ShoWest attendees thinking positively

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After years of turmoil, distributors and exhibitors alike approach this year's ShoWest (which begins today and runs through Thursday at Bally's and Paris hotels, Las Vegas) with a widespread sense of optimism.

"The industry is healthy today, and it wasn't long ago that exhibition rose from the depths of bankruptcy," says Dan Fellman, president of Warner Bros. Pictures Domestic Distribution. "There has been a lot of consolidation. A number of companies have gone public, and of those that haven't, many have received financial backing from institutional investors. They are building smart, they are building functional, and they are building state-of-the-art."

That view is echoed by Rory Bruer, president of Sony Pictures Releasing. "The state of the business is really healthy. Last year you had an up year, and this year so far is an up year. It's all headed in the right direction. What is really good about our business is, in both the distribution world and the exhibition world, everybody is continuing to up their game."

Nowhere is that more evident than in the move to digitalize the nation's 38,000-plus movie theaters, a process that the studios and

theater owners have long regarded as essential to bringing down the costs of making and shipping prints -- and also to pave the way for

3-D. After years of discussion, both sides have largely agreed on a

formula that will cover the costs of installing digital equipment, now running at approximately $75,000 per screen.

"They are really preparing for the next major overhaul," says Chuck Viane, president of distribution at Disney. "The last big overhaul was stadium seating and reconstructing the infrastructure of their cinemas, and they are now at the doorstep of digital deployment. Once the DCIP deal is struck later this year, you will see a very strong movement across all cinema companies."

What Viane refers to is a deal now being negotiated for Digital Cinema Implementation Partners, a joint venture created by three of the biggest theater chains -- AMC Entertainment, Regal Entertainment Group and Cinemark USA -- to install digital equipment in all of their 14,000 screens in the U.S. and Canada. If the deal takes place as expected, the studios will agree to pay a fee every time the equipment is used to show their films, until the cost of installing the equipment has been covered. That fee, known as the Virtual Print Fee, would be an estimated $700-$1,000 per movie, per screen.

"There is a formula that we've been using, and the studios are paying the majority of the cost, which we are glad to do," Fellman says. Outsiders estimate the studios could collectively save $1 billion annually when they no longer have to make and ship prints.

Domestic digitalization could have a ripple effect beyond the U.S., Fellman says. "There are continued talks in Europe. When the U.S. becomes predominantly digital, it will have an impact on the rest of the world."

Digitalization is just one of the issues facing the exhibition business as it gathers this week for ShoWest, the annual convention and trade show sponsored by the National Association of Theatre Owners.

Boxoffice and admissions are two other crucial matters, and for NATO president and CEO John Fithian, the news on those fronts is as promising as it has been in years.

"We have returned to long-term growth from a downswing in 2005, in both boxoffice and admissions," he says. "2007 was a record boxoffice year and up slightly on admissions; and 2006 was also up in both boxoffice and ticket sales."

More specifically, he points out that boxoffice increased by 3.5% and ticket sales rose by 1.4% from 2005 to 2006. Boxoffice was up by 5.4% from 2006 to 2007, with ticket sales up by 0.3%.

But how much of that increase was due to inflation? Fithian acknowledges this played a part, noting that the average ticket price for 2007 was $6.88, up 5% from the year before -- and slightly more than the Consumer Price Index, which rose 3.9% in the same period.

But the NATO topper does not seem too concerned by rising ticket prices. Contrary to popular belief, he says, prices have actually fallen over the past three decades, if inflation is taken into account. In 1977, he notes, the average ticket price was $2.23 -- equal to about $7.75 today.



As for admissions, he is also unconcerned by the fact that their rise has not equaled that of the population at large, given the added competition from new media.

"From 1970 to now, Americans have gone to the cinema at the same rate" -- approximately five times a year -- he says. "And the onset of other devices (like VCRs, DVD players and computers) hasn't decreased their moviegoing frequency."

Fithian lambastes naysayers who prematurely bemoaned the death of the exhibition business in 2005, when ticket sales swooned.

"If you read the press in 2005, you would assume cinema was endangered and the onset of video-on-demand and handheld devices was the death of the exhibition business. That's not true. Studies indicate that the people who watch movies on other formats -- Internet download, DVD -- are the people who go to the cinema the most. Movie lovers remain movie lovers, and ancillary markets have not damaged the cinema business."

Because interest in DVD ultimately results in further moviegoing, Fithian says NATO wants DVD sales to do well. But one cannot help sensing a certain pride in the fact that exhibition has flourished over the past couple of years, while DVD sales have not.

"This year, we had a stable ticket-sale year, and DVDs took a hit," Fithian says. "Why? In earlier years, people were coming to the DVD marketplace -- consumers were building their libraries and reaching back to stock up. But now most consumer libraries are where people want them to be, and they are focusing on new titles." Two-thirds of DVD sales, he says, have traditionally been for older movies. "People say the DVD market is so much bigger than the cinema market. Well, that's just not true. DVD sales last year were $23 billion, but if one-third was for new movies, that is $7.6 billion, much less than the $9.6 billion (of tickets) we sold in cinemas."

Skeptics might argue that DVD sales have slowed partly as a result of consumers freezing their spending until the battle over high-definition DVD formats was resolved -- a battle that Sony has now won decisively.

Skeptics might also point to the relatively static growth in movie theaters themselves, with 38,725 screens in 5,909 complexes at present -- compared with 38,185 screens at 5,902 complexes in February 2007.

But Fithian argues that this number hides a much more important truth: The greater quality of the theaters, with state-of-the-art auditoriums replacing aging facilities.

The woes that struck the exhibition business a few years ago, and the bankruptcies Fellman refers to, were in part a result of cinema chains' much-needed moves toward modernization. Indeed, Fithian says, one of the reasons theater chains entered into bankruptcy protection in the late 1990s and early 2000s was to allow them to extricate themselves from the leases they had signed for old theaters.

"That was when we began to build a massive number of theaters with stadium seating and digital sound systems because patrons were demanding modern cinemas. We were not able to close older properties fast enough to make up for the new buildings, mainly because they were stuck in 30-year leases -- the vast majority of cinemas are leased properties. Our screen count got too high, and the debt burden got too high, and the only way out was bankruptcy reorganization."

Bankruptcy is a million miles from most exhibitors' thoughts now. Indeed, the industry has become so ebullient that a buying spree has taken place as major chains gobble up smaller ones.

This year, two new deals are in the works. Regal Entertainment Group has agreed to buy Consolidated Theatres, and Wehrenberg Theatres has announced plans to sell its several hundred screens.

The only real cloud facing the business is piracy. And even though Fithian says NATO, the studios and the government are at last working together to tackle the problem, it is a cloud with no silver lining.

"We believe we are losing $600 million-$700 million a year in movie ticket sales. I am not talking about DVDs; I'm talking about cinema sales," he notes. "In a business that is $9.6 billion a year, that is a lot of money."
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