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TOPIC: 3D --THE END IS NEAR!

Re:3D --THE END IS NEAR! 20 Apr 2010 16:56 #33796

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BWT,

It would be difficult for the surcharge to be only $1 since so many use Real 3d. Real gets a royalty of $.50 for each ticket sold and when you factor the studio split being over 50% for most movies.....the theater loses money only charging $1.

Unless the chains using Real have a siginicantly less royalty.
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Re:3D --THE END IS NEAR! 20 Apr 2010 17:58 #33797

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That's a fair point, but I'd guess that the royalty rate RealD needs to charge in order to get sufficient returns on the stereoscopic 3D tech would probably deflate a bit over that 10+ year period. The company can definitely maintain a higher royalty rate for some of its customers by continuing to develop genuinely new, value-added theatrical 3D technology, but over time, the laws of economics point to royalty rates (and associated 3D ticket premiums) ultimately coming down.

Similar to most electronics (cell phones, computers, TVs, etc), the march of time will bring associated decreases in input material costs and production efficiencies with larger scale production runs, both of which are likely to push down the lifetime NPV (net present value) of the royalty rates that RealD would need to recoup over the life of its 3D units in order to earn an adequate return on the technology. With lower royalty rates returning the same (or better) returns on their capital investments and R&D spending, there's the possibility of more theater owners being able to afford to implement the RealD solution, so on and so on throughout the exhibition marketplace.
Last Edit: 20 Apr 2010 18:07 by BWT.
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Re:3D --THE END IS NEAR! 21 Apr 2010 00:24 #33798

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LET ME SAY AGAIN
I LOVE 3 D
PEOPLE WILL BE BORED WITH IT AS THE STUDIOS HAVE OVER PLAYED THERE HAND !
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Re:3D --THE END IS NEAR! 11 May 2010 07:49 #33929

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Sony announces new Men in Black Memorial Day weekend 2012 in 3D!! What was that date again??
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Re:3D --THE END IS NEAR! 11 May 2010 08:51 #33930

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Here's another thing to end 3D. They want 6 weeks for shrek in 3D. That will keep any location who has only one screen of 3D from playing Toy Stoy in 3D.
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Re:3D --THE END IS NEAR! 11 May 2010 10:07 #33933

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the gloves are off--6 weeks ---wow
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Re:3D --THE END IS NEAR! 11 May 2010 13:40 #33936

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Playboy has announced that its June issue will include 3D glasses so its readers can view the June centerfold Hope Dworaczyk in her full glory.

Can a re-release of The Stewardesses be far behind?
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Re:3D --THE END IS NEAR! 11 May 2010 13:46 #33937

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I hate to say it, but the logjam of 3D isn't going to kill 3D, but it does give the film booker some leverage in the short term if Dreamworks really wants to get their film as widely released as possible AND minimize Pixar's impact to their grosses.

All of the big chains (Regal, AMC, Cinemark, Carmike) are having a field day with the 3D traffic jam because they can use their leverage to negotiate better film rents in order to allow access to their screens. I understand that smaller locations have to pick and choose, but ultimately you will have to add more than one 3D screen in order to get access to the appropriate content going forward. For someone owning/operating a single screen, this obviously presents a major problem, but the reality is that the industry is moving forward with 3D and digital, and folks will just have to play ball in a certain sense.

Folks can make noise about how 3D is just a fad and how it's a flash in the pan, but the commercial proof is in the pudding and 3D is here to stay. The studios are not ponying up more than $1 billion over the next 5-10 years in order to enable digital (and subsequently 3D) at the bulk of theaters in North America for no reason. There is more than enough incremental ticket revenue (not to mention increases in admissions) to justify the investment for both the studios (via VPF payments for digital upgrades) as well as the exhibitor; not to mention live events and incremental utilization because of digital flexibility to respond to higher ticket demand. The fact that you can get a RealD unit for ~$5,000 and generate on average, anywhere from 3-9x more ticket revenue on opening weekend (read: you effectively pay for the unit investment in its first weekend of usage) should stop folks from even questioning if 3D is "here to stay."

I'm certainly not saying that single screens, or folks who don't want to upgrade from 35mm won't prosper and make money. However, I will say that the future of the industry (as it has been all along the past 50+ years since Stanley Durwood twinned his first theater) continues to move towards multiple screens at a single theater, and alongside that is the necessity of upgrading to digital cinema.

Enjoy the fact that this current situation of too much 3D inventory is creating an opportunity to give YOU some leverage for once against the studios. This unique occurrence likely won't be the case in 2011 when the majors have ~4000+ 3D screens available, so I'd advise folks to enjoy the here and now.
Last Edit: 11 May 2010 13:47 by BWT.
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Re:3D --THE END IS NEAR! 11 May 2010 14:28 #33938

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BWT,

I need some clarification: All exhibitors would do well to convert to digital and 3d? Or all but certain classes (exhibitors averaging say less than $50,000 per screen?)

As it sits right now, I believe the following: I believe it may make sense to go digital (not taking into consideration 3d at this point) in the following situations: 1) You qualify to receive VPFs, 2) You can get real expense savings in your booth, or 3) You can get product that you otherwise can not get.

Situation 1) $800 does seem to be the VPF amount that is most talked about with little disagreement. I assume that there probably is a 3-week min. to get that VPF which for most 6-plexes and up is no big deal. So each screen if playing all digital would probably receive at most $13,866. But there probably many times that a movie is kept longer. If the average is 4 weeks, then the annual vpf would equal $10,400. BUT, if this is such a great deal than why have not more theaters converted?

2) Booth expenses: an all digital booth might allow you to have less staff. It seems though you would have to 5 screeens or more to realize this. Even then you would only be saving $4-5,000 per screen per year.

3a) More access to product: Right now there is no greater access to feature movies than before. Studios are still using the same methods as before when allocating movies. In theory there could easily be more access for many exhibitors but that is not happening.
3b) Alternative product: MET, sports events, etc. Too soon to tell but I have not heard much from these sources as of yet.


3d: You mention Real3d, but at least from the majority of folks on FT, Real is the more expensive of the system due tot he $.50 ticket royalty to them.

"3-9x" more ticket revenue: I am not seeing quite this large of mutliples in the KC area, certainly if you are in a competitive market where you only the only one with 3d you will see big increases, but what happens when all players have 3d? (I would like to develop a method to try to measure this, I will send you a private message to see if can find a way to measure this better.)
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Re:3D --THE END IS NEAR! 12 May 2010 09:20 #33940

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if this [VPFs] is such a great deal than why have not more theaters converted?
The majority of theaters haven't converted over yet to digital because of the one-two punch of the recession and credit crunch that started at the end of 2007. The banks being on the ropes and/or the government dole for periods of time hasn't helped the lending environment. Prior to 2008, Carmike upgraded their entire first-run circuit (~2150 screens) for about ~$6,000/screen via a funding facility from Cinedigm under its "Phase 1" program (i.e. Cinedigm ponied up most of the funds to purchase and install the digital equipment and then collects and credits Carmike's VPFs on the remaining balance owed).

Since mid to late 2008, Cinedigm has only offered "Phase 2" upgrades/installations, which entails the exhibitor actually finding the capital to purchase the digital equipment. Exhibitors who use Cinedigm get access to VPFs by upgrading through them since the studios will only pay VPFs through either a major chain or the Cinema Buyers Group (CBG) contract -- where Cinedigm is the preferred digital integrator. Even with costs coming down to something near $75,000 per screen upgraded, asking independent exhibitors with only one, or maybe a handful of locations to pony up upwards of $500,000+ in a recessionary environment like this is a difficult sell at best. With the aforementioned banks still not in the mood to lend, folks getting financing - even if they want digital and 3D wholeheartedly - remains more difficult than it was even a couple of years ago. I believe access to capital is still the major impediment to getting independents upgraded.
Booth expenses: an all digital booth might allow you to have less staff[...]Even then you would only be saving $4-5,000 per screen per year.
This is a fair point, but frankly I'd say an extra $20,000-$25,000 to the pretax line (assuming 5 screens) at the end of the year isn't exactly chump change. To me, the biggest reason to have digital would be the flexibility to meet demand combined with the ability to shift content very easily from larger auditoriums to smaller ones based on customer preference. Increased utilization is the largest benefit I think of digital (excluding 3D from the equation) because it gives you a chance to lever your fixed costs in a way that wasn't possible even 5 years ago.

I'll cite an example from an operator I know in North Carolina: for the "Twilight: New Moon" release, their location sold out 8 screens at midnight on the Thursday before wide release because they ran the first "Twilight" film as a free special feature before the "New Moon" showings at midnight. On a normal Thursday night, that theater would have sported a utilization rate of probably 1-2% while still paying the same number of staff, electricity and food spoilage. Instead, that location saw tremendous incremental concession sales for the free Twilight showing and packed the house when normally the theater would be dark. As a kicker, he still sold out all of his showings the next night (Friday) because the teeny-boppers came back to see it AGAIN with their parents. I'm not saying this is representative of the entire year, but without the flexibility of digital (piping New Moon to 8 screens simultaneously + easy download of the original Twilight film the week before), this example would have never been able to occur.
More access to product[...]In theory there could easily be more access for many exhibitors but that is not happening.
I don't think that more access/allocation to more theaters with respect to competitive booking zones was ever discussed as an advantage with digital. Now, if you have 3D (which requires digital) and can get better content than your 2D-only local competition, then I guess you would have better access in that sense. Digital cinema distribution, whether through mailed hard drives or digital download, simply makes it easier to show a film in more auditoriums, set up your entire run (trailers and all) the Sunday before the week starts via the content management server, and easily move films from larger to smaller auditoriums (and vice versa) depending on customer demand. I've never seen any argument from either side (studios or NATO) regarding digital enabling different allocation policies for the same identical content...that is a completely separate argument from digital cinema.
Alternative product: MET, sports events, etc
Alternative content is still very nascent and frankly probably won't be all that beneficial to the bottom line of exhibitors until the studios (and their parent media companies) do more to help promote it with the general public. The NCAA Final Four was broadcast to several dozen theaters in 3D back in March....how many people heard about it via TV advertisements? Not very many would be my guess. I think the potential for sports and live-events (e.g. Phish 3D on 4/20) is bright, but there needs to be some marketing spend on the content owners part to help bring people to the theater. Most folks don't think about going to the local cinema to catch the NCAA on the big screen, they think about going to the sports bar. I know operators who brought in catering companies and sold beer and whatnot during the 3D telecasts -- exactly the same experience you'd get at a bar but much bigger screen and more comfortable seat. I think the long-term trend of alternative content is also to help drive that utilization I mentioned earlier.

By having more content that people want to come watch, that creates opportunity for incremental concession sales during slower periods. If someone never comes to the theater on a Wednesday night, you're definitely not selling them a popcorn. Once you get them there, maybe that buttery smell makes them buy one...i'd rather have/use/leverage alternative content on weeknights (or non-peak hours) to help give me that chance to make that sale even if I don’t get any extra revenue on the admission side.
You mention RealD, but at least from the majority of folks, RealD is the more expensive of the system due to the $0.50 ticket royalty
I'm not implying that RealD doesn't carry an incremental cost - it certainly does with that $0.50/ticket royalty payment. I'm looking at the implementation of RealD from a return on investment standpoint...with digital cinema in place, RealD will finance the unit for you for ~2 years with something like a $5,000ish down payment. If you look at the opening weekend grosses for the past several 3D films (i'm using nationwide grosses and screen counts from BoxOfficeMojo and Variety), the ability to show 3D films will more than pay for itself over the first couple of weekends, if not the first weekend itself.

Here are the average stereoscopic 3D per screen grosses vs average 2D per screen grosses over the lifetime of each film (this data includes weekend revenues only because of the much higher utilization rate vs weekday showings):

-- Avatar: 8.1x ($11,099 vs $1,372)
-- Alice in Wonderland: 6.6x ($10,923 vs $1,654)
-- How To Train Your Dragon: 3.1x ($5,579 vs $1,779)
-- Clash of the Titans: 2.6x ($5,717 vs $2,210)

With respect to what I was saying about the 3D tech upgrade cost, the $5,000 initial investment could be paid back easily within a couple of weekends, and that isn't even counting weekday sales. The opening weekend 3D vs 2D per screen incremental revenues look even more compelling:

-- Avatar: $24,462 vs $4,434 = $20,029 incremental revenue
-- Alice in Wonderland: $39,462 vs $4,465 = $34,997 incremental revenue
-- How To Train Your Dragon: $12,439 vs $2,900 = $9,539 incremental revenue
-- Clash of the Titans: $17,582 vs $6,007 = $11,575 incremental revenue

The growing pipeline of 3D film product is driving nice pricing gains but also attendance. The per screen revenue multiples I've cited above aren't just from mix, or the per screen numbers would only be ~40% higher for every film. Customers are CHOOSING to go to see films in 3D when they are offered in that format. While I can't prove it statistically, I would venture a good guess that people who normally wouldn't see a film might be tempted to head to the local cinema since 3D has come into the picture (no pun intended).

==

Hope this clarifies some of my points. Feel free to contact me via private message if you want more data on my revenue numbers and whatnot.
Last Edit: 12 May 2010 12:16 by BWT.
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Re:3D --THE END IS NEAR! 12 May 2010 15:47 #33943

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BWT wrote:
[quote

Here are the average stereoscopic 3D per screen grosses vs average 2D per screen grosses over the lifetime of each film (this data includes weekend revenues only because of the much higher utilization rate vs weekday showings):

-- Avatar: 8.1x ($11,099 vs $1,372)
-- Alice in Wonderland: 6.6x ($10,923 vs $1,654)
-- How To Train Your Dragon: 3.1x ($5,579 vs $1,779)
-- Clash of the Titans: 2.6x ($5,717 vs $2,210)

With respect to what I was saying about the 3D tech upgrade cost, the $5,000 initial investment could be paid back easily within a couple of weekends, and that isn't even counting weekday sales. The opening weekend 3D vs 2D per screen incremental revenues look even more compelling:

-- Avatar: $24,462 vs $4,434 = $20,029 incremental revenue
-- Alice in Wonderland: $39,462 vs $4,465 = $34,997 incremental revenue
-- How To Train Your Dragon: $12,439 vs $2,900 = $9,539 incremental revenue
-- Clash of the Titans: $17,582 vs $6,007 = $11,575 incremental revenue

.[/quote]


These are numbers comparing 3d locations vs non-3d locations right? Well that is flawed. The overwhelming majority of locations that have 3d presentations are the larger venues that gross much more anyway. For example a 14-screen Hollywood theater with 4 3d Avatar screens. Or the 30-screen AMC in KC. Comparing these locations to other smaller exhibitors is not a fair analysis in box office potential.

Now it you wanted to find 2 comparable films: 1 in 2d and 1 in 3d and compare the grosses of those two at that location....then I am up for that.

For example: I just compared the first 2 weeks of Horton Hears A Who vs the first 2 weeks of How To Train A Dragon at 3 of the largest chains' nicest theaters. Dragon performed better that Horton by the follwoing multiples: 1.4, 1.56, 1.51. Certainly no 3x-8x! It did mean an extra $40,000 at one of these locations which is not chicken feed.

So lets say a small exhibitor that did $7000 on Horton, what could they had expected on Dragon if they had 3d? A doubling to $14,000? Which would be better than the big chains multiple.
Last Edit: 12 May 2010 16:36 by rufusjack.
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Re:3D --THE END IS NEAR! 12 May 2010 21:01 #33946

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-- Avatar: 8.1x ($11,099 vs $1,372)
-- Alice in Wonderland: 6.6x ($10,923 vs $1,654)
-- How To Train Your Dragon: 3.1x ($5,579 vs $1,779)
-- Clash of the Titans: 2.6x ($5,717 vs $2,210)


8.1, 6.6, 3.1, 2.6 .....

And that's the trend with 3D being new and exciting. There will always be the halo movies that will break this trend (Shrek , Toy Story)but I am willing to bet that "Despicable Me" won't beat Titans mulitplier.

Jay
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Re:3D --THE END IS NEAR! 12 May 2010 21:31 #33947

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Jay,

I am not so sure we are comparing apples to apples here. The majority of the 3d houses are at the biggest grossing theaters. So yes they will out-outgross the smaller exhibitors. I agree that 3d can give you a boost in ticket sales but nowhere near what BWT numbers show.

Plus I no 100% that a good chunk of a 3d theater's increase in business comes from theaters that do not have 2d. What happens when all theaters have 3d? For example: a town of 100,000 people near me: Theater 1 (8 screens was first with 3d) and Theater 2 (added 4-3d screens for Avatar). On Cloudy With Meatballs, theater 1 outgrossed theater 2 by a multiple of 2.53, G-Force 2.05, Final Destination 3.48, UP 1.83, Monsters Vs Aliens 1.64. Then avatar and both theaters have 3d: Avatar theater 1 to theater 2: .51, Alice .57, Dragon .71.
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Re:3D --THE END IS NEAR! 13 May 2010 10:12 #33949

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@rufusjack:

I understand the point you are making about local economics/demand having different multiples and potentials depending on market make up as compared to the data in aggregate, but I'm going to stand by my analysis on the incremental revenue. I purposely tailored my argument on 'the end of 3D' for the industry as a whole, not just specifically for smaller operators. I see that you are approaching/attempting to answer cost/benefit question more from the perspective of a smaller operator though.

I admit that I'm not running the bottom-up numbers for an exhibitor that is grossing $25,000/screen annually, but in a general sense, with the industry screens about ~53% owned by the top 10 chains and the remainder owned by independents of various sizes, I believe the aggregate analysis gives a broad look at whether or not 3D is "working" and whether or not the return in investment is justified in a generalized sense. Every operator will have some unique qualities to their business model, initial investment amount for digital/3D, and cost structure, so I guess the onus would be on folks looking at the 3D question to examine their own P&L and then take a look at their market and maybe apply some worst/base/best case scenarios to see if their returns are match up at all with the aggregate data.

The data that I'm crunching is industry-wide and includes everyone from twins to megaplexes. While I understand that the outlier super-grossing theaters (e.g. Manhattan locations, 30-plexes) can move the number around a bit, the lifetime gross multiples I think are still relevant when considering the overall impact of 3D to the exhibition industry. For example, the Avatar weekly stereoscopic 3D vs 2D screen gross multiples look like this over its entire run:

Week 1: 5.52x -- 1,860 3D screens
Week 2: 7.40x -- 1,860 3D screens
Week 3: 8.96x -- 1,860 3D screens
Week 4: 8.61x -- 1,860 3D screens
Week 5: 9.99x -- 1,860 3D screens
Week 6: 11.69x -- 1,860 3D screens
Week 7: 11.33x -- 1,860 3D screens
Week 8: 11.35x -- 1,860 3D screens
Week 9: 10.58x -- 1,860 3D screens
Week 10: 9.20x -- 1,860 3D screens
Week 11: 10.41x -- 1,860 3D screens
Week 12: 10.61x -- 667 3D screens << Alice in Wonderland
Week 13: 9.15x -- 650 3D screens
Week 14: 6.64x -- 650 3D screens
Week 15: 10.43x -- 170 3D screens << How To Train Your Dragon
Week 16: 4.68x -- 170 3D screens << Clash of the Titans
Week 17: 3.90x -- 170 3D screens
Week 18: 4.53x -- 170 3D screens
Week 19: 7.39x -- 103 3D screens

From looking at the preceding results, my guess is that the Week 15-19 screens are more likely than not going to be folks who might have it after the break, or smaller locations in non-prime markets. Also, I have to admit that since I don't have the specific breakdown by state/theater, I could be wrong and those grosses could all be coming out of megaplexes in NYC and Los Angeles. However, given 15+ weeks into release, my bet would be that the grosses are coming out of smaller markets and likely more from independents than from the big chains.
Last Edit: 13 May 2010 13:29 by BWT.
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Re:3D --THE END IS NEAR! 13 May 2010 19:29 #33953

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Slap, no need to read this as this thread has gone on and on.

I agree that 3d is big right now. That is one reason I am having the Technicolor 3d film system being installed as I right this. Measuring how big it is needs to be done with care.

You see we have had numerous examples the past couple of mos. on this forum of how hard it can be to start/re-open/etc. a theater in this business. Too many newbies just do not do their homework. Some take over a theater and do not even get an equipment tech/supplier lined up for an example.

BWT, I still believe your numbers are not relevant whether or not a theater adds digital 3d (which at one point this topic has gotten to that). The extremes on the ends of this business (as far as exhibitor grosses are huge.

For example in the KC district 77 exhibitors have their gross public on Rentrak.com for Iron Man 2(the ones who do not are mostly smaller regional and other small theaters). 20 (26%) of the theaters grossed 73% of the total. 19 of those 20 theaters have 3d capabilities. The bottom 20, grossed only 2.4% of the total for a mulitple of 29.8. For Dragon, the top 26% (17 of 67) grossed again 73%, while the bottom 17 (Only one of the 17 has 3d and it is a non-profit community owned theater) grossed 2.8% for a multiple of 26.17.

It is more relevant to look at comparable films and how do they do at the same theater in evaluating whether or not it may work for exhibitor.
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