A Conversation with the President of NATO, John Fithian

February 2003

 

John Fithian is the president of the National Association of Theatre Owners, the largest exhibition trade organization in the world.  Its membership includes the largest cinema chains in the world as well as hundreds of independent theatre owners. Digital Cinema Report Editor & Publisher Nick Dager last interviewed Fithian in February 2003.  With the Digital Cinema Initiative standards essentially in place and with reports that an acceptable business model is nearing completion it seemed an appropriate time to have another conversation.

 

Digital Cinema Report: This issue was raised late last week as I was preparing these questions. On Friday a U.S. Federal Appeals Court overturned the so-called broadcast flag rule. As you know, Hollywood was in favor of that rule and believes that it could be a significant aid in their fight to protect digital rights? Is this a critical issue for exhibitors? And do you see this court decision as a stumbling block for the finalization of the DCI's work on encryption?

 

John Fithian: Though the broadcast flag would be a great tool against piracy on television, it has no impact on the d-cinema issue. Nor does the court decision have any substantial effect on the d-cinema discussions.

 

DCR: Ticket sales have been essentially flat the past two years. What do you think is causing this?

 

JF: Though ticket sales have declined marginally over the past two years, we should keep the long-term trends in mind. During 2002, 2003 and 2004 we sold more than 1.5 billions tickets in the U.S. We had not seen admission numbers like that since 1959. Indeed, from 1970 to 2004, admissions grew by 67 percent while the U.S. population grew by 43 percent. Americans are going to the movies more often, not less. During the past 13 weeks in 2005, we have been in a bit of a rut. But that decline is the result of product. We had seven fewer wide releases than during the same period in 2004. Also, we had no Passion of the Christ in 2005. Our business is cyclical and driven by product. We will rebound.

 

DCR: Is the number of screens a factor in this?

 

JF: No.

 

DCR: How many active theatres and screens are there today in the North America?

 

JF: There are approximately 41,000 screens in North America today (36,700 in the U.S. and 4300 in Canada). And there are approximately 6200 movie complexes (buildings.)

 

DCR: Is this a viable number for the future or does the industry need fewer or more?

 

JF: The current number is viable. I hope that we don't see increases, because I don't believe the market can support more screens in a profitable way. I hope our members close old screens as fast as they open new ones.

 

DCR: How many digital cinema screens are there in NATO member theatres in North America?

 

JF: Approximately 100.

 

DCR: I asked you this question in our last interview but it bears repeating. What are the three biggest challenges facing exhibitors today?

 

JF: (1) Proper transition to digital cinema, with appropriate technical specifications, quality levels, and business models. (2) Piracy (or film theft, as I prefer to call it.) (3) Appropriate windows between theatrical and DVD releases.

 

DCR:  I like your preference in calling it theft rather than piracy. Piracy sounds glamorous, positive even, and really it's just plain old-fashioned stealing. Next question. What percentage of content shown in NATO-member theatres currently comes from Hollywood?

 

JF: That depends on how one defines "Hollywood." If you mean movies produced at least in part by companies based in North America, then the answer must be somewhere in the 95 percent range.

 

DCR: Do you see that percentage changing in the future?

 

JF: I hope so. Diversity of product would help exhibitors.

 

DCR: I know that you personally don't like the term home theatre. Fair enough. But annual DVD sales are now consistently a larger revenue source for Hollywood than are ticket sales. To me that says that more people are watching movies at home on increasingly larger screens and in rooms than often have stadium seating. Isn't this a challenge for exhibitors?

 

JF: Yes and No. Our greatest competition comes from other forms of "out-of-home" entertainment, like sporting events, music concerts, bowling, etc. People still want to "go out." The question is what they do once they go out. DVD sales have indeed grown at a rapid rate. But strong DVD sales makes the studios stronger, and permit them to pump more money into film production, and that helps us. This is one reason why theatre admissions have grown even while DVDs have exploded. Refer to my answer above comparing 1970 to 2004. Our history is that television hit us hard in the 60s and 70s. But we have not seen similar declines due to VHS or DVD or video on demand. On the other hand, if the window between theatrical and DVD release continues to shrink, we are concerned that movie fans may get used to "waiting for DVD." That would be a problem, though we aren't there yet. Going to a theatre remains a fundmentally different experience than watching a movie at home. The shared experience. The escape from the home. The big screen. The sound system. We also hope to improve this even further through digital cinema.

 

DCR: It's well known that exhibitors in India, Asia and Europe are rapidly installing new cinema systems that they view as digital cinema, even though they may not currently adhere to the DCI guidelines. Two questions. Is this trend at all a factor for North American exhibitors? And do you foresee a rather chaotic period ahead if there are too many different kinds of so-called digital cinema systems in place?

 

JF: In the long run, the vast majority of digital systems installed around the world will be consistent with those installed in North American and supportive of DCI guidelines. But even given some penetration of lower quality systems overseas, those movements will not affect exhibition in the U.S. We have to install high quality systems that satisfy Hollywood, because that is where our product comes from.

 

 

DCR: Has the transition to digital cinema begun in North America or are we still in an early experimental phase?

 

JF: Experimental phase, but not an early one. The transition will begin soon enough. Hopefully after a beta market phase in which the DCI specifications can be tested.

 

DCR: Digital pre-show and advertising systems are installed now in thousands of screens in North America. I have been told that, by and large, exhibitors see them as a success. Is that an accurate figure and what's your assessment of how those systems are working?

 

JF: Try 8,000 - 9,000 and growing. From an economic point of view, the systems are working. Cinema advertising is approaching a $500,000,000 market in North America, and digital systems are providing the engine to that growth. But don't confuse digital advertising systems and digital cinema. The former cost one tenth of the latter and can be amortized in a matter of a few years.

 

DCR: In your view what will signal the start of the roll out?

 

JF: When the DCI specs are completed (likely in the next month.) When a viable business plan supported by most major studios is offered to exhibitors (likely by the end of this year). And after a beta market has been run to test the specifications (toward the end of 2006).

 

DCR: Once a roll out has started, how long do you envision it will take before a significant number of NATO-members screens have made the transition to digital?

 

JF: I don't know what you mean by "significant." But once the roll-out begins, it will take approximately seven years to run its course.

 

DCR: What is the status of the business model?

 

JF: Developing. But not ready for public discussion in any detail.

 

DCR: It is my understanding that several proposals for a business model are currently under discussion and that, in many regards, they are similar. Can you describe the various models, at least in broad terms? If so, can you assess their pros and cons?

 

JF: I cannot discuss any details publicly. But the basic model involves a third party financing entity that puts up the capital for exhibitors to use to install systems that are compliant with the DCI specs. The third party is paid back its investment and a return on their capital over the period of the transition via contributions from the studios that are based on film print cost savings.

 

DCR: You have written that in the long term, digital cinema will benefit small theatre owners as well as the large chains. Do you still feel that way?

 

JF: Yes. IF we can find our way through a universal transition to d-cinema, small exhibitors will find it much easier to obtain the movies they want because the barriers of print costs will be eliminated.

 

DCR: Is there anything you'd care to add?

 

JF: Yes. The most significant ... is the potential role 3-D technologies might have on the transition to d-cinema. There are several technologies being developed now that excite exhibitors. 3-D in a digital world may expand the market.