This is a live transcript of one of the many seminars and presentations at CineEurope 2016. As such it is likely to contain errors and omissions that are more likely than not the fault of the transcriber (yours truly) than the speakers. Sometimes we condense or abbreviate points being made. The text may sometimes not make complete sense as it was made to be heard rather than read. But every effort has been made to present what was said as accurately as possible.
The first session of the 25th CineEurope was a high-level round tables of captains of the industry (no women on this panel) sharing their insights about the future of cinema. Dreamwork Animation’s outgoing CEO Jeffrey Katzenberg was inevitably the star of the show, providing plenty of headline grabbing quotes (“We blew it on 3D,” being just one of them). One of the other rountablers was heard muttering to a colleague before “I wonder if I will get a word in edgeways,” but he didn’t need to have worried as all the speakers had plenty of insights to share. And it would be unkind to deny Katzenberg, now with an eye on his legacy, a semi-final word at what is most likely his last chance to shine at one of these type of industry confabs.
First up was a very short introduction by UNIC’s head.
Jan Runge – Welcome. [We will] try to showcase cutting edge issues that affect you.
He then hands over to Michael Gubbins, calling him “the most sought after moderator on cinema in Europe.” (Hopefully that will still be the case post-Brexit).
Mike Gubbins – 1 hour on future of cinema; not sure what we will do for the second half hour. [audience laughs] Everything will be sorted out. 12 years ago I chaired conference ‘A future for cinema?’ and we had impending sense of disaster and doom. Those days are long gone. It helped drive a very quick digitisation. Impressive that we sit here as an entirely digital network. Where we go from here. Every single weekend you are in a new cycle, which makes it difficult to take in the big picture. Get past the whole ‘worst year’ or ‘best year’ ever.
We will look at M&A but also building. The notion of new cinemas is an exciting thought. Only one person on this panel is not involved in an M&A discussion. “What we don’t have is a jackpot of synergies,” as Jan Runge said [in reference to EU vs. US]. There are lots of trends that will influence things, such as our suicide mission to leave the EU here in the UK. What we are seeing is a changed relationship between audiences and content and we need to explore that. Look at how we become less reliant on blockbusters getting bigger each year because at some point those super hero will run out of powers.
Gubbins: Awful cliche is someone who doesn’t need an introduction on a panel. And that’s Jeffrey Katzenberg. Dreamworks is a brand in itself, a mark of quality.
Jeffrey Katzenberg: Why do this [merger] with Comcast and why now? I would say it actually caught me quiet by surprise. I was literally within 12 days oaf partnering with some investors out of Hong Kong to take the Dreamworks [Animation] private. They were going to give us a billion dollars. I was signing up for 10 years. Then this call from [Comcast CEO] Brian Roberts. The reason I did this is: I step back at the enthusiasm and resources of Comcast and what they can do with Dreamworks in next ten years, what they can do for my employees, what it means for them. And then quite specifically for the brand.
Steve Burke, head of NBC-Universal, we were together at Disney. We both came away from Disney with appreciation of the brand. Steve expressed that admiration and ambition of what they can do to build that brand. I think Dreamworks has a bigger, better and brighter future inside Comcast than if I had stayed the course and been independent. The future Dreamworks couldn’t be bigger or brighter.
Gubbins: Let reintroduced the exhibitors. David Passman of Carmike. Involved in another big takeover discussion. This is the start with AMC of the world’s biggest cinema chain. Jan, another huge northern European chain. You had an injection of private equity, which is a vote of confidence in cinema from the money men. Then Paul from Odeon, we’ve talked about takeovers forever. But it is a group that is still expanding.
We need to know the environment talking about cinema. Tell me what they key trends that will most influence cinema.
David Passman: We’re seeing particularly in the US is how we serve our consumers better. We don’t make the movies but what we do is we try to make the movie going experience better than it has been in the past. Innovation on F&B, seating, screen size, full dining, adult beverages (my favourite). Makes it a better night out.
Gubbins: “Adult beverage.”
Passman: At least 6.2% and preferably 40%.
Jan Bernhardsson: I think deeper understanding of our consumers is necessary, track the consumers behaviour, to get the pattern of future. We stand on a platform called ‘customers’. In this future of the digital era it is harder and more work to reach them and very important to know who we are addressing.
Paul Donovan: This reminds of the telecoms industry in the late 90s. Fragmentation, then domino effect and now you have a few super operators. Money is quite cheap right now, [so] now there is a second wave of capital for all the upgrades of the guest experience, which is actually quite challenging. Having a good capital structure is going to be differentiator.
Secondly, we are not limited by the film slate alone. We have not fully exploited successfully the full appetite, because we have not adopted CRM and analytics, which can unlock that demand. We did research that showed 25-40% that guest of ours to say they want to visit our cinemas more in the future. We have to unlock that potential in the audience. Despite the challenges of consumers being distracted, we can create a virtuous circle.
Katzenberg: I have a different place of observation but I agree with them that there has never been a better time for greater opportunity for innovation.Transforming a legacy business in service of a strong customer base out there. There is another enterprise we can look to that made the transformation – professional sports. Almost every single [US] sports arena has been rebuilt or a new one has been built and replaced. This has elevated the consumer experience. Everything form parking to food and the amount of interactive elements. It is stunning and exciting and engaging. The same way that sports has shown what can happen, sport has never been viewed more on various devices. But attendance of live events has never been higher. We can look to someone else
Gubbins: Two things – supply side discussion and demand on what is the consumer demand side. For virtuous circle – we need to close the circle. But let’s discuss the supply side issue of consolidation.
Passman: Several things drive consolidation. Let me start with my basic premise, we are a mature industry. Attendance is flat to slightly increasing or decreasing in any given year, depending on the product. But it is a mature industry. If you have shareholders or owners, they want to see an increase in profitability. The easiest way to do that in a mature market is to increase efficiencies. Three areas are absolute: purchasing power with studios, Second it is in purchase of food, beverage or inventories, whether seed or popcorn. Third and more obvious is that generally speaking you need only one CEO. So if you are an acquired company, you will be a former CEO (that will happen to me soon). [audience laughs].
Gubbins: We will make a collection for former CEOs at the end of the session. But there are other efficiencies. Data – surely size counts in creating big data.
Bernhardsson: I am an acquired CEO but I stayed. So there is a chance. But we operate in small territories, six countries in the Nordic countries. Getting synergies out of that is hard. You need to look into the logistics when you go in to buy. But some things are the same in Stockholm, Riga or Oslo. And that is processes. And invest in consumer databases. To be top of that you need a high amount of money CAPEX volume. We have a lot of internet companies up north like Spotify and Skype, so we need to be better than the best in addressing the customer in the digital environment.
Gubbins: You can be aggressively local but some things you need to be global.
Bernhardsson: From a consumer perspective we are more e-tailer than a cinema company. Most consumers in Sweden get their ticket on mobil.
Donovan: There are some head office synergies. But looking at sustainable value in the long term it has to be effectiveness in the business. Previously we had 7 separate companies in 7 territories. Now we share best practices and share it across. We have the Digital Innovation Lab and it is our scale and reach that attract those companies. It is how we innovate that will count. Generating your own intellectual property counts. We will see pollination between local operators in towns and cities and mega operators that leverage capital and knowledge in a quite different way.Katzenberg: What are the big structural things that can be mega game changers, from movie making to movie going? I would offer that single greatest opportunity, a result of these amazing smartphone devices, I go pretty much to the same cinema for years and years. There are maybe one or two cinema near that customer, so there is that relationship between you and your customers. We have made zero effort to capture the relationship in the best way for the eco system.
Hollywood studios spend as much money marketing their movies as they spend making them. Let me repeat that. [He repeats that] Here is the absurd thing; each time you start from scratch. You advertise across a billion people to target 100 million people. We need to engage in a smarter, direct relationship with you, who get the customers through the door. Allows the marketing to be highly more efficient. Billions of dollars of efficiency can be captured and shared, with a value add for cinemas. There isn’t a bigger thing than that. The fact that we aren’t taking that data that you are capturing or can capture. Netflix does this all day long. They recommend content to us based on content that we like. For us not to create that same user interface is a big miss.
Gubbins: This keeps coming through, but I have better relationship with my sports team than than with my cinemas. This will surely come through with diversity.
Katzenberg: The strongest part of the cinema business is the family audience. People like Paul are not able to capture that data of the customer who comes to see “Finding Dory” and then not use it for “Secret Lives of Pets” and then the same for “Ice Age”. $500 million spent to market those movies. It is crazy.
Donovan: Distributors take a film-by-film view of the world and we (cinemas) take a guest-by-guest approach. Spend more money with us and we can measure.
Katzenberg: It is bigger than that Paul, this is a potential for a re-set in the relationship. It becomes a shared goal and you should get paid a bounty for finding that customer for us. It seems so obvious,.
Donovan: I agree with you Jeffrey, we have invested a lot of money. I got into trouble when I told a Hollywood studio that I can’t find the right person in your organisation to discuss this with. I agree that we need a reset. It is starting and the trend of consolidation is going to accelerate that. When you have five screens it is hard to be heard.
Gubbins: Jeffrey’s point is about the culture. I want to move on to innovation. In the 1980s everything was on the floor. Innovation changed that – multiplexes, as well as VHS and DVD. And then there was 3D, which you Jeffrey helped push. If we haven’t reached the end of interest in 3D?
Katzenberg: I hope this doesn’t sound like sour grapes but we completely blew it on 3D. It was a game changing opportunity. When you think about the enthusiasm when people saw “Avatar” in 3D, when they saw “Monsters vs Alines” and “Life of Pi” in 3D. When we gave them an artistic film that celebrated that experience. Unfortunately right out of the box, a lot of people took the low road and gimmicked it. And we instantly lost the good will and trust and we never regained it. I’m sure when “Avatar 2” comes along, it will be regained. We can capitalise on it when the quality and experience is there. It is the content creators who blew it. Exhibition stood up and made the investment and upgraded and Hollywood dropped the ball. It was incredibly disappointing because we put such a lot of personal capital into it.
David hit the nail on its head, how do you go out of your home and get a super experience in the cinema. Making cinema exceptional is key. Being able to buy your tickets in advance and not having to watch 30 minutes of commercials, offering of food and have a drink (for those of you that drink – I’m sure they were the ones outside my hotel room early this morning). This is not about discovery. The customer has spoken. Exhibition is embracing it. AMC said we have a highly under utilised facility, with too many seats, we can make it more premium. The results are spectacular. These things are self evident. I’m optimistic about the movie experience.
Gubbins: Just like sports, it is still the same game but more enjoyable.
Passman: I look forward to the changes in cinemas in the next ten years. The super hero action figures will phase out. Jeffrey is right about sports. We have kitchens in our home and yet we go out and eat. That is the cinema experience. We have to find more ways for audiences to enjoy movies. We need to spread movies across the whole year. Momentum is important in our business. The more movies we have throughout the year, the more opportunities we have to attract audiences.
Gubbins: Cinemas are not capitalising on word-of-mouth.
Bernhardsson: I am quite confident in the future. I we look at the standard of theatres today, we measure with the best in class. We have opportunities to improve standard more. From programming perspective we are using new technology with old behaviour. We need to improve our programming skills in the digital era.
Donovan: If we simply adopted the same level of knowledge and systems of customer management and digital tool, really capturing social media, then there is a 5-10%1 lift right there. That’s even before we get into areas like gaming and VR, which will be a complimentary experience that we will be offering. But we need to get basics right first. How good are we at the things that will move the needle. We have to raise our game. There is a learned helplessness of saying that ‘the content is no good’.
Gubbins: Nobody has mentioned event cinema yet. It seems like a clue to the the overall experience of cinema. But feels like we are a long way away.
Passman: Jeffrey pointed out the blockage – marketing. If our audiences knew that opera was available on a Sunday afternoon they would fill the cinema. Social media is part of it, local theatre management is part of it. With digital we can do it on a grander scale. But how do we serialise, or make our audiences aware that they can come and see the finest opera in the world at one tenth the cost of seeing that opera on stage.
Gubbins: Looking at big trends of film as a whole , looking at streaming, there is a vote of confidence from the likes of Amazon having cinema releases, but how will cinemas interact with other platforms.
Katzenberg: We have spent 55 minutes about the importance of the movie going experience One of the other things is an opportunity is for us to get in better sync with what the post-theatrical relationship and how does everybody prosper. Too often we get into dogmatic red lines. It has to be 90-100 dos type of insistence. Marketing cost is the driving reason for that. There needs to be a pretty serious re-alignment. Protecting the theatrical window will not work by denying customers access. I go back to sports, because attendance has never been higher, despite it being available on more devices than ever. [Discusses sport US city ‘blackouts’ in team cities]. All boats have risen with the tide. Being dogmatic is not logical. There needs to be opportunistic way the everyone can share and prosper.
Donovan: People who love movies love movies. The people who have the most digital devices also go to movies a lot. Our ‘Unlimited’ card subscribers – 70% of those also have a Netflix subscription. Our business model is still hugely fragile and sensitive to small changes. I share an acceptance that the world is going to change, but you don’t set off on a journey where you don’t know the destination or the route. So we all need confidence.
Gubbins: There will be negotiations and discussions. It all keeps coming back to audiences. As Jeffrey said, it is a culture thing.
And with that the first session of CineEurope 2016 was over.