Film-Tech Forum ARCHIVE: Suggestion made to studios: Higher film rentals?!

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Posted by Mike Blakesley (Member # 26) on 03-01-2011, 03:08 PM:

I got this from NATO. I have no idea what "BTIG" is or who "Richard Greenfield" is but I sure hope the crap he suggests at the end doesn't come to pass....but it certainly could, because exhibition has no way to fight back.

BTIG
Dear Hollywood Execs: The Time Has Come To Force Film Rentals North of 60% - Ignore Exhibitor Threats
Posted on Mon, Feb 28th, 2011 at 7:40 am
by Richard Greenfield

When you watch the annual Oscar celebration, it’s easy to forget that the movie industry is struggling. 2010 was expected to be a great year helped by Avatar filling up theaters early in the year and a strong summer/holiday slate - yet attendance ended the year down 5%. Now, nearly two months through 2011, movie theater attendance is not just down sharply year-over-year (20%-plus), it is actually the worst start for ticket sales in the past decade - 12% below the prior low during the first-two months of the year (which occurred in 2007). While we expect a recovery in tickets sales to begin in May as a strong summer movie release slate kicks in, the industry will have a large hole to dig out of during the second half of the year.

Even if 2011 movie theater admissions recover, enabling domestic box office revenues to grow year-over-year, we increasingly believe movie theater admissions will continue a secular decline (combination of rapidly escalating ticket prices, significant step-up in piracy as televisions become web-enabled directly or via third-party devices, an explosion of ways to access movies in high quality from TVs to tablets and the onset of early-release/premium-priced VOD/iVOD 6-8 weeks after a movie is released in a theater). 3D pricing has helped mask the underlying downward trend in attendance looking back over the past few years (annual tickets sales between 2001-2005 averaged over 1.5 mm, whereas they are sub 1.4 mm over the past five years). Given the sheer number of high profile 3D films in 2011 (with a total of 35 3D features planned), we doubt 3D pricing will be a material benefit to year-over-year comparisons after 2011.

Studios are already suffering from shifting consumer home entertainment behavior, with consumers returning to rental vs. buying content (click here for 1/11 blog post), a trend which results in substantially lowers profits for the studios. If you then layer in a secular decline in movie theater admissions with a lessening tailwind from 3D pricing, studios simply need to find ways to make more money:

* VOD Windows Collapsed. What was once a 60-day VOD window and most recently a 30-day window has essentially collapsed to zero (see our 8/19/10 blog post, click here). Even Disney, which had been a holdout, plans to release every single movie in 2011 on VOD day-and-date with its DVD release. While Wal-Mart and retailers were not thrilled at enabling such a convenient form of rental the day a movie comes out on DVD, too many lower margin forms of rental have emerged. If consumers really only want to rent again (vs. buy), studios need to maximize rental profits, which is exactly what day-and-date VOD enables.

* Early Release/Premium-Priced VOD Coming. The four month window between when a movie is released in the theater and when it hits DVD (and now VOD/iVOD) is simply too long, particularly in the face of escalating piracy and the explosion of cheap/convenient rental options when a DVD comes out. In turn, the studios are now focused on creating a premium-priced VOD window 6-8 weeks after theatrical release (most likely 8 weeks post-theatrical at around $25). While exhibitors were 100% focused on preventing this development a year ago (click here for our 2/11 blog), the studios are pushing forward with plans to launch the new window by mid-year 2011.

* Push Back Netflix/Redbox. Fox, Universal and Warner Bros. have all windowed (28 days) Netflix and Redbox, with the impact on Redbox increasingly apparent. The goal being to “protect” the sell-thru business and advantage higher-margin forms of rental. Now Disney is raising prices on both Netflix and Redbox unless the accept an even longer 45-window with Warner Bros. talking about the need to extend the window beyond 28 days as well.

* Rental Split Needs to Move Higher - The Time Has Come. When the topic of film rentals comes up everyone simply says well its around 50% because it has always been around 50% (our 1995 RGC model showed a 49.9% film rental expense). We simply do not buy this argument anymore. The film business is fundamentally changing with an explosion of competition for a consumer’s media attention/spending combined with the pressure on profits mentioned above. At the same time exhibitors are talking up increased capital return thru dividends and the benefits of 3D, which they have invested very little capital in (relative to the studios via DCIP as well as RLD and other 3D technology companies), they do not even pay for the disposable eyewear used by their patrons to view 3D. We believe studios should force film rentals north of 60%. Exhibitors will hate the idea, they will complain, threaten to stop showing trailers for movies, etc..but at the end of the day theaters will acquiesce - they have no choice. Theaters will still exist, they will simply be less profitable (and probably have to pay smaller dividends).

The best time to start shifting splits is as the release schedule is congested and exciting to consumers - meaning lots of big films that exhibitors have to show. In turn, we believe the studios should work on pushing rentals higher as we head into summer 2011.

Retailers hated the idea of day-and-date VOD, theaters and retailers do not like the idea of early release VOD, and Redbox went to court to fight the studios from windowing them, but at the end of the day, studios need to maximize profitability for themselves and not worry so much about their so-called “partners.” While they need a healthy exhibition industry, why not “suck” cash away from exhibitors - force them to delever (vs. paying “fat” dividends) and give up on 25% EBITDA margins. With a $10 bn-plus domestic box office, a 10% move in rentals would generate $1 bn of incremental revenues for studios collectively.
The studios create the content - exhibitors have nothing if they do not have studio content. In turn, studios one-by-one need to start pushing splits higher. With the film business changing industry norms can no longer be relied upon - everyone needs to start thinking differently.

Posted by Bobby Henderson (Member # 840) on 03-01-2011, 04:31 PM:

Richard Greenfield must be looking at this situation purely from the bean-counter share-holder point of view.

In case Greenfield hasn't been keeping up on current events, movie theater profit margins are pretty damned slim already. Did he forget about all those major chains that went in and out of bankruptcy a few years ago? It wasn't all just spending too much money on new stadium seated theaters that caused that mess.

Raising rental rates to 60% will force theater operators to dramatically increase prices on concessions, prices that are already ridiculous. Higher prices will force more customers to do without the popcorn, candy and soft drinks and merely pay to see the movie.

Major movie theater chains haven't done as good a job as they should be doing with maintaining auditoriums, particularly the sound systems. That sort of thing is deferred so the theater can take care of more pressing concerns, like repairing a broken air conditioning system. Cutting into theater profits further is going to do more harm to the quality of the movie going experience.

If Greenfield says actual attendance numbers are declining he really needs to look at WHY those numbers are falling instead of raising film rental prices on theaters and manipulating home video release windows.

I can cite numerous reasons why numbers aren't good right now.

1. The economy is still in the toilet. A lot of people just can't afford to go to the theater as much. Damned gasoline prices have been shooting up and up for weeks.

2. Hollywood's average quality of movie product has grown more shitty (more sequels, more remakes, more movies based on TV series, more super hero movies -basically anything "safe" that will please stock holder types). The whole piracy angle is stupid. If Hollywood was making a better product they would be making more money.

3. The movie going experience isn't as fun anymore. Disruptive audience members are the main blame there. Various other factors can improve the experience. But theater operators will not be able to do this without being able to spend more money on improvements and being able to hire more staff members and security people to keep disruptive audience members in line.

Posted by Martin McCaffery (Member # 37) on 03-01-2011, 05:51 PM:

quote: Mike Blakesley
Studios are already suffering from shifting consumer home entertainment behavior

Studios aren't suffering from this, they are controlling it and making money from it.

Posted by Joe Redifer (Member # 3) on 03-01-2011, 07:17 PM:

^ Exactly.

Posted by Bobby Henderson (Member # 840) on 03-01-2011, 07:39 PM:

quote: Martin McCaffery
Studios aren't suffering from this, they are controlling it and making money from it.

For now.

We have to remember the boobs currently calling the shots in the movie industry are among the same boobs who screwed up the music industry. They have been applying increasing amounts of the same losing formula to the movie industry and then using excuses like illegal downloads as a scape goat for bad business strategy.

Posted by Jonathan M. Crist (Member # 413) on 03-01-2011, 08:43 PM:

BTIG is a stock analyst/hedge fund firm founded in 2005 and Richard Greenfield is one of its founding partners.

Posted by Joe Elliott (Member # 4006) on 03-01-2011, 08:50 PM:

Here is another article on this guys report:

The bean counter speaks

quote:

Analyst: Theaters Should Pay More for Movies
28 Feb, 2011 By: Erik Gruenwedel

Facing a 20% decline in theatrical attendance, 12% drop box office revenue (through February) and declining packaged media sales, studios are being urged to raise the per-title rental fee charged to theatrical operators.

Analyst Richard Greenfield with BTIG Research in New York says Hollywood should up the fee to 60% of ticket sales from 50%, which he said would generate an additional $1 billion in revenue industry-wide when factoring in the $10 billion box office in 2010.

Specifically, Greenfield argues studios should take a page from their own home entertainment playbook. He said rolling out day-and-date availability of transactional video-on-demand with packaged media, creation of premium VOD six to eight weeks after a title’s theatrical launch, and 28-day windows for Netflix and rental kiosks (i.e. Redbox) all were met with initial resistance but are now either becoming the norm or already well-established.

“Even Disney, which had been a holdout, plans to release every single movie in 2011 on VOD day-and-date with its DVD release,” Greenfield wrote in a post. “While Wal-mart and [other] retailers were not thrilled at enabling such a convenient form of rental the day a movie comes out on DVD, too many lower margin forms of rental have emerged.”

Indeed, Disney appears to be a game-changer in distribution policy after it made waves last year placing then No. 1 box office release Alice in Wonderland weeks early into the retail pipeline. Recently, Disney raised its disc wholesale price to rental channels, offering discounted rates only six weeks (not 28 days) after street date.

Time Warner CEO Jeff Bewkes has publicly hinted at raising the four-week release window for its new releases earmarked for kiosks and Netflix (disc only).

Greenfield said studios should start raising exhibition rental fees entering the summer as release slates expand. He said expected theatrical pushback, including the threat to not show trailers will be a non-issue. With theaters more dependent upon new content than studios are reliant on current theatrical windows, the former has little leverage.

“With the film business changing, industry norms can no longer be relied upon — everyone needs to start thinking differently,” Greenfield wrote. “Studios need to maximize profitability for themselves and not worry so much about their so-called ‘partners.’”

Which if you look here, they just actually started this Research division on March 1st of last year.

BTIG launches Equity Research

quote:
BTIG Launches Equity Research Group
The research group will focus on the media, cable, satellite, and telecom industries and assist institutional clients in making strategic investment decisions.
Tags: BTIG, equity, research,
By Melanie Rodier March 01, 2010

BTIG, a broker-dealer specializing in institutional trading and related brokerage services, announced the next stage of its strategic growth plan with the launch of its fundamental equity research group. To lead its new research effort, BTIG has hired industry veterans Richard Greenfield and Walter Piecyk.

The expansion into research will further broaden BTIG's product offering and complements the firm's existing lines of business, according to a release.
Related Resources

* World Wealth Report 2010
* Structured Products in Wealth Management
* Riding the Next Wave: Keys to High Performance in an Expanding Global Wealth Management Market

The research group will focus on the media, cable, satellite, and telecom industries. BTIG's research will provide an independent, objective and thought provoking point of view to assist institutional clients in making strategic investment decisions, it said.

Greenfield and Piecyk previously worked at Pali Capital, where they launched and built a successful research department. Together they bring more than 30 years of experience to BTIG.

"Clients want insightful data points and differentiated analysis to support their investment process," Oliver Wiener, head of global resources at BTIG, stated.

"Rich and Walt both have strong reputations as top analysts in their respective sectors. They are exceptional additions to the firm and will be instrumental in the continued development and growth of BTIG."

Greenfield was previously a managing director, media analyst, covering media and cable/satellite industries at Pali Capital. Prior to Pali, he spent four years at Fulcrum Global Partners as a media analyst.

Greenfield started his career at Goldman Sachs & Co., where he spent eight years covering entertainment, cable system and leisure industries. Greenfield was named a top stock picker in both the 2007 Wall Street Journal Best on the Street and 2007 Financial Times/Starmine surveys, and was cited as top boutique analyst in 2007 by Institutional Investor magazine. He has a Bachelor of Arts in History from Brandeis University. Piecyk was previously a managing director, telecoms analyst, covering telecom service provider and communication equipment industries at Pali Capital. Prior to Pali, he spent four years at Fulcrum Global Partners as a wireless services and equipment analyst. Piecyk has also held positions at PaineWebber Inc., where he covered the wireless services and communications equipment industries, and Nextel Communications in corporate development and corporate finance.

Piecyk was named a top stock picker in the Wall Street Journal Best on the Street survey in 2007. He earned a Bachelor of Science in Economics from the Wharton School of the University of Pennsylvania.

Posted by Bobby Henderson (Member # 840) on 03-01-2011, 09:13 PM:

quote: bean counting boob
“With the film business changing, industry norms can no longer be relied upon — everyone needs to start thinking differently,” Greenfield wrote. “Studios need to maximize profitability for themselves and not worry so much about their so-called ‘partners.’”

News flash: without movie theaters there is no movie industry. Not worrying about that "partner" is a little like Siamese twins taking a chainsaw to split their relationship.

You know what a movie studio is without movie theaters? A TV network without its own TV channel. Well, they sort of have their own channel(s), the ones owned by their parent companies. But in that straight to video scenario I don't see a whole lot of $100 million productions and $50 million marketing campaigns being funded for movies that have been reduced to TV shows.
[Roll Eyes]

Posted by Manny Knowles (Member # 1171) on 03-01-2011, 09:26 PM:

quote:
Analyst Richard Greenfield with BTIG Research in New York says Hollywood should up the fee to 60% of ticket sales from 50%, which he said would generate an additional $1 billion in revenue industry-wide when factoring in the $10 billion box office in 2010.

Industry-wide!?

Oh...the exhibitor is not part of the industry...I keep forgetting that. [Roll Eyes]

Posted by Ian Parfrey (Member # 5122) on 03-01-2011, 09:51 PM:

Now is the time to start propagating the Indie production scene.

If this guy thinks that the exhibs just have to 'suck it down', then he should go back under his rock and die a painful death. Trying to garner support by implying that exhibs have spent miniscule amounts for digi upgrades and 3D is just plain stupid.
As mentioned previously, studios without the exhibitors are just a bunch of TV show makers.

Perhaps the exhibitors should take a leaf out of the studios book, and move into production. Make their own product and tell the studios to fuck off. Now, THAT would make those [sex]

ers shit!

Posted by Mike Blakesley (Member # 26) on 03-01-2011, 10:34 PM:

quote: Bobby Henderson
News flash: without movie theaters there is no movie industry. Not worrying about that "partner" is a little like Siamese twins taking a chainsaw to split their relationship.

Right. Since the exhibition industry is the "engine that pulls the train" they really ought to be shoveling a little more coal into our firebox and stop looking for more ways to give their product away for a dollar a head (or less).

Posted by Michael Coate (Member # 757) on 03-01-2011, 10:45 PM:

quote:
Analyst Richard Greenfield with BTIG Research in New York says Hollywood should up the fee to 60% of ticket sales from 50%

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.

Posted by Bobby Henderson (Member # 840) on 03-01-2011, 10:51 PM:

Ssshh! Greenfield will realize his mistake and come back with the "we need a big cut of that concessions money" thing.

Posted by Manny Knowles (Member # 1171) on 03-01-2011, 11:01 PM:

Them's fightin' words!

Posted by Jim Henk (Member # 3628) on 03-01-2011, 11:32 PM:

quote: Ian Parfrey
Perhaps the exhibitors should take a leaf out of the studios book, and move into production.

I just hope that Ted Mann's "Krull" doesn't count...

Posted by Mike Blakesley (Member # 26) on 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%.

Posted by Michael Coate (Member # 757) on 03-03-2011, 03:35 PM:

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

Posted by Mike Frese (Member # 4361) on 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.

Posted by Mike Blakesley (Member # 26) on 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.

Posted by Dustin Mitchell (Member # 372) on 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.

Posted by Bobby Henderson (Member # 840) on 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.

Posted by Mike Blakesley (Member # 26) on 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.

Posted by Bobby Henderson (Member # 840) on 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.

Posted by Mike Blakesley (Member # 26) on 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.

Posted by Frank Angel (Member # 248) on 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.

Posted by Mike Blakesley (Member # 26) on 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.

Posted by Bobby Henderson (Member # 840) on 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.

Posted by Mike Blakesley (Member # 26) on 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.

Posted by Jonathan M. Crist (Member # 413) on 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.

Posted by Jesse Skeen (Member # 586) on 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...)

Posted by Mike Blakesley (Member # 26) on 03-23-2011, 09:56 PM:

quote: Jesse Skeen
wasn't the big reason for switching to that was because it cost the studios a LOT LESS money

Well, supposedly they are paying VPFs to some exhibitors (the big ones, not the small ones who really need them, naturally) so their net costs right now are about the same. That should change in about two years when the VPFs dry up...but I'm sure the rentals will stay at the inflated levels, if the exhibition industry doesn't put up a fight of some sort.