The Three C's of Exhibition Assets

Content Communication Conveyance

ENTERTAINMENT’S HIDDEN WEALTH
(FULLY OPTIMIZING MOVIE EXHIBITION ASSETS)
By James Lavorato
Moviemaking is an artistic endeavor, but while most art forms are an expression of the individual, moviemaking is an artistic collaboration. As an art form it is singular in this respect as it may take hundreds and sometimes thousands of individuals each with particular talents to produce, distribute and then exhibit a motion picture. Therein lies the dichotomy – art is inefficient. Inefficiency and profitability are not compatible, in fact they are diametrically opposed; however, in the art of moviemaking as inefficient as the process is, it can (at times) produce great profits and returns on investment unattainable in any other business sector. Added to this, is the strange makeup of the business - large multinational media and entertainment giants to small Mom and Pop theatre operators and everything in between - all overlaid on a medium (film) which hasn’t changed for over 100 years.

Moviemaking made great strides throughout the 90’s. Theatres went from shoe box multiplexes to stadium seat megaplexes. Cutting-edge computer technology, rivaled only by the defense and medical industries, enabled film production and post-production to reach new visual and audio cinematic heights. Exhibitors and theatre equipment providers took full advantage of improved film delivery, sound, and optic technology. Kodak introduced new film stocks which were more durable and offered enhanced color and clarity characteristics. So why, after all this effort and success, has the motion picture business hit the wall. With more films being produced, with more screens for exhibition, with greater technology advances in cinematography and film exhibition, with greater numbers of people thirsty for entertainment – the boxoffice has essentially flat-lined.

Some of the often sited reasons for the current situation, go as follows:
· Hollywood doesn’t produce enough “good movies”. There’s not enough movie product.
· People are shifting to other forms of amusement – PC’s, enhanced cable broadcasts, the web, more personal endeavors.
· The exhibitors overbuilt – so we’re now over-screened.
· Stadium seating put the kibosh on regular cinemas making older exhibitor
operations unprofitable and obsolete.
· Recent boxoffice attendance is static so revenue increases are due solely to price points.
· The production side and the exhibition side (both obviously dependent upon the other for success) have very little communication with each other.
· Exhibitors have no control over the product they ‘sell’ – yet they invest, borrow, build, manage, and operate their business in a vacuum.
· Exhibitors are not in the movie business – they are in the food business (the fast food business).
· Star-driven product and big budget films with strategically planned release dates are the way to go.
· Low budget films and more of them are the way to go.
· The distributors are greedy and set unrealistic boxoffice revenue sharing schemes.
· The exhibitors are greedy and over charge for concession.
· And so on……

The current diagnostics of the movie industry, I believe, run deeper and are more complex than the aforementioned. The circumstances and the solutions to resolve the current situation will require new management mind and skill sets which are currently nowhere in sight.

Follow The Money

A movie is a product with a finite life in terms of marketability. Additionally its revenue stream is segmented: boxoffice, merchandising, music CD, video, DVD, pay-per-view, cable TV, etc., etc. As the product moves downstream the returns get larger as the production and majority of marketing/promo costs are front-loaded. For example, video/DVD sales/rentals are three times more profitable than the theatrical boxoffice (so much so that video revenues are a major negotiating point in the current contract negotiations between distributors and both the Writers and Screen Actors Guilds). As the product moves downstream each incremental sale becomes more profitable; however, the Achilles Heel is that the distributors need the theatrical release as a marketing kick-start to generate interest (and sales) of the highly profitable downstream revenue sources. It is very difficult to market a DVD without the promotional entry the theatrical release provides (although done successfully in movies like Disney’s “The Little Mermaid II” these are few and far between, and were promoted on the coat-tails of a very successful feature film). So, for all practical purposes, the industry needs the theatrical release to obtain the high margins of the ancillary by-products of the movie. Essentially a movie is all developmental cost.

Utilization/That’s the Ticket

The seat utilization rate at movie theatres runs about 12 – 15%. There are approximately 40,000 screens in North America running 5 showings per day, with an average seating capacity of 300 seats. This all equates to a seating capacity of over 400 million seats per week. This staggering figure illustrates the obvious need for more and varied content at the, let’s call them “viewing venues” rather than movie theatres for on the margin, each 1% increase in the seat utilization rate equates to over 4 million additional admissions per week. So the strategy for all ‘viewing venue’ operators and content providers/distributors is to raise the utilization rate. This more than any other strategy would provide the entire entertainment industry a major boost in profitability and; astoundingly, the facilities and infrastructure to accomplish this are already in place and the investments already made.

Scarce Talent & Resources

Hollywood produces approximately 500 feature films per year. Can Hollywood produce 1000 or 2000 full length features per year – probably not. Given the time parameters required to produce and distribute a movie and more importantly the requisite talent pool and financial resources required, the ability to double or triple production is not optional. Essentially, Hollywood has become a victim of its own success because the public has a built-in high entertainment expectation value. The production and viewer enjoyment of the technologically advanced sound, sight, and digital wizardry of movies is now taken for granted. The dilemma is that this high expectation value and Hollywood’s requirement to maintain this expectation level is incredibly costly and talent laden throughout production, distribution, and exhibition.

eCinema

In the last issue of The Marquee (the industry newsletter I publish), I wrote an article entitled eCinema – Pulling The Trigger, which went through a rendition of the value or lack thereof for the introduction of eCinema at this point in time.

As things currently stand, given the bankruptcies and precarious financial postures that exist in the movie exhibition industry the conversion of film to digidata is essentially on hold. Thus far there has been over 5,000 digital movie presentations at 20+ sites worldwide, however; even the most devote apostles of eCinema concede much work needs to be done regarding a host of issues before any serious conversion effort can take place not the least of which is cost and cost sharing.

Logic tells us that eCinema is inevitable and over time like all new technologies will provide blended results and unanticipated consequences. The impetus for eCinema is movie distribution cost savings not revenue generation – and clearly the savings are overstated; but, the ease of content distribution that this technology brings will be formidable and more importantly opens the door to unforeseen opportunities and options. Certainly those willing to take the risks and make the requisite investments should be commended. Any number of partnerships and alliances between a wide variety of companies in and outside the entertainment industry will be required to expedite the conversion process. Financials will be worked out for cost sharing of the initial equipment outlays between the distributors and exhibitors, but the real benefit of eCinema has nothing to do with movies but the fact that the appropriate apparatus will be in place to allow other – “non-movie” – content into viewing venues.

What’s Next

In November of 1999 Entertainment Equipment led a group consisting of non-entertainment companies interested in the feasibility of projecting a digital image of action sporting events at a conventional movie theatre (see article – Broadcasting Sporting Events @ Theatres: A Digital Beta Test - in the April 2000 Film Journal International). During that test and those that followed source content tested varied from low 420 line progress scan images to 1080 line interlaced high definition images using off-the-shelf audio/visual products. These proof of concept tests, in all cases, proved to be very successful and reinforced the premise that I and others have been harping on for years – that each theatre has the capability to provide customer centric entertainment and services at each and every viewing venue on each and every screen in North America and eventually – on a worldwide basis.

Over the last year we’ve been witness to a complete re-assemblage of the movie
exhibition business. Bankruptcies of the largest circuits from coast to coast, debt restructurings, takeovers and buyouts, receiverships, etc., etc. This realignment and refinancing of exhibition assets will, I believe, prove to be a positive for the entire industry assuming the reconstituted entities are managed with proper stewardship and guidance, for it will hopefully provide the stimulus and desperately needed farsighted management required to move the industry forward. You can’t make a flower grow by pulling on it so the treatment for the exhibition patient will take sometime; however, great potential lies in the use of digitally transmitted content coinciding with meticulous demographic slicing and dicing of groups clustered around each viewing venue wherever it is located and the connection between that group and their precisely selected entertainment. In the future, exhibitors should have the ability to choose from a menu of content for each of their auditoriums. Mimicked like a 150 channel cable broadcaster the content menu would include: movies, sports (at all levels), concerts, shows, music video programs, plays, training programs, fashion shows, simulcasted group meetings, travel logs, etc., etc., etc. all interspersed with specially created advertising and complimented by venue appropriate concessions and product merchandizing. Additionally, each venue should provide a cache of targeted community services which may include web access, check cashing, patron video showings, digital cafés, public appearances by local sporting figures and entertainers, and so on, making the viewing venue a vital community focal point.

Conclusion

As it now stands the three required components to successfully implement the presentation of entertainment content at large viewing venues – content, connection, and conveyance – are eminent.

As always, content will drive the boxoffice and all the other ancillary revenue generators and as we have discussed there is a multitude of content currently available and suitable for large venue broadcast. The connection will be through any number of streaming media transmission modes – high-speed cable, satellite, packaged digidata, etc. The conveyance (presentation) from off-the-shelf video projectors interfaced to sound systems currently resident at the movie theatres. Costs are relatively low and unlike eCinema which is a cost saver, this next step in entertainment is a major new revenue source.