By John Fithian, President & CEO, NATO and Jackie Brenneman, General Counsel & Director of Industry Relations, NATO
Moviegoing is largely the same across the world: People of all ages come to a theater to watch a story in a dark room with friends and strangers. With popcorn and soda, of course. In most territories audiences are even watching the same titles, as global blockbusters continue to dominate much of the industry. In fact, audiences in very diverse territories are increasingly attending the same chain of theater as brands like AMC, Cinemark, Cineworld and Cinépolis, Lotte, and CJ-CGV have expanded their reach to multiple continents. As exhibitors cross into new territories, they have realized that as much as each territory has a distinct identity, many of the issues facing exhibitors are universal, though with some local nuance.
This trend toward globalization in the industry led NATO to join forces with UNIC and 11 of the biggest global exhibitors to form the Global Cinema Federation, a volunteer federation serving the common goals of cinema operators across the globe. The GCF advocates on issues of shared concern and also provides critical educational support by gathering information from around the world that exhibitors can use to support their own decision making. For example, movie theft certainly harms the industry consistently on a global scale. Yet the laws and strategies to combat piracy are wildly divergent from locale to locale. As exhibition enters emerging territories, the laws addressing movie theft are often nascent or nonexistent, with regulators and stakeholders trying to invent a strategy from scratch. With the GCF, exhibitors around the world can now share their success stories and work together to help exhibitors lobby their local bodies for effective and enforceable legislation. Currently, for example, the GCF is working on a white paper that exhibitors in Peru can use to help pass effective anticamcord legislation in the country. Further, the paper will help exhibitors to implement practices that will help their staff better spot piracy in action, along with ways to ensure local law enforcement responds to calls to cinemas. In this way, exhibitors in one territory can benefit from the experiences of exhibitors around the world in a significant and tangible way.
Key to the growth of this federation is membership with the large Asian exhibitors, including companies operating in China and Korea. In December, NATO’s CEO John Fithian and general counsel Jackie Brenneman went to Asia to meet with leading players in the industry to learn about what matters most to them and to see if a global federation could play a role in their ongoing success. The following is a summary of these meetings and the most important lessons learned.
First Stop: China
On December 3–5, John and Jackie, along with our local consultant, Nan Jin (formerly of both Wanda and Fox), met with two of the biggest exhibitors in China, as well as two other key players who operate in both the exhibition and distribution space. We also had the pleasure of seeing a technology demonstration and touring several cinemas. Meetings included:
China Film Company
- Frank, Ruoqing Fu, CEO China Film Company
- Shuping Li, CTO Huaxia Film
- Zhou BaoLin, Deputy General Manager China Film Company
- Demond Bian, Assistant President Huaxia Film Distribution, General Manager Huaxia Film Beijing Co, Director of Nationwide Alliance of Art House Cinemas
- John Zeng, President Wanda Film Group
Dadi Cinema Group
- Heran Xu, CEO Dadi Media Group & Dadi Cinema Group
- Feng Shang, CEO Dadi Media Group
Shanghai Film Co.
- Eileen Chen, General Manager
- Yin Junming, Assistant to General Manager
- Yifan Hua, Investor Relations
China is a global powerhouse with nearly 70,000 screens—and growing. China’s box office is second only to the United States and boasts admissions of 1.6 billion so far in China this year. However, although China has had a film industry for over a century, this explosive growth in exhibition has all happened in this century, with the number of movie theaters now at more than 20 times the number in 2007. It is clear that this rapidly expanding territory has the whole world watching.
The Chinese film system operates very differently from North America or most other territories. In China, the government controls much of the industry, giving state-owned players like China Film Co. and Shanghai Film Co. significant power. For example, China Film Co. is currently the only authorized distributor of imported foreign titles, including those from the United States. The company also owns both cinemas and “cinema lines”—affiliated cinemas that receive content from the line. This type of relationship is common in China, with each of the companies visited controlling both an exhibition circuit and a larger cinema line. Wanda, for example, has a cinema line of 608 cinemas and an exhibition circuit of 570 cinemas. Dadi has 1,070 affiliates in its line and 496 in its circuit. Companies running a cinema line get a 7 percent share of the box office for their affiliated cinemas. When that is added to the approximately 50 percent share that exhibitors take of box office, this creates a combined total of 57 percent share of the box office for theaters that are owned outright by the company.
China is also facing dual pressures: It seeks to expand the influence of its cinema industry while trying to compete for moviegoers who are increasingly signing on to new streaming platforms to seek low-cost alternatives to the previously dominant movie theater. These dual themes factored into our discussions on several issues, the highlights of which are below.
Theatrical Release Windows
In China, the theatrical window rarely exceeds one month, with many titles moving to the home after only one to two weeks. This is in part because of contractual requirements that allow a movie to move to streaming once it goes below a certain box office threshold. What this means is that there is no “dark period” where a movie is unavailable at either the cinema or home. Of course what this also means is that many moviegoers do not feel a sense of urgency to watch a movie in the cinemas, since they know it will be in the home shortly. In part, this was explained as being part of a culture of instant gratification. However, this is also in part a reflection of the product supply to theaters being dominated by big blockbusters that demand immediate viewing for cultural relevancy of the viewer without a balance of smaller titles that may have different growth strategies.
Indeed, China does not benefit from any sort of platform release strategy, which exhibitors hoping to diversify product supply understand as a meaningful option. Not only would this help to allow smaller movies to have a meaningful theatrical release, but it would also help shape the cultural understanding of what it means to go to a movie.
Each of the exhibitors was very interested in the concept of a longer window and was particularly eager for any research that could show an increased value in such a window.
With limited imports allowed, and release schedules tightly controlled, exhibitors are not able to compete through differentiated programming and instead look to technology to differentiate the theatrical experience. In fact, because widespread moviegoing is such a recent phenomenon in China, many of the exhibitors believe that technology is the key differentiating factor in the theatrical experience, rather than the shared experience. This is a territory where many citizens over the age of 30 do not have any memories of watching a movie in a nondigital movie theater as a child. All their experiences are of splashy modern titles in digital auditoriums, thus shaping the understanding of what is at the core of the experience.
Indeed, in both our tours of the cinemas and the demonstration of the Huaxai-backed Cinity technology (incorporating Christie projectors and RealD screens), splashy technology was clearly on display, with many exhibitors offering multiple premium formats in their cinemas.
China also did not experience the VPF model, and so exhibitors have always self-financed the purchases of their digital technology (and for most this is the only type of projector technology they have ever purchased). They were therefore keenly interested in hearing about NATO’s new Digital Cinema Picture Levels project (DCPL), which seeks to measure performance in a real-world theatrical environment to better understand what truly matters from a consumer value standpoint, rather than the more futuristic/aspirational goals being contemplated by DCI. The possibility of great technology at a more affordable price was of strong interest to each of these exhibitors.
As growth slows, exhibitors are now looking for other innovative ways to drive attendance and revenue at their theaters. Wanda, for example has put a strong focus on its “Member +” loyalty strategy, which has attracted more than 100 million members so far. Others, like Shanghai Film Co., are keen to innovate in theater design to draw guests back to the lobbies, rather than out a separate entrance as dictated by many of the malls that exhibitors occupy. Shanghai Film showed us a showcase theater that includes a number of novel designs intended to create the illusion of a separate space distinct from the mall, including physical signage, incorporation of an outside food brand, and a lobby seating area that encourages coffee/snack consumption and post-movie discussions. We also saw an innovative conversion of a projector booth into VIP seating rooms for a new Onyx (LED screen) facility. These exhibitors are looking to learn from other global exhibitors about how to use data and design to offer a special experience to their guests and were keen to collaborate with NATO and the GCF to learn more.
In three very dense days of discussions and demonstrations we created and strengthened our relationships with influential players in the Chinese exhibition, distribution, and technology sector and saw a strong interest in NATO and GCF participation.
On to Seoul, Republic of Korea
On December 10–12, John met individually with the three biggest exhibitors based in Seoul and toured each of their flagship cinemas. Meetings included:
- Choi Byung Hwan, CEO, CJ CGV
- Kim, JongRul, CEO, 4DX and ScreenX
- Bret Kim, Head of Global Business Division, CJ CGV
- Hee Sung OH, COO, Lotte Cultureworks
- Justin Choi, General Manager, Global Contents, Lotte Entertainment
- Hyun Soo Kim, Managing Director
- Youlgu Lee, Projection Team Leader
- SeoJin Lee, Visual Design & Brand Team
The two leading Korean cinema companies (CJ CGV and Lotte) constitute a small part of very large corporate conglomerates that operate many different businesses, from shopping malls to food service to pharmaceuticals. CJ CGV and Lotte also both operate internationally. CJ CGV operates in Korea, China, Vietnam, Turkey, and the U.S. Lotte operates in Korea, Vietnam, China, and Indonesia. Megabox, the third-largest exhibitor in Korea, only operates in its home territory.
There is no trade association for Korean exhibitors for two reasons. First, the three companies each describe themselves as aggressively competitive with the others. They take great pride in their operations and, indeed, each of their flagship cinemas are something to behold. Taking in between 3 and 4 million visitors a year at each of those individual sites, the massive cinema complexes include PLFs, luxury auditoriums, art screens, V.R. experience rooms, social “hang out” spaces, regular concessions counters selling flavored popcorn and soda as well as fried squid, beer service, and also high-end food and beverage lounges in separate VIP sections. The average Korean goes to the movies more than four times a year, and many residents of Seoul visit the flagship sites at all hours of all days.
The Korean exhibitors have also been reluctant to form a trade association out of concern for strenuous antitrust law enforcement from an aggressive government that is pushed by active nongovernmental organizations (NGOs). The exhibitors were recently sued by the government for asserted price-fixing, for example. Nonetheless, all three companies see the value of collaboration with their fellow exhibitors from around the world, and now all three will support the work of the Global Cinema Federation (GCF).
During the meetings we discussed several key challenges confronting exhibitors in Korea and the work of both NATO and the GCF on those various issues. Here are some quick highlights of those discussions.
Antitrust Laws and Screen Quotas
Under Korean law, a specified number of days each year (currently 72) must be dedicated to Korean movies in each auditorium. Given the strength of Korean movie production, that law poses no real burden on exhibitors in most auditoriums. Korean movies currently produce slightly more than 50 percent of the ticket sales in Korea. However, in a limited number of auditoriums with specialty high-end technologies (e.g., Imax, Dolby, HDR, LED), the national movie-screen quota can be a small burden if local producers don’t produce enough content in those special formats.
A much more threatening proposal has recently been made in the Korean legislature and to the Korean antitrust authorities. Activists at an NGO complained that certain Hollywood blockbusters occupy too high a concentration of screens at release. The NGO claimed, for example, that Disney’s Frozen 2 “monopolized” 70 to 80 percent of the screens, and that such concentration violates antitrust laws. Proposals have now been made to limit the concentration of any particular movie to no more than 50 percent of available screens.
The Korean exhibitors oppose this proposal and seek the support of NATO and the GCF. We will collect data and arguments from other parts of the world to share with our colleagues in Korea.
Theatrical Release Windows
In Korea the period between theatrical and home release is shorter than in the rest of the world. It is generally accepted that a minimum exclusive window of two weeks exists on smaller movies, while longer windows exist for major titles, averaging around six weeks. Nonetheless, Korean exhibitors still maintain that exclusive windows are important for their business. They also note that the first home window is for higher-priced video on demand, and not for relatively free streaming subscription services.
One exhibitor is currently experimenting with a few movies that have a very short or no window to subscription streaming services and believes that the data demonstrate that such a window policy damages the potential for theatrical ticket sales on the movies.
The GCF and NATO collect a substantial amount of data on theatrical windows, and all the Korean exhibitors appreciated the opportunity to gain access to that data.
Like their Chinese counterparts, Korean exhibitors seek the best cinema experiences for their guests, and cinema technologies are certainly a large part of that. Digital projection, including a large number of laser-illuminated units, operate at high performance. Exhibitors also employ high-end technologies in their large-format and luxury screens, including stacked projectors in some cases. One exhibitor is currently experimenting with three LED screens at different locations in the country. And premium sound systems, including immersive audio, also play a big role in Korea.
Nonetheless, like cinema operators everywhere, Korean exhibitors seek technological solutions that offer a great experience at an affordable cost so that the business model will work. Indeed, with the end of virtual print fees, Korean exhibitors are keenly aware of the cost burden involved with replacement and enhancement technologies. Leaders at each of the three companies were very interested to learn about NATO’s DCPL intiative.
Music Rights Licensing
Several of the Korean exhibition executives had read about music rights licensing issues in materials from both the GCF and NATO, and they expressed interest in the multicountry study being conducted by the GCF.
Korean movie producers specifically pay for the performance rights for the music they include in their movies, according to the Korean exhibition leaders. Given that tradition, Korean exhibitors have not cutomarily been asked to pay for music performance rights, unlike exhibitors in most other countries around the world. Recently, however, a local music rights collecting society in Korea has begun to demand royalty payments from exhibitors for the music in Hollywood movies, beginning with the Korean release of Bohemian Rhapsody. The Korean exhibitors will oppose these efforts and argue that movie producers should pay for performance rights, not exhibitors.
The discussions included other issues, such as access for patrons with disabilities, diversity of movie supply and cross-generational attendance, theatrical subscription services, and more. But, alas, this column is already too long.
In the end, the time spent both in China and in Korea was well worth it!