Exhibition: success and challenges
More than a billion dollars might be enough to think the exhibition sector is healthier than ever and, although optimistic, there are still pressures and challenges for cinemas – particularly for the independents.
Box office takings in 2009 crossed the $1 billion line, and by February 2010, James Cameron’s Avatar (Twentieth Century Fox) had become Australia’s highest grossing film of all time, and the first to enter nine- digit territory with $114,763,630 in takings. It seems like the exhibition sector has a billion reasons to celebrate.
“We have never been pessimistic about our business. Movie-going is very much alive and very well; just look at recent weeks with The Twilight Saga: Eclipse, Toy Story 3 and Shrek Forever After. Box office has also increased for the last four calendar years,” said a very positive Anthony Thiessen, marketing director for Hoyts.
With more than 400 screens in Australia and New Zealand, the cinema chain will continue its deployment of digital cinema and Xtremscreen – its “biggest and loudest” experience – in further locations, plus the launch of new healthy food options at their candy bars.
The future looks bright for the big exhibitors, but an important question must be asked. Is this box office bonanza reaching the independent exhibition sector?
STRENGTH IN NUMBERS
The answer is yes, at least for those who were early adopters of 3D. The expensive process of digital transition has been a pressing issue for the exhibition sector for years, but the strong push for stereoscopic 3D has reached a new peak, both in terms of the number of titles available – and competing for the still limited amount of 3D screens – and their outstanding box office performance. Avatar proved that the transition is no longer a luxury, but a necessity.
“It has been a rolling wave that has gained in height over the last couple of years, and we’re now looking at a global tsunami of digital transition,” said Mark Sarfaty, president of the Independent Cinemas Association of Australia (ICAA). In late May, the ICAA partnered with its New Zealand counterpart, the New Zealand Motion Picture Exhibitors Association. The alliance represents 600 screens in 160 locations, and gives its members a new negotiating power to fight with a regional response to film piracy, digital cinema transition, changes to cinema release models and the development of alternative content.
On that scale we’re able to negotiate positive outcomes for the digital transition, with technology providers and distributors in terms of obtaining a virtual print fee (VPF),” said Sarfaty.
“The major exhibition circuits have finalised their VPF deal and the independents are close to finalising their VPF deal through the ICAA, which will closely match that of the major exhibitors. That is important and appropriate because any disparity would result in a consequential shift in the exhibition landscape; if the independents were not able to obtain a VPF, the digital transition would see a number of cinemas closing,” he explained.
In addition to the opportunities created by 3D, digital transition also allows ICAA members to provide alternative content such as sports, theatre and concerts. According to Sarfaty, most commercially viable cinemas will be transitioned to DCI within the next three years, and while distributors will still supply 35mm, they will have very little incentive to continue to do so. “We can see the day when 35mm will no longer exist, and that’s between three to seven years from now,” said Sarfaty.
While most independents are preparing for when that day comes, some remote and regional screens – usually operated by local councils or community groups, and not as a thriving commercial business – are struggling and face extinction. ICAA will lobby on their behalf to obtain support for those members. “Together we must find ways to support those screens because none of us want to see communities left without such a valuable social hub,” said Sarfaty.
In box office terms, ICAA represents 85 percent of Australian independent cinemas. It is through their combined forces that the organisation has been able to develop policies for accessibility and digital transition, and they’ve been able to play a representation, advocacy and mediation role between members and distributors.
Plans for business development include the creation of an iPhone app covering all the screens represented by the organisation, which is a more attractive proposition for the user than downloading an application that covers only a couple of cinemas.
The joint effort will also amortise the cost across all members. Based on Government population projections, ICAA anticipates that there will have to be a significant increase in the number of cinema screens to support population increase, something that the organisation is starting to plan.
“Given that this is going to happen in medium density environments, those cinemas will have to be smaller than shopping centre style cinemas. That’s an excellent area for independent operators,” explained Sarfaty.
A HOSPITALITY APPROACH
Palace Cinemas recently made headlines when one of its Sydney cinemas, the Academy Twin, closed its doors after 36 years of operation because it was unable to reach an agreement with the building’s owner, the Greek Orthodox Community.
The loss was mourned by Sydney cinephiles and the mainstream media; however, it should not be read as a sign of financial trouble for the company or for the independent sector as a whole. “It’s not indicative of a larger economic factor, although the entire industry is undergoing certain economic changes. Twin cinemas are difficult to operate because of programming restrictions and the extremely high cost of running a cinema,” said Benjamin Zeccola, executive director of Palace Cinemas.
“This loss was avoidable because the landlord should have accepted the reasonable rent that was offered. They have been the owner and landlord of a highly-valued and respected art house cinema for many years and they failed to appreciate the asset that they had, failed to take care of it and secure its future to remain as a viable cinema,” he added.
Just days later Palace announced the expansion of its Verona complex, from four to seven screens. It is currently the fifth largest cinema chain and, according to Zeccola, the number one art house circuit – operating 96 screens in 24 locations.
“We see cinema entertainment as a hospitality business also. The focus on premium quality is the difference between us and the competition; it’s very much a premium offering compared to normalcinemas, and we threforedon’t need to define gold class,” said Zeccola.
The Palace executive admits that there was “a small dip” in advertising, but “our circuit has recovered completely”. And in terms of box office, the bonanza experienced by others was not necessarily universal. “Every independent cinema is different to the others; each has its own story to tell, but for the quality cinemas that we operate we certainly didn’t enjoy the same results that Avatar experienced.
We really missed having a Slumdog Millionaire kind of hit over Christmas, so that left us tracking a little bit behind the previous year, but recently, it’s been very buoyant,” he explained.While Palace has installed 3D projectors at three of their sites, Zeccola believes that is all they need at the moment.
“We don’t have demand for more than that. It’s a mixture of factors, including the demographic makeup of our patrons and the style of cinemas that we operate. At locations such as the Verona or Cinema Como, there’s no demand at all for 3D. Thankfully, there’s not been art house made in 3D,” said Zeccola.
In the end, large cinema chains and independents have one common challenge: to compete against the never-ending list of entertainment options available. Zeccola finished with a statement that is as optimistic as Thiessen’s opening.
“The strength of the sector is extraordinary in the face of those challenges.”
