Dialogue: Theatrical exhibition business
Leading voices in the distribution and exhibition sector offer their take on everything from 3-D to preshow entertainmentWith the 2006 boxoffice rebounding nicely and 2007 off to a roaring start, Hollywood's exhibition and distribution community is decidedly upbeat. But as digital cinema installations become a reality and the amount of films entering the market reaches record numbers, the industry must still grapple with myriad issues. The Hollywood Reporter's Nicole Sperling moderated a wide-ranging discussion with John Fithian, president and CEO of the National Association of Theatre Owners; Ted Mundorff, vp film and head film buyer at art house chain Landmark Theatres; Travis Reid, president of Digital Cinema Implementation Partners, a subsidiary of National CineMedia; and Chuck Viane, president of domestic distribution for Buena Vista to examine major issues facing the exhibition community today.
The Hollywood Reporter: Is it frustrating that the Academy Awards no longer translates into additive boxoffice dollars for your bottom line?
Ted Mundorff: I think for the last several years that really has been the case. (2005's) "Crash" won last year, and it was not a benefit to theatrical distribution. However, it was a huge benefit to Lionsgate (the film's distributor) on the video side. I'm not so sure that with the short window now between the nominations and the awards that there's the benefit there used to be anyway for the Academy Awards. The nominations and the actual awards have been shortened, and I don't think it's been a benefit to theatrical distribution at all.
John Fithian: At NATO, we attempted the first couple years of the shortened schedule to track the impact on boxoffice from the awards process, and there was a negative impact. There isn't enough time to use the buzz of the nominations to really translate into a continued, expanded theatrical run, and also, you've got the pressure of doing a DVD with the nominations. So overall, the changing of the schedule (has not had) a positive impact on exhibition.
THR: Let's get into the other window discussion that seems to always be the hot-button topic out there. Recently in Europe, we saw exhibitors boycotting Fox for its condensed window between theatrical and home video. Do you think that there's a chance that we could see something like that here if the windows continue to shrink?
Fithian: Well, a choice on playing or not playing films is obviously made by individual companies in their policies of what's right for them. I think that we have witnessed some stabilization in the windows over the past couple of years. In 2006, our numbers suggested that the windows on the bigger pictures -- those that grossed more than $100 million -- actually widened from '05 to '06. Those that grossed over $50 million were virtually the same in '06 as they were in '05. So, for the bigger titles, we've seen some stabilization; for the smaller titles, they will continue to shrink, but we're still on average in excess of four months. I think that what you saw in Europe is that individual companies decided that a window that was accelerated so dramatically that a picture still had substantial life in its theatrical run creates a problem. There were some leading companies in Germany and in the U.K. that decided simply not to play those pictures anymore because of the pending release on DVD. I was pleased to see Fox's reaction to that by widening the window in Germany and respecting that four-month period there. It's possible that individual companies in the States would make the decision not to play pictures if they judge the window to be too short. It's certainly the case that every major exhibitor of the top tier in the U.S. has articulated a policy for their company of not (playing) pictures in simultaneous release -- i.e. pictures that are released to cinemas in the home at the same time.
THR: What about a day-and-date issue? I don't want to put the pressure on you Ted, but considering that you and Landmark and HDNet and Steven Soderbergh have experimented with the day-and-date release, you're the guy with the answers. You also are releasing much smaller movies. So, is it a different situation for you? Has it been successful for you and how do you reconcile that this could be a slippery slope? That if you start eroding that space between theatrical and DVD, people will stop going to movie theaters?
Mundorff: Well, I think you used the proper word -- the word is "experimentation." Certainly, we've played films day-and-date that are very small films that really probably do not even interest the three-largest circuits that represent 50% of the country, and we have a financial interest in these films as far as boxoffice. We are in a unique position to be playing films by smaller folks day-and-date, and we're now playing larger films day-and-date. But (2006's) "Turistas" was not day-and-date, which was a 2929 Prods. (film). (2005's) "Good Night, and Good Luck" was not day-and-date, so we are experimenting, and we don't know the answer.
THR: In the end, what are your thoughts on the way Soderbergh's 2006 low-budget drama "Bubble" performed? There was so much controversy about its day-and-date release.
Mundorff: I believe that "Bubble" performed (better than most films) of that size because of the huge amount of publicity (it received). I think we (had a story on the) front page of every major newspaper across the country for that release, so we got a lot of exposure. From that standpoint, it was very successful. Soderbergh is making another film -- I don't know the release date on it -- but we will continue to release on a day-and-date basis the next three HDNet films, which will be this year sometime.
THR: Let's talk about 3-D digital distribution. Chuck, when you first signed up for digital 3-D distribution of 2005's "Chicken Little," did you believe that it would have been such a strong catalyst for deployment of digital cinema?
Chuck Viane: The originating idea behind our foray into 3-D was that we were trying to delineate the in-theater experience from the at-home experience, and it was with that thought in mind that we went into our first test. It didn't take but a few days of dailies to understand that it was going to be bigger than we all thought, and I think the future is nothing but roses.
THR: What are the expectations for Buena Vista's upcoming March release "Meet the Robinsons"?
Viane: We have always dreamt of delivering 500 sites for 3-D. It appears as though we are oversubscribed to the 500, with an opportunity to go higher. When those numbers become available to us -- probably the Monday before (the film is released) -- we will make it public. But it's very exciting to see people jump on the bandwagon. I think the continued success of (the 3-D rerelease of 1993's) "The Nightmare Before Christmas" in some of their major locations showed that the public is very interested in the format.
THR: Travis, what's your perspective on 3-D as the catalyst for a lot of d-cinema deployment with the three major exhibitors you're working with?
Travis Reid: We're not quite done, but we expect to execute agreements to all three circuits to add what would be a very significant amount of screens for "Meet the Robinsons." We don't look at the screens we deploy for that as really being part of a rollout or anything. We're deploying to support 3-D and to continue to see the growth in 3-D. The release schedules are beginning to (get to) where there's going to be more product available. There's more variety coming, so we all think that's a good thing, and that does add incentive to what's a bit of a painful bottle to figure out: how to get digital cinema deployed even though we all think it's an important transition for the industry to make.
THR: I would also imagine that 3-D is the obvious sell to the consumer. Are you finding that consumers are keenly interested in the digital experience as well?
Reid: There may be different opinions around the table about what digital has meant today to a consumer. I don't think that it's caused changes in consumer behavior (of) any significance. That said, we do think it's going to be a better experience for them to have the consistent presentation on the screen. So yeah, I think 3-D's a differentiator test, digital is not exactly. The experience is very differentiated from the home experience in a lot of ways besides the screen, the inversion, the focus on the screen.
Viane: One thing you should factor into all of this is you ask about what does digital bring. At the moment, it brings to about 2,000 screens in this country a pristine experience that (consumers) would not have in weeks four, five, six, eight, nine (after a film print begins to show signs of wear and tear). Anytime you deliver a better product to the customer, that's a good thing.
Fithian: To pick up on both of the points that Chuck and Travis were making, yes, digital cinema is going to make a big difference in our business. It has not made a big difference in our business yet because the penetration is still small. As Chuck pointed out, 2,000 screens out of 43,000 is not yet a wide-scale rollout, so we're not heavily marketing, heavily pushing it. The consumer is not yet aware on a wide-scale basis of the benefits of digital cinema, but that will come, and it will come relatively fast. Three-D -- I guess I'm like Hillary Clinton, I'm willing to accept the fact that I was wrong because I did not believe that 3-D would be as big of a catalyst as it is now. I still believe it is not the reason to do digital cinema. There are many good reasons to do digital cinema as Travis has articulated -- the programming flexibility, higher and more consistent quality. Those are the main reasons to make the transition. But 3-D is becoming a much bigger value add than I originally thought. "Chicken Little" and "Nightmare Before Christmas" blew the socks off all of our members. When you can take a product that's been around for a while and bring it out and make $9 million in a weekend, (that's impressive). And you've got people like George Lucas saying, "I'll bring all the 'Star Wars' pictures back out and put them out in 3-D." You look at 2009, and you see Jim Cameron having announced "Avatar" for June; Disney's got a big picture coming with "Meet the Robinsons." By the time we get to '09, 3-D will be a very serious part of our economics, so if you want to predict the rollout timing, I think you've got to look at '09 as a very significant year. If you've got a bunch of big filmmakers and a bunch of big studios betting on 3-D and digital cinema by that year, (things are) going to be pretty far along by that year.
THR: How is the rollout of digital going? Is it becoming easier for the deployment, or are there still a lot of issues that need to be hammered out as more and more screens go digital?
Fithian: Yes to all of those. Everybody is learning the rollout at 2,000-plus screens is still a relatively small fraction of the marketplace. Landmark's got their hands in this. Travis and his company (has their) hands in this. Most of the companies in the marketplace are at least experimenting while they work out their own kinks and their own systems. At the same time, the specs and the standards continue to develop. (Digital Cinema Initiative) did us great help with the specifications, and there's more being done on that. The Society of Motion Picture and Television Engineers continues to crank out standards, and the equipment continues to improve. It's more now not about individual components, it's about getting systems to work together and working on interoperability. All these things are moving, but to say the kinks are worked out? No. We're getting there.
THR: From a distribution standpoint, are you spending a lot of time on systems going down over the weekend or not really?
Viane: It's not a factor. The reliability for the product that we have put into the marketplace and the sites that we have played has been well into the 99.5 category, so like anything else, you can't stop power failure. It brings down the whole house of anybody, but it will be a decade from now before we can look back and say, "OK, this is the reliability factors, this is the lifespan." The beauty of it is that theater owners now really care and continually upgrade their systems -- whether it's a sound system or a projection system -- and the experience from the public ends up being better because of it.
Fithian: With complicated electronic equipment, there's always a greater risk of obsolescence and costly upgrades, but I think those risks are decreasing over time. If you look at the earlier rollouts of 1.3K projectors, those are now obsolete for major motion pictures, but what DCI did in taking the input of exhibitors and others was establish a range of specifications that we know what we're shooting at. It's 2K and 4K resolution. Period. And you don't need to go higher than that. The human eyeball can't see anything higher than that, so even if you can make an 8K or a 10K projector, who cares? It doesn't change the perceptive value of the consumer sitting in the chair.
THR: Travis, can you go into more detail about DCIP, which is the new name of your spinoff from National CineMedia?
Reid: Sure, it's pretty simple. It's a company that's equally owned by Regal (Entertainment Group), AMC (Theatres) and Cinemark, and our goal for the foreseeable future is to implement digital cinema and everything that surrounds digital cinema. (We're going) to participate with the exhibitors, resolving the issues that we need to resolve and executing the agreements and making the different deals and getting the equipment deployed.
THR: And do you expect to sign on additional exhibitors beyond the three that are currently part of the organization?
Reid: Yeah, our current anticipation is that (is) what we'll do is once we get things structured so that we really have our financing arranged. We're looking to arrange that in a way that's scalable, so (once) we really know what those economics are going to be, we would start to talk to other exhibitors about participating.
THR: Where is Landmark in this process?
Mundorff: We've been aggressive in going on our own and putting in digital equipment in every market. We have at least a 2.0, we're able to exhibit at least 2.0 or higher in every market that we enter.
THR: Is it DCI-compliant systems that you put in?
Reid: No. Not all our systems are DCI compliant. We are continuing to figure out what servers and what projectors we will continue to use or will add to our system. So, we have systems of all sizes and descriptions.
THR: Does that make things more challenging with all different kinds of systems, or is it more just experimentation?
Mundorff: Well, I think as things roll out and as we continue with the use of some of our new builds this year, we know technology is changing fast. I don't know that what was the best and the biggest and the most wonderful six months ago is the case today -- it's changing so quickly. What's DCI compliant, what's Academy (of Motion Picture Arts and Sciences) compliant is not the same, so we're very sensitive to that. Some of the delivery that we are doing to theatrical distribution doesn't need to be DCI compliant.
THR: What about the opportunities for programming digital content during off-peak hours? What can we expect to see in the future along those lines?
Reid: I think there's two ways to look at that. From a point of view of the ability to execute, NCM been able to do a lot of different programming. They've had a very high success rate without any issues or failure almost entirely through the satellite network. On the revenue-generation side, it's in an incubator stage. There are surprises, there are things that you would not expect to really have major (impact) that work. They've had some success with some broad-based music events. It's still a very small part of NCM's business, of the exhibitor's business, but it's something that does have upside potential.
THR: More compelling advertising is another promise of digital advertising, but everything we always hear from consumers is that they just want less advertising. Are circuits sticking to the idea of airing commercials before a movie's start time? And how does that impact the playability of trailers?
Reid: The three exhibitors that I work with do not run anything but theatrical trailers or possibly their own logo trailer postshow time, so any advertising that takes place is preshow time. As you've probably seen through NCM's program is an effort to mix content with advertisements. One of the things I think that the consumer forgets when they're sitting there -- and I don't know how to better convey this -- is their choice is a blank screen or the old slides (exhibitors used to show). I think they think it's infringing on that time that they should have been seeing the movie, and it isn't.
Fithian: I think we've made substantial progress in the acceptability of the preshow for a number of reasons. One, the vast majority of our companies in our membership now run all the preshow prior to the show time. Two, when we started the advertising program, it was a lot of ads that looked like television ads, and they were back-to-back-to-back. So, the companies that provide the advertisements -- National CineMedia, Screen Vision and others -- have worked to do a couple things to make the advertising spots themselves more theatrical. (They're) creating competitions and working with the advertising agencies to make theatrical ads different. Both National CineMedia and Screen Vision are using a variety of content in that preshow that isn't commercial -- (featurettes about) how the movie was made, behind-the-scenes looks, holiday specials, quizzes and contests between the ads so that the preshow becomes an entertaining package that isn't viewed just as a bunch of commercials. And the last thing is that Screen Vision has asked their consumers the specific question -- given how the preshow is now -- "Do you prefer the preshow or a blank screen?" And the overwhelming majority have said, "Give us the preshow." So, have we solved all the problems with ads? No, we still need to make them attractive and entertaining and not too long. We still have to make sure people know that trailers are part of the show, and the preshow isn't. If we continue in that direction, I think you'll see a continuing growing acceptance of the preshow, and you'll also see it grow as a bottom-line issue for the companies. That cannot be ignored. It's a $700 million business now; it will be a $1 billion business in a couple years. For a little $13 billion industry, $1 billion extra to the bottom line is a big deal.
THR: With the battle over trailers consistently a hot one between exhibition and distribution as far as placement goes -- and the discussion we've heard in the past about playing for trailer placement -- will that ever become a reality, or is it going to continue to be this barter system that takes so much energy from both sides?
Viane: I think you have people who pay now, and people who don't pay now, and I think that is always going to be an age-old question -- do you or don't you? Is it better to pay and have specific coverage? I think that belongs in the hands of every distribution company and every exhibition company. It's in the best interest of both parties to have free trailer play.
Fithian: I agree with Chuck. Trailers are so important to our business in marketing and bringing awareness to films, but yes, it's a hotly negotiated issue on which players get played where. When you have a big movie, you get 30 requests for trailers, and if you got more than five or six, you've got patron exhaustion, and none of them work. So yeah, it's heavily negotiated. Chuck's also right that the issue of whether they're free or somehow compensated to get an extra trailer on there is an individual one between distributors trying to get a trailer played and the theater company. Trailers are not commercials, they are something very different for us, and we have to be very careful with it.
THR: But it is clear now that some distributors are paying for trailer placement?
Viane: For years. It comes and goes. It's constant evolution of what you think is best for your company.
THR: Is it productive for wide releases to go out on so many screens across the country when really those top 800-900 theaters are the ones that bring in the most revenue? Are there new strategies as far as how wide is wide and what's the most effective release pattern?
Viane: Wide is in the eyes of the beholder, obviously. I mean, there was a day where 4,000 was unheard-of, and now, it's possible because there are 38,000 screens, more of which are first-run. (With 2006's) "Borat," (Fox) did a fantastic job on the way it released a picture with a total platform idea of where they were taking the movie and how they were going to get it there. If I had taken less theaters on "Bridge to Terabithia," what would have happened is I would have missed a window of opportunity where there were no family movies, and it would have shortened my window of opportunity between now and the late-March films. So, I think it's just one of those strategies where you have to sit in a room with a whole bunch of people who are very smart about what we do and throw ideas back until you land on, "Let's start with 800 and go wide for 'Borat,'" or, "Let's go crazy wide" or, "Let's do what (Miramax did with 2006's 'The Queen'), when they go into the Landmark circuit and just build that reputation for the movie." Every day's a different day and a different decision based on the movie and the circumstances.
THR: But the ultrawide still works for that particular circumstance?
Viane: Yes, it does.
THR: This upcoming summer is sure to see ultrawide releases with Paramount's "Shrek the Third," Warner Bros. Pictures' "Harry Potter and the Order of the Phoenix," Sony's "Spider-Man 3" and Buena Vista's "Pirates of the Caribbean: At World's End" all hitting screens within weeks of one another. People always say the market expands to accommodate all these movies, but is there any real concern about one or two cannibalizing the others?
Viane: If you supply the public, you can not satiate their appetite if you're giving them what they want. There's no amount of business that can't be done. If you go back to '03, the first four releases of May all did $200 million a piece. This market is very flexible.
Fithian: We're ecstatic about this year, and we never know until they start buying tickets at the boxoffice what exactly is going to happen. But to put it in perspective, '05 was a year where the epitaph for the cinema was written 100-fold in many, many, many publications. We had a bad year in '05, and it was anything but a short-term cyclical issue in the minds of any of the commentators. What happened in '06? We had a better year. Not a huge year, but a better year. (Now,) '07 looks even stronger than '06. Chuck is right that the capacity is there, that the product's there. When we build good theaters and give good amenities to our patrons, they will come in droves if they have a good cinema experience (and) good movies. This year, I think we're going to have both.
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