ARBOREEL

As you are aware Entertainment Equipment is putting forward a concerted effor to address the environmental sustainability of the cinema exhibition industry. To this end we have partnered with Screentrade Magazine to put forth a program which will guide and asisst cinemas in improving their environmental impact.

Termed the Arboreel Program, it addresses the initiation of actions which will greatly improve the usage of energy and water, and the minimization of waste through recycling and reuse. We can all agree that improving a building's sustainability is a good thing and it's NOW time to act! Arboreel will be good for you, your family, your community, and your bottom line as it will foster significant saving on the spiraling costs of energy and water. In the future, the real estate marketplace will strongly favor and place a premium value on green buildings; therefore, it behooves every cinema owner/investor to build or upgrade to green standards and that is where Arboreel comes in.

You will be hearing more about the Arboreel Program and the many benefits it will bring to your cinema and the exhibition industry. Its formal introduction will be in April at the 2009 ShoWest convention. More information on the where, when, and who will be forthcoming. Plan on attending! It will be well worth your time and effort.

OF NOTE

Providing valid information always helps to visualize a problem - so here are a few reasons why you should consider participating in the Arboreel Program and which demonstrate the enormity of the problems we all face:

• According to the Consumer Electronics Association over 426,000 cell phones are "retired" in the U.S. EVERYDAY!
• If every commuter carried just one more passenger the U.S. would save 600,000 gallons of gasoline and reduce carbon dioxide emissions by 12 million pounds EVERYDAY!
• PC screen savers DON'T save energy! - Turn PCs and Laptops OFF!
• The average office worker discards over 175 pounds of office paper every year - use recycled paper - which takes 64% less energy and 58% less water to manufacture than new paper.

MILDLY HOSTILE CUSTOMER PRACTICES

According to the U.S. Department of Commerce the number one reason customers stop dealing with a business is because of indifference, rudeness, or lack of service on the part of the employees (see inset).

All businesses - but particularly service oriented ones, and certainly cinemas - must be constantly attentive with regards to practices that are what I term - "mildly hostile" - towards their customers. These are the small annoyances that by themselves may not garner sufficient weight to motivate a customer to cease dealing with your business but tend, over time, to compel customers to look elsewhere to satisfy their needs.

WHY CUSTOMERS LEAVE

1% Die
3% Move
5% Buy From Friends
9% Prefer Competition
14% Judge All Like Businesses The Same
68% Indifference, Rudeness, Lack of Service By Employees

Examples of mildly hostile customer practices are fairly widespread particularly in the retail/consumer products and services areas and I'm sure each of you reading this are fully aware of what I mean and can recite horror stories from your own experiences in the retail jungle.

As cinema owners/operators, being aware of mildly hostile practices requires constant vigilance for, like wrinkles and graying, their precise beginnings are hard to determine until the day when their grim evidence is impossible to refute.

There are a myriad of mildy hostile customer practices, and include such things as:

• Employing under-qualified staff
• Poor & unfriendly service
• Thoughtless policies, such as inconvenient show times
• Slow response in resolving customer queries and problems
• Inconsistent service standards
• Messy, semi-clean facilities
• Untrained staff

Many of these practices are derived from weak, ineffective management which usually emanates from a tolerance for poor staff performance. Others may come from a company's fuzzy notion of customer satisfaction or from inconsistent service fortified by a lack of corporate support and funding for proper staff training.

Remember; it's not only blatant mismanagement and major mistakes that cause customer dissatisfaction and defection, but also those practices that are mildly hostile but which over time cause customer departure.

Before ending I would like to mention a trend that has developed over the last several years in corporate America and is worth mentioning. That is the creation and staffing by large organizations of a position called Chief Customer Experience Officer or CXO. A CXO is a senior level executive charged with evaluating, directing, and overseeing the customer experience effort and its implementation throughout the entire organization. The CXO position started to appear in 2005, and now, almost 25% of the largest 100 U.S. corporations have a CXO.

Reporting to the CEO, the CXO's responsibilities cut-across all product, service, and distribution channels and they have significant input into the corporation's marketing, promotion, and advertising activities. The CXO position will quickly become relevant for both large and mid-sized companies, in both the services or manufacturing sectors, and you'll be hearing more about this new and critical position as time goes on.

Reprinted from Spring 2008 Screentrade Magazine

DROP YOUR SHORTS

Now that I have your attention, let's talk about something less provacative but, nontheless, serious and perhaps even dearer to an exhibitor's heart. Drop Your Shorts is one of over 25,000 film festivals held annually across the globe. Forget Cannes and Sundance. We're talking about Toronto's Hunk of Junk Fest, Tokyo's Short Shorts, Sydney's Homebrewed Fest, Hollywood's Scream Fest, and London's Food Film Fiesta. The list and topics are endless. So with all these film festivals why should I be writing about cinemas sponsoring their own digital film fest? Because - it's an easy way to make money and (perhaps more importantly) connect your cinema to the local community in a very positive way. Film festivals fall under my current pet business premise for cinemas: Think Global / Act Local.

THE HOW TOs OF SPONSORING A FILM FESTIVAL

• Advertise locally that your cinema is sponsoring a film festival. Start the promotion at least 6 - 8 weeks before the Festival. You should be able to get free local press coverage before and during the event. Also use the Cinema's website and in-theatre notices.
• Charge entrants a minimal submission fee - say $15 - $25. Limit all submissions to 10 minutes or less and accept only DVD formatted entries.
• Shortly after the deadline submission date review each submission for integrity (you set the entry rules), and then compile the accepted works onto a single "Festival" DVD.
• Form a 3 person judging panel (awards will be given). Staff the panel with people who know something about the cinema or have local stature - professors/teachers at local schools or universities are a good source, as are local media people (radio, TV, press). You'll find most are ready and willing to assist.
• Determine where and when to hold the Festival (provide a name). Have it at least two or three presentation times over a two/three day period - preferably weekend mornings/early afternoons.
• Produce copies of the Festival DVD which would be available for sale during the Festival and through your Cinema's website.
• For the presentations, use a video projector that is putting out 50 - 100 lumens of light per foot of picture throw. This is your benchmark projector size.
• Give out awards - trophies, certificates, cash prizes - and have a number of awards, by: age group, submission genre, length of submission, etc.
• Sell concessions!

YOUTUBE ON THE BIG SCREEN

The key in having the community participate is to get the word out early and often. If promoted properly you'll be surprised on the number of entries submitted. Get local schools involved. Another good idea is to link up with a community arts group as co-sponsor - this will provide a promotional jump start and further encourage local participation. The trick in having a digital film fest is not to get too fancy or too complicated. This is all about reinforcing the link between the cinema and the local community - it's that simple but that imperative.

Being a big proponent of cinemas offering up a full range of "alternative content" - be it a film festival or an in-cinema video gaming initiative, over the long haul cinemas will have to gravitate toward the use of non-movie entertainment to survive. Single theatre operation or chain it doesn't matter, sponsoring a digital film festival is easy, straight forward, and profitable - try it!

3-D Cinema: A 2-D Perspective

Already faced with the problem of conversion to digital cinema, exhibitors now have the added worry of 3-D. Just as Cinemascope was created and adopted by theatres to get people away from that new gadget, the TV, now Hollywood’s newest lure is to give people that extra dimension they can’t get at home (yet).

On the distribution end, this concept will definitely float, because even if only a fraction of theaters are equipped with 3-D projection equipment, their film can still be screened on both formats. They already get the majority of the box office and nothing comes out of their pocket for the equipment on which it is projected.

However for exhibitors, it’s more sink or swim. If you’re not already equipped with 3-D (and chances are you’re not, since digital screens alone in the U.S. are only around 4,000 out of 38,000), here are your options. If you already own a D-Cinema projector, great, you only have to drop around $15-20,000 per screen to kick it up to the 3-D notch. If you’re looking to upgrade from your 35mm to 3-D, the sticker will be $100-150,000 per screen. For the big chains who are publicly traded, where’s that money going to come from, we’ve seen your numbers. And for the small circuits, good luck in finding the bank that’s willing to back you.

Once you have the money, here are some options. Real D, out of Beverly Hills, has developed software that upgrades your 2-D digital projector into the third dimension, but at a price of $20,000 per screen for the conversion and maintenance. The good news is you can gradually pay them back with a royalty fee of $.50 per ticket. After subtracting what the distributor takes off your box office, that $.50 can add up. And, just so you’re aware, with Real D you will need a silver screen. There’s good news if you don’t like the sound of installing a new screen, Dolby Laboratories has developed technology that uses your existing one.

To combat the bite of the price tag, exhibitors have been charging a higher admission for 3-D films over the boring old 2-D. So pose this to your average customer, would you pay $15 over $7 to see Indiana Jones come off the screen? Sure, but would you answer the same for Made of Honor, Baby Mama, and the rest of the 90% of releases that are not the heavy hitting blockbusters? Right now only ten films are slated to be released in 3-D in the next year, with possibly 20 following in the next. It is still a small number compared to the number of releases annually – over 450 for the year 2008.

And let’s not forget about the 3-D glasses. They’re not your parents’ glasses, they are special polarized ones, that, with Real D, will run you $2 a pair (recyclable yes, but they don’t have that environmental friendliness that more and more people are looking for), while Dolby’s glasses have a price tag of $40 a pair (reusable yes, but they will need to be cleaned by your staff and closely watched to prevent theft).

Let’s look to Hannah Montana for further analysis. “The Best of Both Worlds” 3-D concert film scored well, considering it only opened on 683 screens. $30 million was grossed in its first week in that handful of theatres, but Disney took 90% of it back before you blinked, and many of those $40 a pair glasses were damaged or walked off. It’s success could also be largely in fact due to that tweener demographic that has made Hannah Montana a sold out arena phenomenon. That, and the pressure of those little girls, “Well Kaitlin’s Mom is taking her to see the movie!”

With technology there’s always risk involved. The software and hardware you install today, could be replaced by the software and hardware they develop tomorrow. At least with 35mm, it’s the same device that has been used for over a hundred years, it’s mechanical, a belt breaks, you replace it. You oil its gears and it does its job. It won’t crash, it won’t require periodic system upgrades. Technology’s lifespan is somewhat short to that of something mechanical. Just as CD’s became MP3s and movies can be watched on laptops and iPods, it’s predicted that in the next five to ten years, 3-D will reach the home theater, at which point then, what will be the next fad to get people back?

- Tracy Janis

The NextLEVEL: Video Gaming Phenomena Presents Business Opportunities For Cinemas

It’s difficult to assess the impact video gaming has had on global entertainment – its growth and universal acceptance is nothing short of incredible. According to the Consumer Electronics Association:

- Video gaming business for 2007 exceeded $32 billion globally with an expected growth rate of 30 – 40% per year through the decade.

- Upwards of 1.5 billion people participate in some form of video gaming on a daily basis – up from only 300 million in 2004.

- Gaming consoles and accessories was the strongest growing product category for on-line sales in 2007 up 130%.

Gaming’s glowing statistics arise from its’ universality. With the possible exception of television, gaming has the broadest reach of any other form of entertainment, as it spans age, culture, gender, and economic levels.

Gamers classify games into deep or easy – the very most successful being both. Singular play still dominates but social and multiplayer gaming is rapidly increasing (be it on-line or in physical group interplay as the Nintendo Wii gaming platform encourages). Additionally, unlike most other entertainment, games are easily accessed having the widest variety of user platforms: PCs, consoles, on-line, hand-helds, cell phones, wireless networks, etc. Easy access, coupled with its recent emphasis on self- improvement and social interaction make gaming the most versatile of all recreational activities.

The couch gamer is now getting up and socializing with an activity that can be compared, contrasted, created, and communicated with others. For example, Activision’s Guitar Hero, introduced in the fall of 2005, is an interactive and social game now in its third version. Since its launch over 14 million units (valued at over $1 billion) have been sold in North America alone. But Guitar Hero is more. It is a media distribution platform as songs to play are downloaded for a fee from the Internet. The latest version, “Guitar Hero III: Legends of Rock” generated over 5 million song downloads in the first 10 weeks of its debut.

The Guitar Hero franchise’s broad appeal confirms that video games have reached the status of a true mass medium.

PLAYER vs. SPECTATOR

More so than viewing an event – be it sports, music, concert, T.V. program, or movie – video gaming offers an enhanced adrenaline high, as it fully engages the consumer. When viewing a sporting event, for example, there is a lot of boring space between exciting moments – in contrast video games offer full-time engagement.

Consumers are becoming players vs. spectators. They are interacting with and controlling much more of each activity they engage in, be it working, traveling, playing, or shopping - at home, office, or wherever they may be.

HOW CAN CINEMAS TAP INTO THE GAME CRAZE?

The movie and gaming industries have had a symbiotic relationship for quite some time – movies inspiring game creation, games inspiring movie creation. Now, that relationship is triangulating: as content, gaming, and advertising/marketing merge, each mutually benefiting the other.

With the socializing aspects of gaming, with competitive gaming on the brink of going mainstream, and with the existing link between movies and gaming, a cinema offers a logical platform to fully enjoy the gaming experience. The local cinema provides a convenient, safe, and familiar venue, and one (with little effort) that is “gamer” ready.

To address this phenomena Entertainment Equipment Corporation created NextLEVEL. A stand-alone, turnkey, day-one revenue generating business resident within a cinema. The concept of NextLEVEL is simply to have movie exhibitors tap into the gaming phenomena in a meaningful way by filling a need – offering a place where people can go to play video games and interact and socialize at the same time.

The goal is the utilization of available space within a cinema for a business tied to a social activity that is growing exponentially and linked via the common thread of entertainment. Requiring small investment, NextLEVEL has significant and evident benefits:

- Play Time Fees

- Increased Concession Revenues

- Sales of Games and Gaming Accessories

- Cross-fertilization with Box Office Attendance

NextLEVEL offers a great opportunity for those exhibitors that want to expand the entertainment scope of their cinema and broaden its’ business reach.

For more information on NextLEVEL please contact EEC at entequip@aol.com or call 716-855-2162.

2008 CINEMA TRAINING CENTRAL SCHEDULE

APRIL 2008 TRAINING SCHEDULE

MONDAY 4.14.08
Primary Technical Training (Day 1 of 2)
Advanced Technical Training (Day 1 of 3)
Marketing Your Cinema (Day 1 of 1)

TUESDAY 4.15.08
Primary Technical Training (Day 2 of 2)
Advanced Technical Training (Day 2 of 3)
Pre-Feature Entertainment & Alternative Content (Day 1 of 1)

WEDNESDAY 4.16.08
Managing a Cinema (Day 1 of 2)
Digital Cinema - Present & Future (Day 1 of 1)
Advanced Technical Training (Day 3 of 3)

THURSDAY 4.17.08
Managing a Cinema (Day 2 of 2)
Intermediate Technical Training (Day 1 of 2)

FRIDAY 4.18.08
Intermediate Technical Training (Day 2 of 2)
Modern Theatre Design & Planning (Day 1 of 1)
Concessions: Where the Money Is (Day 1 of 1)

SEPTEMBER 2008 TRAINING SCHEDULE

MONDAY 9.15.08
Primary Technical Training (Day 1 of 2)
Advanced Technical Training (Day 1 of 3)
Marketing Your Cinema (Day 1 of 1)

TUESDAY 9.16.08
Primary Technical Training (Day 2 of 2)
Advanced Technical Training (Day 2 of 3)
Pre-Feature Entertainment & Alternative Content (Day 1 of 1)

WEDNESDAY 9.17.08
Managing a Cinema (Day 1 of 2)
Digital Cinema - Present & Future (Day 1 of 1)
Advanced Technical Training (Day 3 of 3)

THURSDAY 9.18.08
Managing a Cinema (Day 2 of 2)
Intermediate Technical Training (Day 1 of 2)

FRIDAY 9.19.08
Intermediate Technical Training (Day 2 of 2)
Modern Theatre Design & Planning (Day 1 of 1)
Concessions: Where the Money Is (Day 1 of 1)

CIRCULAR ENTERTAINMENT

With one-quarter of all entertainment being created and shared within peer groups by 2012 a seminal transformation is taking place in the entertainment industry. Termed “Circular Entertainment” – for its transference from one individual to another – this form of entertainment is not passive, but provides the consumer an active role in their entertainment.

The next episode in entertainment will allow consumers to “compare, contrast, create and communicate” their entertainment with each other, states Tom Savigan, Trends Director of The Future Laboratory, which conducted the survey.

The survey’s results indicated that:

- 23% of the respondents buy digital movies
- 39% watch TV on the Internet
- 46% regularly use instant messaging
- 28% regularly visit social networking sites
- 17% played multiplayer on-line games
- 17% upload to the Internet on a mobile device
- 29% regularly blog

The research has identified four key outlying trends that, as they mainstream, will set the stage for the Circular Entertainment phenomenon.

Immersive Living – the rise of lifestyles which blur the reality of being on and offline. Entertainment will no longer be segmented but accessible and created wherever.

Geek Culture – consumers will shift to more sophisticated interactive entertainment which has visible recognition and rewards. Entertainment purchased and that which is created will merge.

G Tech – an immersing social force which effectively feminizes technology so as to make things – particularly entertainment – more collaborative, democratic, emotional and customized.

Localism – there is a locally-minded move in entertainment consumption. Localism and community-centrism will become a key as consumers take pride in seeking out the local and home-grown.

VIDEO GAMING BRINGS OPPORTUNITY FOR CINEMA

In the U.S. this year, sales of packaged video games will exceed box office revenues and worldwide their sales will be twice that of movie grosses. Total this with on-line gaming subscriptions, gaming consoles (which will outsell PCs by a factor of 10 in 2007), gaming software (which increased by more than 40% in the first half of this year over 2006) and hand-held games – your looking at a $40 billion video gaming industry. Additionally, all aspects of the video gaming industry are expected to soar for at least the next five years.

The big three console makers – Microsoft, Nintendo and Sony – are currently hitting new heights in gaming and scores of software gaming manufacturers are producing hundreds of new games for each console platform. But, that’s not all. The consoles are being developed to accommodate other entertainment functions as well. For example, Microsoft’s Xbox 360 console has the capability to use Microsoft’s Live Marketplace which allows 360 owners to download new games, as well as features films, TV shows, movie trailers, etc., some of which are fee based and some of which are free. Oh, and did I mention the 360 can also playback high definition DVDs. Going forward, the console will be used as a set-top receiver for internet TV.

If carried to its logical end, accessing entertainment for the home will be entirely virtual – with consumers never having to leave their homes to experience viewed or interactive entertainment.

All this being said, the gaming phenomenon also has a social aspect. Not unlike going to the movies, the camaraderie component of sharing the entertainment ‘high’ is even more pronounced with gaming. In fact, many video games are constructed for simultaneous play by two or more gamers. This is where the use of a cinema as a gaming destination comes about – as almost the perfect venue for “social gaming.” Designed as a turn key business established within a cinema, it provides the optimum setting for game enthusiasts (the demographic of which is male and female ages of 5-75+ with the average being a 37 year old female) to play their favorite games while experiencing the social aspects of gaming – shared fun and excitement, camaraderie and the emotions of human interaction – taking place in a comfortable, safe and customer friendly setting. The added availability of concessions, gaming accessories and a gamers swap shop make for a trendy, multi-demographic business which addresses a current and future entertainment juggernaut.

To arrange a meeting to discuss a video gaming center in your theatre please contact Entertainment Equipment at 800-448-1656 and ask for Jim Lavorato or Tracy Janis.

ADVERTISING EXPENDITURES FOR CINEMAS

Broken into seven categories, television will lead in global advertising expenditures for 2008 with a forecasted 38% or $182 billion of total ad revenues – which are anticipated to reach $478 billion. With expected viewership of over 3 billion for the Beijing Summer Olympics (which will be the most watched television program in history) and the U.S. Presidential elections, TV will get a big boost in 2008 of over $13 billion.

GLOBAL ADVERTISING EXPENDITURE BY MEDIUM

(US$ in millions, current prices Currency conversion at 2006 average rates)

2007/2008

Newspapers - 124.9 / 128.4
Magazines - 56.1 / 58.3
Television - 169.9 / 182.4
Radio - 36.3 / 37.5
Cinema - 1.9 / 2.1
Outdoor - 25.6 / 27.5
Internet - 33.7 / 41.6

TOTAL 448.4 / 477.9

On-line video and local search continue to display the highest growth rate – which has increased 22% each year since 2006. Print media’s, particularly newspapers, share of total revenues will be declining from 28% of total 2007 expenditures to 26% of 2008’s although the aggregate number increases by $1.5 billion.

Surprisingly, Central and Eastern Europe (up 18.3%) and the Middle East/Africa (up 17.2%) will experience the fastest growth in advertising. North America the lowest.

The ten fastest growing markets are listed below.

THE TEN FASTEST GROWING AD MARKETS
(Growth % 2009 vs. 2006)

Serbia - 308.8
Qatar - 214.7
Kazakhstan - 164.1
Egypt - 117.7
UAE - 108.9
Russia - 108.3
Ukraine - 100.5
Moldova - 97.1
Belarus - 96.8
Romania - 93.0

DEAR SANTA: A CINEMA MANAGER'S WISH LIST by Tracy Janis

Santa, I've got enough stuff. This year, surprise me with something a little more difficult to attain:

1. A tree on which good employees grow - I have yet to find that renaissance concessionist who can stay productive, sell snow to an Eskimo AND comes built with common sense.

2. Customers who keep their mouths shut about the prices - "$5.00 for a popcorn?!?" I mean, really, what was the last movie you saw at a theater, Jaws? And do you question the station attendant every time you buy gas?

3. Parents who actually attend movies with their children - when did I start running a babysitting service?

4. Solar powered cell phones that don't work in the dark.

5. And last, world peace...and affordable digital cinema for all.

DIGITAL CINEMA: MOSH PIT OR BLACK HOLE

I have been dealing one way or another with Digital Cinema for over 10 years and I see no reason to be anymore enthusiastic about it now than I was a decade ago and, in fact – the way things have evolved – I’m coming to the conclusion that D-Cinema could lead to the ultimate demise of the cinema industry. Similar to what has occurred to the music business, once movies vacate their analog format chances are the studios will lose distribution control and the industry (as it now exists) will begin its decline.

At best, I can categorize D-Cinema as a mosh pit – semi-controlled chaos with the potential for inflicting lot of damage. At worst, we’re witnessing what could be a black hole – sucking in the entire cinema industry. What would remain? DVDs and variations of alternative content. My concern would be eminent but D-Cinema continues to fall short of its expectation and is not the transformational acquisition it has been dubbed.

ADMISSION TO THE MOSH PIT

What is the cost of Digital Cinema? I get this question a lot. “About $100,000 to $120,000”, I say, “and then there’s the ongoing operating and maintenance costs, and oh yeah, the 3D option if you want that”. It’s not a very good answer but then again it is in keeping with the nebulousness of the whole D-Cinema saga. However, least I be accused of perpetuating the notion of D-Cinema as the industry’s ‘black hole’ I’ll quantify this mosh pit.

Big-D requires a cadre of basic components; as well as, ancillary items and services. The detail below depicts average pricing from component manufacturers less 20%. All amounts are stated in incredible shrinking U.S. dollars.

COMPONENTS

- Show Player – for image decoding and data feed to D-projector, also provides digital audio output to sound system

- Show Storer – stores digital movie (received from studios in DCP packages) for playback through Show Player

- Show Manager (System Software) Player, Storer and Manager: $20,000

- Digital Media Adapter – interfaces Show Player to existing cinema sound system: $2,500

- Network Automation Interfacer – interfaces Digital System to existing cinema automation system: $2,500

- Digital Cinema Projector w/Power Supply (2K Version) Lenses, Lamp, Pedestal: $80,000

-Alternative Content Formatter – for playback of alternative content through digital cinema projector: $6,000

- PC/Laptop w/work station: $3,000

- Installation - Equipment setup, interfacing, alignment, testing, & training, including all cabling, wiring, interconnections, etc.: $5,000

TOTAL: $119,000

3D OPTION

- 3D Filter Controller & Filter Wheel Assby.: $18,000
- 3D Glasses – Regular Type: $35 each
Calibration Type: $100 each
- Silver Theatre Screen - $3.75/sq. ft. – if required for 3D Option
Screen Installation: $1,000 – 2,500

OTHER COSTS

- Annual Service/Maintenance Fees: $1,500 – 3,000
- Build-out costs for any enhanced electrical power and/or exhaust & cooling requirements in Projection Room: Unknown

So, at the present time, the cost to convert one auditorium is approximately $120,000 – 140,000 with an undetermined useful life. Additionally, although not published, there are indications that the failure rate of the digital cinema components is higher than that of film projection. It is also worth noting that the various digital components making up the ’system’ are manufactured by various companies. In some cases, being “sold through” other manufacturers/vendors under contractual arrangement.

SURVIVING

Big D’s reason for being – with all of its inherent complexities and costs – is Hollywood’s attempt to retain control of movie distribution while increasing their share of pre-feature advertising revenues. Otherwise, films could be transmitted to theatres via the internet or sent on encrypted HD-DVDs.

Film is the glue that keeps the relationship between the studios and the exhibitors from falling apart and provides the studio’s distribution control. As is happening with other media that has experienced digital conversion once the bits are out it is impossible to get them back. Currently, piracy is a problem but the copies are inferior and it is not an industry killer. Digital piracy could be.

Late last year I forecast the U.S. box office would reach $10 billion in 2007. As it now stands it should come in between $9.8 – 10b, a 6 – 7% increase over ’06, but bolstered by a stellar summer box office (which was anticipated), and a good holiday finale (also in the cards). Internationally, there is higher growth but as compared to other (competing) forms of entertainment particularly internet and video gaming, the cinema’s growth is modest. Toying with the cinema’s fragile business model could prove disastrous – best to leave it alone.

KEEPING UP WITH TECHNOLOGY Read Fast: This Article Expires in 5 Minutes

Technology is moving so fast it’s difficult, if not impossible, to keep up – change is the only constant. Communications technology is one such area and its advancement is having a profound impact (good and bad) on all businesses including cinemas. Several communication technologies, including IM and Texting, along w/portable storage devices (such as flash sticks) clearly represent this good vs. evil clash.

THE IM DILEMMA

IM (instant messaging) has become ubiquitous in every day work and play environments. Used to communicate with other employees, vendors, and certainly friends & family IM should be viewed as a good and valuable technology but one that is also a potential security risk. As many cinema owners/operators have discovered, IM is very hard to control in the workplace as its convenience and speed make controlling it nearly impossible. Compounding the problem is the fact that telecommunications companies knowing that many businesses are trying to control and/or block IM, frequently (and randomly) change the requisite messaging protocol, as they constantly endeavor to keep user traffic high – effectively increasing monthly billings.

On the other hand, IM has its benefits. For one, it does improve employee productivity. People can work at a faster pace as IM takes less time than emailing while using up much less band width. Additionally, as compared to voice communication, IM saves vast amounts of time in eliminating both unnecessary conversation and phone tagging.

To alleviate control problems while maintaining IM’s benefits, businesses that allow IM should implement control software as, if unmanaged, IM can put any company at risk for potential internal security breaches and/or theft of intellectual property, not to mention, law suits. To illustrate, in the U.S., Britain, and most other developed countries, IM is governed by the same civil laws as emails so, for example, if an employee were to IM a sexually explicit or aggressive message to another employee the company could be held liable for harassment just as if those sentiments were expressed by email or verbally. So the potential for legal ramifications is a very real one. Affordable enterprise-class IM software products to address these control issues is available and inexpensive. For instance, both Lotus and Microsoft offer very refined products to meet this need and every cinema with more than two locations should be using it.

TEXTING: THE GENIE OUT OF THE BOTTLE

That’s all well and good for IM but there is currently no way to control Texting between cell phones. Cinemas face a dual problem with Texting: internally (employees) and externally (customers). Unlike IM, Texting has not been addressed by any type of regulation and there are no legal mandates surrounding it. For example, if a company provides a mobile phone to an employee and pays the bill there is the risk that if that phone is used in any illicit way the company may be held liable. Additionally, cell phone(s) and PDA(s) present other (perhaps more relevant) security issues. “Cell slurping” – the term used to describe the action of plugging a cell or PDA into a computer and downloading files (not unlike the use of flash stick or memory card) - presents very specific security risks regarding both viruses and corporate data theft.

ACTION STEPS TO HELP

There is no doubt that IM is fast becoming a critical and useful form of communication within companies – large and small. The key is in having employees use the technology (they probably will anyway) with its obvious advantages over voice or email by implementing good usage policy and practices. Here are several that every cinema should adopt:

* Take the existing email usage policy (if you don’t have one you should) and extend it to include IM and Texting.

* Make it clearly understood to all employees that company supplied technology tools, particularly communication devices, can only be used for business communications.

* Employees should be informed that their IM sessions may be archived on the company network.

* Take an informal survey within the company to see if a lot of IM is occurring, if so, determine the company’s needs for this practice to continue. If there is a corporate benefit then enhance company policy and standards and purchase the required enterprise software to control it.

Trying to keep up with technological advancements is virtually impossible. Additionally, technologies used by individuals and organizations are blending at a faster and faster pace, giving rise to unforeseen benefits, as well as, drawbacks. Take a look at your cinema operations and determine what technologies are being used (those formally sanctioned and those being used informally) weigh the benefits and drawbacks of each and decide what is best suited for the cinema and its employees, and which is not.

LATEST CINEMA STUFF

PHISHING - PHARMING - MALWARE - WHAT?

If you don't know what these words mean - you should! These are the buzz words used to describe digital data theft. We're not talking about teen-hacker's downloading worms but very advanced data and identity theft of individuals and companies which fuel an immense underground economy. Defending and protecting data processing equipment and contents from sophisticated high-tech theft is an issue fast becoming a necessity for businesses and individuals.

What warning signs to look for. How to defend against data theft. What protective actions to implement. It's all part of the two day "Managing A Cinema" training workshop being held September 17 & 18 at Cinema Training Central. Don't miss it!

SECOND SOURCE CINEMA INCOME

Standard video projection has beome a significant second source revenue generator at cinemas. Used for a variety of activities - from pre-feature ads and entertainment to DVD-based film festivals - a digital projector is a low-cost necessity for optimizing a cinema's entertainment value. And, yes - your heard me - low cost. A high definition digital projector suitable for cinema use can be purchased for under $4,000. And, cinema customers that have purchased digital projectors inform us that the payback on their investment averaged 6 months or less.

Easy to install, operate, and maintain, don't miss the opportunity to enhance your cinema's operations and profitability. And don't let all the tech jargon that surrounds digital projection intimidate you - we're here to help you through the tech-talk minefield. Call us with any questions or concerns, we'll be happy to provide information and expertise on the subject.

D-CINEMA - WHERE IS IT AT?

What's up with Big-D? Digital projection technology keeps advancing. As we predicted JVC has introduced a prototype 4K D-Cinema projector to rival Sony's SXRD 4Ker and Texas Instrument's won't be far behind. That will leave the current 2K machines resident at cinemas (which jumped the gun) obsolete after only 18 months. Another question is how will the advancing computer server virtualization software - such as VMware's hypervision - impact Big-D? Which it will.

Learn all about the latest technologies regarding Big-D, as well as, the latest advances in conventional digital projection by attending CTC's "Digital Cinema Training Workshop" to be held Wednesday, September 19th, as part of CTC's annual cinema training week. Call us for details.

SEPTEMBER TRAINING BRINGS IN MANUFACTURERS/SPONSORS

Osram Sylvania, Kneisley Manufacturing and Yamaha Pro Audio will be several manufacturers along with Speco Systems that will be sponsoring a luncheon or other social event during CTC's training week - September 17 - 21. Manufacturer sponsorships offer a great marketing opportunity at minimal cost and benefit the manufacturer, as well as, the CTC participants.

FALL'S BACK IN

Coming off a very good summer the box office lineup for the fall looks impressive. From September to years end Hollywood releases will total over 125 and, like the summer films, will concentrate on fantasy and comedy - the two main audience drawing genres. We are sticking with our prediction of a record $10 billion U.S. box office for 2007 and solid revenue numbers for exhibitors which will partially make up for 2006's lackluster performance.

EXHIBITION REALITY CHECK

The large U.S. publicly traded cinema exhibitors' stocks look grim. Although Carmike (symbol: CKEC) touted their conversion to Big-D as the next coming, the stock market has taken a much less heavenly view. Even with a stellar summer B.O. Carmike's stock is currently $1 above its 52 week low at $17+ change and the company is projected to lose $4.50/share this year.

Regal (symbol: RGC) at $22+/share is doing better but is still under-performing as it is projected to earn only 80 cents/share on revenues of $2.9 billion. As for AMC, well, their initial public offering (IPO) was cancelled on the eve of its scheduled May "coming out" party - due to a lack of market acceptance.

EXHIBITORS: Get back to basics. Exhibit (I couldn't resist) some showmanship. You're getting sidetracked with Big-D. FLASH - Big-D isn't a revenue generator and the box office isn't going to get any better than it was this summer.

MANAGING A CINEMA FORWARD

ASSESSING THE LANDSCAPE

Effective managers today need to be constantly expanding on their expertise. For example, those in the cinema industry should be absorbing information on the digital domain, advertising trends, telecommunication and data processing advancements, the entertainment and leisure industries, food and commodities markets, etc. However, good managers should possess a filter which forces them to discard input that is opinion or point-of-view, and instead search for events which spark trends. This allows one to obtain clues with which you may make inferences on events and trends that may impact your business and also give you the right view of the landscape you’re working in.

Listed below are some current trends:

· In developed countries, populations are getting older, but also more diverse.
· Consumer businesses, no matter how large, are community-centric.
· Today all businesses must specialize in marketing and development.
· Companies must be organized for maximum advantage with flatter structures. Pyramid structures increase frictional loss and are energy consuming.
· Staff is the value added for any business and staff development a key success factor in today’s talent driven economies.

TODAY’S CORE SKILL SET

Whether your field is cinema management or any other consumer industry, today’s environment requires a specific skill set. Managers must:

· Possess a high tolerance for ambiguity. They must have a capacity for understanding uncertainty and know that things are capable of being understood in more ways than one.
· Have a generic curiosity. They should be constantly wondering about how business works, what impacts it and how to improve it.
· Assess their own nature and biases and be able to discount its effect on their decision-making.
· Be strategic thinkers not strategic planners.
· Place coaching skills as a top personal strength.
· Be talent driven. They must strive to hire dynamos and pay and train them well. When hiring, think in terms of roles or functions rather than specific job placement.

MOVING FORWARD

After assessing the landscape, keeping abreast of trends and establishing a set of core skills, now you need to hone prioritization, empower staff while providing guidance, and emphasize in-house and outside training which focuses on areas that need development. If the organization is structured correctly, the cinema manager is the key person who will move the cinema forward.

ENTER THE DRAGON

Two decades, perhaps less, how long before China becomes a force in worldwide entertainment? Competition with the U.S. is inevitable. The Dragon will expand into global entertainment with the cinema – the King of Mass Media – as its ultimate target.

China is currently spending billions on a massive branding mission to make its companies and products as well known as Apple, Coke and Sony. The Chinese Communist Party (CCP) has a derived national development agenda termed “Advanced Product Force” which is intended to promote communistic social harmony while employing capitalist business practices.

To accomplish this act, the CCP must be forward thinking economically while maintaining control over China’s 1.3 billion inhabitants who are diverse in terms of language, customs, social development and prosperity.

An example of the implementation of the Advanced Products Force is the Haier Group, a large Chinese durable goods manufacturer who has spent two years and tens of millions of dollars developing a line of flat panel LCD products. Haier finalized an agreement with the National Basketball Association to runway their HDTVs at basketball games and NBA promotions across the U.S. Haier is focused on consumer electronics, a difficult global market to penetrate and one where branding is essential, especially now that prices for LCD TVs have dropped so much that consumers choose brands (Sony, Panasonic) over price.

The Chinese realize that producing a quality product and marketing it require very different skills. Along with electronics, they are zeroing in on industrial and consumer durable goods markets and the entertainment industry, which has significant national import. Entertainment products have high margins, long life cycles and tremendous export value. For example, the U.S.’s arts and entertainment export revenues run neck-and-neck with its aerospace industry. Entertainment (particularly the cinema) is at the cutting edge and pushes the envelope with regard to digital imaging, microchip and computer processing advancements, connectivity development and other high-end technologies. With over one-fifth of the world’s population, China is also aware that a vibrant entertainment industry connotes a country’s prosperity, influence and social sophistication, which will prompt the nation to develop a homegrown cinema industry over importing Hollywood films.

Piracy is rampant in China with first-run Hollywood movies available from street vendors in DVD format in every city and town. Although cinema attendance has been shrinking, an agreement between Warner Bros. and Dalien Wanda (a Chinese developer) may lead to the opening thirty new multiplexes over the next two years. As the Chinese population prospers, people will opt to view a movie at a cinema over a low quality DVD.

Leaving behind the Hong Kong chop-socky films of the 70’s and 80’s, modern-era Chinese cinema began developing in the 90’s into the well financed, sophisticated, fantasy laden morality plays of today. Films like Crouching Tiger, Hidden Dragon (2000) and Hero (2002) have had wide international distribution and earned critical acclaim, but the U.S. studios maintain control over global movie distribution. The Chinese know they need to open up to more Hollywood-produced film imports, but they want to develop and control the production side and internal distribution while slowly exporting Chinese made films and cultures to the rest of the world.

As a new member of the World Trade Organization, China has had joint ventures with Hollywood, producing films shot entirely in China that are scheduled for release in both countries. Films made exclusively for distribution in China are also scheduled for production, which should nurture the Chinese film industry and provide the CCP a reason to clamp down on piracy.

For the last decade China’s economy has been growing at an unprecedented rate, but to continue growing, it will have to develop new products in addition to taking market share away from well established and well financed global competitors.

Their strategy is to move up the economic food chain into high yielding, high tech products and services. The entertainment industry is high yielding, but also high risk. Evidence of this is China’s development of its island Macau into a world-class gaming and resort destination. Almost all of the Las Vegas casino/resort developers have or are constructing mega-casinos in Macau, which exceeded Las Vegas in terms of monthly casino gaming revenues in January 2007.

The CCP is using the “leap frog” effect, leaping over old technology in order to develop China’s economy, which is most clearly seen in mobile communications. In 2003, there were 269 million cell phones in China, 498 million are expected by 2008. The Chinese will “leap frog” in all products and markets they enter, certainly in the entertainment industry. Modern cinema sound technology will aid the Chinese in this endeavor. Any movie can now be screened in native language if the soundtrack is mastered with a DTS timecode. This timecode is synced to a formatted DVD soundtrack which is then played back during film’s presentation, meaning a film in Mandarin can be exhibited at a U.S. cinema in English, eliminating the cost and nuisance of subtitling.

Reshaping a feudal, agrarian society into a high tech manufacturing and services economy over several decades is unprecedented, but the trick to it is developing, instituting and managing a new and youthful socio-economic phenomenon before it matures and the pace of growth slows dramatically. If the CCP imposes on individual expression or human rights, it could lead to the stifling of economic growth and civil unrest. Contentious policies have yet to foster widespread discontent. For example, Chinese citizens are allowed to protest against government policies, but only as individuals, not organized groups.
A society’s maturity and influence is measured in large part by its arts and entertainment, and in the 21st century this means electronic arts and entertainment; cinema, music, gaming, sports and literature at the core and supported by high-end audio/visual components and the Internet. China’s formal debut in global entertainment will be its hosting of the 2008 Summer Olympics. That’s when the world will get a preview of how the Chinese will try to influence global entertainment.

SIZZLING SUMMER SPURS RECORD 2007 BOX OFFICE

This summer the cinema industry will witness its biggest box office in history. Driven by the fantasy and comedy genre films - which are voraciously consumed by audiences worldwide - Cinema Mucho Gusto is predicting that the 2007 box office will top $25 billiin globally and hit $10 billion in the U.S. And better still, that the $2+ billion increase over last year will be due principally to increased attendance vs. higher admission pricing.

We are also predicting that cinema's activities including: pre-feature entertainment, digital film festivals, video gaming activities, auditorium rentals, etc. will continue to enjoy strong growth and we anticpate revenue from these activities growing by 15-20% in 2007 and annually through 2010.

THE SPLICE IS RIGHT

Beginning June 1, EEC will launch "The Splice Is Right," a web blog devoted to facilitating transactions between buyers and sellers of cinema equipment and services. If you are in need of cinema projection or sound equipment, concession equipment, lobby accessories, as well as spare parts or want to sell any of these items, you will be able to log on to accomplish transactions. We will keep you posted on its impending premiere.

PIRACY: HURTING OR HELPING HOLLYWOOD?

According to the June 2007 issue of The Atlantic, all it takes is one culprit in New Jersey to share a newly released film with 30,000 people globally. The culprit directly recorded the film reels onto eDonkey, a person-to-person file sharing network.

While file sharing has steadily grown over the past decade, downloading movies is at a minimum level due to the amount of time it requi

Customer Service: The Inexpensive Upgrade

When preparing notes for my last employee meeting, I wanted less of reviewing policy, and more of a theme that my staff could reflect upon. Then it struck me: I was so accustomed to working in a movie theater, that I almost forgot what it was like to go to one.

In an attempt to regain customer consciousness, I visited a competing theater. There was a long line at the box office and after finally making it to the front, there was no smile or warm greeting to convey an unsaid thank you for my patience. The attendant at the concession stand had no line, but possessed an attitude of annoyance, like I was pestering him by placing an order. My pretzel bites were hard and the focus on the film was soft.

All of my complaints were results of poor customer service. Not just the manor of how you interact with patrons, customer service encompasses every aspect of your daily operations. From the accuracy and articulation of your recording, to the temperature of your auditoriums, customer service is the unseen entity that gives your theater its image. The bad experience I had at the competing theater was good for my meeting.

"Sure, you get to eat popcorn every time you work," I said to my staff. "You make it, sling it and sweep it." I wanted my staff to remember what made the movie going experience so fun, and to keep in mind that the popcorn to our customers is a treat, something to look forward to. The meeting then became a pep talk, "Let's neatly fill the bags with as much popcorn as you can, and always scoop from the top, so no one gets any crumbs. Let's give people the best popcorn in town!"

As corny as that sounds, motivating your staff is critical to customer service. You can have ear bleeding digital surround sound and seats modeled after those on Air Force One, but if you have cold cheese for your nachos and the ladies' room has no toilet paper, you're lacking good customer service. Especially with all the other entertainment options available to consumers. Superb customer service gains repeat business.

To ensure your customer service machine operates smoothly, keep yourself in the center of it.

A staff is only as motivated, friendly and competent as the manager who leads it. You are the model that your employees follow. You set the standard of service for your theater. I always tell my assistants that they should be able to do everything ten times better and faster than a floor staff member. A higher state of service exists when managers act as both coach and teammate, taking part in the work that the whole team needs to accomplish.

Working as a team is but one way to keep your staff happy. Remind your staff that you value their work by giving verbal pats on the back. "You did a great job of moving that line quickly." Make "thank you" a part of your daily repertoire and acknowledge your employees' efforts. While these ideas are not revelatory, you will notice results if your continually implement them. Happy employees are friendlier and care more about the needs of your patrons, which creates an ideal customer service environment. Happy customers means less complaints and that equals less stress for your staff.

Theater managers have the dual burden of operating both an entertainment venue and a food service enterprise, the former showcasing a product that is out of your hands. While you have no control over a film's quality, you have total control over the quality of customer service. "The movie was awful," a customer recently said to me, "but the popcorn was terrific!"

Tracy Janis
District Manager, Dipson Theatres

SELLING DIGITAL CINEMA/ WHAT ELSE IS THERE?

A recent Dolby Labs newsletter headlines D-Cinema. And states, "a milestone year for the digital cinema industry". I'm not sure what the digital cinema industry is. What I am sure about is the fact that Dolby, a publicly traded company( with a share price in the $33 - 38 dollar range, and a high current price/earnings ratio of 38) is put into the box of every other public company. To improve sales and profit margins on a regular and in most cases, quarterly basis, so as to endear themselves to the Wall Street analysts who follow and rate their performance. What drives a stock's price is earnings and/or its earnings potential. In Dolby's case it is currently the marketing and sales of its D-Cinema based products to the movie exhibition side of its business that will contribute to its overall growth and profitability- as the sales of sound processors and peripheral products to theatre exhibitors is not growing as it once did.

I'm not faulting Dolby. There Digital Cinema products are stellar and perform extremely well. Additionally, Dolby has one of the greatest brands and certainly an insiders place in Hollywood - one which is well earned and deserved.

It is only natural that Dolby push its D-Cinema products. The recent JPEG2000 upgrade tweeked its share price up but with P/E in the high 30's Wall Street will be looking for higher sales and earnings.


Jim Lavorato

CORN and GAS vs.THE CINEMA

The price of corn has skyrocketed on the futures markets and farmers are increasing their acreage of corn to an all time record. Why, because of the promise of ethanol as a replacement for gasoline. To make matters worse, this summer, gas is expected to rise to the $3/gallon price as crude oil hits the $70/barrel mark.

So cinema exhibitors get hit with a double whammy. Higher popcorn prices and higher gas prices, both of which impact theatres negitively. What's the answer, if any.

Watch your popcorn suppliers pricing, and if possible purchase corn now for stock through the summer or better still contract with the supplier for set pricing now with delivery later.

Look closely at your popcorn pricing. If possible nudge up your pricing or recast your pricing to force more moviegoers to purchase middle or large sized popcorn portions. Make these sizes the value buy, force customers to the middle price popcorn size.

Think up promotions: Gas discounts on concession purchases. For example $1 off on all concession purchases over $10. Offering Pic n' Play concession giveaways. Colaborating with local gas stations for fillups and a movie. Be creative.

The price increases for gas and corn will impact every movie exhibitors bottom line. So take action now. The roster of summer films looks very good but you need to be proactive and begin to impliment tactics to offset the gas/corn issue.

Good luck!
Jim Lavorato

2006 CINEMA STATS.

The 2006 numbers are in and the Boxoffice improved over 2005 - a dreadful year. Domestic B.O. was up 3% over '05 at $9.1b, while overseas did even better, increasing over 11% to $14.6b.
However, the numbers are still quite skewed, as the Top 10 films of the year generated 24.5% of total Domestic B.O. The Top 25 films alone accounting for 42.7% of total domestic B.O. for the year. And the genre of films pretty much was in line with the prior 5 year trend. With audience preference toward Fantasy/Drama and Comedy/Drama movies. Of the Top ten films in 2006, 7 were Fantasy, 1 Comedy, and 2 Dramas. Of the Top 25 there were 7 Fantasy, 11 Comedy, 6 Drama, and 1 Horror.

Although holding its own in the cut-throat world of entertainment, the cinema will remain a static performer. The 2007 crop of films appears to have promise but the fact remains that audiences are completely content driven and - as the stats support - genre driven as well.

The 2007 B.O. should show marginal improvement over '06 - which at $23.7b was certainly not stellar; however, the foreign markets will continue to outpace the domestic B.O. in terms of both organic and incremental growth. With 62% of total 2006 B.O. the overseas markets are where its at for the studios, as these markets continue to have strong growth. It's also where future potential is greatest, and where predicting audience film perference is much less challenging.

Jim Lavorato

NEW BLOG LOOK

We have updated Cinema Mucho Gusto and have a new look. Which we hope will serve you better and make our Blog more interesting visually.