BoxOffice® Pro - March 2010

EXECUTIVESUITE
JOHN FITHIAN > NATO president and chief executive officer
Looking good
A snapshot of digital cinema and 3D
Ensuring a fair transition from film to
digital cinema has constituted one of
NATO’s highest priorities for over a decade.
Given recent developments and rising
expectations, this edition of Boxoffice correctly
gives focus to digital issues. With
ShoWest just a few weeks away, the industry’s
attention to these issues is heightened.
In this space, I offer some personal observations
about the status and implications of
the digital transition.
The debate is over—
digital 3D exhibition is here to stay
For years, cinema operators around the
globe have debated the viability of digital
cinema business models. At the dawn of the
discussion in the late ‘90s through the earliest
years of the next decade, most exhibitors
expressed justifiable skepticism. The potential
digital conversion made perfect sense
for our partners in distribution. Print cost
savings could add nearly one billion dollars
a year to studios’ bottom lines. For the
theater business, however, digital cinema
posed many potential risks including high
costs, potentially rapid obsolescence and
few quantifiable benefits. To be sure, digital
offered benefits like consistent visual quality
and enhanced programming flexibility.
But how could our members put a pencil to
that?
Then one seminal event began to alter the
debate. In 2005 at ShoWest, four leading
directors explained their vision and commitment
to digital 3D exhibition, and showed
examples of what the new technology could
offer. Watching for our members’ reactions
in the Paris Hotel that day, I could see interest,
if not enthusiasm, build. In subsequent
years, 3D more than any other factor has
driven exhibitor interest in the digital conversion.
Even so, a sizable number of NATO members
remained doubtful that digital cinema
constituted an enhanced business model
for exhibition. With each new 3D movie
release, from Chicken Little in 2005 to a string
of successful movies in 2009, the interest
in digital 3D and the number of 3D-capable
screens grew.
Then the world of exhibition changed dramatically
in December with the release of
Avatar. Simply put: Avatar shattered any lingering
doubt about the long-term viability
of digital 3D exhibition. Since the release of
the movie, I have not encountered a single
member who has told me they still don’t see
value in 3D. To the contrary, most calls from
members now involve questions about how
to move forward quickly with digital.
The numbers speak for themselves. Digital
3D commands greater value—and a higher
ticket price—than 2D exhibition (and large
screen digital 3D provides even more value
to patrons). As I write this column, after six
weeks of Avatar’s domination of the box
office, 80 percent of the domestic grosses on
the picture have come from 3D and large
format. Internationally, where the penetration
of 3D installations trails that of the U.S.
and Canada, 65 percent of the Avatar grosses
have come from 3D.
I have experienced Avatar in 3D and 2D. I
have seen the movie on a home flat screen.
To me, the differences are stunning. James
Cameron wrote a good story. But it’s the
technology and immersive 3D experience
that makes the picture revolutionary.
The digital rollout will (finally) accelerate
At this stage, I should probably be reluctant
to predict an accelerated rollout of
digital cinema screens. Given the number
of times such movement has been stymied
by prolonged virtual print fee (VPF) model
negotiations, the impact of the recession on
the availability of money and debates over
equipment formats and brands, I have made
overly aggressive predictions before. But
this time it feels right. The improved availability
of money, the completion of viable
VPF models and the availability of excellent
equipment suggest that more rapid installation
rates are highly likely. In the U.S., we
have roughly 7,500 digital screens, 3,500 of
which possess 3D capability. In the period
leading up to the release of Avatar, U.S.
exhibitors installed approximately 150 3D
capable screens per month. In 2010, I expect
that pace to increase. Currently there are
20 different 3D releases scheduled for 2010.
And in December we have the first weekend
during which two 3D releases—Yogi Bear
and Tron Legacy—are scheduled simultaneously.
Obviously, we need more screens and,
since money talks, we’ll likely get them.
The growth in digital screens and 3D capabilities
will come from exhibitors big and
small, and locations urban, suburban and
small town. Domestically, public reports
suggest the Digital Cinema Implementation
Partners (DCIP), the implementation entity
for Regal, AMC and Cinemark, has secured
financing and is nearing rollout. At the same
time, NATO’s Cinema Buying Group for
smaller exhibitors has completed an exhibitor-finance
and vendor-finance program with
our integration partners at Cinedigm, and
many CBG members are signing up and beginning
to install systems. We are also hopeful
that the Cinedigm-financed, second phase
financing and concomitant master licensing
agreement will also be available soon.
Internationally, many other integrators and
exhibitor-buyer deals are coming to fruition
as well. In the U.K., our sister association has
formed a buying group. Others have followed
suit. Real, global progress looks very likely.
3D on film is a bad idea at the wrong time
(But that doesn’t necessarily mean
it won’t happen!)
Given my optimism about the digital
conversion, one new concept causes me
concern. At least two technology companies
have recently proposed new methods
to offer 3D exhibition in a film world.
Technicolor proposes its enhanced “overunder”
mechanism and Oculus 3D suggests
a similar film 3D system in a side-by-side
strategy. I have heard that a third 3D-on-film
offering may be on the way. In my personal
(as opposed to “associational”) opinion, any
substantial installation of units designed
4 Boxoffi ce · The Business of Movies March 2010