Changing times for the movie business

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These are truly exciting times in the motion picture industry. The digital revolution has arrived and it seems like each day something new is developed or introduced to the theatrical market. Exhibitors must truly reinvent themselves to attract customers to their theatres, and the industry must continue to make movies and show them in a spectacular way to keep the ultimate consumer interested and coming back to the cinema.

Just think about all the changes we’ve experienced in the past two decades: digital sound, stadium seating, digital projection, the revival of 3D, alternative content and streaming into movie theatres of opera and sports, VIP auditoriums, dine-in movie theatres, alcoholic beverages in auditoriums, satellite delivery of movies. iPads controlling all technical functions of a theatre, and boothless cinemas. My grandfather, who operated several movie houses in New York City, would not have believed these innovations, or that they would ever replace the large, ornate single-screen movie palaces of yesteryear. He never would have envisioned what the industry would look like in the 21st century.

The average ticket price hit an all-time high of $8.06 in the second quarter, according to the National Association of Theatre Owners. My grandfather in his day was charging 25 cents at the box office and all you could eat at the concession stand for much less than that amount. Prices reached this level in 2011 because of adult-skewing R-rated pictures and summer 3D tentpoles.

Foreign box office during my grandfather’s time was minimal, but today Hollywood is on an unprecedented global expansion program, as the studios continue to rack up overseas percentages of overall film revenues that are larger than ever before. Executives in the international marketplace credit this growth to day-and-date releases increasingly becoming the norm for major films. Exhibition is making inroads all over the world including China, Russia and Japan, and filmmakers are increasingly gearing their product for the international market.

The overseas markets have become Hollywood’s saving grace. Domestic revenue in 2010 was flat in North America at around $10.6 billion, while global income reached a new record of $31.8 billion, fueled by a record $21.2 billion in international grosses.

Two of the questions that the industry has to ponder over the next year are: Are we charging too much at the box office, and are we confusing the consumer that patronizes our theatres?
Pricing is one of many subjects that distribution and exhibition in general will not discuss because of anti-trust laws. However, there is quite a difference of opinion among filmmakers regarding the up-charge for 3D. With the decrease in box-office revenues over the last several months for most of the 3D releases, there is a constant stream of chatter. One solution is to make certain that a 2D digital print is available for those wanting to see a specific film. Meanwhile, exhibition seems to be fine with the increased costs for 3D and large-format venues like IMAX.

But consumers are expressing some confusion over all the new formats they can choose at their local theatre. Will it be 2D or 3D? What is Dolby 3D compared to RealD or MasterImage? Is there a difference between IMAX and the new large-format systems offered by the major circuits like Regal, AMC or Cinemark? Prices for all these options are different, not to mention the rise of dine-in theatres, so the consumer has a hard time determining the cost of going to the cinema. It is imperative that we make this process easier but at the same time differentiate why going to the movies is better than staying home and watching a film on TV.

Judgment Against Zediva

A Federal judge recently granted a preliminary injunction against the operators of Zediva, an unlicensed video-on-demand service that the MPAA’s studios sued for copyright infringement in April 2011, stating that it “threatens the development of a successful and lawful video-on-demand market.”

The decision is a great victory for the MPAA companies and, as MPAA senior VP and associate general counsel Dan Robbins observes, the millions of Americans whose livelihoods depend on a thriving film and television industry. Judge John F. Walter rejected Zediva’s premise that it was “renting” movies to its users and ruled that Zediva violated the studios’ exclusive rights to publicly disseminate their movies, such as through authorized video-on-demand services like iTunes, Netflix, Amazon and Hulu.

A Historic Agreement

Two of the giants in the 35mm print business have recognized that digital cinema has totally changed the way movies are distributed to theatres and the format in which they are projected. As fewer and fewer films are being delivered on celluloid, Deluxe and Technicolor have entered into a groundbreaking new agreement that will ensure continued high-quality customer service during the industry’s transition from 35mm film to digital. Technicolor will now subcontract its 35mm bulk release printing business to Deluxe in North America. In addition, Deluxe will subcontract its 35mm print distribution business in the U.S. to Technicolor.

Beginning immediately, Technicolor will place its 35mm print orders with Deluxe’s film labs in Hollywood and Toronto on behalf of its customers. In effect, Deluxe will provide printing services in North America for all Hollywood studios. Technicolor will begin servicing Deluxe’s U.S. print distribution needs in September.

The new digital technologies are mandating this rapid transition. Cyril Drabinsky, president and CEO of Deluxe Entertainment Services Group stated, “This agreement will help maintain a high consistency of service for our customers through the remaining life of film.” Perhaps what is most interesting about this statement is that for the first time the industry is talking about the total demise of film. We know it is coming, but when is the real question.

Theatre owners who have not switched to digital must consider this move immediately and try to sign onto the various Virtual Print Fee arrangements that are still being offered. These deals will be ending sometime in the near future, and those who have not come aboard will have to fend for themselves—financially, that is. Run, do not walk to be a part of this.