even as the mass market is running away from the format.

“What works at … Family Christian Stores is the DVD,” she said, adding she has been watching faith-based films every day to look for possible acquisitions.

Schafer already has had some success. She was able to cut a deal with Wal-Mart to have the world’s largest retailer distribute “Alleged,” which was made by independent production house Two Shoes Productions for $4.1 million. The story focuses on a young reporter who covers the trial and has a fiancé with deeply religious views.

She said the trick to getting placement at Wal-Mart is delivering a film with just the right amount of evangelicalism. “I have to find the right combination. I’m looking to acquire films that resonate with the general market,” she said.

She also is trying to establish relationships with clergy, who can pass along their excitement to congregants.

“You’re out there talking to top ministry – that’s what we’re all trying to do,” Schafer said. “That is meeting the consumer. You meet the consumer where the consumer goes every week.”

Slingshot’s other films are “Decision” and “The Heart of Christmas,” which will be released next year. “Decision” is about a teenage boy discovering his faith after the death of his firefighter father. “One Last Christmas” is the story of a family spending what they believe to be a last Christmas holiday with their leukemia-stricken 2-year-old son.

Schafer said she hopes to eventually start producing the films in-house, following the mold of Sherwood Pictures. The independent studio couldn’t convince Wal-Mart to carry its first film, but is now a major box office player after, following the release of “Courageous,” which was made for $2 million and has been a hit at the box office this month.

Meanwhile, Image also has been seeking to broaden its library of titles, with a wider range of genres and newer releases featuring identifiable leading actors. Many of its titles are lower-budget releases, though about 25 percent of the company’s revenue comes from a small group of films in the Criterion Collection, a line of classic movies that includes the original “King Kong” and “The Wizard of Oz.”

Since last year’s takeover, Image has acquired more than 500 titles boosting its library to some 3,200 titles. The biggest acquisition so far has been the purchase of Madacy Entertainment, a Quebec, Canada, distributor that owned the rights to “Bonanza,” “The Three Stooges” and “The Lucy Show.”

To free up more cash for acquisitions, Image opened a $17.5 million line of credit with PNC Bank in June, after terminating a $15 million line of credit with Wells Fargo.

In its 2011 annual report, the company credited cost reductions and new borrowing ability for the acquisition of one of its biggest recent hits, “The Way Back,” a film featuring Ed Harris about a group of refugees escaping the Russian gulag. The film never cracked the top 10 at the box office, but it has sold well for Image on DVD, Blu-ray and streaming since its April debut.

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