WEEKLY CineBUZZ REPORT - 17 January 2012



Gov't Flexes Muscles

CHINA CRACKS DOWN ON CINEMAS

Last week the China Daily reported that the Chinese Government was placing a prohibition on the playing of pre-feature advertisements after the posted start time (which must be printed on admission tickets) for all movies. Cinemas violating this restriction would be fined 200,000 yuan ($31,520) and/or face operating license revocation. 

Additionally, the new law makes mandatory the exhibition of at least one free movie per month to the public and two free movies during each school semester for students. It further stipulates that cinemas would be punished by fine and imprisonment for concealing box office receipts and that," any film that fails to obtain a government issued distribution permit shall not be exhibited at a cinema, over the Internet, or at film festivals."

The Chinese Government wants full control of the cinema and what its citizens view.

APPLE IN YOUR LIVING ROOM

Apple's scheduled launch of the iTV will be in the 3rd quarter of this year. I expect the iTV will feature the Siri speech recognition technology (used in the latest iPhone), customizable apps, over-the-top TV service (in other works, no set-top box) all coupled with on-line service for movies, TV shows, social networking, etc., etc. Apple's goal is to bring simplicity to TV viewing, which is currently cluttered with set-top boxes, cables, and remotes.  The iTV will have bright color and excellent image (ala the iPad and Mac), low power consumption, and super thin design.

My understanding is that the technology for the iTV (hardware and software) is not the holdback to market intro, but inking partnerships and negotiating licensing deals from content providers is the stumbling block.
iTunes has a huge library of movies and TV shows but these are for download - Apple wants  new and live broadcasts and content.  Right now, the only way to view this "premium" content is by going to the cinema (in the case of movies) or by subscribing to cable or satellite (in the case of TV programing).  What Apple, Google, Amazon, and other tech Kings want is for consumers to have the ability to choose their own customized programming - movies, shows, sports, etc. - for a monthly fee and in the process use the Internet and cloud services for content distribution and storage. This change, however, would  bring major disruption and re-script the traditional entertainment content distribution model for the movie studios and cable/satellite operators.

Google, is going a step further. It  is in the process of developing over 20 web-based networks of their own which would produce for webcast original shows, movies, live sports and other events - essentially becoming a studio.

The tech Kings are relentless in their pursuit to poach TV viewers and moviegoers away from cinemas and cable/satellite.  Can they be stopped?  No. Simply because of two overwhelming factors.  First, the Darwinistic and unstoppable nature of the technology driving the digital domain; and second, because they have the financial strength to fund their efforts. For example, it is estimated that by the end of the second quarter of this year, Apple will have over $100 billion in cash and other tech Kings are also flush with cash. Microsoft $57 billion, Cisco $44b, Google $43b, Oracle $32b, Amazon $30b.  The Kings can negotiate good deals with the media giants as they know they have the upper hand and if they can't strike a deal they will simply buy them out or create their own "premium" content.

WALL STREET PREDICTS BOX OFFICE GROWTH

Several Wall Street stock analysts believe the cinema box office gross will grow in 2012 - but solely based on higher admission pricing.  Ticket sales are anticipated to continue their downward spiral, due to , you guessed it, higher admission pricing.  Movie exhibitors must get into their noggins that ever higher admission pricing beget less moviegoers.

Barclays Capital media analysts are predicting a 1.5% increase in U.S. box office grosses which will reach $10.31 billion.  However, they anticipate attendance to drop by 1%. The average ticket price will be $8.12.  MKM Partners and B. Riley analysts foresee a 3-4% box office gross increase based upon a 3-5% admission price increase.

The 2012 movie slate looks promising with The Hunger Games, The Avengers, Men in Black 3, Madagascar 3, Brave, The Amazing Spider Man, The Dark Knight Rises, Twilight, The Hobbit, and James Bond 27 likely blockbusters.

Year-over-year, the 2011 box office was down 4% but admissions took a shellacking dropping close to 5%.  This is unsustainable for the cinema. Do exhibitors really believe rising ticket prices will ever provide a balanced offset to attendance losses?  If so, this is a major strategic miscalculation on their part!

Cheers and Happy Movie Going!
Jim Lavorato
Cinema Consultant & Advisor