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Variety: Film biz at digital tipping point

Variety: Film biz at digital tipping point

For my readers who do not take Variety, I thought this article was worth reproducing below the jump.

I have heard that the studios who are underwriting the digitization of theater chains (which got kickstarted because of the now floundering 3D) are also insisting the theaters get rid of their 35mm projectors. That is a seriously short-sighted way of going digital. Even the studios will never get around to digitizing all their prints and so will have no venue in which to show them except perhaps the remaining arthouses.

The exhibitors are also cutting off future possible sources of revenues, but apparently that is totally irrelevent to the national chains.

What about the indies (past and present) who cannot afford digitizing to every venue’s requirements, especially if they have shot on 35mm (as they have been doing for the past 100 years)? Of course the indies, (whether shooting digitally or on 35mm) which never get picked up by distributors who book in the national chains and yet who still want the theatrical experience, will still have the arthouses who are struggling mightily to get out of the tentpole-theater chain orbit.

This short-sighted rush to digitize theater chains also leaves the arthouses at a loss. If they have not digitized, or if they have digitized to a standard other than that of the large theater chains, they will be further excluded from ever showing the high end of the indies (such as The King’s Speech) or the “smaller” studio films, which again, leaves the studios without alternative theatrical outlets for “classics” and future classics which chains will not show because they are not the newest current tentpole films.

According the Hollywood Economist, theaters do not make any profit from exhibition anyway. This example suffices to show the economics of distribution for a film that makes a gross of US$30M on a 50-50 split. $15m goes to the theater, $15m goes to the distributor who takes out its (for example) 20% distributor fee. The distributor must recoup its investment of $12m – $19m in P&A. – (minus) $13m doesn’t leave much for the distributor, and it means 0 for the producer. A film then must make three times the B.O for the producer to get any money.

“Exhibitors’ core strategy of raising ticket prices through 3D premiums and pushing concession pricing as far as humanly possible in the midst of shifting theatrical release windows is a dangerous strategy,”
BTIG’s Richard Greenfield says (March 2011).
“Exhibitors should be less concerned with paying dividends and maximizing near-term revenues/profits through $6 buckets of popcorn at 98 percent margins than with increasing consumer satisfaction with the movie-going experience.”

Greenfield’s ire was raised by an investor conference appearance a day earlier by Regal Entertainment Group CFO David Ownby who, among other things, touted how profitable popcorn is for exhibitors.

“One of my friends is a commodity trader and every time the price of popcorn goes up, he calls me to remind me that it’s going up,” Greenfield quoted Ownby as saying. “And I like to remind him that we sell a bucket of popcorn for $6. Our cost in that $6 bucket of popcorn is about 15 cents or 20 cents. So if that cost doubles it doesn’t really hurt me very much.”

Aside from that aspect of exhibition as expressed ny the partner of the new endeavor in distribution, AMC and Tom Ortenberg’s Open Road, and returning to the Variety article by Peter Caranicas that the film biz is at a digital tipping point, I think that the indies are once again being prematurely pushed aside by the majors and their advocates who are quoted below in the Variety article.

Film biz at digital tipping point.

That was the main message at the “Digital Cinema and the New Entertainment Model” panel on Sunday afternoon at PGA’s Produced By conference on the Disney lot in Burbank.

The speakers agreed that recent developments – including the penetration of digital projection to about 50% of all U.S. screens and the rapid growth of VOD – are leading to radical changes in the way content is produced, distributed and consumed.

Exhibition would greatly benefit by going entirely digital and switching to a “networked, addressable model” in which content is sent to theaters digitally rather than via cumbersome, expensive 35mm film prints, said CAA’s Adam Devejian.

New technology is making possible all sorts of alternative content for exhibitors, whose theaters are now largely fallow most of the time, especially from Monday through Thursday, noted panel moderator Chris McGurk, the new topper at Cinedigm Digital Cinema, which works with studios, distribs and exhibs to expand digital technology.

Enlightened production shingles are prepping for the changes to come, including distribution via VOD, said GreenStreet Films prexy John Penotta. “We’re still a traditional film company, looking for product, doing budgets, finding P&A financing partners, but now we’re also building digital distribution dollars into our budgets, which we’ve never done before.”

“Igby Goes Down” producer Marco Weber is targeting a VOD release model. Today “I would never do a theatrical release on a smaller movie,” he said. “I would on a $10 million movie, but on a lower budget, a strong VOD situation would give me a better upside than a traditional big release with a big P&A. On those pictures, theatrical can eat up your profit.”

Digital home distribution numbers are now significant, said Clark Hallren of Clear Scope Partners, adding that they range between $1 million and $2 million for many films, and can rise as high as $10 million for some.

McGurk said exhibs want more independent product now to fill up their ample screen time, noting that they can use digital technology to raise revenues by programming theme weeknights around topics such as environmental films and docus, selling corporate sponsorships and advertising to supplement admission fees.

Ironically, panelists were lukewarm on the prospects of 3D, which is the biggest change enabled so far by the theaters’ conversion to digital projection.

“3D isn’t a game-changer for the indie world,” said Weber. “It’s an add-on,” said Hallren.

“I wouldn’t want to be an exhibitor,” replied Hallren when McGurk brought up the subject of premium VOD, whereby studios will make films available to the home 60 days after theatrical release for $30, noting the plan is a wedge that could be used to lower the window to 55 days, 45 days and less, and that the price could also drop to $25, $20 or less as the biz finds its market level.

End Quote. Contact Peter Caranicas at peter.caranicas AT


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