It's a wrap: NATO's John Fithian on finalizing d-cinema and securing future industry growth
“It’s much more about ‘Digital cinema is here and where do we go from here?’ now, as opposed to the question of “How do we get there?’ of years past,” observes John Fithian, president and CEO of the National Association of Theatre Owners, calling the current phase “wrapping up the digital-cinema transition.”
While this industry is in the final stages of “tackling challenges and [d-cinema] implementation issues that we are finding in the field,” plenty of new technology topics, such as high frame rates and laser-illuminated projection, are already creating buzz. And, of course, exhibitors are still concerned about old standbys like release windows and—jointly with the country, if not the world—still coping with the aftermath of the violent attack on moviegoers in Aurora, Colorado.
“I was tremendously proud of how this industry responded to that terrible tragedy,” Fithian says. “Foremost, in the ways in which our members reached out to the victims. The fund that was created with advice from Governor Hickenlooper, the mayor of Aurora, and Cinemark…has been very successful and raised between $4 and $5 million. It is finding ways how to best help the victims, and that is the best thing one can do in response to such a tragedy. That was a moment when the industry really rose to support its own and that is a good feeling.”
Fithian knows that while the assault was devastating for one and all, our industry is also strong enough to recover. “The events have an emotional connection to everyone in the business. The industry is resilient, however, not just in terms of attendance numbers but also in terms of emotions. People recognize this is—though highly tragic—the act of a lone, crazed individual. Unfortunately, these things occur periodically in our society in random locations, from a university to a fast-food restaurant to a movie theatre. Keeping it in context of an isolated, crazed incident helps people to get emotionally beyond it.”
Moving beyond our beloved and trusted 35mm equipment is another sign of these defining times. “We don’t know exactly what the final numbers will be,” Fithian muses about the possible demise of the last of the film-based theatres. “Eighty percent, or about 32,000 screens, have already been digitized and there are several thousands more that have contracts to be converted.” That leaves “a few thousand” theatres that have not yet found a way to deal with the change. Although the virtual-print-fee deals “for the most part are closed,” he assures us that NATO and the industry are doing everything they can to transition—and thereby save—as many theatres as possible.
Fithian provides a list of ongoing actions and their affirmations. “Can we find used equipment to move from bigger complexes to smaller theatres?” he asks. “We’re pushing for that. Can we otherwise lower the cost? Yes, there will be lower-cost equipment in the form of a cheaper DLP Cinema chip from Texas Instruments, with projectors that will come online in a few months. Are there charitable or governmental ways to support the remaining screens? Just today,” he confirms on that front too, “somebody from our industry called about donating ten full systems to worthy small-town operators and wanted us to help get the word out. Municipalities are stepping up to the plate to help fund and keep their cinemas alive in their towns. So there are a variety of mechanisms remaining. The challenge is, of course, the timing. We anticipate that some movies will be released in digital format only, and without any film prints, as early as next spring or summer. It’s really a race against time to get as many of these cinemas converted as possible.”
Would Fithian agree that the overall fallout is not as bad as we had all feared as recently as a year and a half ago? “We aren’t done yet in getting them all transitioned,” he cautions. “Any town that loses its last movie theatre or any market that loses its only cinema is going to be a bad blow that we are trying to avoid in any way possible. Although there will be a number of locations where the cinema will go under,” Fithian declares, “we want to minimize the number of those locations.”
Another vital concern brought up at NATO’s recent board meeting was “how to promote and grow the moviegoing experience,” Fithian continues. “We are discussing a number of possible options under that general rubric, including devising an industry-wide public-relations campaign. Or whether we should do a discounted day at the movies, like they do in Canada Latin America and Europe. Do we change our marketing efforts in other ways? We do have a variety of promising concepts on the table that can help our membership grow movie admissions. This is all about continuing to grow as an industry.”
Fithian immediately dismisses the obligatory doomsday scenarios that seem to reappear as soon as box office lags for a couple of weeks. “The year is strong for us, we are up both in terms of box-office receipts and number of tickets sold by comparison to last year. These programs aren’t any kind of short-term reaction to ticket sales but more about how do you take a strong and mature business and continue to grow it. We are fairly confident we can do that.”
One new initiative, though not advanced by NATO at all, is the subscription service MoviePass, which announced its third version on the day before the NATO board meeting. “I have not had enough conversations with my membership to have any industry or official reaction to MoviePass,” Fithian contends. (Never mind that theatres and studios were not really consulted before the entrepreneurs went ahead with either MoviePass version; apparently the same modus operandi was also evident this time around.) “But it seems substantially reformatted in a way that places the risk on the third party and less on the exhibitors and distributors. As far as I understand, they are offering full ticket prices when their subscribers use their pass for admission to movies. So it is substantially different from the first two iterations. Studios and exhibitors had the same reaction [to the previous models] in that they didn’t want the product to be devalued.”
Fithian elaborates on that key point of contention. “We are living in a challenging time where bad business plans, like one-dollar rentals and subscription services, are teaching consumers that movies aren’t worth very much. These are bad precedents because movies cost a lot of money to make. It costs a lot of money to market them and exhibitors have just spent $2 billion to upgrade the cinema experience… There is a lot of money that goes into making movies and the exhibition of movies. That product has a real value. When people come and buy a ticket at our cinemas, they make a judgment to pay that amount to watch that movie in that special setting. All those ancillary ways of distributing movies cheaply, in my opinion, devalue that product in the long run.” In other words, “the studios have made substantial mistakes allowing their products to be sold in those highly devalued, homogenized ways. In the early reiteration of MoviePass, the industry reaction was that this is yet another devaluation of the movie product.”
While taking a “wait-and-see” attitude about whether the public will actually make a pass at MoviePass or pass right by it, FJI requested an update on where exhibitors stands on the subject of video-on-demand and earlier availability of movies in the home. Fithian confirms that “there have been several relatively small titles which have caught lightning in the bottle and sold a few million dollars worth of tickets at the cinema while being released to the home simultaneously or earlier.” Personally, Fithian calls this “a terrible idea… It sets the precedent for other movies and, more importantly, suggests to consumers that movies are the same at home as they are in the cinema. Most of our members disagree with that.” (And so would our readers.) He also argues “that these movies would have done a lot better in the theatre” and thereby “created a lot more momentum going into the home.”
All this duly noted, Fithian can confirm that “the discussions and attitudes have changed certainly since the summer of 2011. We’ve gone from a unilateral experiment by four major studios with very short windows—and without any consultation with their exhibitor partners at all—to a much more aggressive exercise of partnership. Exhibitors and studios are talking about ways to grow the business together and are listening to each other.” One laudable example comes from Twentieth Century Fox “recently announcing a new distribution mechanism where they are going to put VOD and legal streaming ahead of DVD and Blu-ray availability.” With a digital release targeted somewhere in the 95- to 100-day range versus 120 days roughly for disks, “VOD and streaming can be sold for a better price,” Fithian opines.
According to U.S. copyright law, “once you bought a work on a physical medium, you can do whatever you want with it,” he explains the first-sale doctrine. “So even if the studios are not giving them DVDs directly, which several of them are doing, Redbox can go purchase the movies at Walmart. This is not the case with VOD and streaming—those are digital formats and represent different applications of the law.”
With the new HD Movies option, “Fox is combining the best of both worlds,” Fithian believes. “They are taking a realistic shot at improving their home revenues without devaluing the price point of the product and without invading the theatrical window.” To him, “that’s a sign that level heads are prevailing in the discussions. It’s a smart move by Fox and I hope other people are watching.”
On the subject in general, Fithian also hears a lot of talk about how exhibitors can “help home sales stabilize and grow again” without cannibalizing theatrical sales. Promoting and selling ancillary products for their studio partners comes to his mind, for instance, “providing access to the home product as people are leaving the cinema. Who knows what all the different avenues are that our members will pursue?”
Two other roads that have been opening over the past few months are a newly revived interest in consolidation within the United States and a major milestone in the globalization of the theatrical business. As exhibitors are done spending time and money on the digital conversion, Fithian believes, “because there is strength in a broader footprint,” they will once again be focusing on mergers and acquisitions. “Carmike’s purchase of part of Rave is public, but there are multiple other deals being discussed privately now,” he confirms. “I think you’ll see, maybe even before ShowEast, a couple more announcements.”
With all due respect to Carmike and Rave, and our friends at Cinepolis in Mexico and California (see the profile in this issue), not to mention a great group of pan-European exhibitors, this author agrees with Fithian that the purchase of AMC Entertainment by Dalian Wanda Group is “accelerating the globalization of our business in important ways… And if you look at the U.S.-based companies like Cinemark, with a substantial presence in Latin America, globalization goes both ways.” Most importantly, Fithian concludes, “it’s good for the business, as it reflects confidence in the exhibition business as a growth platform. And, you know, it reflects the realities of the world which is no longer a local marketplace. Movies are movies and they sell everywhere.”