Summer 2010

The Theater Experience

Despite pressure to shrink release windows and the allure of home entertainment, John Fithian, the president of the National Organization of Theatre Owners, says watching movies in theaters is not an endangered activity.

John Fithian1. A lot of directors feel that the theatrical experience is irreplaceable for their movies. Will they continue to have that opportunity in the future?

Oh, absolutely. We are tied at the hip with directors and the creative community. If you look at what some of your leading members have recently said about this—just last week Jim Cameron said, ‘Do I want [the movie at home] now? Or do I want it great? You can’t have both. I want to preserve the theatrical experience.’ Jonathan Demme said, ‘The movie business will devour itself if it can’t wait to get to home video.’ Tim Burton called the notion of simultaneous [release] ‘absurd.’ A whole host of others have come out publicly and said that the preservation of the theatrical release window is important for the creative art form because they make their movies first and foremost for the big screen. They love the profits they get from the ancillaries, but it’s the big screen experience that exemplifies their creative abilities and drives the rest of the revenue streams.

2. Distribution windows are one of the most talked-about issues in the industry right now, and obviously it’s an attempt to make up for some of the revenue that has slipped from the DVD market. What’s your organization’s position on this?

Our members understand the new pressures that a weakened DVD market creates for our studio partners. But with four decades of box-office growth and three straight years of record-breaking returns in our platform, we believe that the current windows model works best for everyone. Film studios have significant investments in our window. It would be self-destructive for them to cannibalize the theatrical window with accelerations in the DVD window or the video on demand window. So our position is very firmly in support of a strong theatrical window.

3. Do you think new windows can generate an increased revenue stream?

We have to be very careful in dealing with windows to focus on the need to expand the size of the pie, instead of changing the size of the slices. Our concern is that a home window that is too early would simply shift revenues from theatrical to the home and not grow the pie. And so these matters have to be taken very, very carefully with testing, and with incremental changes, as opposed to anything drastic. I think our members are very open to the discussion of what the windows should be and to testing platforms, but they’re not in favor of radical departures from a model that has worked very, very well for quite some time.

4. What part is the theatrical pie currently?

The $10.6 billion U.S. box-office gross in 2009 exceeded the home DVD gross on recent theatrical movies, which came in at about $9.5 billion. And that’s the first time in years that has happened. Over the past three or four years theatrical has grown and the home video market has declined. So now the theatrical market is the most important one for the studios, and they understand that. I don’t think they’re going to change windows models in a way that would damage the engine that drives the train.

5. How important has 3D become to the theatrical market?

3D isn’t going to work for every type of movie or every genre. But for those movies where it works, it works significantly. We’re finding half or up to two-thirds of the gross of a movie can come from its 3D runs when the movie is suitable for the format. Customers appreciate the difference and are willing to pay the higher ticket price, so 3D is a significant value add for us. And that return is pushing for a faster transition. We have about 5,000 3D screens in the U.S. now and are installing 3D systems as fast as we can.

6. So you see it as a long-term change in the nature of exhibition?

Absolutely. This is not your grandfather’s 3D. This is not the gimmicky glasses for the bad horror films. This is a big technological transition that our patrons love. And if you look at what Cameron did with Avatar and what Burton did with Alice, these are revolutionary films that are changing the medium for the long term and not just a interesting experiment.

7. Are 3D and large-scale big-budget movies pushing out the independent or more grown-up entertainment at theaters?

It remains to be seen. As a fan of independent cinema, I have watched the space pretty closely, and I don’t know the answer yet. On the one hand, digital cinema makes it easier for independent filmmakers to get their product on the screen. The two biggest barriers to entry in our business are distribution and marketing costs. And digital cinema almost eliminates the distribution cost. On the other hand, digital cinema enables 3D, which is typically used for big-budget, commercial product, and that will occupy a lot of screens. So it’s still unclear whether or not the digital transition helps or hurts independent filmmakers.

8. How significant is Internet theft to the theatrical window and what do you think can be done to combat it?

Over the past few years, the way pirated movies have been sold has transitioned rapidly from hard copy, black-market DVDs to Internet sales. The source of the material, however, has remained the same, which is primary camcorders inside cinemas. So we are attacking both the supply end and the demand end. On the supply side, we’ve had great success in getting laws enacted in enforcement against people who steal movies in cinemas. And the rate at which movies are being stolen in the U.S. and Canada is declining rapidly. The problem is the thieves are migrating overseas, and so we are attempting to replicate the programs we’ve established in North America in other territories, like Europe, Latin America and Asia, to have the same kind of successes overseas that we’re having here. If you delay the pirates from getting a very good copy of a movie for about a week on a major picture, it’s worth $10 million or more.

9. What kind of impact do you see that having on the theatrical business?

Well, in the early days of piracy there wasn’t much impact because the delay in getting the pirated product out to the patrons was significant. Today, if you get a sophisticated,  organized criminal, they will record a movie in a cinema, download it and transmit it instantaneously. It’s on the Internet within hours, and on the streets on black-market DVDs within days. So the impact has grown on exhibition and not just in the legal DVD  market. There aren’t any really good statistics on it, but we believe it’s somewhere between $500 million and $750 million a year lost theatrically in the U.S. to movie theft. And it’s in the range of several billion globally. So it’s significant for us.

10. With the improved equipment and technology available, some people might say if you can watch a movie in a good presentation at home, why go to the theater. How would you respond to that?

Well, let’s take it first from your members’ perspective. I think the most talented filmmakers in the world conceive their projects on the larger palette of the big movie screen. They want a shared experience, they want a big audience, and that’s the best way to establish the value of their movie is on the cinema first. Some, but by no means all, of those attributes can be found in the home. But the home will never offer the size of the screen, the quality level of the sound, and most importantly, the collective experience of getting out of the house. You really can’t get the same 3D effect in a home environment as you can in the cinema. So I would say that we don’t really compete with entertainment in the home; we compete with other choices outside the home.

10 Questions

Question and answer sessions with prominent figures outside the Guild about current creative and business issues.

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