WEEKLY CineBUZZ REPORT - 23 February 2012

Highlights of this Week's Report

- China Opens Release Window - A Crack
- U.S Boxoffice - So Far/So Good
- CGM's "Oscar" Picks
- In-Home Theatres Become Passe'

China and U.S. Ink New Movie Release Agreement

Last week, U.S. VP Joe Biden and Chinese VP Xi Jinping (the odds-on favorite to become China's next President) announced an agreement which will ease (slightly) the current restrictions on U.S. movie distribution in China.

Under the new agreement, China will allow an additional 14 movies (including 3D and IMAX films) to be released bringing the total annual allowable releases to 34. Although the Obama Administration and the Motion Picture Association of America were touting this as a great step forward, it is really a token gesture on the part of the Chinese government.

The pact also increased the limit on a studio's box office take to 25% from the current 13%.- which is in stark contrast to the 50-55% of box office grosses the studios grab from U.S. exhibitors. On the important issue of piracy, nothing was agreed to regarding DVD or BluRay sales, or China's rampant movie piracy and copyright infractions.

In a private agreement with the Chinese Government, Warner Bros. became the first studio allowed to offer a pay-per-view service in China and DreamWorks announced it had formed a joint venture with two Chinese media companies, called Oriental DreamWorks.  Based in Shanghai, the company will create animated and live-action movies and TV shows targeting a family audience and is scheduled to release its first production in 2016.

Recently completed Chinese National Film Museum

The Chinese want and are building up their own modern cinema industry, which will produce and distribute their own brand of movies.  The major U.S. studios, I believe, will use the less expensive Chinese movie production facilities more and more for post-production, special effects, and digital design and animation production.

U.S. Boxoffice Looking UP

Includes Navy Seals in Cast

Year-to-date, the U.S. box office , at $1.45billion is up 17.7% over 2011 - a very good start for the year.  Being pushed by new as well as holiday holdovers this year's box office, thus far, has been resilent and spread across a number of films vs. one or two blockbusters.

This Sunday's Oscar awards should give a boost to grosses as well. Also opening this weekend are Act of Valor (Relativity) the action, Navy Seal quasi-reality flix should do very brisk business.  It is accompanied by the comedy Wanderlust (Universal) and Gone (Summit), an action thriller (which I believe will be a sleeper and do very well).  Openers for March look promising. The Lorax (Universal), John Carter (BA), and the documentary Bully (Weinstein) are best bets.

First quarter grosses should surpass 2011 by at least 10% and provide a good cushion going into Spring, which can always be dicey. Also, there will be the Summer Olympics and Presidental election to contend with.  Tickets sold thus far: 185.6 million - slightly up from last year.

CMG'S "Oscar" Picks - Silence and the Ladies

For openers, we are only going to predict on the top awards, and our feeling this year is that Silence is golden and the Ladies rule. Lets get to it:

Best Picture: The Artist
Best Actor: Jean Dujardin, The Artist
Best Actress: Viola Davis, The Help
Best Supporting Actor: Christopher Plummer, Beginners
Best Supporting Actress: Jessica Chastain, The Help
Best Director: Michel Hazanavious, The Artist
Best Music: Ludovic Bource, The Artist 

So, we are predicting that Tinseltown's big night will be all about history.  The way Hollywood used to be and a slice of social/racial life in the U.S. during the mid-1990's.

Note: In a deal signed yesterday (with the Weinstein Company) Netflix reported that The Artist, will make its pay-television debut exclusively on Netflix rather than on traditional premium cable TV.  This deal also includes the upcoming docu-flix, the Bully.

In Home Theatres Go Out-of-Fashion

According to the National Association of Home Builders, the large and elaborate Home Theatre is a design tread that has seen its day. A must-have in many homes just a few years ago, has quietly and quickly become passe.  The hugh projection screen, theatre seating with cupholders, and mood lighting has given way to large flat panels and smaller (yet just as powerful) sound systems.  In today's home the entertainment is in every room with devices that move with each family member.

The U.S. homebuyer of today is practical, value-oriented, and knows the technology.  The need for a home theatre or large, media-viewing gathering place is no longer needed. According to the NAHB, other once popular home trends that are on the wane: Outdoor kitchens & fireplaces, Sunrooms, Two-story foyers, Master-planned developments, Formal dining rooms, and Whirlpool tubs.

Best and Happy Movie Going!
Jim Lavorato

DIGITAL CINEMA Goes LASER

In its decision to abandon analog 35mm film and embrace digital projection the Hollywood studios, supported by several exhibition chains and NATO (National Association of Theatre Owners), trapped the cinema industry into ever evolving technological cycles which are the hallmark of the digital domain.  These changes are impossible to stop, impossible to control, and doom users to continuous adoption and expense.

Kodak's Laser Projection System

Case in point: Laser Projection Systems - the next development in content projection, laser based projectors will replace the current xenon based Digital Cinema projectors currently being adopted by the cinema industry.

Why?  Because laser projection delivers a vastly improved on-screen image with more contrast, a much wider color palette, a brighter image, and over time are more economical to operate.  For example, for 3D movies, laser based projectors are twice as bright as conventional xenon based D-Cinema projectors because laser light is already polarized and does not require filtering - which consumes half the light generated by the xenon projector.

Kodak first demonstrated a laser-based cinema projection system last spring to rave reviews. Unfortunately, Kodak didn't have the financial wherewithal to bring its prototype to market so had to license its.  First license purchaser, IMAX which is now working with Kodak and have stated that the projector will be in use at IMAX Theatres in 2013.

Barco Laser Projector

Last month, at the Digital Cinema Symposium, held in Galveston, TX, Barco premiered its laser driven cinema projection system. Touted as, "the brightest projector on the planet for digital cinema", the Barco 4k resolution projector produced a 70ft. wide on-screen image, which according to observers "stunned the audience".  Dave Keene, of NewBay Media Systems, stated "it's impossible to describe, the combined effect of very high light output, higher contrast, and 4k resolution produced the best image I have ever seen on a large screen."

Chinese Built Laser Projector

Like all digitally based technology improvements the cost of laser projectors will decrease in price, will be adopted, and will become the next "must have" for cinemas - because it's a better mouse trap.

Barco estimated that its laser projector will be available commercially in 2-3 years and the other D-Cinema projector manufacturers will join Kodak and Barco, as they must.  And Hollywood will embrace laser projection, as they must.  And cinema operators will have to acquire the technology, as they must. 

The solution to this problem is for the Hollywood studios to simply announce that they are going to keep distributing movies on 35mm film.  The old technology is controllable, reliable, and, most importantly, doesn't continuously evolve into new and better technology that must be embraced.

Best and Happy Movie Going!
Jim Lavorato

WEEKLY CineBUZZ REPORT - 12 February 2012

Disney's Bob Iger

DISNEY'S IGER SPEAKS OUT on RELEASE DATES & ULTRA-VIOLET

Last week Bob Iger, President & CEO of Disney spoke in a webcast regarding the release window for movies and other topics, here's what I learned.
Bob, what are your feelings about the current state of release windows?
Currently after the theatrical release the movie is sold via DVD and pay-per-view. Then to Internet streamers like Netflix and Hulu.  However, we want Redbox, the kiosk based movie distributor, to wait 28 days after the DVD release before it can buy new movies for rental.

Disney no-go on UltraViolet

We feel this would be a wise thing for us to do. Don't forget, under the First Sale doctrine , companies like Redbox can by DVDs from third-party distributors (ie. Walmart) if they do not want to honor release window delays.
Isn't this exactly what Redbox is going to do?
Probably, they are doing that now with Warners Bros. that has imposed a 56 day hold-back on sale of their DVDs to Redbox.

Disney's KeyChest

What about Disney's position on UltraViolet?  Note: UltraViolet is the cloud-based technology that allows consumers to have individual "lockers" with stored entertainment content such as movies, TV shows, etc. (see CMG post "The Moola Report", July 11, 2011).
We are the only major studio not committed to the UltraViolet consortia. I have no plans for Disney to join the Group and as you are aware we are developing our own digital locker technology - KeyChest. I don't want to sound too critical, but we're taking a wait and see approach on UltraViolet. I'm not suggesting that we're not open-minded about it, but so far I'm not sure that it's proven to be as robust as we expected or as consumer-friendly as hoped.
Thanks Bob, I'm sure we'll be hearing a lot more on both subjects.

WHERE HAVE ALL THE YOUNG MEN GONE ?

This is the burning question being asked by both movie distributors/exhibitors and TV broadcast and cable companies.  According to media research company, Nielsen, American males, ages 12-34, are spending less time going to the cinema or in front of their TV sets.
Last week, Nielsen released a study on media use. The study revealed that Internet videos, social networks, mobile devices, and video games - alternatives to the cinema and television - are taking up ever larger slices of the young American males' attention span.  They are still watching the same movies and TV shows but they are streaming them on computers, tablets, and cell phones to a greater degree than any other segment of society, and if this trend continues the long-term implications are huge.
Echoing the Nielsen findings, several major media companies, have stated that their own research affirms that there has been a drop-off in overall young male viewership of TV and visits to the cinema.
For cinemas, as behavior shifts, there is likely to be a scramble as cinemas re-script themselves. They don't want to get tagged as stodgy, un-hip, low-tech places to access entertainment.

JUST THE RIGHT AMOUNT OF WRONG !
For some time now (years actually) I have been talking about the U.S. cinema's down-slide. 2011 witnessed a decrease in admissions just shy of 5% as movie-watchers continued their gravitation to less expensive movie downloading, rental, and streaming.
Additionally, the cinema exhibition business has become a summer business with the majority of box office grosses being realized in the May - August time frame, and as we reported in the above post, the 18-35 male demographic is becoming a no-show at cinemas.
Has Hollywood become to same-old in terms of story lines, actors, sequels and even in animation - last year only Cars 2 made it into the top 10 highest grossing films.  Tinseltown's only salvation appears to be the international cinema, which has been growing each year, in stark contrast to the U.S. market.  Unfortunately, if the overseas cinema goes the route of the U.S. box office and it gets saddled with the expense of digital conversion the same fate will befall it.
The U.S. cinema has been going in the wrong, lock-step direction for some time.  The studios have and are still making crazy quilt decisions regarding content and their relations with exhibitors. For their part, movie theatres are in need of  a strategic deep-tissue massage, as their only answer to their problems seems to be higher pricing.

Cheers,
Jim Lavorato

WEEKLY CineBUZZ REPORT - 1 February 2012

Exhibitors will pay tax on VPF payments

IRS WILL RULE "VPF" IS INCOME TO EXHIBITORS
It is almost a given that the IRS will rule that the Virtual Print Fee (VPF) that the studios pay exhibitors (through companies called integrators) will be subject to and will be considered as ordinary income to exhibitors receiving the VPF.
Revenue Canada, the Canadian equivalent to the IRS, has already ruled that the VPF will be reported by exhibitors as income.  Additionally, in Canada, there will be no VPF associated with second-run films.  I have not heard, as yet,  if the VPF will be offered to U.S. second-run cinemas; although a $300/print fee was rumored.
The VPF scheme, is just that - a scheme to entice exhibitors into digital  conversion - but as one delves more and more into the details the scheme becomes less and less attractive in view of the stipulations associated with it.  And yes, I hear the lament of exhibitors saying, " well it's better than nothing", but is it?  Each exhibitor should take a hard look at the VPF program.  What is its duration? How much do you receive in fees? How and under what circumstances can the studios void the contract? How much control do you have to cede to the studios regarding the operation of your cinema?  Are there additional operational or equipment costs in adopting the VPF? Under the VPF who owns what?
A VPF of $800 or $300  - after integrator fees, "other" expenses, and taxes - what is the exhibitor left with and how long will it last? Given the studios' current barbarian bean-counting mentality, to me its a one-sided game, because if it wasn't Hollywood would have paid for the industry's conversion long ago

Tech Kings Win Anti-piracy Battle

HOLLYWOOD LOSES PIRACY BATTLE TO INTERNET KINGS

As report is the CTC Flash this past Monday (1/30) Hollywood lost its fight for new and enhanced anti-piracy legislation in both houses of Congress last week.  What had once been considered a shoe-in for the entertainment industry and associated labor interests crumbled as the Internet mavens put the pressure on legislators in both the Senate and House of Representatives forcing them to renege on their prior commitments to Hollywood and its cohorts.

This was a major blow to Hollywood and is an indication of their weakness and diminished clout in battling the tech Kings.


CINEMA TRAINING CENTRAL KICKS OFF 2012

New Workshops & Seminars of 2012

CTC has a new website and Guidebook for viewing at www.cinema-training.com .  This year seminars and workshops will be offered in April and October, and we are anticipating increased attendance given the situation confronting cinema exhibitors and their need to bolster customer service and marketing, and enhance operations and technical capabilities.

Best and Happy Movie Going!
Jim Lavorato

My IMAX "EXPERIENCE".............REALLY

THE SETTING
It's Saturday night (1/21).  Three visiting relatives and I decide to attend a 7pm IMAX showing of Underworld Awakening - 3D.  The IMAX is located at the Regal Cinema Transit 18, Williamsville, NY.

Admission for four adults - $64, our concession 
brings the total to $112.
THE PRESENTATION
Showtime - we're excited. The trailers began and end. Then, a blank screen (no picture/no sound).  After 10 minutes moviegoers are on their cells calling the Theatre to inform them that they are sitting in the IMAX auditorium with nothing happening.  5 minutes later the movie starts.
In the upper left section of the screen are huge swirl marks and the image is slightly blurry.  The 3D glasses are chintzy throw-aways (bright yellow of flimsy plastic with stiff non-folding arms and very thin lenses). There are collection bins at the exits so Regal (I assume) is re-using the glasses to save money.

My companions notice the swirl marks and ask what I think.  I believe it is a lens problem, and not screen or movie related.  The image is dark and unless you keep your head looking straight ahead the image blurs.  This is really a very poor 3D presentation.
THE "IMAX EXPERIENCE" ...... REALLY
Great movie - I really like the Underworld franchise - but the presentation was horrendous, especially in view of the $100+ cost.  My three compatriots echoed my sentiments and all agreed that the overall presentation was awful and certainly did not merit its cost.  We were all expecting a premium presentation and were extremely disappointed and, as you can guess, not too keen on another visit to the IMAX anytime soon.

Big and Bad

To make matters worse, this particular IMAX is showing its age (my guess - 12-15 years old). The seats are small as compared to new theatres with back-to-back seat spacing short making for cramped leg room.  The seats do not recline and have fixed cup holder (not retractable) armrests.
My IMAX "experience" is the reason cinema attendance continues to drop. Movie exhibition, at many cinemas, is not customer-centric or friendly but hostile, uncaring, and money driven - and moviegoers are acutely aware of this.
Consumers like going to the cinema, but more and more it is becoming a non-value based activity as compared against other ways of viewing and enjoying a film.  Regal and IMAX  need to take note and quickly.

Cheers!
Jim Lavorato

WEEKLY CineBUZZ REPORT - 25 January 2012

2011 Oscars : Horses, Dogs, and Cats

For me it wasn't a strong year for movies - a sentiment shared apparently by the Academy as only 9 instead of 10 films got the Best Pic nomination.  They must have felt that out of the 598 commercial releases not one more was deserving of the "Best" accolade. I can say that the 2011 nominees are varied.  From 3D-to-black&white, baseball-to-9/11, race relations-to-Paris love.

My pick for Best Picture is "The Artist"  Not seen by many moviegoers (it only grossed $12 million) but it is a tribute film to old Hollywood which the Academy members (who are old) always love.  The movies that make the real money are never nominated. The Harry Potters, Twilights, and super heroes, for all of their box office draw, can never expect to see a nomination let alone Oscar.  The Academy is, well, above those kinds of movies. This is, after all, about advancing the art form.  Hmmm, but without the mega-action flix there would be no Hollywood, no Academy.  So, aren't the Oscars just a put-on. Aren't the Oscars a vehicle for Hollywood to advertise its contribution to the betterment of mankind, and of course a way for the public to view "the stars" all made up for their red carpet ride.  The Oscars are what Hollywood is - make-believe and hype.  Which is fine but at least change the faces. Scorsese, Allen, and Spielberg. Clooney, Streep. Their tiresome.  No wonder the Awards lose viewership very year.

Speaking of tiresome, there will be 24 Award categories for the TV presentations.  This should be streamlined down to 12, which would make the show much more entertaining and viewer friendly.  The folks (I for one) aren't interested nor care about film editing, mixing, makeup.  The 12 Oscars Awards for TV airing should be:
Best Pic, Actor, Actress, Supporting Actor, Supporting Actress, Director, Original Song, Documentary, Foreign Film, Cinematography, Visual Effects, and Animated Film.

Nuff said. Oh, one other thing, it was a good year for horses, dogs, and cats.

What is The Academy and How Do They Vote

Membership to the Academy of Motion Picture Arts & Sciences is by invitation from its Board of Governors. Each candidate must be sponsored by at least two members of the branch for which the person may qualify.  They must than receive the endorsement of that branch's executive committee before submission to the Board.  There are 15 branches to the Academy.

The race to nomination consists of attempts by film makers to ensure that each of the 6,000 Academy voting members views their film.  This means special screenings, free admission to commercial runs, mailing DVDs, etc.

Nomination ballots are mailed to active members in December and are due back in January.  Members of each branch vote to determine the final nominees in their respective category - actors nominate actors, directors nominate directors, and so on.  The exception is Best Picture, where all Members are eligible to cast a ballot.

Final ballots are then mailed to all voting members in late January and are due back, no later then the Tuesday prior to the Oscar Sunday presentation.
All members vote for winners in all categories. Final votes are tabulated by only two partners of PriceWaterhouseCoopers (an accounting firm) and the results announced when the famous envelopes are opened on stage during the Oscar presentations.

Cheers and Happy Movie Going!
Jim Lavorato

KODAK - RIDING THE WAVE

What can I say about Kodak. Was it yet another victim to digital domain disruption?  A casualty of mismanagement?  Was it a failed entity or one just suffering from the ravages of old age and near the end of its life-cycle.  What was it that morphed an iconic American company into a bankruptcy court flier and likely absorption candidate by another entity.

One of Kodak's early '70s digital cameras

I have worked with Kodak for the last 20+ years on a variety of cinema related sound and projection projects.  It always occurred to me that I was working with very smart and motivated people.  But, like many large and very successful organizations, over time, they become departmentalized and layered.  This has the effect of making the status quo the goal - as this is where prior success was spawned.  Kodak was too successful. Given Kodak's utter dominance of the analog film industry (on a global basis) their emphasis and single mindedness was to keep the game going even when faced with certain inevitable outcomes from the digital domain.

New Packaging Imager

Kodak executives were fully aware of the impact the transition to digital photography would have on their business model.  In fact, Kodak still owns many of the patents on digital photography (see CMG post " Kodak's Hidden Treasure" - August 20,2011). Additionally, Kodak built one of the first digital cameras, way back in 1975!  At its heart, Kodak is a chemical and engineering company.  It weakness was its marketing, promotion, and business development.  Kodak could develop products but never effectively market them. So, like most companies it fell back on its core strengths to keep profitable - which was continuing to make advances in film technology and manufacturing.

The Kodak story is one of evolution and corporate fatigue not failure. Capturing the digitial photographic market, the way it had (so successfully accomplished) with film, was not in their grasp. And even if they had gotten control of it there were no profits to be made. Digital photography was and is a financial non-starter.  Kodak did the only thing it could - ride the wave until it reached shore.

Best and Happy Movie Going!
Jim Lavorato
Cinema Consultant & Advisor

WEEKLY CineBUZZ REPORT - 17 January 2012



Gov't Flexes Muscles

CHINA CRACKS DOWN ON CINEMAS

Last week the China Daily reported that the Chinese Government was placing a prohibition on the playing of pre-feature advertisements after the posted start time (which must be printed on admission tickets) for all movies. Cinemas violating this restriction would be fined 200,000 yuan ($31,520) and/or face operating license revocation. 

Additionally, the new law makes mandatory the exhibition of at least one free movie per month to the public and two free movies during each school semester for students. It further stipulates that cinemas would be punished by fine and imprisonment for concealing box office receipts and that," any film that fails to obtain a government issued distribution permit shall not be exhibited at a cinema, over the Internet, or at film festivals."

The Chinese Government wants full control of the cinema and what its citizens view.

APPLE IN YOUR LIVING ROOM

Apple's scheduled launch of the iTV will be in the 3rd quarter of this year. I expect the iTV will feature the Siri speech recognition technology (used in the latest iPhone), customizable apps, over-the-top TV service (in other works, no set-top box) all coupled with on-line service for movies, TV shows, social networking, etc., etc. Apple's goal is to bring simplicity to TV viewing, which is currently cluttered with set-top boxes, cables, and remotes.  The iTV will have bright color and excellent image (ala the iPad and Mac), low power consumption, and super thin design.

My understanding is that the technology for the iTV (hardware and software) is not the holdback to market intro, but inking partnerships and negotiating licensing deals from content providers is the stumbling block.
iTunes has a huge library of movies and TV shows but these are for download - Apple wants  new and live broadcasts and content.  Right now, the only way to view this "premium" content is by going to the cinema (in the case of movies) or by subscribing to cable or satellite (in the case of TV programing).  What Apple, Google, Amazon, and other tech Kings want is for consumers to have the ability to choose their own customized programming - movies, shows, sports, etc. - for a monthly fee and in the process use the Internet and cloud services for content distribution and storage. This change, however, would  bring major disruption and re-script the traditional entertainment content distribution model for the movie studios and cable/satellite operators.

Google, is going a step further. It  is in the process of developing over 20 web-based networks of their own which would produce for webcast original shows, movies, live sports and other events - essentially becoming a studio.

The tech Kings are relentless in their pursuit to poach TV viewers and moviegoers away from cinemas and cable/satellite.  Can they be stopped?  No. Simply because of two overwhelming factors.  First, the Darwinistic and unstoppable nature of the technology driving the digital domain; and second, because they have the financial strength to fund their efforts. For example, it is estimated that by the end of the second quarter of this year, Apple will have over $100 billion in cash and other tech Kings are also flush with cash. Microsoft $57 billion, Cisco $44b, Google $43b, Oracle $32b, Amazon $30b.  The Kings can negotiate good deals with the media giants as they know they have the upper hand and if they can't strike a deal they will simply buy them out or create their own "premium" content.

WALL STREET PREDICTS BOX OFFICE GROWTH

Several Wall Street stock analysts believe the cinema box office gross will grow in 2012 - but solely based on higher admission pricing.  Ticket sales are anticipated to continue their downward spiral, due to , you guessed it, higher admission pricing.  Movie exhibitors must get into their noggins that ever higher admission pricing beget less moviegoers.

Barclays Capital media analysts are predicting a 1.5% increase in U.S. box office grosses which will reach $10.31 billion.  However, they anticipate attendance to drop by 1%. The average ticket price will be $8.12.  MKM Partners and B. Riley analysts foresee a 3-4% box office gross increase based upon a 3-5% admission price increase.

The 2012 movie slate looks promising with The Hunger Games, The Avengers, Men in Black 3, Madagascar 3, Brave, The Amazing Spider Man, The Dark Knight Rises, Twilight, The Hobbit, and James Bond 27 likely blockbusters.

Year-over-year, the 2011 box office was down 4% but admissions took a shellacking dropping close to 5%.  This is unsustainable for the cinema. Do exhibitors really believe rising ticket prices will ever provide a balanced offset to attendance losses?  If so, this is a major strategic miscalculation on their part!

Cheers and Happy Movie Going!
Jim Lavorato
Cinema Consultant & Advisor

CINEMAS & WAL-MART BATTLE COMMON FOE



Circuits need to downsize

I don't want to become too snarky, but feel compelled to  reiterate the point regarding the nature of the Internet and its eminent disruption to the cinema. I have also stated the the large cinema chains will be impacted and that their defensive strategy must include downsizing - both in terms of sites and theatre sizing.

Fortunately for the large cinema circuits, the Internet is also the nemesis of large retailers, to wit, the Regals, Cinemarks, and AMCs  should look to the big retailers for survival cues - and the retailers current battle against what marketing gurus term the "Amazon disease". 

WalMart, Costco, and Target's revenues make up roughly one-fifth of U.S. retail sales, but they are acutely aware that competition is intensifying.  On one flank are the dollar stores, on the other, e-commerce  - where on-site price comparisons from Amazon are killing big-box electronic outlets like Best Buy while negatively impacting the large retailers. To put size into perspective, WalMart operates 3,759 U.S. stores, Target 1,750, and Costco 425. Although operating much smaller stores, nonetheless Family Dollar operates 6,800 locations and Dollar General 9,500.

"Amazon is WalMart's biggest threat, hands-down", Natalie Berg, retail consultant at Planet Retail tells me. "If you look at retail stocks, companies that are viewed as at risk to "Amazon disease" have had their multiplier cut in half".

WalMart fights "Amazon disease" with smaller sites

To combat this, the large retailers have embraced selling more products under their own in-house brand, which stymies consumer efforts to make  web-based price comparisons. Also, private label products carry a higher margin and breed consumer loyalty.  Additionally, WalMart (leading the way) has turned to smaller format stores.  In July, it launched WalMart Express (smaller stores that are easier to site and offer a product mix that is 70% groceries).  Even smaller are the new on-Campus stores which launched last year.  Bill Simon, WalMart CEO commented that, "WalMart plans to open hundreds of the smaller format stores over the next three years".

Amazon price sets by Region

Price matching guarantees are another tactic in the retailers arsenal in fighting the Internet.  "It's all about obscuring price transparency and product exclusivity.  The more you go down that path, the more immune you are to Amazon", says Berg.  Amazon's strategy (and they are not alone) is to change buying habits, not only for hard goods but for entertainment, and movies are on their menu. 

Social networks and wireless services are becoming a big part of marketing and all cinema exhibitors should take note of this.  The Internet tech Kings' intentions  are to poach moviegoers.  The battle will be fought on razor-thin margins so flexibility and timing are key.

The large cinema chains should study how the big retailers are addressing the Internet threat and begin forming a defensive strategy of their own - and downsizing must be a big part of that strategy.

Best and Happy Movie Going!
Jim Lavorato
Cinema Consultant & Advisor

WHAT PEOPLE WATCH

Hopefully, the Cinema will find 2012 a stellar year; however, it will be bucking some headwinds from the Presidential election and Summer Olympics.  Nonetheless, consumer trends promise high demand for quality entertainment content.  Much of that demand is driven by the proliferation of smartphones, tablets, other mobile devices and smartTVs that allow consumers to view both movies and TV shows most anywhere, at any time they desire.  Luckily, they still do not have the impact of a cinema presentation - image and sound.  However cinemas must be cognizant of what is happening around them and consumer trends taking shape.

Over 57% of People View On-line Videos

According to Google, U.S. consumers own over 105 million smartphones, 61 million gaming consoles, and 20 million tablets.  Given that video consumption is in a hockey-stick growth pattern and users want to access video (including movies) - to say the trend for streaming content is strong has become a cliche'.
So, what are people watching?  Research I've read from a variety of sources, including: PriceWaterhouse, Nielsen, Fox Cable Networks, Turner Broadcasting, and Multichannel News, suggest that viewing premium content on mobile devices is unstoppable and has moved streaming video out of the "new media or early-adopter" category and placed it firmly into the "mainstream mass-market" sector.  Studies have found that the availability of content on multiple platforms helps build audiences because viewers can watch content they have missed - be it movies or TV shows.
These mega-trends in consumer behavior do not bode well for the Cinema overall but they will take time to fully manifest themselves allowing exhibitors time to  prepare for them and defend against them.

Best and Happy Movie Going!
Jim Lavorato

FUTURE FOR THE CINEMA - DISRUPTION

Jobs, as he unveiled Apple TV last year

DISRUPTION  is the name of the game in the digital domain.  Did the studios and movie exhibs really think they could control film distribution once it went digital?  That is why over the past decade I have been against the digitization of movie theatre projection (which I might add was a losing battle).
Take for example, the latest maneuvers by Apple.  Apple's desire is to become the go-to source for movie streaming/viewing in the future.  At $99, the Apple TV set-top box sold over 4 million units in 2011 and with only 8% of U.S. households (7% in Europe) owning smartTVs the growth in connected-TV sales will be huge over the next 5 years.
For its part, Apple plans on being in your living room, as it interfaces its existing base of mobile devices (which number in the tens of millions) with the Apple TV.  Both the iPhone and iPad will serve as remote TV controllers and AirPlay (a feature on Apple's iOS operating system) will allow mobile devices to move media to the TV from the devices and, in reverse, allow the iPhone and iPad to serve as complementary screens.
AirPlay will also feature a mirroring function which displays a mobile device's screen onto the TV and will also allow the device to functions as a game controller. Moreover, Apple is planning to launch its own TV in 2012 which will be able to tap into iTunes for seamless rentals and purchases of movies and TV shows, as well as music.
At present, Smart and connected TV sales are outpacing set-top boxes. Gaming consoles are currently the number one platform for streaming content directly to TVs but this trend will change as well.  Microsoft is also planning a link-up mobile devices and TVs using its Kinect system.

Going Digital-Is It A Waste?

Movie exhibitors be prepared.  It will not be enough to tell moviegoers, as Regal Cinemas postulates in its pre-feature trailer - " Go Big or Go Home". People are at home and they are staying there to view movies more and more and going to the cinema less and less. Cinemas exhibitors, prepare to defend yourselves.

Cheers,
Jim Lavorato

REAL STAR POWER

WHO ARE THE REAL HOLLYWOOD STARS ?

If you take a look at the top 20 highest grossing films of all time, you quickly realize that only one had an A-lister in the lead role.  The real stars of these films were the high-impact visual effects and/or computer-generated animation.
  Top 20 Grossers

• Avatar
• Titanic
• Harry Potter - Deathly Hallows Part 2
• Transformers - Dark of the Moon
• The Lord of the Rings - Return of the King
• Pirates of the Caribbean - Dead Man's Chest
• Toy Story 3
• Pirates of the Caribbean - On Stranger Tides
• Alice in Wonderland (2010)
• The Dark Knight
• Harry Potter and the Sorcerer's Stone
• Pirates of the Caribbean - At World's End
• Harry Potter - Deathly Hallows Part 1
• The Lion King
• Harry Potter and the Order of the Phoenix
• Harry Potter and the Half-Blood Prince
• The Lord of the Rings - The Two Towers
• Star Wars - Episode 1- The Phantom Menace
• Shrek 2
• Jurassic Park

A-lister, Johnny Depp, in the Pirate franchise was the only recognizable star in any of these films.  The rest were cast with unknowns or limited (at the time) star power actors.
It appears that this long-term trend will continue, as upcoming movie franchises are copy-catting the former winners.  The super-spectacular effects movies are what consumers demand and it makes little difference to them who is cast in the acting roles (which for moviegoers are ancillary to the movie's appeal). Additionally, customers expect each new film to top the previous one's visual effects.  That places the "star" power in the hands of the superstar special effects artists which now earn over $1 million per film.

Cheers and Happy Movie Going!
Jim Lavorato

WEEKLY CineBUZZ - 8 January 2012

TELL ME SOMETHING I DON'T KNOW

 Movie Ticket Prices Hit A High in '11 

Rehashing the cinema's 2011 performance is futile. Scouring cinema grosses and admissions data and comparing it to prior years is not a fruitful exercise. It is enough to say that there are few bright spots on the cinema industry landscape. Need I say it one more time, "the cinema industry needs to re-script its business model".

To that point, a colleague brought to my attention an historical fact that was unknown to me regarding the pricing of movie admissions (as most of you are aware I have been beating the drum for some time now regarding the tiering of admission pricing, as I believe not all movies have equal box office draw) and that at one time movies were "rated" and priced accordingly.  See next bullet item in this report.

But, tiering admission pricing is but one of a cadre of changes that need to be embraced and implemented by the cinema industry - with exhibitors being the spearhead for most of the changes that need to be made.

Unfortunately, the timing couldn't be worse.  As we witness the challenges facing the industry, manifested by the decade long decline in cinema ticket sales, and currently in the grips of a conversion to digital projection which saps the, ever dwindling,  financial resources of exhibitors. Resources which should be going into revamping and modernizing their business operations - to address declining ticket sales.

Let's all hope 2012 is a turning point for the cinema industry and both distributors and exhibitors began to embrace the operational changes needed to return the industry to solid financial footings.

HISTORY NEEDS TO BE REPEATED

Let us step back in time, oh say about 40 or so years, and look at the way cinema tickets were priced.  Back then, films were given an A, B, or C rating depending upon how much star power and cost went into a movie. An A listed film carried a higher admission price than a C rated one. In the 1970s that pricing strategy (which made extremely good sense) was abandoned and movies were given to the same pricing no matter the content or cost. Cinemas need to go back to the old pricing regime.  The lowering of the admission for second tier movies would increase volume at the cinemas, as moviegoers might not mind paying $5 to see a B rated film.

Now the studios figure that if the folks think that cinema admission is too high they will wait and do a buy/rent of the DVD or pay-per-view.  Too bad because DVD sales/rentals are on the slide. In fact, Bloomberg Business, just last month ranked the DVD sales/rental business as one of the "dead businesses" of the future as more and more consumers are accessing the Internet for their entertainment.

Now, don't get me wrong, their will be cinemas in our future, but they will (must) be different then they are today and tiering admission prices is a step in the right direction.

INCREASING THE HOLDBACK PERIOD

Last week Warners Bros. announced that it was going to extend the holdback period (the period of time when a movie is made available to various content providers) for Netflix and other content streamers.  The new deal between Warners and Netflix, Redbox, and Blockbuster among others, will double the window for new releases.  This means that the streamers/renters will now have to wait 56 days after the DVD first goes on sale, instead of the current 28 days. 

This move by Warner Bros. helps cinemas slightly, but their motivation is to bolster sagging DVD sales.  To be announced this week at the Consumer Electronics Show, the streamers are stating that they haven't agreed to a new deal, but execs at Warners have been talking up the deal.

The move for longer holdover periods is also tied to Warner's push for UltraViolet  (refer to prior posts on UltraViolet)  the electronics/media industries' consortium that allows individuals to have a "lockers" where they can store content of all sorts for retreival whenever they like on whichever device they like.

For their part the streamers/renters, like Netflix, aren't making too many comments.  Coinstar's (parent of Netflix)  CEO Paul Davis, only commented that "Netflix would be persuing 'workarounds' if the studios tried to extend the holdback period". 

Extending holdback periods for whatever reason is good news for cinemas, so long as the period is not tied to Internet streaming or very short periods for DVD or VOD options.

Best & Happy Movie Going!
Jim Lavorato

Future Bright For Video-on-Demand, Says CEO Benya

In Web-chat Bob Benya, CEO of In Demand - the pay-per-view and video-on-demand content distributor - talks about his company and what the future holds.

For 2011, In Demand generated $1.3 billion in revenue and down-loaded approximately 175 million on-demand movie buys.

Bob Benya

What does 2012 look like for In Demand, Bob?

We're doing a lot of things with the release windows and trying to get more and more movies.  We're also trying to give customers a 48 hour rental window and doing a lot of packaging.  Having the customer purchase 3 or 4 movies at once at a lower price per movie.

In Demand had a very good year, what was that performance based on?

One, was to get day-and-date releases with DVD releases, which is now virtually 100%. Second, increasing the number of titles available for 48 hour rental. Third, is the Netflix hold-back, and we've been talking with the studios about extending Netflix's and other streamers hold-back. And finally, the continued expansion of acquiring independent films to fuel the VOD platform.  We are now working with over 50 independent film studios.  We've seen a substantial increase in the overall independent film business, and we are getting these titles the same day as theatrical release.

What's the future look like?

In Demand will be getting a lot broader and deeper on price testing and really looking at it in a much more sophisticated way.  I think the studios are definitely interested in optimizing their return on investment for movies, and I think they are going to release product earlier.  The other issue, we are big-time in favor of, is the studios offering 10 minute previews of movies to allow viewers an opportunity to watch before purchase - it's really good for our business.

Thanks Bob.

In Demand is owned by Comcast Inc., Cox Communications, and Time Warner.

Cheers,
Jim Lavorato

GAMING CONSOLES MOST POPULAR FOR MOVIES

Nielsen Company, the pre-eminent media eyeball counter, reported last Wednesday that consumers are increasingly using their gaming consoles - Xbox, Wii, and PS-3 - for streaming movies and TV shows.

Gaming consoles readily connect to the Internet so they are used to access VOD services like Netflix, Hulu, YouTube, and other streamers including ESPN and the Major League Baseball Network for sports.
Nielson found that gaming consoles and AppleTV were the most popular ways people chose to view movies on their HD-TVs. Proven to be very effective in accessing Netflix, Nielson found that half of Netflix users utilize streaming from game consoles.

Streaming video accounted for 14% of the average time spent using the X-box, for the PS-3 it was 15%, but for the Wii 33% of owners spent their time streaming movies or TV content.

Both Xbox and Sony's PS-3 consoles are also popular as DVD players with the PS-3 capable of playing BluRay discs. Sony last week stated it would exceed its forecasted sales of PS-3 and expects to sell 1.5 million of the consoles in fiscal 2011. 

Cheers,
Jim Lavorato

SILICON vs. CELLULOID



Tech Kings Fight Back

As anticipated, the battle between the silicon valley Kings and the celluloid Moguls has begun - and somewhat sooner then even I expected.

In their effort to block anti-piracy legislation, Internet companies, including Google, Facebook, Amazon, and even Bloomberg are lobbying Washington hard saying that the Hollywood backed piracy measures - to curb trafficking of illegally copied music and movies - would amount to on-line censorship.

The legislation, as proposed, would allow the Justice Dept. to seek court orders requiring Internet service providers, search engines, payment services, and advertising networks to block or cease business with non-U.S. websites linked to piracy.

Anti-piracy poster

For its part, Hollywood has been waging its own rigorous campaign. For example, last week a delegation led by the Motion Picture Assoc. of America and consisting of executives from Fox, Warner Bros., and others descended on Washington, D.C. for meetings with members of the House Judiciary Committee, V.P. Joe Biden, White House Chief of Staff, Bill Daley, and Valerie Jarrett, a senior advisor to President Obama.  They reject the tech companies' accusation that the proposed legislation amounts to on-line censorship.

The Web honchos, however, say that the anti-piracy laws would require them to police the Internet and "threaten the growth of the U.S. technology industry".  To bolster their case they are also flexing their political muscle. Google and Facebook have increase their spending and presence in Washington to cope - not only with the pending on-line piracy legislation but consumer privacy and antitrust issues as well.  Google has hired 19 new lobbying firms this year alone, and Facebook just added two new lobbyists to its army.

The tech firms are pushing for alternative legislation that would make the U.S. Intl' Trade Commission versus the Justice Dept. the major arbiter of piracy issues.  The U.S. ITC has the power to block the import of products found to infringe on intellectual property rights. In a statement, the Consumer Electronics Association,  asserted "the alternative would provide effective remedies without creating new liabilities for lawful, U.S. technology companies."

As of now, an amendment the the House and Senate bills has been added which calls for an "inter-agency study on the legislation's impact on the Internet."  So, for now, there is a truce putting the battle on hold, allowing the opposing groups time to re-arm.

My Take

First, U.S. anti-piracy laws have no clout overseas and are not enforceable. And second, Hollywood is fighting the last battle, as the only way to stop piracy is to release movies day-and-date across the entire world accessible to all projection and mobile devices simultaneously. And we will reach that point in the future.

Best and Happy Movie Going!
Jim Lavorato