Industry issues dominate Ellis Jacob – Bob Sunshine Talk at ICTA 2019 Business Convention

In a wide-ranging discussion that touched on diversification, streaming services, piracy, exclusivity windows and a host of other industry topics, delegates to the ICTA 2019 Annual Business Convention in Toronto, Canada were treated to the informed opinions of Ellis Jacob, President and CEO of Cineplex – Canada’s largest circuit – and ICTA Executive Director, Bob Sunshine.

Profuse Content and Exhibitor Diversification Key to Success in Challenging Times
Ellis Jacob said that exhibitors need to become all-encompassing entertainment destinations; not just movies but gaming, virtual reality, dining experiences as well, in a one-stop location. “In the old days, you bought your ticket, saw the movie and then left. Today, it’s all about keeping the customer engaged, before the movie, during and after the movie.”

Warming to his subject, Jacob described Cineplex’s locations of The Rec Room as a case in point. “So we currently have seven locations (including one five minutes from the Intercontinental Hotel in downtown Toronto where the ICTA business conference was held) and each destination boasts a third gaming attractions, a third upscale dining and social meeting place and one third live shows. We rent out the spaces to groups, including companies for motivational events for example, and in fact provide one of the top virtual-reality destinations in Canada. The demographic it draws is very well-heeled, from the early afternoon to late at night, and with more opening in 2019.”

Cineplex is still very focused on the movie experience and that will always be important. “Today you can go to our theatres and see a movie nine different ways, which is kind of scary when you think about [delivering] it, but the choice is there; from 2D, 3D, to 4DX, ScreenX, UltraAVX, IMAX, D-Box, and VIP Cinemas and kids’ auditoriums called Clubhouse…we’re ensuring that customers have a different experience than what they could have at home, so they’ll leave home to come to our destinations.”

But diversification takes many forms, and for those who want to stay home, Cineplex uses Uber Eats, which sees customers selecting a movie from the Cineplex Store online, and then ordering food for delivery to one’s home. “That’s really taken off, replicating a movie experience in the home, complete with popcorn and drinks, even if there’s a premium to it. We’re not the only exhibitor in the world doing that but remember, you have to have the content to do this,” Jacob emphasized.

In a twist, Jacob noted that sometimes, well-intentioned initiatives that improve the customer experience can conflict. “We want our guests’ attention pre-show, so we have enticing trailers and onscreen games. But in growing our reserved-seat availability, we found that those purchasers come right at the last minute before the movie starts, and after the pre-show. It’s a balancing act, to be sure.”

Content: Feast or (Possible) Famine?
“As the traditional studios continue to invest in big tent-pole movies, we exhibitors need the smaller movies to fill our screens and if we can get these streaming companies to bankroll them that would be an awesome contribution,” mused Jacob. “But the world is changing. Two years from now, max, the average American or Canadian will have seven or more streaming apps on their TVs, Apple iPads and phones, and there will be lots of choice. The winners will be those that can consolidate them into a differentiated offering.”

Streaming Services Present Opportunities for Exhibitor
Speaking to the impact of the growing reach of streaming content businesses, Jacob allowed that they continue to proliferate and grow, “…with our studio partners getting into that business. But looking back upon this year, the in-cinema business is doing well. Avengers: End Game is the largest-grossing movie ever, and The Lion King also opened strongly. It’s all about content and as long as the content is available, people will attend.”

Observed Jacob, “We, the exhibition industry, were all panicking about what was going to go on these streaming services but the bottom line might be compared to the old days when you had the movie of the week on TV, and nowadays it will become the movie of the week on the streaming services. So I don’t think it’s the issue it’s being made out to be. In fact Ernst & Young in the US did a study and it found that people, who stream the most, also went to movie theatres more often than the average.

Sunshine noted that the streaming services were still full of surprises, what with Netflix seeking and gaining admission to the Motion Picture Association of America (MPAA) membership. Jacob agreed, mentioning that Netflix’s involvement came as a surprise to the NATO executive and members.

Streamers-Exhibitor Co-operation Possible, While Maintaining Exclusivity
‘Windows’ – the exclusivity given to exhibitors for content delivery – had seen quite the evolution, Sunshine noted. “Once, in the USA, every major city had a distribution branch office, providing windows of up to two years, but they just keep shrinking. Where will the end up, and is there a ‘right’ point of windows for exhibition?”

Jacob acknowledged the challenge, to both studios and exhibitors. “As you said, the exclusivity was once two years and now it’s shrunk to roughly 70 days. The challenge for the studios is that an underperforming movie makes them want to get it on their other platforms quickly. A model we’ve experimented with in Canada, with Paramount Pictures Canada, holds promise. It’s a formula tied to the amount of time that a specific movie is uplinked and how many screens it is shown on, and how long that content stays in the threatre, before it goes to streaming or electronic sell-through (EST) platforms,” noted Jacob.

Piracy Still Important, but Legal Models Can Prevent
“It became a big issue ten years ago, and in my backyard, there was a lot of piracy in Canada. But thanks to the efforts of the smaller exhibitors and the major players like Cineplex, we convinced the Canadian government to make it a criminal offense to pirate content; we lobbied to make a strong law and won. Today, other than the sound feeds occasionally, there has been no piracy in Canada-completely suppressed. And Canada offers a great model to other countries; make the consequences for doing it much more severe.

“And by the way, we at NATO try hard to keep the smaller circuits involved and having a place at the table. An example of their value is that, related back to our attempt to curb piracy in Canada, the independent exhibitors made the difference in persuading the government to get tough,” emphasized Jacob.

NATO, the Global Cinema Federation, and the Studios
Speaking to his first year as NATO chairman, Jacob elaborated on the association’s value, noting that it “is a great, consolidated, single voice for the industry, with members sharing in information generated, discussions, and different technology focuses.”

Most satisfying for Jacob has been the strong relationships with studios. “We at NATO spend an incredible amount of time meeting with the studios to discuss topics, like piracy, like technology, music rights – which has become a big issue for all countries outside the US – accessibility, etc., and the studios have been very supportive about the theatrical window. We’ve told them that this is important to us and we want to have a distinction between what we are offering theatrically and what is going to go on our streaming service.”

Sunshine noted that NATO has members from more than 100 countries but it was good to see the formation of the Global Cinema Federation to expand industry perspectives; a view that Jacob was quick to endorse and expand on, explaining that some issues revealed a deep divide between geographies.

“We set up the organization is really to look at global issues and one big one is that of music rights. In the US when a movie plays, an exhibitor doesn’t have to pay for the music rights. In other parts of the world, including Canada, the music rights can amount to from 6 to 8 percent of your box office take, so what the GCF is trying to do is work with the studios to figure out a mechanism whereby we have some kind of uniformity across the world, to deal with the music portfolios and get them up front, rather than each country having to deal with different rules and rights. At the end of the day, those dollars may be going into funds that benefit the bureaucrats running [music licensing] organizations, not the cinema industry.”

Sunshine concurred, saying that the upcoming ShowEast conference would have a panel of experts – patent agents, lawyers, etc. – to clarify and debate the music-rights issue.

“We’re also working on technology papers and looking at the different tariffs in countries, where it might be meaningful. So those are the things we want to address and having an organization like GCF gives us a united, expansive voice; one that is getting a lot of traction across the world,” said Jacob. “There are no dues so if anyone is interested in joining, I can get Alejandro Ramirez, the CEO of Cinepolis and a key driver of the GCF, to contact you. We have lots of members globally, India, China, the UK, USA and Canada covered. We even have Nigeria…”

Whither 3D? End of the road or a viable option?
Sunshine confirmed that 3D audiences have decreased in the USA, although it continues to do well overseas, especially in Asia, which began a discussion of the situation in Canada for 3D presentations.

Canada is one of the top countries in the world for 3D audiences, but it is a challenge, since audiences were turned off by poorly-made 3D movies, not worth paying a premium for. “That’s the challenge, as reflected in the US where only 10 to 15 percent of moviegoers, I believe, opt for a 3D presentation,” noted Jacob. In Canada overall, more than a third of showings are in 3D, and in some cases where movies are available in 2D and 3D, the 3D showings account for 60-percent plus of that movie’s box office.

“But it’s a challenge. We’ve consistently charged only a $3.00 ‘uplift’ on 3D over 2D presentations, from when the format first appeared. The US experience was priced higher to start, and has had to come down.”