Less than a week after denying bankruptcy rumors that caused the stock price of French conglomerate Thomson SA to plummet 15%, the company has moved aggressively to sell off its cinema advertising unit Screenvision. Industry chatter that the Thomson subsidiary has entered talks to merge with its chief competitor, National CineMedia (NCM), may turn out to be more than just rumor and speculation. That is if you believe USA Today, which published a story about the potential merger on Monday.
A merger between Screenvision and NCM seems unimaginable, if not impossible, given the two firms majority share of the North American cinema advertising business. Surely there will be some regulatory group that will object to having only one company control most of the profitable advertising placement in the country’s leading movie theatres. This issue didn’t escape USA Today either who quoted Lazard Capital Markets Analyst Barton Crockett as saying:
“I’m not sure that (a combination) is possible from an antitrust perspective. It would affect some advertisers, studios and independent theater chains that like to play those two (companies) against each other.”
Neither Screenvision nor NCM would confirm they were speaking to one another beyond a generic non-committal statement from NCM’s chief marketing officer, Cliff Marks:
“We’re interested in Screenvision as we’d be in any media company that would make sense for our shareholders.”
One way for the two companies to overcome any regulatory objection to their merger would be to take the tact that U.S. satellite radio companies XM and Sirius took during their successful bid to merge; point to parallel competition. Both Screenvision and NCM sell advertising in a market suffering from media clutter that offers advertisers a choice of print, outdoor, radio and television campaigns. However, unlike satellite radio, where if a potential customer does not want to pay Sirius XM’s subscription fee they can simply turn on traditional terrestrial radio, motion picture exhibitors would have little choice when it comes to running ads in their theatres other than signing a deal with a combined Screenvision/NCM.
In a soft ad market that has seen print and television networks ad revenues decline, cinema advertising is one of few sectors that has performed rather well, increasing 56% since 2004 to bring in USD $658 million last year. Indeed, Thomson probably would hold on to Screenvision if they weren’t so hard up for cash to refinance some of the EUR €2.9 billion debt its been carrying.
UBS has been tasked with selling Screenvision which according to Matthew Kearney, the ad company’s CEO, should occur before the end of the year.
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This very good article from the New York Times does not dicsuss cinema or cinema advertising explicitly. But the implications are writ large for the two about the growing importance of the aging US (and European) population in terms of impact it will have on spending habits.
For decades, older consumers were largely shunned by marketers because they were deemed less wealthy, less likely to try new products and less willing to change brands. Campaigns directed at them were described dismissively as made for the “Geritol generation.” As much as older consumers were to be shunned, young consumers — ages 18 to 34, or 18 to 49 — were desired for what were deemed their free-spending ways, eagerness to sample new products and brand-switching proclivities. The idea that they were starting in life with a proverbial blank slate of marketing wants and needs was catnip to product peddlers.
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Those attitudes have been changing, for a couple of reasons. One is the recession, which makes older consumers who may have paid off mortgages seem a safer bet than younger ones who may get laid off in last-hired, first-fired downsizings.
The hard numbers bear out this thinking.
Although “18 to 49 is going to remain the predominant buying demographic,” Mr. Donchin said, “this country is aging, and the boomers are an attractive demographic.”
That appeal is because of the size of the boomer market and because, as Mr. Donchin put it, “50 isn’t what it used to be.”
Older consumers today “are not as resistant to change” as older consumers previously may have been, Mr. Donchin said, summarizing their attitude as “Show me something better, and I’ll try it.”
And the boomers are even “comfortable with digital media,” he added.
Hollywood studios are slowly waking up to this as well, with films like “The Queen” having significantly higher investment return ratios than even big hits like “The Dark Knight”.
But cinemas are only slowly embracing this fact. UK exhibitor Vue spoke on a panel at ShoWest about how it has introduced screenings aimed at an older clientele where they don’t have to sit next to youngsters chatting on mobile phones. Vue may soon want to consider targeting 45-65s with wine and cheese in the evening, rather than just the 65+ tea-and-biscuit crowd.
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UK/Irish cinema screen advertiser Carlton Screen Advertising (CSA) is officially in the chopping block with the most likely buyer being Pacific Equity Partners, which bought the exhibitor Australian cinema chain Hoyts last year. Having once been the biggest and most profitable screen advertiser in the world, CSA’s decline has been as steep and fast as it has been sad. Despite the OK-ish box office year 2007, CSA (2,900 screens in 500 sites) was not able to capitalize on the small growth as it was saddled with large up-front payments to some of the UK’s largest circuits. With one of these, Cineworld, being publicly quoted, CSA’s move to switch from 6-month up-front payment to month-by-month forced it to flag this to the stock market. This in turn forced CSA’s parent ITV to announce that the screen advertiser was indeed for sale - at a rock bottom price. As Sunday Times notes:
Once worth £80m, analysts now value CSA at nothing, despite healthy cinema attendances. ITV may even have to pay someone to take it off its hands.
The business is estimated to be liable for another £200m in upfront payments to customers, chiefly Odeon and Cineworld, to satisfy onerous advertising contracts that stretch to 2012.
Those agreements mean CSA has struggled to make money despite total cinema advertising income growing 10% to £170m last year, according to Nielsen figures.
The most likely outcome is that any future owner will try to merge CSA with smaller rival Pearl & Dean. The likelihood of this being approved by the UK competition authorities is greater if CSA’s largest customer Odeon makes good on its threat to take advertising in-house in conjuncture with the circuit going digital. If PEP wins the bidding, it will be interesting to see what it will do with CSA’s 50 per cent stake in Screenvision (jointly owned with Thomson/Technicolor) and how it might integrate CSA and/or Screenvision with the Val Morgan cinema advertising business that it got through the Hoyt acquisition.
Full disclosure: Having worked for Unique Digital, which is CSA’s digital technology provider, I can’t help but to feel that the Carlton’s failure to fully embrace digital is partly to blame for its current woes. While it would not have been a magic cure-all that staved off the up-fronts related problems, it could have meant Carlton setting the agenda rather than having digital foisted upon it. It could also have grown the proportion of ad revenue from local and regional advertising - as Norway’s CAPA and Sweden’s SF Media (both Unique customers that switched completely to digital) did with great financial success - to the point where it would have balanced money going out for up-fronts.
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Kodak Digital Cinema is notching a win in its belt after Warner Bros. International Cinemas selected them to run digital pre-show in their theatres throughout Italy. Kodak will install pre-show systems on 172 in 17 venues throughout the country starting in late January.
Over the past several years, Kodak Digital Cinema has faced stiff competition in the North American pre-show market from the likes of National Cinemedia and Screenvision. So much so that few may remember that Kodak is still in the pre-show business. Even Kodak seems to understand they might need to show exhibitors the worthiness of their advertising solution, as Enrico Ferrari, Kodak Digital Cinema manager for Italy was quoted as saying:
“Warner’s staff set high standards for system performance and did extensive research into the pre-show solutions available. It will be our goal – in everything we do – to prove they made the right decision.”
The press release announcing the deal goes into detail about what Kodak’s pre-show solution will be offering Warner Bros. International Cinema, though it is truly just rehashing all the usual benefits digital pre-show such as customized programming for different audiences, regions, genres and movies.
Kodak will have its work cut out, as they plan on completing most of the instillations by the end of the first quarter, starting with the Moderno theatre complex in Rome. At the same time Kodak will be teaching advertising agencies how to encode content. Once the pre-show network is operational, Kodak will handle all of the quality assurance, playlist assembly and distribution from their network operations center in Hollywood, California. Of course, one of the beauties of digital pre-show is that it removes geographical boundaries allowing for the distribution of content from anywhere in the world.
Kodak already delivers pre-show content to Warner Bros. theatres in Japan from their Hollywood facility where they can also monitor the performance of the equipment installed in theatres 24/7.
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