The Reel Blog

Nobody wants an economic downturn, but since it seems we're in one, everybody seems to be wondering how the movies will do.

It comes as no surprise to theater owners that hard times send people to movie theaters. Movie-going remains the least expensive form of out-of-home entertainment, as these charts show:

But wait, there's more, considering your ticket dollar in terms of time spent:

Source: ¹Intl’ Laser Tag Assn.    

Source: ²United States Bowling Congress / Mischel & Co. (ave. price/open game)

Source: ³NATO

The L.A. Times weighs in with the tantalizing suggestion, " If you're struggling to pay the bills, why not let Angelina Jolie take your worries away?"

Marketplace follows with an on-air interview on the subject with yours truly.

 And the Times of London speculates on the forthcoming summer season with an economy in the doldrums:

“In the past four decades there have been seven recession years in this country, and box office climbed strongly in five of those years,” said John Fithian, the president of the National Association of Theatre Owners.

“Consumers cut back on expensive purchases during recessions but also typically shift what discretionary spending money they have left to affordable activities, such as going to the movies.” This economic anomaly was first observed during the Great Depression, when even the Dust Bowl refugees used what little money they had to pay for admissions to monster movies and Marx Brothers comedies.

 Let us know: where will you be spending your money this summer?

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NATO president John Fithian responded to remarks made by Jeffrey Katzenberg about the slow pace of 3D cinema installations. In a Variety interview, Fithian previewed a speech he is scheduled to make at ShowCanada today.

Fithian countered that some of the studios can't agree on what they'll pay the top three circuits in virtual print fees and that circuits need to have those fees in place before they can make the costly investment.

He wouldn't name names, but industry insiders say that Disney, 20th Century Fox and Paramount are close to agreement with exhibs, while Warner Bros. is far behind. Universal and Sony are still in talks.

Katzenberg "suggested it is the cinema companies who are dragging their feet," Fithian said. "That is not the case," he added.

Further, Fithian noted that Katzenberg's colleague, Steven Spielberg has been, at best, lukewarm about the conversion to digital cinema.

There was an outcry among theater owners earlier this year when Par suggested it wouldn't supply digital prints of Spielberg's "Indiana Jones and the Kingdom of the Crystal Skull," because Spielberg wanted the movie played only as film on 35mm screens. Filmmakers including Spielberg sometimes balk at having their movies shown in digital when they were shot on film.

Not providing a film like "Crystal Skull" on digital would slight theater owners who have made the conversion, according to exhibs. Theater owners have long argued that there's no reason to make the transition if the product isn't there.

Par changed its position and will be releasing digital prints of "Indiana Jones." Exhibs aren't entirely mollified, though, since digital prints will go only to those houses where all the screens are digital. If there's a mix of screens in a theater, that theater will get only a film print.

Spielberg a print tease? Get your popcorn, the show isn't over. It's only intermission. 

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In response to analysts' questions during the company's Q1 earnings conference call, DreamWorks CEO Jeffrey Katzenberg unloaded a multi-dimensional pile of frustration at the pace of digital cinema indtallations (and consequently, the 3D installations that depend on them).

"In the last 30 days, things have not progressed as well as I had hoped, expected and, quite frankly, been committed to, by all the parties involved," Katzenberg said in response to an analyst's question. "It's ongoing as we speak literally now, but in terms of getting the big three (exhibitors: Regal, Cinemark and AMC) on board and actively moving forward, I feel as though things have dragged along, and it's been pretty disappointing."

Exhibitors and distributors are in the midst of tough negotiations over Virtual Print Fees (VPFs), both how many and how much the studios will contribute toward each VPF.

"If these guys don't get their act together very quickly in the next 30 days, they're not going to be able to achieve that goal," (Katzenberg) said. "Every week that goes by, it'll be several hundred less screens that manage to be rolled out in the time frame."

This line of reasoning sounds strangely familiar:

Katzenberg's accusations come just a couple of weeks after National Assn. of Theater Owners prexy John Fithian made similar remarks from the other side of the bargaining table during the Digital Cinema Summit at NAB. "If the studios want this to happen in time for 2009, the deals have to be struck, and they have to be struck right now," Fithian said at the time.

Despite the opportunities for increased profits from additional 3D screens, in the earnings call Katzenberg asserted that "what we are confident of being installed will pay for our investment."

You can listen to the entire DreamWorks conference call here. 

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The L.A. Times Josh Friedman ("The Projector") lays it out in a fair and thoroughly researched Sunday Business section front-pager: 

Week in and week out, Projector exposes the often-bitter truth about Hollywood. On one point, though, he must back the industry line with gusto. Call Projector creaky, but nothing matches the moviegoing experience or offers a better entertainment value. Consider:

* Since Projector lined up with a horde of other freckly nerds for the original "Star Wars" in 1977, when the average U.S. movie ticket cost $2.23, the price of admission has climbed less than the rate of inflation. That same ticket, in today's dollars, would cost $7.86 -- or well above the latest norm of $6.88. These averages include rural theaters and matinee, senior and child discounts; in L.A., the price of movies, like almost everything else, runs higher.

* Contrary to the whiny drumbeat of the nostalgia crowd, the product is as good as ever, especially for those who look beyond the top of the box-office charts. Projector's recent favorites include "Pan's Labyrinth," "The Bourne Ultimatum," "Juno" and "The Bank Job."

* Theater owners have crowed for years about what a bargain movies are compared with such events as concerts, which in 2007 commanded $62.07 for the average ticket, and baseball games, which went for $22.77. This spring the exhibitors' trade group, the National Assn. of Theatre Owners, calculated that watching films also costs less per minute than laser tag and bowling -- even if fans don't get the opportunity to rent those cool shoes.

Best of all, Friedman doesn't just take NATO's word for it. He takes the Times' money and actually checks it out. 

The price of fun
On a recent date night, a couple spent $31.25 at the movies -- excluding baby-sitting and other costs. How does that compare with other entertainment options?

* Baseball game at Dodger Stadium: Two infield reserve tickets, plus online "convenience charges," parking, hot dogs and sodas. Tab: $100.50

* Laser tag at Ultrazone in Sherman Oaks: Two $23 "unlimited game" packages on a Friday night, plus pregame Red Bulls. Tab: $50.78

* Marty & Elayne at the Dresden restaurant in Los Feliz: Dinner for two (pepper steaks with Caesar salad or French onion soup), followed by cocktails (Blood and Sands) at the piano lounge, with tax and tips. Tab: $111.94

* Paint ball at Warped Paintball Park in Castaic: Two basic packages on a weekend afternoon, including goggles, compressed air and Tippman 98 semiautomatic paint ball guns. Tab: $90

Read it all. The man loves him some movies and turns in a fun and funny article.

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Our friends in the U.K. are running a cinema trailer compiling scenes from some of the big movies hitting the theater this summer. Courtesy of the Film Distributors Association.

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 Get cracking, people. We've got a $4 billion summer to beat.

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Or is it the cart before the horse?

While the 3D grosses of Beowulf and Hannah Montana have distributors and theater owners hungry for more 3D content and seem to be driving the appetite for digital cinema installations, NATO's president, John Fithian, suggested at the National Association of Broadcasters' Digital Cinema Summit, that 3D may actually be a speed bump instead of an accelerator.

With at least ten 3D features slated for next year, including James Cameron's Avatar and DreamWorks Monsters vs. Aliens, Fithian noted

"We are at an extremely critical juncture in the transition to digital cinema, but the (deployment) deals have to be done. (...) We are at an impasse over the financials."

The deployment deals generally rely on a virtual print fee model through which studios contribute an agreed fee per screen, per movie to offset exhibitors' installation costs.

"Unless digital cinema deals are made in the next one to two months, we will not have time to (deploy the screens) for 2009," Fithian said.

Despite that, some of my friends at the studios are insisting that they should pay lower VPFs (in current negotiations) than they did in the first round of deals," he said, asserting that the model worked in the first round. "3-D cannot be an excuse for lowering VPFs."

There are currently fewer than 1,000 3D screens in North America. It is estimated there will need to be more than 4,000 to support 2 major 3D releases at the same time. There are currently only 4,600 digital cinema screens in the region.

Whatever the potential for additional box office for 3D - and it is, currently, just potential (Hannah Montana's $67 million on just 680 screens may be less of a demonstration of the power of 3D than it is the power of 9-year old girls.) - the one certain financial benefit of the transition to digital cinema is the roughly $1 billion dollars per year the studios will save on prints forever, infinity-eleven.

In a separate panel at NAB, NATO's D cinema consultant Michael Karagosian pointed out that none of the VPF agreements have been signed by all studios, possibly increasing exhibitors' share of the latest round of VPFs from 20% to 32% or more, depending on how many digital releases come from non-signatory studios. Furthermore:

(t)he costs for an exhibitor to transition to digital cinema compared with film is 200%-300% higher in a 25-year period, Karagosian estimated. This includes the costs of installation, maintenance and other operational expenses.

There are some problems to be solved if there are going to be enough 3D screens to support the studios' ambitious plans for 2009 and 2010. If they aren't solved soon, there won't be enough time to install the screens - even if Jeffrey Katzenberg installs them himself.

Variety's take is here.

 Update, 8:21 pm: Dave Poland gets it.

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Michael Brush, financial analyst for MSN Money, takes a historical look at box office performance during hard times and, despite what some analysts conclude, comes up with some hard numbers:

Some industry analysts, including Hal Vogel of Vogel Capital Management, dispute the link between economic pullbacks and rising movie attendance. But for me, the evidence is strong:

• In 1974 and 1975, as the economy contracted 0.5% and 0.2%, respectively, after 5.8% growth in 1973, the annual box-office take rose 25% and 11% as Americans sought refuge from reality in hits like "Jaws," "The Towering Inferno" and "Blazing Saddles." Movie-theater attendance rose 16.9% in 1974 and 2.2% in 1975.

• In 1982, the economy contracted 1.9%, after 2.5% growth in 1981. Box-office takes shot up 16.4% as hits such as "E.T.: The Extra-Terrestrial" and "Porky's" offered escapes. The number of moviegoers was up 10%.

• In 2001, economic growth slowed to 0.8% from 2000's 2.7%, but box-office spending on movies such as "Monsters, Inc.," "The Mummy Returns" and "Ocean's Eleven" rose 9%. This was also the year the "Harry Potter" and "Lord of the Rings" film franchises were launched. Then, the box-office take rose 14% in 2002 as economic weakness lingered, growing only 1.6%. Movie-theater attendance went up 4% in 2001 and 11% in 2002.

All told, box-office spending went up during five out of the seven recessions or pullbacks over the past 40 years, according to the National Association of Theatre Owners. The pattern is so consistent that you can't write it off by saying moviemakers just happened to release better films.

If it is not the particular mix of films that accounts for the upswing in box office during recessions, what does? Sony's Jeff Blake suggests

"Movies offer something completely separate from what you are dealing with day to day. So they really become worth the money when money counts."

Lionsgate's Michael Burns concurs, saying

"When things are tough it is nice to be able to go into a dark theater and get lost in great entertainment, to be moved or scared and all those great things."

So weigh in if you're so inclined. Why do movies do well in bad economies? Is it the movies? The price? A desperate need to escape a stack of bills on the kitchen table?

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Nobody wants a bad economy, but movie theaters are well positioned to do well in tough economic times. In five of the seven recession years over the last four decades, box office revenues have gone up - as much as $670 million in one case. And it's not hard to see why:

Click the image to watch CNN's Brooke Anderson report on why movie theaters do well in recessions. Interviews with NATO President and CEO John Fithian and Media by Numbers' Paul Degarabedian are included. 

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NATO President John Fithian presents the first ShoWest/NATO Freedom of Expression Award to Ang Lee and James Schamus for their courage and integrity in releasing Lust, Caution with an NC-17 rating.

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