February 26, 2003

Movies Is Bestest Than Ever...

Next week, the annual ShoWest convention will sputter into Las Vegas. Some 1,500 reps of theater chains and mom and pop cinemas will converge on the gambling capital and watch a mobius strip collection of product reels, attend a trade show, dinners and awards and feel good about the business of exhibiting movies.

It will be interesting to see whether the two biggest players - Philip Anschutz and Gerry Schwartz - even attend. The two reclusive business speculators own or have ties to such major circuits as Regal, Loews, AMC, General Cinemas and Landmark among others. Movie theaters are just part of a massive portfolio each carries and one suspects will divest at some future opportune date.

It’s taken a long time for financial wheeler-dealers to connect movie theaters and real estate. This arena has long been the domain of people who grew up with neighborhood movie houses and evolved from single screens to national prominence. They had an emotional connection to the business that has been both good and bad for this sector. Some still would like to believe that the heyday of the 1930s, 40s and 50s can be revived. While far from a dying industry, it’s a pipe dream to even imagine the clock can be turned back and that going to the movies will again be preeminent. The option of television, sporting events and music concerts isn’t going away.

On the plus side, once the albatross of single screen venues went the way of the dodo, the new movie palaces adapted nicely to the realities of the day. Modern multiplexes offer up variety, comfort and escape even if your destination happens to be Maid in Manhattan or Daredevil. It’s a good business in the sense that it’s something the public wants regardless of geographic location or the quality of the presentation.

However, let’s not lose sight of the fact that the men and women who show these movies have virtually no control over what they present to the public. They do not green light, cast, finance, develop or package the films that grace their screens. And if they operate venues with 12 or more auditoriums, they’re generally compelled to show everything that’s available. There is no recourse for a theater owner who would prefer to play a raucous teen comedy when the majors only have action-adventures and dramas on their current release schedule.

There is no arbitrator between exhibition and distribution just as there’s no more than a tangential relationship between distribution and production or exhibition and the public. One can only speculate that if formal channels of exchange existed between the people with ideas through all the steps to the ultimate paying public it might be a more vibrant industry. A screenwriter friend once wrote something titled Meet the Moron in which the central character, a functional illiterate, became a cause celebre because he had an innate sense of what people wanted. It was optioned by Disney but, despite an obvious high concept, never produced. Fiction can be stranger than truth in rare instances.

Back on the floor at Bally’s Vegas, the closest one comes to an exchange between labor and management comes in the form of the heads of the National Association of Theater Owners and the Motion Picture Association of America. The former is embodied by former D.C. lobbyist Jon Fithian and the latter the still feisty octogenarian World War II fighter pilot Jack Valenti. On Tuesday, Valenti will present his state of the union address that will included an inflated 2002 domestic box office figure of $9.52 billion. The MPAA has a long tradition of being bad at math and one’s hard pressed to quibble about it considering its significance to the overall activities of the organization. It does after all have to fight the equivalent of terrorists when it comes to piracy and can’t seem to staunch what’s been estimated as high as $3 billion annually in lost revenues.

The hammer that the MPAA wields is simply the worldwide public’s ravenous appetite for American movies, particularly the ones produced and/or distributed by its members that include all the major studios and their so-called specialized divisions, but not DreamWorks. I presume DreamWorks receives some assistance and benefit from the MPAA overseas where its movies are usually distributed by United International Pictures, a member by dint of its involvement with Universal and Paramount. According to Valenti figures, international box office rang up $9.64 billion of which member titles accounted for roughly 55% of the figure. Overall it represents a boost of 15.7% from 2001. Again, the figure is incorrect (as is a $470 million tally for Canada). However, in this instance, it’s under-reporting.

Meanwhile, in Santa Monica, the American Film Market Association just wound up its market, putting forward a brave face despite a demonstrable reduction in both the number of buyers and sellers participating. Its member companies - including studio-owned Miramax, New Line and Focus - generated close to $3 billion worth of tickets overseas in 2002, roughly half that figure coming from the aforementioned trio of sub-majors. However, the situation for most member companies isn’t so great. Unless they can co-venture with a major, they’re limited in both the budgets and talent they can access. Then, they face a bitter contest to secure screens.

The grim realities confronting an American independent are multi-fold. The sort of genre fare that was the bread and butter of many of these sales companies either are no longer in vogue or have become the provenance of the bigger players. But, more to the point, is that there’s no room at the inn. Between the majors and indigenous product, there’s no significant country that’s crying out for movies to fill blank screens.

One long-time seller told me that a few years ago he could meet his nut by producing two or three films annually. Today he has to do six to eight films and sell them in volume. With many now shut out of the theatrical arena it’s become a real sleight-of-hand to recover costs from TV and video and DVD sales.

The situation isn’t much better for regional players that are used to competition from Hollywood fare. Now, they encounter a double whammy because companies such as Columbia TriStar, Warner Bros. and Buena Vista International are investing in filmmakers and productions in France, Germany, Japan, Scandinavia, Korea, Brazil, Mexico, Italy, etc., etc. There doesn’t appear to be much they can do legally, politically or morally about a situation they consider poaching.

There’s unquestionably a lot on the MPAA platter from tariff and trade agreements, copyright infringement and, in rare instances, quotas and levies. Exacting favorable international agreements has been crucial to bringing back a gazillion rather than a measly bazillion dollars to its members. So, it’s understandable the association might be a little lacks when it comes to its rating system or in collecting data to present at a convention for film exhibitors.

Considering all the nice things the MPAA has done for the economy and culture, it’s only fair one should give them a hand in areas that don’t get their full attention. So, let’s begin by grabbing a pencil.

In Calendar year 2002, North American box office was approximately $9.24 billion. Now, some people insist on compiling annually figures not based on the calendar but on play weeks and using that system adds a week in 2002 and the addition of roughly $150 million for a total of $9.39 billion. Last years Canadian box office was about $953 million in that country’s currency or $635 million in U.S. dollars.

This next section is tricky, so have that pencil handy.

According to the MPAA, American only box office was $9.52 billion with Canada adding .47 billion for a North American total of $9.99 billion. The $600 million difference is an easy miscalculation to make for someone not versed in these matters. The Motion Picture Association receives box office information from its members and that data includes Canada as part of the domestic marketplace. Canadian grosses are not converted, nor are they separated in these reports. Quite likely some $300 million in unconverted money has been added to the total by mistake and one can also readily see another $160 million in its misevaluation of the Northern marketplace. Together that would account for $460 million. Oops! Except that the $160 million should be subtracted leaving just a $140 million overage and I’m at a loss about the remaining $440 million.

But perhaps we’ll fare better overseas. Releases by the five majors - Fox, BVI, UIP, CTSI and WB - grossed roughly $6.12 billion in 2002 overseas. The MPAA estimates international box office at $9.64 billion. My international market share draws from a significant sampling but does not extrapolate to include box office of local movies in Russia, India and China where that data is near impossible to obtain. So, my international pool is just $9.11 billion. Reeling back to the MPAA figure of $9.64 billion, it estimates its members accounted for 55% of that figure which would translate to $5.3 billion. Hmmm. That’s some $800 million shy and doesn’t include more than $1.1 billion from New Line and Miramax or more than $100 from Universal Vivendi’s Studio Canal.

I’m not certain that the MPAA will fully appreciate my pointing out this $2 billion discrepancy. However, in hopes of maintaining some good will, I’d gladly drop my usual finder’s fee by half to 5%. Anxiously awaiting a response, I remain your loyal servant.

Email Leonard Klady