Category Archives: Analysis

Laser, the Next Big Digital Transition as the Xenon Lamp Fades Away

NEC laser projector

This year (2015) is definitively the year the world became completely digital as Sundance Film Festival announced that not one film shown was on celluloid-film. Most of the major markets are now completely digital. If you listen carefully, you can hear tens of thousands of cinema owners letting out a sigh of relief as they think now that the transition is over they can forget about it for the foreseeable future. Unfortunately this is not the case.

The use of lasers as a light source has been an interesting topic for many years. It has taken a change in government restrictions/regulations to put a rocket under laser, and it is literally taking off. We now have Barco and Christie with LPF (Large Premium Format) offerings. But more importantly, it is the NEC BPP (Blue Pump Phosphor) that is of most interest.

Recently Bill Back, now at Barco, did a detailed techical presentation of Laser for SMPTE. After watching this presentation and a number of follow up Emails, it became clear to me that BPP-based laser projectors would flood that market in 2015.

NEC had shown it could work with a small screen solution, but now it was time to bring out the next generation on BPP laser based on more efficient Blue Lasers allow BPP-laser to replace small, medium and potentially large cinema projectors. It was also made very clear that Xenon, at current prices, would quickly be overtaken by laser, making it completely obsolete.

This leads to a realisation of another equipment transition. If projector vendors stop making Xenon projectors, this would eventually lead to Xenon lamps no longer being manufactured, and we are back to a similar situation to film.

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Why North American Movie Ticket Prices Rose In 2014

Movie Tickets In Popcorn

A week after the investment firm PricewaterhouseCooper released a survey in which found 53% of its 1,000 respondents felt movie tickets cost too much, the National Association of Theatre Owners (NATO) reports that the average cost of a movie ticket in 2014 rose to USD $8.17.

That figure is a 0.50% increase from the USD $8.13 average cost of a movie ticket in 2013. Movie ticket prices roller-coastered in 2014 from quarter-to-quarter but generally stayed above the USD $8 mark. The second quarter saw price levels topping out at USD $8.33 before declining to USD $8.08 during the third quarter before rising once again to USD $8.30 for the last three months of the year. Fourth quarter prices were actually down year-over-year from USD $8.33 in 2013.

We have found these numbers, taken without considering any context or analysis, can be a bit misleading. For instance, many industry-watchers might assume the cost of a movie ticket declined in the fourth quarter of 2014 because exhibitors were lowering prices to attract audiences during a down year in attendance and box office. While that may account for a portion of the decline, it’s also helpful to look at the releases in theatres during the fourth quarter of both years.

In 2013, “Gravity” was doing blockbuster business on its way to Academy Award nominations and Oscar wins. Because the film was shot in 3D and with IMAX in mind, many moviegoers chose to see it in those formats, both of which come with premium ticket prices. On the other hand, in 2014, we had “Interstellar” on its way to doing decent business, which though popular on IMAX was not released in 3D, and “The Hobbit: The Battle of the Five Armies” which performed weaker than expected.

This of course is assuming that the average ticket price is calculated by dividing the period’s box office by its admissions. Historically however, NATO has conducted a survey of its members to determine the average ticket price for a quarter or year.

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Cinema in China Is Still Headed for Crash – Five Trends Show Why

Taking of Tiger Mountain

With Wanda Cinema’s IPO imminent we thought it would be a good to revisit the article ‘China’s Multiplexes Are Headed For a Crash – Statistics Show Why‘ that we published last April. With another year of strong box office growth in China and no large scale cinemas going bust in the Mainland, were we wrong?

At the time we wrote that “It is too early to say whether Chinese cinema exhibitors are in for a hard crash or a soft landing, but a correction is now becoming overdue.” It increasingly seems like 2015 will be the year that the correction is due, with several troubling indicators making themselves felt.

We will not re-hash the arguments from the original article, which remain valid, so we urge anyone not familiar with it to read it first. We will instead look at some new factors that we did not highlight back then.

It is also worth noting that at the time overall growth in China was slipping below 8% and now it has fallen even more. For the third year running China has missed its export target and as the FT reports,

The missed target comes as China prepares to release annual gross domestic product figures next week that will show growth in the world’s largest economy (in purchasing power terms) came in below the government’s annual target for the first time since 1998.

This is the macroeconomic picture to keep in the back of the mind when discussing the cinema market in China.

In broad strokes, the five trends can be summarised as follows:

  1. Mistaken belief in a demographic cinema dividend;
  2. Unsustainable price-war in micro-blog ticket services;
  3. Inability of Hollywood films to fill a post-quota gap;
  4. Failure of Chinese film production due to censorship;
  5. A ‘hidden’ decline in the growth rate of the box office.

1 – The demographic cinema dividend fallacy

Wanda Cinema is very confidant about the future growth of the China cinema market, as stated in its IPO document, which begins with the bold claim “The company’s main business is the cinema industry, [and] the [cinema] industry has always come out on top”:

Our cinema industry in the future continue to benefit from the rapid growth of the film industry

In recent years, China’s film market continues to maintain a rapid development momentum, the movie industry revenue is expected to usher in the 2015-2016 phase of explosive growth. We believe that our large population, the urban population has a number of screens compared with Europe and other developed countries, a big gap under the background of the geographical distribution of the theater, the per capita number of screens there is a large room for improvement, the cinema industry will continue to maintain a high level of development.

This is a refrain often heard in discussions about Chinese cinema: that the country is under-screened compared to markets in Europe or that cinema attendance is low compared to that in the US. As the market matures it will continue to grow, is the belief.

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Movie Theatres Face An Inevitable Netflix Effect

Diffusion of Netflix

As we begin the new year, I strongly believe we are entering a period of great danger and even greater uncertainty. Events are unfolding within and without the movie industry that are extremely threatening to our studio.

This is how Jeffrey Katzenberg began his now infamous 1991 memo which criticized the Walt Disney Studios, of which he was then chairman, and the overall state of the film business at the time. It’s hard to believe those words were written more than 20-years ago since they are so easily applicable to the current motion picture business.

Katzenberg penned his prophetic memo in 1990 during a rainy Christmas vacation in Hawaii. The end-of-year holidays are often a time of increased introspection on a multitude of subjects that range from personal to professional, from political to religious. A few consecutive days with a couple of extra unoccupied hours and and we all turn into armchair Nietsches. Like Katzenberg, I also came to a bit of a realization during our recent holiday season about the industry we all passionately toil away in.

Actually, if recent introspective pieces by Nick Dager at Digital Cinema Report and Luke Edwards at Pocket Lint are any indication, I’m not the only one who spent the holidays ruminating about the present and future of our business. These constructive assessments present qualitative research to diagnose the recent downturn in moviegoing attendance, attributing the cause to a number of factors, including the emergence of subscription streaming media services. To these treatises I would like to add some academic theorems that can be useful in helping us determine where theatrical exhibition falls on the curve of a typical market’s lifecycle as well as models that are useful in forecasting future market conditions.

Collecting Anecdotal Evidence
Because the mathematics and theories underlying diffusion theory can be dry and didactic, translating them to existing or real-world markets can at times seem confusing. Thus, I will attempt an explanation through an anecdote which initially coaxed my mind down the path of such market musings in the first place.

During the holiday break I witnessed innovation diffusion theory in action through the promulgation and/or unfamiliarity of over-the-top streaming services such as Netflix among extended family members and acquaintances. By applying simplified diffusion theories to this qualitative research I was able to discern the current market complexities and the far-reaching consequences motion picture exhibitors and distributors will undoubtedly face due to growing consumer adoption of online video streaming services.

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Cinépolis Acquisition of Chile’s Cine Hoyts Signals Global Ambition

Cine Hoyts Chile Cinepolis

Mexican-based exhibitor major Cinépolis has acquired Chile’s largest cinema chain Cine Hoyts. The acquisition, reported in this article in El Financiero, means that Cinépolis is now present in 11-12 countries around the world. It also signals an intention to take on Wanda/AMC for the crown of the world’s largest cinema chain through further acquisitions and in-organic growth.

The deal, which has not been confirmed officially and with no price being revealed, gives Cinépolis Cine Hoyts’ 40% market share in Chile, with 96 screen in nine multiplexes across the Metropolitan Region and Region V. Cine Hoyts Group, which was owned by Chilefilms, which acquired it from Australia’s Hoyts in 2011, has 700 employees and includes 13 3D type four Premium Class and Vip screens, with Dolby installed in most other sites.

As the article points out, the deal gives Cinépolis a major international presence:

Until early December 2014, Cinepolis had a total of 401 multiplexes in 95 cities in Mexico and in 10 additional countries where it operates. Its 3,485 screens are 100 per cent digital, 13 IMAX, 71 XE Macro XE and 304DX totalling 635,430 seats.

With over 40 years experience and fourth worldwide among exhibition chains (the largest outside the United States), Cinepolis has a presence in countries like Costa Rica, El Salvador, Guatemala, Honduras, Panama, Colombia, Peru, Brazil, India and the United States.

In the middle of last year, Alejandro Ramirez told El Financiero that the firm moved into buying a cinema chain in Brazil.

In late 2014 Cinépolis completed the acquisition of Fun Cinema in India, giving it almost 200 screens in the growing territory, though it did not end up buying the larger Big Cinemas chain.

In 2015 Cinépolis plans to open more than 200 screens in Mexico, taking it to over 3,000 screens in its home territory.

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Cinema Concessions Calorie Count Coming in 2015 – NAC Responds

Popcorn calorie count

When you go to see “Star Wars VII: the Force Awakens” at a Regal Cinema next year you will have the choice of watching it with a 960 calorie large tub of popcorn (with optional 260 calories “buttery” topping), a 500 calories 54 ounces soda, a 650 calories hot dog or perhaps a 716 calories nachos with cheese. Or if you prefer Marcus Theatres’ Big Screen Bistro, perhaps a glass of Sycamore Lane Chardonnay at 123 calories with a 12″ Pepperoni Special pizza at 215 calories per slice or 1,720 for the whole pizza.

That is because from 1 December 2015 all US grocery and convenience stores, fast food restaurants, amusement parks and, yes, cinemas with 20 or more locations will be required to display calorie information next to each item on their menu. This is the result of a U.S. Food and Drug Administration rule linked to the Affordable Care Act, also known as ‘Obamacare’.

Here is what the FDA News Release had to say on the issue:

The menu labeling final rule applies to restaurants and similar retail food establishments if they are part of a chain of 20 or more locations, doing business under the same name and offering for sale substantially the same menu items. Covered food establishments will be required to clearly and conspicuously display calorie information for standard items on menus and menu boards, next to the name or price of the item. Seasonal menu items offered for sale as temporary menu items, daily specials and condiments for general use typically available on a counter or table are exempt from the labeling requirements.

Furthermore:

The menu labeling final rule also requires covered establishments to provide, upon consumer request and as noted on menus and menu boards, written nutrition information about total calories, total fat, calories from fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrates, fiber, sugars and protein.

Vending machines have an additional year to comply with these requirements. But are cinemas ready for this?

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Number of New Cinemas in China is Up – But so is Box-office Fraud

China box office fraud

Last week saw the publication of two reports, both of which pointed to upward trends in the Chinese exhibition industry. But while the first pointed to a growth in the number of new screens, the second pointed to an increase in the instances of box office fraud.

report by Yi En Consulting has shown that as of 30 November, the total number of cinemas and multiplexes in China amounted to 5,540 with a total of 23,349 screens. This has led to a lot of end-of-year analysis and prognostication, coming as it does also close to the re-filing of the Wanda Cinemas IPO prospectus.

The number of new cinemas in Mainland China doubled in January-November 2014 to 957 compared to 476 in the same period last year. Beijing Daily looks at the key players (Wanda, Poly, Bono, etc.) and the dynamics shaping this market, where more players are looking to follow Wanda’s IPO lead.

Beijing Daily reporter learned that this year, in addition to already listed Wanda Cinema, the other cinema companies are also in preparation or wait listed. The first is the original plan and Wanda Cinema accept China Securities Regulatory Commission reviewed the same day in Guangzhou Jinyi Film and Television Media Co., Ltd., but the presence of a false prospectus of the eligibility conditions have been canceled. At the same time, the industry ranked second in the Shanghai Film Co., previously disclosed on April 18 prospectus, to be listed on the Shanghai Stock Exchange, while China Film Corp. also announced June 16 the prospectus, and most raised Uses of funds are investment projects cinema. In addition, the industry said, ranked fourth in the Guangdong market, the earth also has the listing.

The role of 3D and Imax/PLF (premium large format) films has also been significant in 2014.

According to public information, as of the end of October this year, the country released 52 million at the box office over the movie, 26 movie for 3D movie, half of the total box office revenue, 3D movies have occupied half of China’s film market. With such a huge market demand, the theater in order to attract customers have increased construction of 3D auditoriums. A film industry insider talking to Beijing Daily, told reporters: “Look at the Beijing movie theaters, an average ticket 2D movie ticket is 50 yuan, and a 3D movie ticket fares usually more than 100 yuan, the theater in order to the difference will be considered to improve the middle by large screen IMAX auditorium box office. ”  LINK

In the second article, turning its attention to the future, the focus is on the growth in the Tier Two and Tier Four cities.

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How Smartphones Rule Cinema Ticketing in China

China mobile ticketing WeChat

The boom in China’s box office is mainly attributed to the growth in the number of modern multiplexes catering to a growing middle class. Yet an equally important role has been played by convenience of mobile ticketing, which enables flexibility, impulse buying and seat selection that is valued by the 80, 90 and 00 generations (i.e. born in those decades), who are the main drivers of China’s cinema growth.

Just how big this is and how fast the trend is growing was highlighted in an article by Chinese entertainment consulting firm Entgroup last month:

During this year’s summer profile, market share of online ticketing business accounted for more than 30%. As of the third quarter, the total box office mainland film market beyond 2013 full-year results of 21.7 billion, is expected to reach 30 billion annual box office revenue, and online ticketing service will reach 50%, micro-channel movie tickets will use its unique “ripple communication “vibration entire online ticketing market, and root out the 3-4 line market, in response to consolidation and mergers and acquisitions in the context of the total forest hot market making the message is “no one can integrate me, I do not accept integration. “

Financial website Tiger Sniffing Network (!) profiles the rapidly evolving market and interviews people from three of the leading Mainland mobile ticketing providers: Pull Movies founder Kai, a Cat Movie insiders (interviewed anonymously) and Micro-Channel Movie Tickets founder Lin Ning.

Mobile ticketing in China is considered an O2O (Online-to-Offline) business, which is described by Wikipedia (Chinese) in the following terms:

O2O (Online To Offline) mode, also known as the offline business model refers to the purchase of consumer online marketing online and offline operations driving under the wire. O2O through promotions, discounts, information, service book, etc., the next line of the message store pushed to Internet users, which will convert them to customers under their own line, which is particularly suitable for the goods and services necessary to store the consumer, such as dining, fitness, movies and shows, beauty salons, and department stores such as photography.

In understanding Chinese consumers, particularly 80/90/00, it is important to appreciate the mobile-first, as well as savvy bargain, discount and special deals mentality that underpins consumer behaviour.

Added to this there is a strong element of social networking, using WeChat (messaging), Weibo (Twitter-type ‘micro-blog’) and other social apps, whereby peer influences and decision guided purchasing decisions for both goods and services/experiences.

Mobile Enablers Create Win-Win Situation

The article begins by pointing out that mobile movie ticketing vendors are in a unique position in terms of being enablers, rather than just middle-men between cinemas and their potential audience.

Online seat selection is typical of the O2O industry, where they provide cash flow from online and complete the import line. A mobile phone app will be able to direct the attention of online marketing to generate transformed into the purchasing power of the line at the box office, it is probable that all the movie marketing companies currently can not match the “creativity.” They are closer to the audience than the cinema, so they have amazing box office pulling power to entice the film side more and more to cooperate with them.

There is thus a power that rests with mobile movie ticket companies that is stronger than in most other parts of the world. This change has not come about overnight and the article does a good job of providing a chronology of how ticketing software systems have evolved in China over the past two decades.

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Smartphones Are Killing the Cinema Experience

TCL Chinese

Last week a man got maced in the face for asking a fellow patron in a cinema to turn off their smartphone during the screening of a film. What is shocking is not that the attacker was a woman, or that it happened during a screening of an art-house film, or that the woman was escorted off the premises rather than arrested.

No, the single most shocking thing is the defending silence from the cinema industry in the face of such an attack. Not only have no lessons be learned since the fatal shooting earlier this year over an argument over smartphone use in the cinema, but there appears to be no willingness to tackle this issue.

The use of smartphones in cinemas is killing the cinema-going experience more effectively than camcorder piracy. Let me repeat: smartphones use in cinemas is killing the cinema-going experience more effectively than camcorder piracy.

If it is not tackled it will contribute to the further decline of cinema attendance. There is an urgent need for concerted industry action. Sadly, there appears to be a lack of leadership and willingness to challenge prevailing social norms.

An Attack at the Epicentre of Films

The attack itself took place in the heart of Hollywood, at a screening of a film considered an awards contender at an iconic cinema located just a block away from the Dolby Theatre (formerly the Kodak Theatre) where the Oscar statuettes will be handed out in a few short months.

The man was at an American Film Institute screening of Mr. Turner when he asked a woman to stop using her cell phone, an eyewitness told Mashable. After asking several times, he tapped the woman on her shoulder. The woman had a violent reaction to the shoulder tapping, and stood up, turned on her phone’s flashlight app, screamed at the man and threatened to call the police.

People asked her to turn off the phone, but she began going through her bag and produced a bottle of mace. She used the mace on the man, who left the theater with a companion. The woman continued to watch the movie, which never stopped playing, until security escorted her out about 20 minutes later.  LINK

It boggles the mind that the alleged attacker would sit down to continue enjoying the film after she had temporarily blinded a fellow cinema goer.

But more troubling is that the management in the cinema apparently did not see fit to call the police or escalate the matter, but simply escorted the woman off the premise. No word on whether she was refunded the cost of her ticket on her way out.

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Does Hangzhou Point to Bubble in China’s Cinema Market?

Broadway Hangzhou IMAX

Broadway Cinemas (IMAX) in Hangzhou

Talk about China overtaking United States’ cinema box office within a few years is predicated on the growth rate of the past couple of years continuing in an unbroken upward line. Yet too little attention has been paid to whether growth in multiplexes, screens and seats is outstripping demand for tickets.

Tier 2 City Focus

On-the-ground reports from markets outside of China’s half a dozen Tier 1 cities (Beijing, Shanghai, etc.) are starting to suggest that overbuild has resulted in blockbusters increasingly playing to empty auditoriums. Hangzhou is one such market.

According to Wikipedia, “Hangzhou is classified as a sub-provincial city and forms the core of the Hangzhou Metropolitan Area, the fourth-largest metropolitan area in China,” with Hangzhou prefecture having a registered population of 8.7 million inhabitants. It is considered a Tier 2 City, a group of around three dozen Mainland metropolitan areas increasingly targeted by investors, developers and multinationals in recent years. And as WSJ put it:

When it comes to China, the commonly used term “second-tier cities” is a misnomer, says Robert Lawrence Kuhn, an investment banker and author of How China’s Leaders Think. The so-called “second-tier” cities should actually be called “first-class opportunities,” given that these cities have been growth engines of the Chinese economy, boosted by huge amounts of investment, new infrastructure and an influx of new talent.

Multiplexes are at the forefront of these developments in Tier 2 cities, in some ways epitomising it as they combine entertainment, real estate and retail in one location.

Yet after several years of intensive development and investment, worrying signs of over-supply are starting to emerge, as indicated in the article quoted in Sina.com.cn from Qianjiang Evening News, headlined, “Hangzhou total of 49 cinemas, average of one theater added monthly.”

Hangzhou Cinemas: “Too Dense” – But Still Growing

The article points out that just in the last two months of this year will see the opening of a Jin Yi multiplex, a Wanda multiplex and a Shi Xiang Road multiplex – and this on top of an already saturated market.

The article then points out that in a five kilometer (3.5 miles) area there are five multiplexes, and that with 10 more multiplexes slated for 2015 it will be “too dense” and that next year many cinemas will “barely” get by.

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