Cinema Expo embraces 3D
Empty"There's something wrong here."
After four decades in exhibition, Steve Wiener, the founder and CEO of U.K.-based Cineworld Group, took a look at the grosses for the 2009 3D release "My Bloody Valentine" and knew something wasn't quite right.
"I looked at the film buyer," Wiener recalls, "and he said, 'What's wrong?' I said, 'How can the grosses be standard (in other words, the same boxoffice day after day) at this one cinema?' He looks at me and says, 'Steve, when you have 100% sold out for the entire day, you're going to get the same gross.' "
Weiner understood the implications immediately. "That's when I sat up and said, 'Wow!' " he says. "This is something special."
From that moment on, the race toward full digital cinema conversion was on. Cineworld already had 74 digital projectors paid for by the U.K. Film Council in return for playing specialty and art movies. After "Bloody Valentine," Wiener triggered the start of a complete transformation. Today his company has 252 digital screens out of 790 and is vying with Odeon UCI to see which will be the first in the U.K. to be all digital.
These companies aren't alone. The digital transformation has accelerated worldwide at an unprecedented rate during the past year. What has happened in Europe provides a sense of the pace: In 2009 there was a nearly 207% increase in digital screens in the region, according to the European Audiovisual Observatory, from 1,529 to 4,693 screens, with digital sites increasing from 815 to 2,374.
Most of that growth comes from the placement of one to five digital screens in each multiplex, primarily for 3D. "We made a concerted effort last year, knowing 'Avatar' and 'Alice in Wonderland' were coming," says Drew Kaza, executive vp digital development at Odeon UCI Cinemas, which operates in the U.K., Germany, Italy, Portugal and elsewhere.
" 'Avatar' was the wake-up call to everybody to show how big a 3D movie could be in the marketplace, and certainly exhibitors who did not have a good number of 3D screens have taken action," adds Andrew Cripps, president of Paramount Pictures International, which also handles DreamWorks Animation.
Cripps notes that last year PPI booked 1,300 locations for the 3D version of "Monsters & Aliens" (outside the U.S.). This year, for "How to Train Your Dragon," it had 3,900 locations, and for this summer's "Shrek" sequel he anticipates 6,500 locations. "In a year and a half, we've seen fivefold growth," he says. "It's now happening very quickly."
"Interest in new theaters internationally has skyrocketed," Imax CEO Rich Gelfond says. " 'Avatar' not only drove 3D but also Imax growth." Indeed, as new multiplexes with stadium seating, expanded concessions and other amenities have opened, Imax has become one of the crown jewels of international.
So, after several years that saw growth of digital to facilitate 3D, the push is now on to convert the entire cinema world to digital.
"3D has been a great catalyst for conversion," says Bud Mayo, chairman and CEO of Cinedigm, which is facilitating conversions across North America, and providing software, management servers, exhibitor services and alternative content worldwide.
Mayo adds that the advantages of digital conversion are now abundantly obvious, including an increase in efficiency because this requires fewer, less highly trained employees, as well as an increase in flexibility that allows movies to be moved or added at the click of a mouse.
"A true digital cinema solution provides better image and sound quality that never degrades," he says. "And most importantly, it can create new revenue streams from things like live events -- sports, opera, concerts, business meetings -- which can fill auditoriums, often in what would otherwise be quiet times for theaters."
This comes at a time when financing for the switchover is also newly available. Odeon is financing its own conversions through cash flow and private investment. It deals directly with the five big distributors -- Fox, Disney, Paramount, Warner Bros. and Universal -- and receives virtual print fees as each picture is released in order to repay much of the cost.
"We signed our fifth (U.K.) studio deal a couple weeks ago," Kaza says. "We've now pressed the button on the full rollout."
Cineworld signed with Arts Alliance Media -- an "integrator" that raises money for thousands of conversions and is repaid through VPF fees and by providing services -- to convert all of its 790 screens. Nearly half will be able to show 3D.
Mayo explains that most of the VPF contracts with studios are for 10 years but don't kick in until installations are complete, typically two to four years after they start. That means in a dozen years the studios will no longer have to pay for prints or virtual print fees.
By then, says Mayo, they will have a business based on owning the equipment, maintaining systems, providing software upgrades, delivering alternative content and operating satellite and advertising networks.
While Cinedigm is the second-largest integrator in the U.S. after DCIP -- which is converting large U.S. exhibitors including Regal and AMC -- there are others all over the world. In Europe, along with Arts Alliance, there is XDC and Sony, for example. There are also locally based integrators in China and Korea, among others territories.
Howard Kiedaisch, CEO of Arts Alliance Media, says integrators make it possible for small exhibitors to compete in the digital realm.
"It took us two years negotiating with the studios to get the VPF deals done, so there's a lot of work, a lot of expense, a lot of flying to Hollywood," he says. "The idea of small owners doing that themselves is unrealistic."
Arts Alliance, which has already converted circuits in the Netherlands, France, Denmark, Germany and other parts of Europe, did its first integration fund for €20 million in 2008 to convert Circuit George Raymond Cinemas, the third-largest circuit in France with 400 screens.
Then the credit crunch hit and it was impossible to raise money. "Everything froze for pretty much all of 2009," Kiedaisch says.
To participate in the 3D bonanza of premium ticket prices and young audiences who buy lots of concessions, many exhibitors paid out-of-pocket to put in a couple digital screens for 3D.
A year ago, recalls Kiedaisch, Wall Street banker JP Morgan was trying to raise money for DCIP without success. "They had the biggest exhibitors in the world and couldn't get the money," he says, "so the idea that anyone else could was pretty much hopeless."
DCIP finally raised nearly $700 million in March, says Kiedaisch, and "everyone said, 'OK, if they can do it then it can be done.' "
Shortly after, Arts Alliance raised €50 million from Sankaty Advisors, an affiliate of Bain Capital, for a two-year digital rollout. "We're finally good after five years of hard effort," Kiedaisch says. "Now we're just trying to keep up with market demand."
It has been an even longer road for another digital pioneer, Germany's Film Ton Technik, which has provided projectors, sound equipment, stages, seating and services to cinemas for 50 years. In January, FTT sold majority control to XDC, the pan-European integrator that has raised more than €100 million to finance digital conversions.
FTT president Thomas Ruttgers saw his first digital projector (a 1.3K from Christie) at ShoWest in 2000. He felt immediately that "traditional 35mm will go away," but didn't imagine how long it would take.
By 2003, FTT was installing 1.3K projectors in Germany, the U.K. and elsewhere. As technology developed and standards were set, it offered 2K projectors and recently Sony 4K projectors.
"In the beginning, there was the idea to have a national solution for each country," Ruttgers says. "It took more than two years to find out that was unrealistic, so it delayed the digital train. Now everybody sees we need third parties to finance (the rollout) in big quantities across many countries."
XDC has now installed more than 500 digital screens in 10 European countries and is also providing VPF-based financing as FTT offers an end-to-end solution for exhibitors. FTT has converted 350 screens in Austria, and Ruttgers estimates it has a 60% digital market share in Germany, Belgium and Holland. "We have been growing quite dramatically," he adds.
Riding the "Avatar" success, Imax has also expanded rapidly in Europe, Asia and even Latin America, including Chile, Argentina and Brazil, where the first Imax site is now the highest-grossing theater in the country, Gelfond says. Things have moved slower in Mexico because of political and financial problems.
Miguel Mier Esparza, COO of Mexico's biggest exhibitor, Cinepolis, admits Latin America has lagged behind Asia and Europe in digital conversions but says it is moving at a deliberate pace. He notes that Cinepolis already operates 202 digital 3D screens out of its 2,300 across the region.
Esparza says Cinepolis is big enough to finance its own complete conversion and sees an advantage to doing so. "We believe we can be more flexible doing it directly," he explains. "Integrators add a layer of complexity and a layer of cost."
Aside from Cinemark, Esparza says most competitors in Latin America are behind them, but predicts all will catch up. He sees a time in the next few years when distributors will want to deliver all movies in digital and he intends to be ready.
"We are moving in this direction," Esparza says, "because the world trend is moving in this direction."