Hollywood blockbusters buoy European exhibition

Debate rages over piracy, move to digital cinema

The theme of "300," Zack Snyder's blockbusting adaptation of the gore-spattered graphic novel, sums up the state of the cinema market in Europe: Aggressive and combative, the region's exhibitors are fighting to hold on to last year's huge leap in admissions compared to a devastating 2005. Likewise, the Warner Bros. Pictures film's slogan -- "Prepare for Glory: 300 Against One Million" -- encapsulates the continental exhibition sector's unwavering confidence for 2007 and the future.

And as leading international cinema owners, distributors and associated operators hook up at this year's Cinema Expo International, set to take place June 25-28 at Amsterdam RAI in the Dutch capital, European cinema is indeed preparing for glory.

"2006 was a better year in most European territories compared with 2005," says Karsten-Peter Grummit, managing director of London-based analyst Dodona Research. "And people have high hopes for this year, which is expected to reach a post-1960s peak. As far as Europe is concerned, three-quarters of the market is determined by the quality of the output of Hollywood pictures."

"Apart from a slight decline in the U.K. and Spain, every major Western European market reported strong growth in admissions," adds U.K.-based David Hancock, Screen Digest's senior film and cinema analyst. "And because the multiplex came later to Central and Eastern Europe, they are now in a growth phase."

According to figures collated from Screen Digest data by the Strasbourg-based European Audiovisual Observatory, the 25-state European Union recorded a 3.6% jump in admissions to 926 million tickets in 2006 compared with 2005.

The region's cinema defied the World Cup -- the world's biggest soccer tournament and destination viewing for most Europeans -- plus nice weather that had the potential to keep audiences outdoors.

Going forward, events such as the World Cup and future Olympic Games will certainly impact cinema attendance. "We're also seeing an aging cinemagoing population in Europe, so that will influence the type of movies we make," Warner Bros. International distribution president Veronica Kwan-Rubinek says.

Apart from Spain, the U.K. and Hungary, the remaining 22 EU states reported admissions growth last year. They include such major economies as France (+7.6%), the Netherlands (+9%), Ireland (+8.9%) and Belgium (+7.7%).

Hancock attributes the U.K. decline (-4.9%) to the market's maturity. "It had multiplexes long before the other markets; it is now stabilizing, and its fluctuations will be due to the quality of films," he explains.

Yet, U.K. chain Vue Entertainment saw 2006 revenue grow 2.1% to £278.5 million ($551 million) thanks to higher ad revenues, ticket prices and the growing popularity of India-originated Bollywood movies. Admissions for 2007's first quarter are up 8%, CEO Steve Wiener says.

The EU's Eastern and Central European countries basked in double-digit growth, including Poland (+35.8%), Slovakia (+54.3%), Estonia (+40.2%) and Lithuania (+98.3%). But their sector is emerging from a very low base, having once been derailed by communist governments.

Hollywood dominated the EAO's 2006 top 10 movies in terms of admissions. They included Buena Vista's "Pirates of the Caribbean: Dead Man's Chest," Fox's "Ice Age: The Meltdown" and "The Devil Wears Prada" and Sony's "The Da Vinci Code" and "Casino Royale," which performed especially well.

Internationally, "300" has sold 231 million tickets, of which 65% came from Europe, Kwan-Rubinek says.

"The style and look was going to appeal to a younger audience, with epics such as 'Troy' and 'Alexander' normally aimed at older demographics," she continues. "In the end, '300' appealed to both groups."

While Warners was able to add to its global coffers with "Superman Returns" in 2006, taking in $200 million overseas, the film, given its massive budget, was a major disappointment for the studio. Still, expectations are high that Steven Soderbergh's "Ocean's Thirteen" will deliver this summer.

Likewise, Buena Vista is hoping for a three-peat with "Pirates of the Caribbean: At World's End," which got off to a strong start in Europe with a whopping $103 million from the international boxoffice its opening weekend. Meanwhile, Paramount has high hopes for "Shrek the Third," as well as other sequels and franchise films, including the fifth "Harry Potter" installment.

As for multiplex expansion, a number of recent developments indicate the overall condition of the sector in Europe is still healthy. Through private equity firm Terra Firma and its £4 billion ($7.2 billion) investment in acquisitions, Odeon has become the U.K.'s leading chain, with outlets in Ireland, Spain, Austria, Germany, Italy and Portugal. U.K. rival Vue is opening or relaunching four new theaters this year. A streamlined Spanish exhibition sector has created three overwhelming leaders: Abaco-Cinebox, Cinesa and Yelmo Cineplex.

Additionally, Kinepolis Group -- which operates in its local market of Belgium as well as in France, Spain, Poland and Switzerland -- is opening its 23rd cinema complex in Europe in Ostend, Belgium, in July. And, to stay ahead of the game, it is overhauling its ticketing and booking systems.

Piracy, however, continues to be major stumbling block. In June, crime-enforcement officials cracked down on several peer-to-peer hubs in Finland that enabled their members to download "tens of thousands of movie titles" illegally. European research company GfK concluded that in 2006, there were 132 million illegal downloads in Spain alone, and he predicts some 200 million movies will be downloaded in 2007.

"Piracy is as ubiquitous as milk," Grummitt declares. "But we don't think piracy is going to get worse. It is not destroying the market, but it is stopping it from growing. Piracy is not going to go away. It is a question of keeping it within manageable limits, which is the case in most territories. If digital distribution improves, the industry would be able to match pirates at their prices, but with high quality guaranteed and a more convenient delivery system."

While piracy is clearly the biggest challenge facing the industry, the day-and-date release debate reached a crescendo earlier this year when Fox released the DVD of "Night at the Museum" 13 weeks after its theatrical release in Europe. The fact that powerful U.K. and German cinema operators voted with their theaters and pulled the movie illustrates the continuing importance exhibitors will have in the fate of release windows.

"It would be desirable for the exclusive theatrical window to remain reasonably long," Grummitt continues. "In the U.K., the Cinema Exhibitors Assn. wants to draw the line at four months because if there's no exclusive window, you'd throw the theatrical industry away. But, in the long run, the current situation is not sustainable either. The advent of digital projectors would make it easier for exhibitors to show the movies on fewer screens, even after demand (from cinemagoers) has slowed down. That way, you can keep the films in theaters for up to the maximum four months until the DVD comes out."

Elsewhere, insiders say European exhibitors need to get their digital act together (see related story on page 4). Unfortunately, while most appear enthusiastic about d-cinema, there is ongoing disagreement about who should invest in the required infrastructure.

Julian Levin, Fox's executive vp digital exhibition, is confident that skeptics in Europe are adapting, noting that the cost of converting an analog screen has come down to $82,000 for a projector and server from $130,000 five years ago.

"If it comes down another 10%-15%, that will make the business model work," Levin says.

Third-party advocates such as Arts Alliance Media are putting their money where their mouths are. AAM has invested and installed systems in 230 British screens as part of the U.K. Film Council's d-cinema initiative, as well as another 10 in Norway. AAM CEO Howard Kiedaisch plans to announce a deal with a major European bank that should lead to further installations in Europe.

Additionally, once the move to d-cinema is complete, Steve Wiener, CEO of the U.K.-based theater network Cineworld, believes the region could become a hotbed for 3-D movies. "In 2008, there will be three to four 3-D films here; once you get more than three 3-D films in a market, you can justify the (investment) costs," he says.

"We've passed the novelty stage, and there is now a fundamental shift. As we've every major studio interested, this is going to be the next way to experience the cinema," adds Michael Lewis, CEO of Real D, which has licensed its 3-D technology for 65 screens internationally.

Nevertheless, given its cultural, linguistic and economic differences, Europe has a long way to go before a complete digital conversion becomes a reality. But Screen Digest's Hancock is confident a solution will materialize. "The sector needs to be more positive and figure out how to do more," he says. "Then, at some point, the exhibitors will get it. Once you've overcome the unknown, things get easier."

Coming soon?: THR asks the experts to predict when their markets will be digital

Tom Cotton, Technicolor
Europe will be digitized two to three years after the U.S. has fully digitized. Major markets are likely to deploy first, and major exhibitors within those markets will lead that charge. While Europe is one trading bloc, it is not a single market, and so differences exist between territories. As a result, negotiations will need to take place on a territory-by-territory basis to account for these differences.

Marco Del Mancino, Cinema Business Analyst
Although 99% of the potential market (represented by the more than 105,000 screens in operation throughout the world) will not be saturated until 2019, the peak of adoptions will already have taken place at 2013, (with more than 20,000 new installations) a year in which technology based on 35mm film should be overtaken.

Nancy Fares, Texas Instruments
Some specialists say that Europe will be digital in 5-10 years. We believe that it will be faster and quicker than anybody expects, potentially even 2010. When theaters owners and moviegoers will see the benefits of DLP Cinema -- image quality, 3-D, management -- they will make the cinema switch for digital extremely quickly and make 35mm no longer acceptable.

Drew Kaza, Odeon/UCI Cinemas
The United Kingdom will be more than 50% digital by 2011, Germany by 2012; others (save Nordic markets) probably more like 2013-2014. Once things start happening, they will happen quickly. If they don't, the industry will be committing 'slow suicide.'

Brian Kercher, Kodak
Kodak tends to leave forecasting to others because most forecasts are more a source of amusement than a source of information. But, after several stops and starts, Europe is finding support for digital cinema.

Lauge Nielsen, Pathe Cinemas
Once agreements with the major distributors have been reached in the Netherlands, we can move quickly and have all theaters equipped with digital projectors within two years.

Fabrice Testa, XDC International
Nobody knows when Europe will be largely digitized, but XDC International expects that a large-scale rollout will begin before the end of this year.

Jens Rykær, MEDIA Salles
The market should not expect an essential shift of balance between 35mm and digital until 2013.
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