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Maximizing capabilities: NATO's John Fithian on the promise to parents and the potential of digital

April 10, 2013

-By Andreas Fuchs


filmjournal/photos/stylus/1374988-Fithian_Md.jpg
Film Journal International wanted to begin our annual state-of-the-industry conversation with John Fithian, president and chief executive officer of the National Association of Theatre Owners (NATO), by asking him what topics come to his mind immediately.

“That’s a very broad and general question,” he laughs, before volunteering, “Well, box-office admission numbers are always important to our members, because driving these numbers is our primary goal.”

And that leads to some good news. “While the short term is challenging because of the cyclical nature of our business,” he admits, “the big news, of course, is that we are coming off of a record-breaking year of $10.79 billion at the box office, which is up six percent over 2011. And with 1.355 billion tickets sold, admissions also experienced a sharp growth of about 5.5 points.”

Moving on from the dire months of January, February and half of March that were characterized by “a true lack of diversity in the movies,” Fithian’s outlook for the rest of 2013 remains upbeat. “When we have a good, diverse slate of movies, the business works,” he asserts.

With a sold-out tradeshow once again, and registrations tracking in line with 2011, CinemaCon offers tangible proof thereof. “Looks like it is going to be a very exciting week at the convention,” Fithian enthuses. “We have eight distributors with significant product presentations. They are literally fighting over a spot in the Colosseum. Our partners have so much great product to show.” He believes this is the result of “CinemaCon offering a real service to the industry, but also a reflection of the fact that the business is doing well.”

Going forward, “the slate for the last half of the year looks a lot stronger than the first half. Last year, our summer was mediocre, so we’ll start making up business during the second and third quarter and we’ll see where we end up at the end of the year. We always have to focus on the long term as opposed to these short-term ups and downs, but that doesn’t mean we don’t get concerned about them.”

Fithian also shows concern that the first quarter was characterized by an abundance of R-rated, violent movies “coincidently at a time when America was very focused on issues involving violence because of what was going on in the real world.” While that was “bad timing,” he goes on to defend the movie business in the one-sided finger-pointing that ensued instead of a “serious debate about violence and the mental-health crisis in our country.” Whenever there are highly public, violent events, “there are some that want to blame the entertainment industry,” he has noticed. “After the tragedy of Newtown, the National Rifle Association was very quick to do just that by suggesting that it’s about violent movies and violent videogames. Even though very little science draws any connection between our industry and violence in the real world, that doesn’t stop people from trying to involve us in these debates. We, the entertainment industry, look upon our responsibility as giving good information to America’s parents and encouraging them to make smart decisions about their children’s entertainment habits.”

Fithian reminds everybody that this is “what the voluntary movie ratings system has been about” since November 1968. “MPAA and NATO are partners in that system and we work hard to educate parents about the content of the movies and why they’re rated the way they are, so that they can make the right decisions. That is our appropriate response, but we are also doing more education,” he promises. “Jointly with the MPAA, we are developing new public-service announcements and a rating awareness campaign that we’ll be rolling out together at CinemaCon. Exhibitors continue to make that responsibility towards parents a high priority.”

Would Fithian agree that cinemas have a great opportunity here, actually, in comparison to all other forms of entertainment? Going to the movies is a social activity that invites people to watch something together and then talk about it. “That’s a good point,” he concurs, bringing up his own family. “I am much more engaged as a father of three children about what they see and hear in movies at the cinema than I am aware of what they’re doing online and what the content of certain videogames is. I think a lot of families feel like that about the cinema. Our form of entertainment is more inclined to have family involvement than other forms are.”

Maybe that is a reason why family films consistently outperform R-rated product? “In any group of years, the average gross of movies rated PG and PG-13 is significantly higher than for R-rated films,” Fithian confirms. “And, yet, studios and independents are producing more films rated R than any other type. The exhibition business constantly encourages our partners in distribution to have more family-appropriate titles because they certainly do a lot better. I’m not sure what the rationale is. If it is the ‘coolness factor’ that so many people want to make movies like Quentin Tarantino does, or if they are cheaper to make? But every year when we look at the numbers, there are too many R-rated titles in the marketplace.”

Exhibition has done a great job at keeping underage patrons away from those titles, he says. “We are proud of the significant improvement in ratings enforcement at America’s movie theatres and we renew our commitment to parents to continue to improve.” According to the latest undercover-shopper survey by the Federal Trade Commission, movie theatres showed “marked improvement in box-office enforcement” with 76% of 11- to 16-year-olds—the highest since the survey began in 2000—being turned away from R-rated movies, compared to 67% in the last survey.

Statistics for average admission prices have been equally positive. In 2012, ticket charges remained relatively flat with $7.96 over $7.93 in 2011. With premium offerings on the rise, where does Fithian foresee pricing to go? “As a trade association executive, I cannot talk about ticket prices prospectively because that’s a challenge to antitrust laws. I can only comment retrospectively to the fact that, over the course of the last 40 years, our average ticket prices have gone up at a pace that’s slower than inflation rates. We need to continue to message that, because we do get some complaints that prices are too high,” he admits.

“When you respond with that fact about inflation, people really appreciate the value that going to the movies represents,” particularly in comparison to other out-of-home entertainment options. Prices have remained affordable all the while “we are spending $2 billion bringing in digital cinema, improving our theatres to stadium seating and new sound systems and offering lots of amenities that our patrons like. So, historically, I think our industry has proven its desire to make movies affordable for all Americans. And that’s another good thing about our business.”

Several more things are happening that are good for theatrical exhibition as well. “We’re seeing a lot of consolidation globally as well as domestically.” Fithian believes “that is a reflection of the strength of the industry. The fact that Wanda Cinemas came in, as a very significant Chinese player, and is investing in AMC now, and the fact that Regal, Cinemark, Carmike and others are growing and acquiring here in the United States are both a reflection of the strength of the marketplace. That gives exhibitors a little bit more clout in negotiations with their distribution partners and their vendors, which should further strengthen the business.”

Distributors and exhibitors are also talking more about windows and models that can grow the pie for everyone, Fithian continues. “There are some new ideas coming out of the studios that are quite encouraging. They will release movies earlier on digital VOD than they will on disks but without substantially invading the theatrical window.” He names Twentieth Century Fox’s Digital-HD initiative as an example of “finding ways to increase their receipts in the home market by digital sell-through in advance of disk rental and subscriptions and within a time frame that is not invasive of theatrical. Those are good developments. Gone are the days, at least for now,” he cautions, “when we were fighting over massive incursion into the theatrical window. Instead it looks like studios are finding ways to increase their receipts in the home without damaging our business. That’s progress.”

Equally, progress is being made on the issues surrounding the latest technological opportunity, he assures. After NATO and UNIC made a joint statement about standards for immersive sound formats, Fithian reiterates the rationale behind this. “Exhibitors always look at new technologies that can improve the cinema experience for our patrons. But we also have to judge whether these new technologies can drive more ticket sales and allow us to bring in more money compared to the cost of installation. That’s the way we judge all technological innovations.” That said, “it’s early on immersive audio,” Fithian opines. “Certainly, there are some really interesting experiments going on. But we need to avoid a situation similar to the digital sound systems with incompatible technology from a few years ago, when cinemas needed to invest in the ability to play them all in a different way. The requirements for immersive sound that NATO and UNIC issued were early enough in the process to drive a conversation about compatibility and interoperability of systems,” he assures. “Those conversations are happening. Both at SMPTE, where a formal standards process could be taken up, and within the industry informally, between vendors and exhibitors, about how this technology should get rolled out.”

We move on to a technology that, for all intents and purposes, has already rolled out. Is NATO tracking theatres that are closing because they can’t convert to digital cinema? “We are closely tracking the conversion rates from film to digital across the country and around the world,” Fithian responds, accentuating the positive. “It is an enormous technological transition and we want to make it available to as many as possible. Closures haven’t really begun yet, because film versions are still available for most movies. That will not be the case for much longer,” he cautions once again. “Some time later this year, digital-only releases will become much more prevalent as the d-cinema penetration rate gets much higher. We are over 85% installed right now in the United States. The global numbers are all over the map [quite literally]. Some territories are 100% digital already, in Europe and Asia. In Latin America and other places, they’re way behind at an under-50% conversion. It’s a different ballgame overseas, but here we are coming down the homestretch. We are doing everything we can to get as many cinemas converted in time, because the end of film is coming very, very soon. It’s a matter of months, not years.”

For now, anyway, “the shutdown hasn’t started yet. There will certainly be some cinemas that will not make the conversion and therefore have to close. We just don’t know how many that will be, but we certainly hope it’s as small a number as possible.”

Of course, in digital cinema also lies the biggest opportunity for the theatrical exhibition business. Over the next couple of years, we can all “maximize on the potential of digital cinema,” Fithian hopes. “The entire industry spent so many years and so much money making this conversion happen that we now need to make the most of it. What does that mean?” he asks and provides three answers. “We need to see what we can do with alternative product. We really haven’t grown alternative product to its maximum potential yet.” Secondly, he observes, “both sides of the industry are getting better at 3D. By making sure that we are making the right movies in the format and that we are projecting them in the best possible way, instead of just throwing 3D onto anything.” Thirdly, “there are additional elements to digital cinema coming along, like high frame rate and other new technologies that we are experimenting with. Having gone through this massive transition,” Fithian reiterates, “we need to maximize the capabilities of digital cinema. That’s a big goal, probably the biggest.”


Maximizing capabilities: NATO's John Fithian on the promise to parents and the potential of digital

April 10, 2013

-By Andreas Fuchs


filmjournal/photos/stylus/1374988-Fithian_Md.jpg

Film Journal International wanted to begin our annual state-of-the-industry conversation with John Fithian, president and chief executive officer of the National Association of Theatre Owners (NATO), by asking him what topics come to his mind immediately.

“That’s a very broad and general question,” he laughs, before volunteering, “Well, box-office admission numbers are always important to our members, because driving these numbers is our primary goal.”

And that leads to some good news. “While the short term is challenging because of the cyclical nature of our business,” he admits, “the big news, of course, is that we are coming off of a record-breaking year of $10.79 billion at the box office, which is up six percent over 2011. And with 1.355 billion tickets sold, admissions also experienced a sharp growth of about 5.5 points.”

Moving on from the dire months of January, February and half of March that were characterized by “a true lack of diversity in the movies,” Fithian’s outlook for the rest of 2013 remains upbeat. “When we have a good, diverse slate of movies, the business works,” he asserts.

With a sold-out tradeshow once again, and registrations tracking in line with 2011, CinemaCon offers tangible proof thereof. “Looks like it is going to be a very exciting week at the convention,” Fithian enthuses. “We have eight distributors with significant product presentations. They are literally fighting over a spot in the Colosseum. Our partners have so much great product to show.” He believes this is the result of “CinemaCon offering a real service to the industry, but also a reflection of the fact that the business is doing well.”

Going forward, “the slate for the last half of the year looks a lot stronger than the first half. Last year, our summer was mediocre, so we’ll start making up business during the second and third quarter and we’ll see where we end up at the end of the year. We always have to focus on the long term as opposed to these short-term ups and downs, but that doesn’t mean we don’t get concerned about them.”

Fithian also shows concern that the first quarter was characterized by an abundance of R-rated, violent movies “coincidently at a time when America was very focused on issues involving violence because of what was going on in the real world.” While that was “bad timing,” he goes on to defend the movie business in the one-sided finger-pointing that ensued instead of a “serious debate about violence and the mental-health crisis in our country.” Whenever there are highly public, violent events, “there are some that want to blame the entertainment industry,” he has noticed. “After the tragedy of Newtown, the National Rifle Association was very quick to do just that by suggesting that it’s about violent movies and violent videogames. Even though very little science draws any connection between our industry and violence in the real world, that doesn’t stop people from trying to involve us in these debates. We, the entertainment industry, look upon our responsibility as giving good information to America’s parents and encouraging them to make smart decisions about their children’s entertainment habits.”

Fithian reminds everybody that this is “what the voluntary movie ratings system has been about” since November 1968. “MPAA and NATO are partners in that system and we work hard to educate parents about the content of the movies and why they’re rated the way they are, so that they can make the right decisions. That is our appropriate response, but we are also doing more education,” he promises. “Jointly with the MPAA, we are developing new public-service announcements and a rating awareness campaign that we’ll be rolling out together at CinemaCon. Exhibitors continue to make that responsibility towards parents a high priority.”

Would Fithian agree that cinemas have a great opportunity here, actually, in comparison to all other forms of entertainment? Going to the movies is a social activity that invites people to watch something together and then talk about it. “That’s a good point,” he concurs, bringing up his own family. “I am much more engaged as a father of three children about what they see and hear in movies at the cinema than I am aware of what they’re doing online and what the content of certain videogames is. I think a lot of families feel like that about the cinema. Our form of entertainment is more inclined to have family involvement than other forms are.”

Maybe that is a reason why family films consistently outperform R-rated product? “In any group of years, the average gross of movies rated PG and PG-13 is significantly higher than for R-rated films,” Fithian confirms. “And, yet, studios and independents are producing more films rated R than any other type. The exhibition business constantly encourages our partners in distribution to have more family-appropriate titles because they certainly do a lot better. I’m not sure what the rationale is. If it is the ‘coolness factor’ that so many people want to make movies like Quentin Tarantino does, or if they are cheaper to make? But every year when we look at the numbers, there are too many R-rated titles in the marketplace.”

Exhibition has done a great job at keeping underage patrons away from those titles, he says. “We are proud of the significant improvement in ratings enforcement at America’s movie theatres and we renew our commitment to parents to continue to improve.” According to the latest undercover-shopper survey by the Federal Trade Commission, movie theatres showed “marked improvement in box-office enforcement” with 76% of 11- to 16-year-olds—the highest since the survey began in 2000—being turned away from R-rated movies, compared to 67% in the last survey.

Statistics for average admission prices have been equally positive. In 2012, ticket charges remained relatively flat with $7.96 over $7.93 in 2011. With premium offerings on the rise, where does Fithian foresee pricing to go? “As a trade association executive, I cannot talk about ticket prices prospectively because that’s a challenge to antitrust laws. I can only comment retrospectively to the fact that, over the course of the last 40 years, our average ticket prices have gone up at a pace that’s slower than inflation rates. We need to continue to message that, because we do get some complaints that prices are too high,” he admits.

“When you respond with that fact about inflation, people really appreciate the value that going to the movies represents,” particularly in comparison to other out-of-home entertainment options. Prices have remained affordable all the while “we are spending $2 billion bringing in digital cinema, improving our theatres to stadium seating and new sound systems and offering lots of amenities that our patrons like. So, historically, I think our industry has proven its desire to make movies affordable for all Americans. And that’s another good thing about our business.”

Several more things are happening that are good for theatrical exhibition as well. “We’re seeing a lot of consolidation globally as well as domestically.” Fithian believes “that is a reflection of the strength of the industry. The fact that Wanda Cinemas came in, as a very significant Chinese player, and is investing in AMC now, and the fact that Regal, Cinemark, Carmike and others are growing and acquiring here in the United States are both a reflection of the strength of the marketplace. That gives exhibitors a little bit more clout in negotiations with their distribution partners and their vendors, which should further strengthen the business.”

Distributors and exhibitors are also talking more about windows and models that can grow the pie for everyone, Fithian continues. “There are some new ideas coming out of the studios that are quite encouraging. They will release movies earlier on digital VOD than they will on disks but without substantially invading the theatrical window.” He names Twentieth Century Fox’s Digital-HD initiative as an example of “finding ways to increase their receipts in the home market by digital sell-through in advance of disk rental and subscriptions and within a time frame that is not invasive of theatrical. Those are good developments. Gone are the days, at least for now,” he cautions, “when we were fighting over massive incursion into the theatrical window. Instead it looks like studios are finding ways to increase their receipts in the home without damaging our business. That’s progress.”

Equally, progress is being made on the issues surrounding the latest technological opportunity, he assures. After NATO and UNIC made a joint statement about standards for immersive sound formats, Fithian reiterates the rationale behind this. “Exhibitors always look at new technologies that can improve the cinema experience for our patrons. But we also have to judge whether these new technologies can drive more ticket sales and allow us to bring in more money compared to the cost of installation. That’s the way we judge all technological innovations.” That said, “it’s early on immersive audio,” Fithian opines. “Certainly, there are some really interesting experiments going on. But we need to avoid a situation similar to the digital sound systems with incompatible technology from a few years ago, when cinemas needed to invest in the ability to play them all in a different way. The requirements for immersive sound that NATO and UNIC issued were early enough in the process to drive a conversation about compatibility and interoperability of systems,” he assures. “Those conversations are happening. Both at SMPTE, where a formal standards process could be taken up, and within the industry informally, between vendors and exhibitors, about how this technology should get rolled out.”

We move on to a technology that, for all intents and purposes, has already rolled out. Is NATO tracking theatres that are closing because they can’t convert to digital cinema? “We are closely tracking the conversion rates from film to digital across the country and around the world,” Fithian responds, accentuating the positive. “It is an enormous technological transition and we want to make it available to as many as possible. Closures haven’t really begun yet, because film versions are still available for most movies. That will not be the case for much longer,” he cautions once again. “Some time later this year, digital-only releases will become much more prevalent as the d-cinema penetration rate gets much higher. We are over 85% installed right now in the United States. The global numbers are all over the map [quite literally]. Some territories are 100% digital already, in Europe and Asia. In Latin America and other places, they’re way behind at an under-50% conversion. It’s a different ballgame overseas, but here we are coming down the homestretch. We are doing everything we can to get as many cinemas converted in time, because the end of film is coming very, very soon. It’s a matter of months, not years.”

For now, anyway, “the shutdown hasn’t started yet. There will certainly be some cinemas that will not make the conversion and therefore have to close. We just don’t know how many that will be, but we certainly hope it’s as small a number as possible.”

Of course, in digital cinema also lies the biggest opportunity for the theatrical exhibition business. Over the next couple of years, we can all “maximize on the potential of digital cinema,” Fithian hopes. “The entire industry spent so many years and so much money making this conversion happen that we now need to make the most of it. What does that mean?” he asks and provides three answers. “We need to see what we can do with alternative product. We really haven’t grown alternative product to its maximum potential yet.” Secondly, he observes, “both sides of the industry are getting better at 3D. By making sure that we are making the right movies in the format and that we are projecting them in the best possible way, instead of just throwing 3D onto anything.” Thirdly, “there are additional elements to digital cinema coming along, like high frame rate and other new technologies that we are experimenting with. Having gone through this massive transition,” Fithian reiterates, “we need to maximize the capabilities of digital cinema. That’s a big goal, probably the biggest.”
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