The Weekly CineBuzz Report - 5/30/2011

GOING VERTICAL
If you liked the movie Sideways, Rex Pickett's sequel novel, Vertical, is being scripted for a movie as well.  Vertical picks up where Sideways leaves off and continues the bitter sweet antics of Miles Raymond and his buddy Jack.  Sideways has become a cult movie for wine buffs and literally gave Pinot Noir a boost in sales after its release.  I for one can't wait to go Vertical.

MEDIA STREAMING
In-Stat, a media consulting firm, is forecasting that 3.6 million stand alone media streaming players will be sold worldwide this year with  North America accounting for 80% of the total.   By 2015, In-Stat is predicting that sales of these devices will rise to 15 million.

Although impressive, to put the entire market for streaming devices in perspective, the stand alone player will be the least popular of all the devices to be used for streaming content.  SmartTVs, gaming consoles, tablets, super phones, and the integrated PC will be sold in the tens of millions.

I don't think people realize how big media streaming is going to become, and how easy it will be to access.  The devices are already here, it's now a question of how fast the various players in the streaming game can ink deals and develop appropriate compensation models (which will be some combination of user fees and ad revenue).  Read the next item on Hulu as an example of what I'm talking about.

HULU.COM KEEPS ON DANCING

Hulu - the internet based provider of TV programing and other content is inking new deals with its owners NBC (Universal), Fox (Newscorp) and ABC (Disney) to provide their content via the internet.  Hulu will continue to be an ad supported site but will introduce Hulu Plus (a subscription based premium service that will offer enhanced programming as well as the ability to stream content to tablets and superphones).

During recent negotiation's it was made clear by its media giant owners that Hulu will not have exclusivity but be one of many distribution points for their content.  Hulu, originally conceived as a way to complete with Google's YouTube in 2007, is now trying to obtain new and/or enhance fees for the programming it supplys to cable and satellite service providers, as well as, streaming services like Netflix.

CUSTOMER DISCOUNTS AT CINEMAS

Most cinemas, particularly the larger circuits, offer customer discounts on concession products through the use of a membership card - so many admissions get you so many points/accumulate points and you get a free or discount popcorn etc.  Turns out that this type of customer discount is the least liked by consumers!

According to Consumers Reports the five best and most liked consumer discounts are the following:

1. Percentage off incentives:  Easy to understand, straight forward, and given at point of sale.
2. Buy one/Get one (BOGO):  Volume generators, easily understood, used extensively in retail.
3. Manufacturers' Rebated:  Old and very common type of discount, many given at point of sale.
4. Free Delivery/Shipping:  Used extensively for on-line purchases or for big ticket items.
5. Extended Terms/Financing: Used for big ticket items by the big box stores.

So, once again the cinemas are on the wrong side of the customer.  To get real customer loyalty scrap the membership card and go for the instant percentage off or BOGO type discount - and watch your concession sales grow.


Best and Happy Movie Going!
Jim Lavorato

TOP 10 ON WHY BUILD GREEN

REDUCING THE CARBON FOOTPRINT OF BUILDINGS IN A measurable way improves the environment but also affords these 10 huge benefits:

1. Its a Competitive Differentiator. 
2. It Mitgates Risk
3. It Attracts Tenents and Business Patrons
4. It's Cost Effective
5. It Increases Lease and Rent Rates
6. It Provides for Happier Patrons and Employees
7. It Improves PR and Community Relations
8. It Lowers Operating Costs
9. It Provides Immediate & Measurable Benefits
10. It Saves Energy & Water

Note: Jim Lavorato is the Founder of the Arboreel Group - an environmental consultancy specializing on improving the efficiency and sustainability of cinema theatres.

ADAPTING FOR COMFORT

Adaptive Thermal Comfort is a term you'll be hearing more and more. It means that people naturally adjust to normal variations in temperature through the use of non-mechanical or less mechanical means.

For example, in warm weather people logically open windows to increase air circulation vs. the use of an air conditioner.  What was the norm 50 years ago in terms of the way people adapted to temperature fluctuations is now in vogue with architects and builders/developers.  This new/old theory is making a come back  and turning the tide on the construction of conventional energy wasteful buildings.

In the 20th century much of the world adapted technologies (like automated HVAC systems) which were developed and ran on the premise of an endless cheap supply of fossil fuels and water power.  This led to building an environment that was disconnected from the outdoor weather conditions and created human expectations of a fairly constant and narrow range of indoor temperatures year-round in buildings in which people lived, worked,  and played.

The New Old Theory

Throughout most of the 20th century the theory of ideal temperature comfort was practiced across a variety of cultures and climates and led to a huge increase in energy consumption. Today's thinking and the way forward is to explore alternatives to achieve high indoor environmental quality without wasting resources and by reassessing the heating, ventilation, and air conditioning practices that have developed over the last five or so decades when energy was cheap and abundant.

As we move into the 21st century Adaptive Thermal Comfort will become the new normal.

Note: Jim Lavorato is the founder and one of the principals of the Arboreel Group, an environmental  consultancy specializing on improving the efficiency and sustainability of cinema theatres.

SHIVER ME TIMBERS

Pirates of the Caribbean: On Stranger Tides turned to treasure for Disney as it sailed to a total box office of over $104 million in its first five days of domestic release.  The booty continued to amass, as the overseas market took in over $286 million during the same period. With a production cost of $250 million it will be the international box office that turns the tide for the Pirates (and Disney). The strength and importance of the overseas movie market to Hollywood can not be emphasized enough and comes at a most opportune time as the U.S. box office continues to wane.

The international box office is up 9% YTD vs. 2010 with strong showings from Russia, China, Germany and England.  Conversely, the domestic box office is down 12%  in dollar terms and 6% in ticket sales.

U.S. ticket sales are now forecasted to reach 1.12 billion for the year or 108 million under 2010's level.  While box office revenues are expected to reach $8.9 billion vs. last year's total of $10.4 billion.

Hopefully, The Hangover/Part II (Warners) and Kung Fu Panda II (Paramount) which open this weekend will catch the same winds as the Pirates and sail on to lofty box office grosses.  I think Hangover will gross very well but I have my doubts about the Panda.

Best and Happy Movie Going
Jim Lavorato

THE THIRD, FOURTH, AND...........SCREENS

The term SmartTV refers not to hardware or specific devices but to the overall experience of viewing internet delivered content.

Cinema was the first screen. Television the second. SmartTV the third, fourth, fifth and so on.  In the future, consumers will expect to access entertainment content the way they now use a search engine and be able to view that content anywhere on a variety of devices.  And, make no mistake, content providers, particularly the media giants, will deliver what consumers embrace for only in that way can they truely maximize revenues and viewership.

Cinemas will have to differentiate to survive; otherwise, they will morph into venues where only high-impact or animated blockbusters are viewed - we are already seeing evidence of this trend.

" But, that's all talk " you say.  So, over the next few weeks I'll devulge what I think a successful cinema will have to look like in 5 years.  What a cinema must do to adapt, what equipment will be required, and what to do to keep attendance up.

Best and Happy Movie Going
Jim Lavorato

WHAT ARE THEY THINKING ?

Getting the proverbial shaft at cinemas is becoming more commonplace then receiving Nigerian spam. This is particularly true of the larger circuits. Here are two examples of what I recently encountered:

Tale I

I'm in Las Vegas last week and I decide to go to a matinee presentation of  Fast Five at the Cinemark Century South Point Cinema.

When I request a ticket for the show the B.O. attendant asked if I wanted to see the movie in " A regular auditorium or the XD auditorium ?" " What's XD ?" I queried.  "Xtreme Digital - a big screen with big sound, it's $3.50 extra " was the retort.  Therefore, instead of the $6.00 regular matinee price the extreme admission would be $9.50.  I responded, " So what you're saying is that if I pay the regular admission price I'll be viewing the movie on a small screen with crappy sound ?"  "Well no, just that XD is on a large screen with loud sound, like, you know, IMAX " he replied.

I purchased the $6 ticket and then (naughty me) go to the XD auditorium and seated myself.  The Xtreme Digital auditorium turned out to be simply one of the Theatre's larger auditoriums.  Besides myself there were 5 other patrons for that show.

Tail II

This past Tuesday, I journeyed to the Regal Cinemas Transit Theatre in Buffalo, NY to see a matinee presentation of Priest in 3D. Price for the matinee ticket - $12.  I ordered a medium corn and medium Coke  - $12.50.  I walked into Aud. #3, it's empty, and stays that way throughout the entire presentation. I got a private screening in a 400+ seat auditorium.  Hmmm, maybe that's why the admission price was so high ?

The moral of these tales: Gouging and charging high admission and concession prices are never going to replace customer service and satisfaction as revenue/profit drivers.  What are they thinking ? How about trying: lower prices/higher volume.

Best and Happy Movie Going
Jim Lavorato

A PLACE OF NO !

DVD sales/rentals have become passe and so has the video store - it turned into a Place of No ! A recent study by SNL Kagan (the media consulting group) on the state of the DVD industry found that "brick and mortar, mail order, and kiosk video distribution sank a collective 43.9% in 2010 vs. 2009".  I believe this trend will not only continue but accelerate.

Where did the eyeballs go?  They certainly haven't migrated to the cinema. According to our friends at Kagan, the eyeballs moved to the Place of Yes - the fast growing content streaming space via Netflix and video-on-demand services from TV cable, satellite, and telco operators.

The Kagan study lends credence to what I have been shouting for sometime - that in the future, movies will be delivered to viewers through a variety of distribution points simultaneously.  If  I'm right then cinemas need to change their business model or they too will become a Places of  No!  Movie exhibition needs to raise the entire bar on customer service and satisfaction and focus on what's NOT going to change in the future.

With conviction, I guarantee that 10 years from now customers will want low and valued pricing,  fast and reliable service,  great selection and choice.  Exhibitors need to build a low cost, efficient, and value-added model to compete in the future and remain a Place of  Yes.

Best and Happy Movie Going
Jim Lavorato

MOOLA REPORT - MAY 2011

Cinema News

Thus far, May have been the best month of 2011 for the cinema. Fast Five, the year's best opener has now grossed over $161 million domestically, and a whopping $441 million worldwide.  Rio came close with w.w. take of $429 million. Thor, scored a second week at first place domestically and has now grossed over $120 million with a w.w. take of  $318 million. The hit sleeper so far was Insidious, which has now grossed over $59 million, with a price tag of only slightly over $1 million to produce.  One of my 2011 sleeper hit picks was Bridemaids, which came in second on its weekend debut at $24 million.

YTD the U.S. box office at $3.1 billion still lags behind last year by slightly over $500 million or 13%  with 387 million admissions. The average ticket price: $7.86.  The summer movie line up looks very strong and hopefully the 13% shortfall will be made up.

Moola Entertainment Stock Chart

                                                              Share Price                  

                                                    1/1/11       5/15/11     % Chg.

Ballantyne Strong (BTN)                  $   7.77    $   5.87       (24.5)

Carmike Cinemas (CKEC)                        7.72           6.90        (10.6)

Cinedigm Digital (CIDM)                          1.68           2.15         27.9  

Cinemark (CNK)                                      17.20          20.71        20.1

Disney (DIS)                                       37.51         41.52        10.7

Dolby (DLB)                                            66.70         48.60       (27.1)

Dreamworks (DWA)                                29.26         25.58       (12.6)

Entertainment Property Trust (EPR)         46.25         47.31          2.2

IMAX (IMAX)                                          28.07         36.66         30.1

Netflix (NFLX)                                       175.70       246.52         40.3

National Cinemedia (NCMI)                     19.91         16.53        (17.0)

Rentrak (RENT)                                        30.16         21.26        (29.5)

Regal Entertainment (RGC)                      11.74         13.68         16.6

Technicolor (TCH)                                      3.56          5.03          41.3

Time Warner (TWX)                                 32.17        35.99          11.9

Not much changed within the last month, Netflix (our stock of the month, see below) and Technicolor continue to be the stellar performers.  Disney and Time Warner, the big guns in the chart, have performed fairly well given that both companies have stated that not all of their operations are doing as good as planned.  Nonetheless, the market believes their growth prospects and dividend payouts look good.  IMAX is another stock that has performed very well, due mainly to their premium admission pricing which  the public seems to accept at least for the time being.

Moola Stock of the Month: Netflix (NFLX)

Netflix has been on a tear for the last two years.  In 2003 it almost went bust as it tried to convince folks that getting DVDs via the U.S. Postal Service (for a flat monthly fee) was a good thing.  It took some doing and time but Netflix stuck with its strategy and wound up amassing over 23 million devotees in the process and literally put the video store out of business.  Its only competition of late being RedBox, the kiosk based movie rental company, which is owned by Coinstar and coincidental was started by a former Netflix executive.

But, Netflix knew that it would have to succumb to the inevitable pressure of the digital domain and had to change its distribution model from mailbox to internet - it is now in that process.  RedBox must do the same if it is to have long-term survival.  Media streaming is the name of the game and Netflix wants to be the means of distribution for movies, TV shows, and other web-driven content.

Netflix stock has risen from $3/share in '03 to today's price of $242 and I see no reason why it won't go higher.  Its P/E is a nosebleed 70 but its growth prospects unchartable so long as it continues to ink deals with content providers and deliver that content at reasonable rates to an end user (viewer) - and Netflix is doing just that.

Currently, Netflix's streaming service (priced at $7.99/month to the subscriber) is available for TV, game consoles, BluRay players, and Apple iPads and iPhones.  In a recent press release (May 12th) Netflix announced it would be streaming movies and TV shows on five superphones that use the Google Android operating system - 4 phones made by HTC and one from Samsung, others will follow.  The Android additions further enhance Netflix's dominance in the media streaming space.

My thoughts on Netflex going forward: 

The $7.99 flat fee will be eliminated and/or modified to take into consideration higher fees for newer released movies, as the cost of content becomes higher for Netflix.
The other point is that Netflix could be a takeover target for a larger firm that wants to enhance their position in the media streaming space - Amazon comes to mind.  With Netflix's built-in subscriber base and Amazon's need to continue to expand its domestic and overseas operations (Netflix has no overseas operations and just recently started to operate in Canada and Mexico) the fit looks good.
With a share price north of $240 Netflix is valued at about $13 billion, so it won't come cheap, but Amazon with a share price of $197 is valued at $91 billion.  Netflix would be expensive but not unattainable and given Amazon's high share price it may be the best time to acquire Netflix and if not than come to some collaboration.  When it comes to Netflix its not price but its accelerated revenue growth potential that matters.

Best and Happy Movie Going
Jim Lavorato

CINEMA SCUTTLEBUTT

F/U To APRIL MOOLA REPORT

The Moola Report's featured entertainment stock for April (published on 4/20/11) was Dolby Labs (DLB).  In the Report I suggested Dolby, given its built-in royalty and licensing revenue stream, was well suited for a marriage or takeover.  Low and behold! In the May 2nd issue of Barron's Weekly, Kopin Tan (whose weekly The Trader has been a mainstay in Barron's for some years) scribed an analysis on Dolby.  The piece ended, "If it weren't still controlled by founder Ray Dolby and his family through special voting rights, the company would be roundly talked up as a sweet takeover target - loudly and clearly."    Hmmm, could Barron's be perusing The Moola?

TAKING THE "SUPER" OUT OF HERO

Will this summer's roster of films be too crowded with Superheros? Is Hollywood going too deep into the comic world and making superheros out of also-rans and second benchers that never had wide comic readership or, in some cases, no (should I say it) super powers.

Does the Green Hornet, Priest, Super 8, Trollhunter, Green Lantern, and Capitan America have boxoffice juice?  Or is the summer slate too heavily loaded with hero-types. Not to mention real superheros: Thor, X-Men, Transformers, and Conan that will fill screens this Super Summer.  Thor came out second best only to Fast Five (no heros in this flix, super or otherwise, just ex-cons, bad cops, and wrestlers) in B.O. draw.  Not too shabby for the Nordic god, but will super fatigue manifest as the dog days of summer set in?  Hopefully No! And the 18-34 male demo comes through in super attendance fashion - but you never know.  Now, if I only had super physic powers -------.

Twinkle, Twinkle, Little .........

With a plus $50 million B.O. take, Insidious - a horror story about parents battling for the very soul of their comatose child -  cost a mere $1 million to produce, and is, so far, 2011's sleeper hit.  FilmDistrict, the movie's distributor, says word-of-mouth and good pre-release marketing were positive factors to the film's huge success.  Look for a sequel. 

Best and Happy Movie Going
Jim Lavorato

A DIRTY LITTLE (GREEN) SECRET

THE KYOTO ENVIRONMENTAL PROTOCOL IS DEAD !  Last year's eco-pow wow in Copenhagen emitted nothing but hot air. And, the carbon credits markets, aka: cap and trade, are being recycled into much smaller and much less potent entities.  But Why?  Why has one of the most high-minded and noble aspirations of the green movement gone brown?

The answer is Russia.  Russia?  What, you ask, does Russia have to do with the demise of global cap and trade?  Well, it's like this.

Russia's greenhouse emissions plunged with the collapse of the USSR in 1991. Throughout the 1990s, all across Russia huge polluting factories were shuttered to the extent that by the turn of the century Russia's carbon emissions were down by 35% resulting in their amassing almost $1 trillion worth of energy credits.  Now, Moscow wants to cash those credits in before there can be a global agreement on emissions going forward.  This issue was the skunk at the Copenhagen eco-garden party.  And, it will be taken up in Mexico City, which will host the next global eco-lovefest.

Naturally, the two most polluting countries (the U.S and China) would bear the brunt of the trillion dollar payment to Russia, which is a real agreement non-starter.  The carbon credits held by Russia are due to expire in 2012 (along with the Kyoto Treaty) however, Moscow wants the credits to roll forward if  Russia (the world's third worst polluter) is to sign any carbon emissions' agreement.  Russia asserts that the credits are legitimate claims and this assertion has been supported by most international law scholars, green community honchos, and all of the other Kyoto signatories.

As it now stands, Russia has 5-6 gigatons of emission credits to sell  -equivalent to China's total emissions for one year - and they are not the only one.  The Ukraine also has a huge number of credits and is waiting to see what deal Moscow strikes before it seeks its own deal.

Obviously there is a lot of disagreement within the global eco-community as to how this problem will be settled and putting a value on Russia's $1 trillion claim.  Moscow wants full payment while the U.S. and China want the credits to expire worthless.  

And the beat goes on!

Best
Jim Lavorato

TO THE CINEMA ZETTABYTE IS A 4 LETTER WORD

A Zettabyte is a term for an amount of digital data.  A ZB is equal to 1 billion terrabytes or 1 trillion gigabytes - it's a 1 with 21 zeros behind it - basically a shit-load of data. But why would a zettabyte be so important to the cinema?   Because 2011 will mark the first year that humanity will generate more than a zettabyte of  digital data and points to how much data (including movies) is being streamed to countless digital devices.  In fact, at the current rate of increase, by 2020 humans will be creating 35 zettabytes of data per year.

The fact that movies will be available not only at cinema theatres or on a DVD but accessible on a slew of devices from tablets to webTV is a terrible precursor for the cinema.  Those that frequent this blog know that for a long time I have been preaching that cinema exhibitors must change their business model if they want to survive in the digital world, and it is becoming increasingly evident that this will prove out to be a true prognostication.

The next generation will be more adapt at manipulating information and data at all levels. A recent study by IpsosOTX-MediaCT (the folks that study the impact of the media on people) found that children as young as 6 years of age are playing video games, using social media sites, and playing videos - and that these activities make up more than 25% of a 6-12 year old's waking life.


What this suggests is that content providers can reach a broad range of age groups through a wider range of delivery mechanisms.  Additionally, and perhaps more importantly, the official guidelines for interacting with the internet is being disregarded.  For example, Facebook is officially ban for children under 13, however, the OTX-MediaCT study found that over 40%
of 10-12 year olds are already on Facebook. For movies, 70% of children 10-13 are viewing PG13 films on a regular basis. What this suggests, is that heeding warning or ratings by viewers (whoever they may be)  regarding content appropriateness is not relevant!

It's going to be a no-holds-barred as content providers seek best source (and most lucrative)  deals for movies.  The cinema theatre will become just one of many distribution points in the future.

Best and Happy Movie Going
Jim Lavorato

BEST 'GREEN' BANKS

YES, YOU NEED GREEN TO GO GREEN, SO WHICH BANKS ARE THE GREENEST.   According to a recently released Bloomberg study, which was very extensive (a universe of over 1000 banks) and global (the competing banks were from 49 countries) the "greenest" financial institutions were, in rank order:

1. Banco Santander, Spain
2. Goldman Sachs Group, U.S.
3. UniCredit SpA, Italy
4. Credit Suisse Group AG, Switzerland
5. Citigroup Inc., U.S.
6. Banco Bilbao Vizcaya SA, Argentina
7. Royal Bank of Scotland Plc, Scotland
8. Societe  Generale SA, France
9. HSBC Holdings Plc, Hong Kong
10. BNP Paribas SA, France

The rankings were based upon the banks' efforts to reduce their own carbon footprints (30% of rating) as well as their lending practices and policies to green projects and companies (70%).  For example, Banco Santander, the number one bank, instituted a practice whereby anyone can leave batteries for recycling at its branches in Brazil. It collected 172 tons of batteries last year and is now instituting that practice at all of its locations. According to the Bloomberg study, " Banco Santander is committed to increasing its own sustainability while placing its financial resources in projects which are environmentally friendly, such as financing a $324 million loan for a U.S. wind farm".

Not only is this great PR for these financial institutions but it is also lucrative.  Investment in clean-energy companies and projects rose 30% in 2010 to a record $243 billion. This study illustrates the need for Green to go Green and more so now that both the U.S. and European governments are scaling back on energy subsidies and tax rebates for clean projects because of fiscal and monetary constraints.

As part of the Arboreel Group - the environmental sustainability initiative for cinema exhibitors - I feel strongly that programs, such as Santander's battery recycling, can be performed by any cinema (and should be), as cinema's, like banks receive a lot of public traffic.  There has been a lot of resistance by the cinema exhibitors to Arboreel, but its time has arrived and exhibs need to support the Arboreel Program

Best and Happy Movie Going
Jim Lavorato