CineExpo: The Third Degree

3-D, cinema exhibition's killer application, goes global

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The Princess Quay cinemas, which sit atop a scenic tri-level shopping complex in the Northern England town of Kingston Upon Hull, regularly play the hottest Hollywood movies -- but their projectionists have never run a single foot of film through the sprockets of a projector.

The 11-screen complex was constructed from the ground up by Vue Cinemas, the third-largest exhibitor in the U.K., as a model for the future of exhibition in the post-film age. "It was 100% digital, no 35mm projectors running; we had a library server and everything," says Mark de Quervain, sales and marketing director at Vue Entertainment, which also operates 66 theaters in the U.K. and one each in Portugal and Taiwan. "So it was pretty much the first digital multiplex in Europe."

There were naysayers, he recalls, who warned it was too soon to go all-digital. They argued theatrical trailers and some movies weren't available in digital, which could cost them if a hot ticket came along that was available only on celluloid.

"It really was a good test to understand the staffing, training, the technical, how many films are available in digital, how many trailers can you get in digital and so on," de Quervain says. "We had reported at last year's (Cinema Expo International) that trailers were difficult to get a hold of in digital but it's getting easier all the time."

In rapid succession during the past year, major movie distributors including Disney, Fox, Sony and Warner Bros. have begun making most trailers and movies available in digital as well as film. As exhibitors gather in Amsterdam for Cinema Expo -- which runs June 22-25 -- there's no more pressing question than when to convert to digital and how to pay for it.

So far, conversion of analog screens to digital in developed countries worldwide hasn't happened as quickly as expected. Anthony

Marcoly, president of sales and distribution at Walt Disney Studios Motion Pictures International, says most of the close to 2,500 digital screens outside the U.S. are one-offs in multiplexes specifically added to show 3-D movies.

As in the U.S., conversion to all digital presentation won't occur until financing sources open, and that depends on the global credit crisis. That isn't stopping aggregators from doing deals in Europe, Asia, Russia and elsewhere based on the U.S. model of "virtual print fees" paid by studios to pay back the cost over time. The money needed now has to be borrowed, and that has not been possible since last fall. So while multiplexes worldwide rush to offer 3-D on at least one or two screens per location, the existing theaters are still firmly in the analog world.

The U.K., where booming boxoffice is up more than 16% for the first quarter, is a good example. By global standards, it has been a leader in digital and

3-D but since the economic crisis hit, conversion there to 2-D digital "essentially, more or less, ground to a halt as I think it probably did in most territories at the tail end of the autumn of last year," says Phil Clapp, CEO of the U.K.'s Cinema Exhibitors Assn.

That didn't mean the end of all digital, though. "The focus in the recent past has been on installation of digital 3-D screens," says Clapp, who projects that by year's end there will be about 600 digital 3-D sites from a total of 3,600 screens in the U.K.

Disney alone, which will be showing "Up" in Amsterdam in 3-D, will offer 17 new 3-D movies during the next couple years, according to Daniel Frigo, executive vp and GM at Disney International, who says the booming U.K. boxoffice so far this year has been fueled by 3-D movies. "We had 'Bolt' recently released across Europe and what was fascinating was the boxoffice for 3-D was anywhere between 30% and 50% of the total take on far fewer prints. That was just tremendous."

Exhibitors have taken notice. "Every multiplex in the U.K. will have a 3-D screen by Christmas," predicts Martin Bowley, managing director of Digital Cinema Media, which provides preshow advertising to cinemas.

Dowley notes digital eliminates the cost to ship the cans of celluloid, makes it easier to offer advertisers last-minute content changes that can be beamed to theaters. He says their research shows U.K. audiences "are loving the 3-D experience," and his company plans ads in 3-D as well.

It's not just happening in the U.K. or Western Europe. Across developing Eastern Europe, Russia, India and China there's a theater building boom and they all are including one or two 3-D ready screens. The opening of new theaters is inevitably followed by a rise in boxoffice in that territory.

"We see 3-D worldwide grossing two and a half times the 2-D screens," Disney's Marcoly says. "That's been the incremental factor (in digital conversion). Is that going to continue? We'll see. But obviously right now from the consumer there's a big appetite for 3-D."

Imax CEO Richard Gelfond calls Europe "a key territory for us," but says they have developments all over the world. They have two new Imax theaters opening in Austria and a joint venture in Japan to open their first Imax theaters outside of a museum. He says by the end of 2011, Imax will have 41 sites in China.

An Imax theater opened two years ago in Hong Kong is producing "excellent results," according to Bob Vallone, director and GM of Lark International Multimedia, which operates as Studio City Cinemas and United Artists Cinemas and controls the city's largest advance ticket vendor.

"When we open a new movie, Imax is huge," says Vallone, who worked for UA for many years in the U.S. before relocating to Hong Kong. "It does 10%-15% of the total boxoffice for that particular movie at a premium price."

Vallone says 3-D is also very popular, with 80% of patrons choosing 3-D over 2-D for DreamWorks' "Monsters vs. Aliens" when given a choice.

The boxoffice has remained strong in Hong Kong despite the credit crunch, Vallone says, but they've felt a difference at the candy counter. "A lot has to do with the economy," he adds. "People say they really still want to go to the movies but once there, they're doing more sharing. They're buying one popcorn instead of two and sharing. Most of our customers are young and a lot have been directly impacted by losing jobs or reduction of their jobs. There's a definite impact on discretionary spending."

Surprisingly, Vallone says the rampant piracy in Hong Kong seems to have cooled. "It's part of the business but honestly it's not as visible as it used to be. Two years ago you could go on most major streets in Hong Kong and see people selling current movies out of a suitcase."

It's not enforcement which has turned it around, Vallone says. People got tired of being cheated by street vendors. "The pirates are criminals who really cheat people," Vallone says. "They say the movie is 'Star Trek' and it's actually the original one from years ago; or you will get two discs and one will be blank."

Globally the big concern has shifted to Internet piracy of movies, MPAA chairman and CEO Dan Glickman says. "The big challenge comes as we get more and more new ways to distribute, and it becomes easier and easier to copy," he says. "We need a whole new set of strategies."

The MPAA released the 2009 Priority Watch List of countries where piracy is a particular problem -- including the usual suspects such as China, Mexico, Russia and Spain -- along with Canada, which was elevated to the U.S. Trade Representatives Special 301 Report's Priority Watch list as well. Glickman says Canada continues to lag behind other major developed countries in responding to the tremendous technological changes that have cost the movie industry millions.

Glickman notes that one additional benefit of 3-D is that it's hard to pirate.

Glickman praises a bill supported by France's President Nicolas Sarkozy, which is working its way toward becoming a law in France as a model for the future. Officially known as "Creation et Internet," which requires Internet ISPs to notify customers when illegal file sharing is detected by a registered letter. The third time, the customer is kicked off the Internet for three months. A similar bill has been dismissed by the European parliament twice.

Around the world movie ticket sales have held up surprisingly well in the face of the global economic downturn, with exhibitors benefiting from the building of new theaters, better marketing and most of all movies with international appeal.

"I think we've proven we're recession resistant," de Quervain says, "but I don't think we're recession proof. We've got to be diligent about giving value to people. And that's what we're doing."