Not even a record setting rain storm could keep cinema professionals away from the Universal Hilton in Universal City yesterday where the International Cinema Technology Association was holding it’s annual tech conference. After a Monday evening cocktail reception, the program began in earnest with a keynote address from John Fithian, President of the National Association of Theatre Owners.

In a speech billed as a “State of the Industry” in the conference schedule, Fithian covered a wide range of hot button topics not all of which were geared strictly to many of the motion picture engineers in the room. He began by recapping the box office records that were shattered in 2009, a year which saw North American combined grosses surpass the USD $10 billion mark. Fithian was quick to point out that such earnings were not due to just the rise in ticket prices, but rather an increase in the number of patrons visiting cinemas nationwide. In fact, decade-over-decade, the average number of moviegoers rose from 995 million in the 1970’s to 1.13 billion in 1980’s upwards to 1.28 billion in the 1990’s settling at 1.44 billion for the decade which just ended.

A good portion of Fithian’s talk was focused on many of the reasons 2009 was such a spectacular year for the cinema business and how the industry might continue to grow even more. He detailed three key drivers he believed were responsible, not the least of which was the major studios getting better at understanding there are 12 months in the calender. Fithian stated:

For years we put out everything in the summer, we put out everything in the holidays and you couldn’t find an person in the cinema in February or September. That is no longer the case…. we’re getting good pictures that appeal to different demographics with different genres spread throughout the 12 months and that’s fantastic. That’s what we have to have.

Affordability of movies as a form of entertainment was the second reason Fithian gave for 2009’s growth. Despite the increase in ticket prices over the years, and even with the premium for 3D films, the price of a movie ticket has not outpaced inflation. In 1969 the price of a movie ticket in the U.S. was USD $1.42. In 2009 that price had risen to a nationwide average of roughly USD $7.56. If ticket prices had kept up with the rate of inflation, then starting with USD $1.42 in 1969, we should presently have an average ticket price of USD $8.37.

Surely the worldwide economic recession must have helped entice people into movie theatres, but not necessarily according to Fithian:

People made smart economic decisions. They’ve got a lot of choices for leisure outside the home. They’ve got a lot of choices on ways they can entertain themselves inside the home. And what you see when you track these annual numbers for other industries is you see drop-offs in lots of other ways to entertain yourself both outside and inside the home in 2009 and yet substantial increases in the theatrical box office. And that’s because of this affordability. When people are hurting a) they want to find something to escape to and b) they want to be able to afford it. And that’s what the cinema offers.

Another factor for 2009’s boffo year was the wide diversity of movies that were released. Comedies such as “The Hangover” made over USD $250 million in North America, micro-budgets such as “Paranormal Activity” were USD $100 million and gut wrenching dramas like “Precious” drew in audiences. There were even titles which found success despite their poor timing. Among them were “Up In The Air”, a film that centers on a man whose job is to go around the country firing people. A tough sell in an economy with a 10% unemployment rate. Of course, Fithian would have been remiss if he didn’t mention what he believes will be the biggest picture of all time, “Avatar”:

There is no doubt in my mind that picture will gross more than USD $2 billion in the international marketplace. That is astounding. We’re between 1.6 and 1.7 right now after five weeks. Just an amazing demonstration of the theatrical box office.

Like many theatre owners, Fithian believes movies will remain the bread and butter of the cinema business. However, the transition to digital cinema is allowing exhibitors to fill their theatres with patrons during times they wouldn’t ordinarily have any customers. He sited last Saturday’s presentation of the Metropolitan Opera’s “Carmen” which was beamed live to 700 locations and earned USD $3 million, making it the most successful opera performance in a cinema. Such models add to the economics at play for theatre owners.

Unfortunately, Fithian was also the bearer of bad news when it came to the financial struggles many of the studios are currently experiencing:

The theatrical returns are very small piece of the overall studio pie and the studios are very small pieces of huge conglomerates in many lines of business. A good year in the theatre business does not necessarily mean a good year across the board for the studios or for the bigger companies in which they are integrated and 2009 is very telling about how those two don’t always go hand in hand. What we see in the rest of the studio economics in 2009 is very troubling.

Fithian cited declining DVD sales as a major issue for exhibitors. Not only is the recession causing a slowdown in consumer’s appetite for DVDs, but he grew particularly heated when discussing Redbox:

It’s the dumbest thing I’ve ever seen in an economic model to take a product as valuable, as expensive to produce and as amazing as a major motion picture and give it to consumers for a buck outside of a 7-11. It’s a disaster to the economic models and yet somehow it’s growing rapidly. Well if they can get it for a buck, they aren’t buying it are they. And in some cases if they can get it for a buck, they’re going to wait to get it for a buck instead of going to the cinema in the first place. I don’t get it.

It is only now while writing this that I realize there may be a conflict in Fithian’s argument, since he previously cited affordability as one of the explanations for 2009’s record box office returns. Suffice to say, the ancillary markets for motion pictures aren’t as healthy as they once were. DVD revenue is slowly eroding and will likely be replaced by some form of digital streaming or subscriptions, though a clear business model has yet to be worked out.

What Fithian wanted to make clear, was that just because he represents cinema owners doesn’t mean he wants to see home video nosedive:

How much money does it take to make an “Avatar”? Where does that money come from? It comes from every revenue stream the studios possess and if they’re not making as much money in the ancillary markets as they did in years past they don’t have the same amount of money to pump back into production to make the “Avatar” for the next year. So oxymoronic though it may sound, cinema people should love DVD sales. Cinema people should want VOD and legal downloads to take off. Cinema people should join me in decrying the insanity of things like Redbox and hope that the studios can make more money in their ancillary markets, not less. This translates into something that may sound even more heretical. I hope 3D in the home takes off. I hope it takes off soon and aggressively. Why? Doesn’t that take away something special that we have 3D in the cinema? No, 3D in the home is never going to be like 3D in the cinema, just like 2D in the home is never going to be like 2D in the cinema. But if you have a bunch of release markets of pictures made distributed in 3D more and higher quality pictures get made and distributed in 3D. If it’s just the theatrical marketplace and you can’t turnaround with an amazing epic of a grossing potential of an “Avatar” and quickly monetize it in the home it’s not worth quite as much.

This naturally led Fithian to one of the more controversial topics of his speech; the theatrical release window. Since 2005 the theatrical window has remained relatively stable. In 2008 it was four months and fourteen days, while in 2009 it appears to have dropped to four months and eight days. Obviously this is a big issue for NATO members as they’d like to preserve the theatrical release window, however the effort to maximize home release revenues is just as important. Fithian admitted the release window will likely change, though he hopes it won’t be at the expense of theatrical box office:

As a person who represents the cinema industry I’m not going to tell you that we’re very happy that that model is going to change, but it has to. But it has to change logically and it has to change with studios and exhibitors sitting down together and analyzing the models. So, it’s not a great secret, this is happening. Leading studio executives, leading cinema representatives are talking about what these models should look like. The good news is we’re all at the table talking. That’s much better and much more cooperative than if studio x decided just to abandon the model and release a major picture in the cinema and in the home roughly at the same time. That’s not going to happen. What’s going to happen is some scientific thinking and some research and a deliberative process to maximize the model for the studios without killing the model for exhibition.

Fithian’s address culminated in a review of in-theatre movie piracy, which he said is plaguing the industry, as well as a few words about digital cinema. Unlike home video technologies, Fithian highlighted the cooperation that has occurred in digital cinema with numerous studios and manufacturers working together to create industry standards before the market spun out of control. He realized that many in the room wanted to know when d-cinema rollouts would begin en masse. Realistically that will depend on when large integrators such as Cinedigm and Digital Cinema Implementation Partners can secure financing. Based on Fithian’s comments, it appears this may not be a long way off:

I know you are all hoping I can get up here and tell you exactly when this group or that group is going to finish their financing and begin the roll out but I’m not going to tell you. I’m not going to tell you that because these things are at such a significant juncture that it’s inappropriate to comment about in public. Read between the lines. That’s a good thing. If I were standing up here to produce some kind of oratory trying to drive the finishing of the financing deals so the roll out could accelerate that would be me being a cheerleader. Me saying that I’m not commenting means we’re close. So we hope that the rollout of digital cinema will accelerate rapidly in the very very very near term.

In closing Fithian reported that of the 39,000 screens in North America, 7,600 have been converted to digital and 3,400 of those were equiped with 3D technology. Over the last several months 3D screens were being installed at an average rate of 150 per month.