State
of the Industry
by John Fithian
NATO President
The following is John Fithian’s March
14 address to the 2006 ShoWest convention.
Thank you, Dan Glickman, for being with
us today. In words and deeds you continue to demonstrate
your commitment to
the cinema industry, and your respect for the partnership
our two associations share. I am also grateful for so many
other partners with us here today, particularly the leaders
of two important sister organizations: Larry Etter of the
National Association of Concessionaires; and Dwight Lindsey
of the International Theatre Equipment Association. I also
want to thank the sponsors of last night’s Independent
Showcase by acknowledging Robert Mayson of Kodak Digital
Cinema and Jack Brady of the Newspaper Association of America.
I also need to express my deep appreciation
for the NATO members and our two top volunteer leaders – Chairman
Phil Harris of Signature Theatres and Vice Chairman Lee
Roy Mitchell of Cinemark.
ShoWest 2006 comes at an important juncture
in our industry’s
history. Over the past year since we last gathered here
in Las Vegas, significant and energetic discussions have
taken
place across a spectrum of fundamental issues. I view
the debates as healthy and necessary, and I emerge from
the year
excited about our business and confident in our future.
After a final year of hard work on specifications,
equipment development, and business modeling, we stand
now at the
dawn of the biggest technological revolution since
the advent
of sound. Digital cinema starts right now, in the year
2006, and it couldn’t come at a more important
time.
Digital cinema will enhance the movie-going
experience by providing our patrons with consistent, high-quality
images
that won’t degrade over time. Digital cinema
will also give exhibitors greater programming flexibility
to meet diverse
consumer demand. Equally important, digital cinema
will ensure that the theatrical experience cannot
be replicated in the
home.
In November 2004, NATO’s board
of directors adopted a unanimous
resolution describing
our fundamental objectives.
Now that nearly all of those objectives have been
achieved, or are on the road to fruition, the revolution
is beginning.
In the resolution, NATO members called
for uniform technical standards to promote interoperability
and compatibility,
and to foster competition. NATO worked with our
partners at the studios to support the efforts
of their Digital
Cinema Initiatives, and we are pleased with the
final
specifications that DCI released in 2005.
Two weeks
ago, NATO’s Technology
Committee released some supplementary requirements that complement
DCI’s work. Those requirements are available
on our web
site. NATO will also continue to participate
in the essential
work of the Society of Motion Picture and Television
Engineers as that body adopts formal standards.
The resolution also declared exhibitors’ interest
in high-quality equipment to enhance the theatrical experience.
With the projector and server technology currently
on the
market, we believe that digital cinema quality
exceeds that of film and anything available in home entertainment
systems.
I encourage all our members to spend some time
this week on the trade floor, in the demonstration suites,
and at the
screenings examining the latest technologies.
Regarding the business models, the NATO
resolution called for a financing plan where the studios
pay for the costs
of the transition. Today, various third party
integrators have proposed financing and installation
plans
to North American exhibitors that are backed
by agreements
with
the studios.
Under these plans, the third parties raise
the capital to buy and install equipment
in
cinemas.
Over time,
the studios
will then pay “virtual print fees” to
the third parties for the use of the equipment.
Several exhibitors
have already announced that they have reached
agreements with the various third parties
under these models.
The resolution also urged that financing
plans be open to participation by all exhibitors
regardless of size
or geographic
location. All of the third parties currently
offering plans have stated their commitment
to this principle.
I am concerned,
nonetheless, that smaller exhibition companies
should
seek mechanisms to aggregate their power
to
obtain economies of scale for use in negotiating
digital
cinema equipment
and
service deals. One such mechanism is the
Cinema
Buying Group LLC, currently operating
under
the leadership
of managing
director J. Wayne Anderson.
Regarding a roll-out sequence, the NATO
resolution embraced the need for testing
of complete
digital cinema systems,
based on specifications and standards,
in a beta market for a reasonable time.
Today,
at
least
two of the third-party
financing and installation organizations
have announced plans
for beta markets with exhibitor partners.
We strongly support this essential beta
testing to ensure that
equipment systems
do not fail and that the specifications
and standards can be met.
NATO will continue to advocate the goals
of the resolution as the transition
goes forward.
To
a significant
degree, though, the work of the U.S.
exhibition industry through
its association is coming to a successful
end. It is now incumbent on our individual
members
to negotiate
their
particular plans for digital cinema,
as they deem appropriate.
The past year has also produced a spirited
debate on the issue of release windows.
Aware of the
potential irony
of this statement, I am grateful
for Mark Cuban, Steven
Soderbergh,
and the few other individuals who
promoted simultaneous release of movies in cinemas,
on DVDs, and directly
to the home all
at the same time. These radical,
though misguided, experiments have served
a very salutary purpose.
By teeing up the debate, and generating
tremendous media attention to the
issue, proponents
of simultaneous release
have encouraged important discussions
between exhibitors and studios.
Though the dialogue
continues, I am
very pleased to report that the
overwhelming majority of
studio and
cinema leaders agree that the tiered
release of movies, first to
cinemas and later to ancillary
markets, maximizes returns for everyone. Thoughtful
industry
leaders like Howard
Stringer of Sony, Sumner Redstone
of Viacom, Ron Meyer of Universal,
and Jim Gianopulos of Fox have
all articulated publicly their support
for the theatrical
release window because
they know
the tiered release model best serves
their companies and their consumers.
The creative community has also
begun to voice their understanding
of the
role the
cinema
release window
plays in the experience
of their art form. Leading talent
like M. Night Shyamalan, Jonathan
Demme
and Tim Burton
have
described why
theatrical release windows are
important to them and their work.
The NATO staff has collected
the many
comments supporting the theatrical
window, and those
statements will
be available in the press room
throughout the week. The
comments suggest
four reasons why the theatrical
window is here to stay.
First, the window enables the
viability of the cinema industry.
As Sumner
Redstone emphatically
stated, “any exhibitor
playing pictures under [simultaneous release] circumstances
would be committing suicide.”
Second, the theatrical window
drives the economics of
the movie industry
as a whole.
As Ron Meyer
explains, “The
window of time between theatrical-release dates and DVD-release
dates has a purpose in delivering financial results to us
and different experiences to the audience. There’s
a place for each of those windows.”
Third, the theatrical window
preserves the artistic
medium. That’s why Tim Burton calls the idea of simultaneous
release “absurd.” Burton believes that “everything
should be done to treat the [cinema business] as an art form – it’s
a visceral medium.”
Finally, and perhaps
most importantly, the
theatrical
window gives
consumers choices.
Our patrons know
that some movies
are made for the cinema
first, while other
pictures are
made for television
or the
straight-to-DVD
market. Consumers
have
different expectations
for each category.
In a world
of simultaneous
release,
entertainment product
would
be homogenized
and consumer
choice reduced. Howard
Stringer put it best
when he stated that “if you collapse a window or go day and date .
. . you’re doing movie of the week. And the sizzle
. . . of the movie industry will be gone. You have to guard
the value of the content.”
We are pleased with
the response, and
confident that the theatrical
release
window is here
to stay. Thankfully,
our studio partners
appear
similarly confident.
In fact, the
average video release
window dropped by
only four days
from 2004 to
2005 – from four months and 20 days to four
months and 16 days. We’d naturally prefer to see it
go the other direction – but in a year with often raucous
debate about simultaneous release, it’s
comforting to see
the window remain
relatively stable.
The past year has
also produced inordinate
media attention
and industry consternation
on the issue
of box office
results and the
decline of 2005. Box office
receipts did decline
by 5.8% in 2005
over 2004. But in what
other
industry
would
a decline
of that
size garner
so much attention
and doomsday
predictions? In
the short
term, our business
is cyclical. In
the long
term, however,
we are growing.
Movie
theatres have sold
more tickets
on an average annual
basis this decade
than they did
in the 1970s,
80s or 90s. Indeed,
every decade has
seen growth.
In the 1970s
we sold 985 million
tickets a year.
In the
1980s, that
number grew
to 1.1 billion.
In the 1990s, we
averaged 1.3 billion.
And in
the first six
years of this decade,
we have sold
an average of 1.5
billion tickets.
Steady
growth over
the years,
despite
the short
term cycles.
Exhibitors know
that good movies
drive
good box office
receipts.
No other
factor looms
as large.
Variations
in movie supply
drive short term
cycles. But our
members also
know that
we must
strive to improve
the moviegoing
experience
on
a continual
basis. That’s what digital cinema is all about. That’s
why we are attacking rude patron behavior with public service
messages and increased patron monitoring by theatre ushers.
That’s why we’re
working with
screen advertising
companies to
make the pre-show
as entertaining
as possible.
These and many
other innovations
in the moviegoing
experience
will be discussed
further in panel
discussion on
Wednesday morning,
when four top
cinema company
CEOs will join
a renowned
cinema studies
professor in
an important
dialogue about
enhancing the
magic of the
moviegoing experience.
As a final comment,
I want to salute
the Academy
of
Motion Pictures
Arts and Sciences.
The 78th
Annual Academy
Awards last
week proved
to be, again,
an entertaining
and inspiring
portrayal of
the
magic of movies.
In fact,
I can claim
some special
solidarity
with the Academy
this year – as
I have watched some in the pundit class declare the imminent
death of the Oscars, the obsolescence of this great institution,
and the surrender of its grandeur to largely unspecified,
but nevertheless somehow “inevitable,” revolutions
in public consumption habits. Yes, sounds familiar, doesn’t
it? We in the movie theatre business read our obituaries
in 2005 with equal amusement. As with Mark Twain’s
famous cable
from London,
as with movie
theatres, and
so with the
Academy, the
reports of
our death have
been greatly
exaggerated.
I want to issue
a special
thanks to
Academy president,
Sid Ganis,
for devoting
a
few moments
of his very
scarce
and
precious
time at the
Oscars podium
to a celebration
of
movie
theatres,
and
the
vital – and unique – role
that movie
theatres
play in enhancing
and perpetuating
the value
of movies.
He could
have spent
that time
delivering
any number
of messages.
His decision
to tell an
international
audience
that movie
theatres
are indispensable
to our collective
industry
certainly
earns President
Ganis our
deep gratitude.
My father,
who was
a history professor
and
a politician,
once told
me this:
When
someone
else
makes your
point for
you, and
states
it better than
you ever
could,
quote them,
sit down,
and shut
up. I
conclude
my remarks
today
with those
words
from
Academy
President Sid Ganis,
who said, “I
bet you
that none
of the
artists
nominated
tonight
have ever
finished
a shot
in a movie,
stood back
and said ‘that’s
going to
look great
on DVD.’ Because
there is
nothing
like the
experience
of watching
a movie
in a darkened
theatre,
looking
at images
on an eye-enveloping
screen,
sound coming
at you
from all
directions,
and sharing
the experience
with total
strangers
who have
been brought
together
by the
story
they are
seeing.” Thank
you.
