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Topic: Suggestion made to studios: Higher film rentals?!

Mike Blakesley
Film God

Posts: 12767
From: Forsyth, Montana
Registered: Jun 99

posted 03-02-2011 01:27 AM

quote: Michael Coate
Don't the studios these days typically take 80-90% of the boxoffice revenue the first weekend (or two)?

No. The highest I've ever heard of is 70% and that's ususally just for the first week, with subsequent weeks going down by 10% a week until settling at 40 and then maybe 35%.

It's also common now on blockbusters for some studios to have a "sliding" scale whereby the better the film grosses, the higher percentage they get and it's the same for the whole run. But it's still never over 60%. Usually in the range between 50 and 60.

For what it's worth, since we don't play every movie on the break our film rent averages about 45 to 47%. A theatre playing everything on the break would probably be closer to 50-55%.

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Michael Coate
Phenomenal Film Handler

Posts: 1904
From: Los Angeles, California
Registered: Feb 2001

posted 03-03-2011 03:35 PM

What you're describing, Mike, goes against everything I've heard and read over the years.

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Mike Frese
Master Film Handler

Posts: 465
From: Holts Summit, MO
Registered: Jun 2007

posted 03-03-2011 04:07 PM

quote: Michael Coate
WTF??? Isn't this guy starting wth a flawed premise? Don't the studios these days typically take 80-90% of the boxoffice revenue the first weekend (or two)? I'd think that even with the usual sliding scale, most films do not play long enough for the terms to get down to a 50/50 split.

Over the course of the year most 1st-runs will pay on average 55%. The highest on a per film basis is usually 62% (top Disney Performers, Harry Potter, etc.) Many movies (at least half it seems) are billed at a flat % for the whole run (called aggregate). It can be as low as 48-49% for some of the smaller/newer studios. Movies released this time of year from the major 6 studios can have a 55% agg most likely.

Disney uses a sliding scale which tops at 61% or 62%. Pirates and Cars 2 will almost certainly hit that mark.

The last Harry Potter was 61%.

quote: Michael Coate
What you're describing, Mike, goes against everything I've heard and read over the years.

Michael, You are right. The exhibitors have allowed that line of thinking to be out there in an attempt to justify outrageous concession prices. That line of thinking that has been allowed to spread while being false is a pet peeve of mine.

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Mike Blakesley
Film God

Posts: 12767
From: Forsyth, Montana
Registered: Jun 99

posted 03-03-2011 09:50 PM

Michael C - I have to stand corrected on the maximum rent on those sliding scales...the previous poster is right, Disney's tops out at 62% but that's only if the movie does over $400 million. From $350M to $400M it's 61%. This is based on the domestic gross, of course.

Obviously the vast majority of their movies don't do that kind of business so it's still rare for the rental on a sliding agg scale to be over 60%.

Only on the super-blockbusters is it 70% for the first week or (occasionally) two, for studios not using the sliding scale.

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Dustin Mitchell
Phenomenal Film Handler

Posts: 1865
From: Mondovi, WI, USA
Registered: Mar 2000

posted 03-03-2011 10:52 PM

Regal's Annual Report
Income statement on page 57. Film rent for 2009 = 1,046,500,000 (this number apparently also includes advertising cost); admissions for 2009 = 1,991,600,000. This makes Regal's film rent and advertising expense 52.5% of admissions.

I'm not going to go through all the major exhibitors financials but if I recall the last time I looked Carmike was pretty close film rent wise. I will say this, Regal DID have a pretty high dividend in the past; they payed out $3.20 a share in 2007. They're down to just $0.72 a share in 2009 though and their earnings per share while still in the black is not all that great either.

Methinks the studios should find another well to dip in, this one will dry up faster than they think.

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Bobby Henderson
"Ask me about Trajan."

Posts: 10973
From: Lawton, OK, USA
Registered: Apr 2001

posted 03-03-2011 11:00 PM

We have had illusions about what many theater circuits were paying for movie rentals. Yet the fact remains several of the biggest theater chains went into bankruptcy a few years ago. Some chains merged with others and not all by choice.

Whatever the reasons may be, I still think movie theater profit margins are pretty narrow. A 10% price hike on rentals would put serious financial stress on a lot of theaters.

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Mike Blakesley
Film God

Posts: 12767
From: Forsyth, Montana
Registered: Jun 99

posted 03-04-2011 11:50 AM

Of course we have to remember this report was written by some analyst in an office somewhere who has to justify his job; it wasn't written by anyone actually in the business.

There was a report yesterday about Regal and AMC starting their own distribution company. Who knows, maybe someday the theatre industry won't need the major studios.

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Bobby Henderson
"Ask me about Trajan."

Posts: 10973
From: Lawton, OK, USA
Registered: Apr 2001

posted 03-04-2011 11:57 AM

I'm sure the major studios in Hollywood would make a lot noise about anti-trust and bring up the Paramount Consent Decrees if theater chains tried to make and distribute their own movies. As if the Hollywood studios haven't been trying to regain control of the theater business since the 1950s.

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Mike Blakesley
Film God

Posts: 12767
From: Forsyth, Montana
Registered: Jun 99

posted 03-04-2011 12:02 PM

I don't think there was anything said about "making" movies, only "distribution."

quote:
AMC, Regal to Launch New Distribution Company: Open Road
Published: March 03, 2011 @ 11:12 pm
By Sharon Waxman

Tom Ortenberg will be heading up a new distribution company, tentatively called Open Road, whose official debut should be announced within a week or two.

The company will be called Open Road, I am told by a knowledgeable individual (but one other source says this is not yet definitive), and will be a joint venture between AMC and Regal, two of the biggest theater chains in the country.

The company represents a new step in the evolution of distribution. As the number of distributors has dwindled, the exhibitors are taking matters into their own hands.

AMC and Regal see an opportunity to extend traditional film distribution as it has been left untended by the major studios. Regal is a huge chain with 6,000 theaters; AMC , the second-largest chain in the country, has more than 5,000 theaters in its network.

The new distribution company does not intend to restrict distribution to its own exhibitor-owners, and have hired Ortenberg as a credible executive with vast experience in the world of indie cinema.

I ran into Ortenberg at the Spirit Awards a week ago, and he explained that there will be a clear separation between his distribution entity (which at the time didn’t have a name) and any exhibition work at AMC and Regal.

The two chains are owned respectively by JP Morgan, hedge fund Apollo Management, and the Carlyle Group, and the latter by Philip Anschutz. Lee Solomon, the former COO of The Weinstein Company, has been instrumental in making the deal, recruiting Ortenberg – a former Weinstein executive – and helping secure the credit facility.

No word yet on the size of the facility, but with billionaire Anschutz and a hedge fund involved, this is unlikely to be a major obstacle.

Ortenberg told me recently that the aim of the company is to distribute not only small independent films but larger, more commercial films too.

I am told that the company will be prepared to distribute as widely as 2,500 to 3,000 theaters.

One more rumor: I’m hearing they’re talking to Dylan Wilcox, the head of worldwide acquisitions at Focus Features, to join Open Road.

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Frank Angel
Film God

Posts: 5305
From: Brooklyn NY USA
Registered: Dec 1999

posted 03-06-2011 04:31 AM

What about all those 90/10 deals for the first week on big blockbusters that I've heard were the norm? It was 90/10 after the house allowance, but still, they were that high on opening week, not 50/50.

Then there are the re-negotiations. Say you were on a sliding scale deal, dropping down 10% each week until you finally hit a comfortable 40/60% week. BUT in week 4, when you were at 50%, your BO spiked due to, say, the Oscars or some other unusual uptick in sales, and you made more in week 4 than in your opening week. Under renegotiation terms, the distrib can come back and say, you know what, week #4 was your highesst gross, so THAT's the week you have to pay at 90/10.

How's THAT for some nasty fine print?!

And don't think they haven't been having minor brain seisures because the courts ruled that they can't get a percentage of concession grosses. Fox and Lucas tried to ignore little ruling during the negotiations with Loew's/Regal at the time for STAR WARS IV. Fox said they wanted a percentage of the concessions as a condition to get PHANTOM MENACE. The Loew's people asked if they were serious and Fox said absolutely yes. Urban legend has it that the Loews' people laughed and told the Fox guys that they would have to play their STAR WARS crap on some other screens because they weren't going to play it in any Loews theatre in NYC.

Can you imagine how the face of exhibition would be changed if the courts had sided with the studios on a getting a percentage of concession grosses? We'd be paying $20 for a tub of popcorn.

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Mike Blakesley
Film God

Posts: 12767
From: Forsyth, Montana
Registered: Jun 99

posted 03-22-2011 11:42 AM

Richard Greenfield is at it again. I swear, he is out to kill the movie theatre business, and combining that with being an idiot, he's a real danger.

quote:
Exhibitors Say Hello to 60%-Plus Film Rentals - Studios Seek to Shift Profits in Their Direction
Posted on Mon, Mar 21st, 2011 at 6:55 am
by Richard Greenfield —

Movie exhibitors are generating substantial free cash flow, paying their investors regular dividends and some are even feeling confident enough to pay special dividends (Regal in late 2010); with AMC trying to go public with the goal of a major capital return to its shareholders and starting a regular dividend.

While exhibitors are hoping that the studios will increase their film splits to compensate for the impact of early-release/premium-priced video-on-demand (VOD), which will launch in the next few months, we believe the studios are actually beginning to lay the ground work to increase film splits in their favor starting this summer (in keeping with our 2/28 blog post, click here). We sense the studios are focused on beginning to shift splits this summer, given how strong the slate looks from May-July 2011 and the need to compensate for sagging DVD profits.

* We believe Paramount is leading the charge, as it has a movie that exhibitors simply have to have in Transformers 3D (7/1/11), along with another potential blockbuster in Super 8 (6/10/11) and three other large films it is distributing (Kung Fu Panda 2 for Dreamworks Animation and Thor and Captain America from Marvel).

* Following Paramount’s move, we believe other studios are beginning to think about their strategy for film splits this summer. Warner Bros. appears to be in a strong position with the final Harry Potter in 3D and Hangover 2, as does Disney with both Cars 2 and Pirates of the Caribbean 4 (both in 3D).

We believe the best way for the studios to successfully shift splits is for several to make the move at the same time, making it virtually impossible for the exhibitors to retaliate. Whether or not a 60%-plus split is the right number versus the low 50%-split levels currently being paid, splits can and should move notably higher (splits should be higher on the bigger exhibitors, who have the scale efficiencies to compensate for the increased costs versus smaller exhibition chains). Studios need to keep the exhibitors profitable (as exhibition remains an important part of the movie industry), however, exhibitors may need to curtail regular dividends and will need to forget about special dividends in the future.

What will exhibitors say?

* We will not show your movie? Sounds easy, but hard to not show a major movie across the entire country, especially on a weekend when there are not multiple other new major films to play.

* We will charge you for trailers? Sounds about as likely as studios getting a share of 98% margin popcorn sales (click here for our recent blog on popcorn profits). But high quality trailers differentiate the movie-going experience - removing them would simply make theater going similar to being at home. Replacing trailers with more pre-show ads is also likely to merit a strong negative reaction from consumers.

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Bobby Henderson
"Ask me about Trajan."

Posts: 10973
From: Lawton, OK, USA
Registered: Apr 2001

posted 03-22-2011 01:35 PM

Greenfield obviously has his mind dwelling in some fantasy land if he thinks what he is proposing won't have serious drawbacks.

His idea of theater chains foregoing dividends or special dividends to investors is laughably funny. The stock price is by far the most important thing to most American companies that are publicly traded. They will do just about anything including self destructive stunts to keep stock prices rising -even if the prices are unsustainable.

Instead of eliminating dividends, I think theater chains will absorb that price hike on rentals in the already more obvious ways. They'll charge customers more money. They'll have hourly employees working as little as possible. Managers will be working even longer schedules with pay raises no where in sight. Maintenance will be deferred if at all possible. Luxuries like paid security people might be eliminated.

I have a theory that the groups of people who own the big theater chains rarely ever set foot into a movie theater to see just what kind of product they're selling. I think they're out of touch on what passes as a proper movie-going experience. Most first run movie theaters in the United States do not deliver what I feel is a satisfactory movie-going experience -certainly not for the prices being charged. I think these bean counters will take more steps to further degrade the movie going experience and customer service instead of do anything to draw the ire of investors.

Of course the customer will keep showing up at theater regardless of how forgettable the movies have become, how badly they're presented or how bad the environment is in which the movies are shown. I think that's the general attitude among both the major movie studios and big theater chains. Compromises to quality? Price hikes? The fools keep driving into the parking lot.

I just wonder how far that kind of thing can be pushed until we see customer backlash. Greenfield's ideas would certainly test the limits.

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Mike Blakesley
Film God

Posts: 12767
From: Forsyth, Montana
Registered: Jun 99

posted 03-22-2011 05:23 PM

I had a conversation with our film booker about this a couple hours ago. He said not to be surprised if the studios crank film rentals up.

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Jonathan M. Crist
Jedi Master Film Handler

Posts: 531
From: Hershey, PA, USA
Registered: Apr 2000

posted 03-22-2011 11:35 PM

If there ever was a time for higher film rentals this summer is it. After months and months of lackluster product and grosses the studios know that exhibitors will be desperate for the summer product and wont be in a position to complain.

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Jesse Skeen
Phenomenal Film Handler

Posts: 1517
From: Sacramento, CA
Registered: Aug 2000

posted 03-23-2011 09:12 PM

quote: Jonathan M. Crist
If there ever was a time for higher film rentals this summer is it.

Yes, I know this is gonna sound naive, but I have to ask:

Aren't a LOT more theaters using DIGITAL now, and wasn't the big reason for switching to that was because it cost the studios a LOT LESS money to do that than making and shipping film prints?? And now the studios STILL want more money?? (OK guys, don't die laughing at that, really...)

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