Yours truly in Boxoffice on "the death of 3D":

 It was just under five years ago that Disney released Chicken Little on an unprecedented 84 digital 3D screens, and look where we are now.

The sky is falling.

You could be forgiven for believing that if you've been reading recent articles in the trades or following the blog posts of Wall Street entertainment industry analyst Richard Greenfield. It seems that in the half-year following the spectacular 3D performance of Avatar ($749 million, an estimated 80 percent of it in 3D), we, as an industry, have blown it.

Read on.

Tags: 3D, Boxoffice Magazine, Digital Cinema, Richard Greenfield

The industry-wide digital cinema roll-out moved a step closer with Sony's announcement that it had signed a VPF agreement with Digital Cinema Implementation Partners (DCIP), the consortium formed by AMC, Cinemark and Regal to manage their transition to digital. That leaves only Warner Bros. among the major studios to be without a VPF agreement for the second phase of the digital cinema conversion.

"We're in the middle of negotiations," Warners domestic distribution president Dan Fellman said. "We're close. So we might be the last one, but we're going to get there."

Sony signed its VPF pact with Digital Cinema Implementation Partners several weeks ago, but the news was delayed pending internal review of the formal announcement.

Through VPFs, studios volunteer to pay the equivalent of print costs for years after switching to digital distribution as a means of defraying most exhibitor costs to convert auditoriums. Sony refers to its VPF as a "digital conversion fee."

For Warners, set to release more films this year than any other distributor, the cost of a VPF is likely to run considerably higher than that for studios with lower annual output. Sony also is among the most prolific film distributors.

Of course, the roll-out will depend on the unlocking of the credit markets as the DCIP 14,000-screen deal alone will cost in the billion dollar range. Then comes the Cinema Buying Group's (CBG) approximately 7,000 screens - a more complex deal despite the smaller size owing to the number of companies, the diversity of markets, and types of theaters involved.

Tags: Cinema Buying Group, DCIP, Digital Cinema, Sony, VPF, Warner Bros.

I would be deeply remiss if I didn't bring your attention to this post on the digital cinema self-financing panel at ShoWest.

Sperling Reich must have the fastest typing fingers in the West to nail down as much detail as he does here from a fast-paced lunch-time discussion.

When Macdowell turned to Solomon to get an exhibitor's opinion the discussion turned somewhat acrimonious, in a friendly sort of way. "I happen not to be a proponent of 2K [projector resolution] and I have not been a big proponent of integrators," said Solomon. "I believe we should be able to band together and form our own consortium and go negotiate for our own VPFs. I don't believe in giving a cut to an integrator."

CBG's Campbell, like Christiansen, isn't as down on integrators as Solomon and is of the opinion such third parties might be necessary, especially in the short-term. "Self financing is not going to happen for a long time," said Campbell. "I think self-financing is going to be done through the integrators and if we have to pay a small fee of the VPF then so be it."

Solomon, whose smooth New Orleans drawl had Macdowell comparing him to a slick southern lawyer, is not the retiring type and is almost always quotable. Given the chance to air a few thoughts, he let his grievances fly. His comments received the biggest audience reaction by far. "If 2K is the way we're going, then 35mm is better," he argued. "Apparently digital helps distribution, but it doesn't do a thing for exhibition. If distributors want to go with 2K then give us the money and we'll get on with it, otherwise we're going to have to go at our own pace. If distribution wants 2K, give us the money!"

Solomon went on to get a huge laugh when he recounted asking one of his regional managers, "What's the difference between a 35mm film print and a digital cinema hard drive? He said, 'about 40 pounds'."

Levin attempted to diffuse Solomon by pointing out that two of the studios were present and on stage, ready to talk about giving Southern VPFs, but Solomon got the last word in during this exchange as well by snapping back "I know, but I have to figure out how I'm going to pay for [3D] glasses with one of them."

In one instant Solomon made public the rumor that Fox had been telling North American exhibitors that after "Ice Age 3" the studio would no longer be paying for disposable 3D glasses. Presently none of the studios pay for disposable glasses in Europe, though they have been footing the bill in the U.S., Canada and at times Mexico.

 Read the whole thing. It will be well worth your time.

Tags: 3D, Bill Campbell, Cinema Buying Group, Digital Cinema, George Solomon, Julian Levin, Kendrick Macdowell, Mark Christiansen, self-financing, ShoWest, VPF

ShoWest 09 marked a change in  programming. Monday has in recent years been "International Day," but with the increasing interconnectedness of the industry, it no longer made sense to separate out the international programming. Hence, Monday became the official opening day instead of the traditional Tuesday.

Fox's Jim Gianopulos kicked off the Opening Day luncheon with an overview of the health of the exhibition industry:

Gianopulos' Keynote Address was a speech laced with charts and graphs showing how the theatrical moviegoing experience continues to grow despite the recent economic upheaval and recession. He noted that despite the dramatic increase in home technology like HD televisions and Blu-ray, those who own five or more pieces of home theater technology are still more likely to go to the movie theater every weekend than less. He mentioned that movie attendance continues to be the #3 choice for most people going out for their entertainment and that it made up a larger audience of those going to sporting events, Broadway theater and other activities, which tend to be more costly. International growth was also a large factor, noting that North America made up roughly half of the over $18 billion grossed at the box office worldwide in 2008, and that there was a lot of room for growth.

A picture of James and the Giant Graph is here. A chart showing how people who use 5 or more home entertainment technologies go to more movies is here and another one showing what the inside of my brain looks like is here.

Wednesday saw a bit of fireworks with a luncheon panel discussing digital cinema financing:

Moderated by G. Kendrick Macdowell, VP, general counsel and director of government affairs at NATO, the panel featured two studio execs who have pledged support in the form of virtual print fees to individual exhibitors. Mark Christiansen, executive VP of operations at Paramount Pictures, deemed his studio’s plan “incredibly easy…something you can do now.” But Fox exec VP of digital exhibition Julian Levin, who is also reaching out to individual cinema owners, bluntly criticized the streamlined Paramount offer document as having “a lot of holes,” contrasting the Fox approach as that of “a grown-up business.”

Even more contentious was exhibitor George Solomon, CEO of Southern Theatres. Dismissing the role of third-party integrators like Cinedigm and Digital Cinema Implementation Partners, he declared, “I believe that mid-size circuits should be able to negotiate virtual print fees directly or have their own consortiums… I don’t believe in giving a cut to an integrator.”

The plain-speaking Solomon, whom Macdowell at one point compared to a crafty Southern lawyer, proved not much of a champion of the digital revolution. “35mm is still better,” he contended. “What’s the difference between a hard drive and 35mm film? Forty pounds!” Arguing that the benefits of digital accrue mainly to the studios, he challenged, “If distribution wants 2K, give us the money!”

And as ever, the Closing Night awards were star-packed and festive. Lots of pictures here.

Tags: 3D, Digital Cinema, George Solomon, Jim Gianopulos, Julian Levin, Kendrick Macdowell, Mark Christiansen, NATO, ShoWest, stars

NATO's Digital Cinema User Requirements, version 2.1 have been completed and approved. You can read them here.

Tags: Digital Cinema, NATO, user requirements

Digital Cinema Implementation Partners (DCIP), a consortium of exhibitors Regal Entertainment Group, AMC Theatres and Cinemark, announced they have struck a deal with five Hollywood studios to support their digital cinema rollout. According to AP:

Five Hollywood studios have agreed to help pay for a $1 billion-plus rollout of digital technology on about 20,000 movie screens in North America, a precursor to showing movies in 3-D.

Digital Cinema Implementation Partners, a consortium of major theater chains, announced the deal Wednesday. The rollout in the U.S. and Canada, covering about half of all screens, is planned to start early next year.

DCIP topper Travis Reid noted that the rollout remains contingent on securing financing for the deal - a difficult task in the midst of the ongoing credit crisis.

"We'll be needing to execute in the debt markets and we hope to do that during the fourth quarter," Reid said. "We don't believe that the markets will be closed forever."

NATO applauded the agreement, but noted there are numerous theaters and screens not covered by the agreement.

With a deal in place for the largest U.S. theater chains, it is time to conclude a similar digital cinema agreement for the hundreds of independent cinemas and thousands of screens not covered by this agreement. It is imperative for the health of the industry and for the millions of moviegoers in small towns and cities that the benefits of digital cinema be spread as widely as possible.

NATO, through the Cinema Buying Group (CBG) and its selected digital cinema integrator Access Integrated Technologies, Inc. (AIX), continues to work with the studios to ensure that CBG members, who are smaller and independent exhibitors, often in small towns, are not left behind.

CBG's website is here. 

Tags: 3D, AMC, Cinema Buying Group, Cinemark, DCIP, Digital Cinema, NATO, Regal

In-theater advertising topped $500 million in 2007 - an 18.5% increase in revenue. According to Variety,

New figures just released by the Cinema Advertising Council, a trade org repping 82% of U.S. screens, show a hefty 18.5% gain in revenue to just shy of $540 million in 2007, up from $455.7 million a year earlier.

That revenue is significant for the mature, perennially product-dependent exhib biz because the vast majority of it goes directly to their coffers instead of being split with Hollywood.

Despite complaints that in-theater advertising is alienating audiences and driving disgruntled customers away, a 2007 Arbitron study found

that a majority of frequent moviegoers recalled specific ads and also did not mind having ads before the feature.

Adding more credence to that view is the remarkable track record of 2008 box office thus far. According to the AP:

A solid June lineup has pushed Hollywood ahead of last year's record box office pace. Since the first weekend of May, domestic grosses total $1.46 billion, up 4.6 percent from 2007's, according to Media By Numbers. Factoring in higher ticket prices, actual movie attendance this summer is up 1.6 percent.

2007's summer box office set a record with more than $4 billion in ticket sales. This summer is outpacing it so far without the trhee $300 million thee-quels that 2007 could boast. YTD, box office is off 1%.

Tags: Digital Cinema, theater advertising

Digital Cinema Report has a nicely reported state-of-the-digital-deal story on it's website. 

 Publisher Nick Dager starts it off with a bang:

The answer lies in the fact that the studios, either by happenstance or by design, are taking a very passive-aggressive approach in their negotiations with DCIP. Several studios are demanding higher virtual print fees, which exhibitors insist they can’t afford. Other studios are demanding that exhibitors convert to digital now in order to justify the costs of the 3D features due out next summer.

In some cases that passive-aggressive attitude exists in the same studio. In interview after interview Jeffrey Katzenberg, CEO of Dreamworks Animation has led the charge all but demanding that exhibitors waste no time in converting to digital, this of course so that his 3D movies can make more money. Yet his long-time partner Steven Spielberg tried to block the digital release of Indian Jones and the Kingdom of the Crystal Skull. In a recent story on the topic reported in the Chicago Tribune Spielberg is quoted as saying, “Making a film on celluloid, as I like to do with all of my pictures, but then transferring it and releasing it and projecting it digitally is a very inferior image.”

Where does that leave the transition to digital cinema, and by necessity, 3D? 

 
Scylla, meet Charybdis:

John Fithian, president of the National Association of Theatre Owners, says the situation has placed exhibitors squarely between a rock and a hard place. "Several studio leaders currently hope to reduce substantially the virtual print fee support they are willing to provide for the digital cinema transition, at the same time that several other studio leaders demand that exhibition install many systems rapidly for the 3D slate in 2009,” he says.  “And at the same time one of the industry's filmmaking icons refuses to release a big summer picture on digital cinema screens except for locations where that is the only option. So, should we or should we not move faster with the digital roll out? How do they possibly believe that exhibitors will do anything less than push back? Maybe they should get their act together first before they try to tell us what to do."

So when do we put the "budge" in budget? Insiders differ. Some suggest the deals are dependent on a successful resolution to SAG/AMPTP negotiations, others ascribe the hold-up to the credit crunch fueled by the home mortgage meltdown.

What seems crystal clear (and you don't need special glasses to see it) is that the delay is all about the Benjamins. The 2009-2010 3D slate has only upped the urgency of resolving the basic calculation with a concrete and near-term demonstration of how much (and whose) money is at stake.

Tags: 3D, Cinema Buying Group, DCIP, Digital Cinema, Jeffrey Katzenberg, John Fithian, NATO