ShoWest 2010

With foreign boxoffice now driving growth, smart exhibitors are thinking globally

The lobby of Hong Kong's ISquare Theater looks more like the reception area at an ultramodern luxury hotel than a movie ticket boxoffice. Perched six floors up in a high-end shopping mall in the city's Kowloon neighborhood, the UA Cinema outpost features mosaic flooring and a glass counter that resembles a diamond display.

What's more impressive, however, are the spectacular grosses racked up at the 46,000-square-foot digital five-plex since it opened in January.

"Avatar" in Imax sold out all 460 plush seats, in advance, for five performances a day during its first six weeks at an average of $20 per ticket. That single screen grossed more than $2 million during that time.

Over in Shanghai, scalpers were selling Imax tickets for "Avatar" for up to $90 each during its first weeks.

Those results are symbolic of a dramatic movement in China and across the developing world to modernize the multiplex. As a result, while exhibitors may be gathered in Las Vegas this week for ShoWest, their eyes are increasingly on the global market, where growth opportunities are greater in many ways than those in the U.S.

"New shopping centers are opening everywhere and like other parts of the world, the movie complex is part of the draw," says Larry O'Reilly, executive vp theater development for Imax. "So there is great competition between various developers to have a better quality moviegoing experience to help drive traffic, and everybody is trying to one up each other."

Hong Kong’s ISquare Theater sold out five Imax showings of “Avatar” per day for six weeks at $20 per ticket.

China, for instance, is growing at a breakneck pace. There have been more than 4,000 new cinema complexes built there since 2004, fueling 30% annual growth at the boxoffice.

"And they are still under-screened," says Millard Ochs, president of Warner Bros. International Cinemas. "The development of new cinemas (in China) is intense, and that is despite restrictions on western films that are limited to 20 titles a year."

Ochs, the third generation of his family working in film exhibition, has spent much of the past four decades as a kind of Johnny Appleseed of movie theaters. His mandate is to bring modern theater technology to countries all over the world, from Europe to Asia to Latin America.

"We open up the market, create the platform and get everyone else interested in doing the same thing," Ochs says. "When the timing is right, we sell our interests and invest in other countries."

Alone and through joint ventures, Warners has seen its efforts help boost attendance and grosses in more than a dozen countries including the U.K., Germany, Australia and Japan, where it still owns and operates about 60 locations.

"Typically what I'm seeing is local operators getting stronger," Ochs says. "Then they also go into distribution and production, so they become vertically integrated. Wanda in China (the Dalian Wanda Group) now does all of that, and is into concessions operations."

In 2008, Wanda had 300 screens in 38 locations. By year's end it will operate 600 screens in 70 locations. By 2012 it expects to have 1,200 screens. And it is only one of several players building new theaters in China, including a company partly owned by the government.

China isn't the only growth area for new theaters and conversion to digital and 3D. Poland and Brazil are adding theaters at a surprising pace. South Korea now has the highest per-secreening attendance of any country in the world.

The result has been a shift in where Hollywood gets most of its revenue. In the early 1980s, about 70% of American film boxoffice dollars came from domestic theaters and 30% from international. As of the end of 2008, about 65% of grosses come from outside North America, according to the MPAA. The international share of market increased 17% between 2003 and 2008.

In some cases, that number can be even higher. For instance, on Sony's 2006 thriller "The Da Vinci Code," 71% of the gross came from international. For its 2009 sequel "Angels & Demons," that number rose to 73%, according to Sony.

"There's no question the development of modern theaters has stimulated growth," says Mark Zucker, president of Sony Pictures Releasing International. "When a new state-of-the-art theater goes up, grosses go up, the number of admissions goes up. This has happened even in semi-depressed areas."

For example, in some cities in Latin America, Zucker says, admissions have increased dramatically in the past few years thanks to the introduction of safe, modern theaters.

The only thing holding up this growth has been the need for capital. While the global recession has slowed development in some countries, including once-booming building programs in India and Russia, the massive conversion to digital cinema continues worldwide. Much of that has been driven by the success of 3D, which commands premium ticket prices. Fox's sci-fi epic "Avatar," which has broken records all over the globe, is leading that charge.

"There are 6 billion people outside America and 320 million in America, so that is where the growth is coming from and that is a continuing trend," says Andrew Cripps, president of Paramount Pictures International. "When you see markets like China do $140 million on a single movie, as has happened with 'Avatar,' or Russia where it has done $100 million, those are spectacular grosses."

Cripps predicts that global growth is only going to pick up speed as more capital flows in from "integrators," which raise pools of money for digital conversions and then are repaid through virtual print fees from movie distributors as they release pictures.

Even in countries with modern theater infrastructure like the U.K., circuits have embarked upon a process of upgrading facilities, certainly when it comes to the digital 3D area.

"In the six to nine months at the end of last year leading up to 'Avatar' there was a huge rush to put 3D in," Cripps says. "And now everybody has seen how profitable that can be."

The digital revolution also is changing how movies are distributed in each country. Instead of opening a film in a big city and then moving prints out to suburbs and eventually rural areas, studios are increasingly able to open digitally everywhere at once, capitalizing when a title has the most sizzle. Distribution of local movies also is becoming more economical at a time when there is more local production, both internally generated and from U.S. studios investing.

In some countries, notably Japan, local product has actually come to dominate in recent years. However, the success of "Avatar" has helped revive interest in American films.

"A year ago, local production in places like Japan and Korea was clearly eating into American movies," says Patrick Wachsberger, co-chairman of Summit Entertainment. "Now it is shifting back to a more equal balance. First there are less local productions because it's more difficult to get movies finished, in part because broadcasters have less money to spend due to lower advertising. And with the success of 'Avatar,' there is optimism because in Japan, for instance, they are saying 'Wow, American movies are not bad. We can't see those kind of movies from our local production.' "

At least not yet. But even that is changing. In July, Imax will open a $30 million Chinese-made film on its screens in China and across the Pacific region. Called "After Shock," from director Feng Xiaogang, it features all Chinese performers and is the first non-Hollywood movie to be digitally remastered for Imax under a three picture deal with Huayi Brothers, China's largest privately owned media group.

It all signals just how important the international market has become for exhibitors.

Three years ago, a "Harry Potter" film in Imax earned 90% of its gross domestically, O'Reilly says. For "Avatar," the international gross is up to 35% and he expects that to continue to rise.

"That's a growth curve we're going to continue to see over the next few years," O'Reilly predicts.
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