Theaters popping as ShoWest unfurls

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Is exhibition a real business, or is it merely a prestigious form of DVD marketing? It's a question worth asking as the industry convenes for ShoWest, the National Association of Theatre Owners conference, which rolls Monday in Las Vegas.

As some 4,000 showmen converge at the Bally's and Paris Hotels, the mood is buoyant, yet resigned. It's as if after all the hand-wringing about collapsing windows and the expense of digital cinema, things have settled down and exhibitors have made peace with their place in the world. "It's all good. We're very enthusiastic about this year, and the product that's coming out this summer," Brenden Theatres executive director marketing and promotions Joe Girouard says. "In all the years I've been doing exhibition I've never felt better about studio relations."

View 2007 ShoWest conference schedule

"The studios have, in my view, really stepped up. As far as helping the theater circuits and working in cooperation, it's like a whole new era, and I think what's happened is the studios have realized that with so much revenue coming from DVD, the value of exhibition is in the promotional area."

True enough, domestic boxoffice now accounts for only about 20% of a film's earning power. But what about the huggy part? Has the industry achieved a nirvana in distributor/exhibitor relations? Or are the cinemavens simply swooning under the influence of a prospective summer boxoffice bonanza as they head off to their industry schmoozefest? (ShoWest is managed by Nielsen Business Media, parent company of The Hollywood Reporter.)

Maybe a little of both.

"I honestly believe exhibition is much healthier," says the president of distribution at a major studio, citing the fact that both Cinemark and AMC are offering IPOs. "They're betting on the idea that from 'Spiderman' to 'Shrek' to 'Pirates 3' and through to 'Rush Hour 3' in late August -- potentially this could rival any year we've ever had. This summer on paper looks fantastic."

Better films, more big films --content certainly has its role in raising the bar. But there have been many changes during the past few years to arrive at this point. Among the signs of progress: The unnecessarily complicated sliding scale applied to divvy up the boxoffice revenue that has existed since the days when ushers ruled the aisles has been largely replaced, in favor of aggregate deals that see a fixed percentage --usually about 58% or 59%, in the studio's favor --set upfront. Negotiations see the numbers vary by a few%.

As studios began releasing movies on more screens, and spending less time on each, deals that saw studios getting 90% of the first week's gross (after subtracting a theater's modest overhead) were crippling exhibitors.

"With deals like that, and films on multiple screens, you never recover from that first week, as an exhibitor," another major Hollywood distribution chief says. "One reason we're having so many huge weekends now is because when you do an aggregate deal, no matter how many screens are involved the outcome is the same. Ag deals have given theaters the confidence to give one film five or six screens per complex."

And with 7,000 to 8,000 prints on a big release, there's plenty to go around.

The irony is, "As exhibitors, our rentals, our film costs, have basically been flat for a number of years," Regal Cinema chairman Michael Campbell says. "It's averaged out to about a 50/50 split over the past 20 years. And we don't anticipate that changing much going forwards. I think (these newer deal terms are) just a reflection that the studios and exhibitors have come to grips with the modern marketplace. You may come to the same number at the end of the day, but you may have to have a different formula to get there."

Exhibition seems to have its store in order now. They've made it easier to manage their business, and ag is a perfect example of that. There are also fewer studios, which makes it less complicated from a theater-owner standpoint.

At the same time, there has been consolidation at the theater level -- to the point where the top 10 chains control 51% of the screens and the top 3 (Regal, AMC and Cinemark, with a combined 14,000 screens) nearly 55% of the boxoffice revenue.

While this might give pause to distributors and smaller circuits, Wall Street seems to approve: Regal stock is up more than 20% in the past six months and shares of another publicly traded movie exhibition company, Carmike Cinemas, are up more than 10% in six months. The market's re-embrace of a business that had been out of favor for several years has encouraged AMC and Cinemark to file for public stock offerings.

"Wall Street is very happy about the exhibition industry," NATO president John Fithian says. "There's almost too much money flowing to exhibition."

Not even those scary acronyms -- DVD, DVR, PS3, VOD, etc. -- worry Wall Street much anymore. "Investors have concluded that alternative technologies will not kill the cinema business," Fithian adds. "A couple of years ago, there was a question about that."

"A few years ago the talk was the death of the exhibition industry, and I think we're found our place now, and the studios are much more conscious of the value. For a couple of the years when DVD was doing really well, we got a little sidelined in the process," Girouard says. "Now DVDs need a little push. With push comes pull."

For more information on ShoWest, visit www.showest.com.

Paul Bond contributed to this report.
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