Circuits on overdrive

Brit exhibs undergo changes while re-inventing the sector

LONDON — With the possible exception of China, the U.K. exhib business has emerged as the most dynamic cinema market since last year’s Cinema Expo. Over the past 12 months, the hardtop sector in Blighty has seen not so much consolidation as an all-out buying frenzy.

Since August, more than two-thirds of the U.K.’s cinema screens have changed ownership — with all the major circuits now controlled by international venture capital companies.

And in the U.K. and Ireland, there are big plans for digital cinema. In Britain, the U.K. Film Council is spending £11.7 million ($21 million) of its National Lottery funding to install digital projectors and related equipment in 209 theaters (including 238 screens — about 7% of the market) by the end of 2006. The first sites in the network will become active by the end of this year.

In summer 2004, speculation about cinema consolidation and the ownership of the major circuits was still focused on the established operators. Then, two groundbreaking deals churned up the exhib landscape.

In August, venture capitalist Guy Hands’ Terra Firma won separate auctions, on the same day, to buy UCI and Odeon, for a reported total of about $1 billion. The two circuits rep 35% of the U.K. market.

Another buyout firm — U.S.-based Blackstone Group — then bought Cine-U.K. in October, followed by a deal to acquire UGC’s 42 cinemas in December.

Previously, in 2003, venture capital-backed Vue Cinemas, funded by Legal & General Ventures, Clarity Partners and Boston Ventures, bought Warner Village Cinemas. This year the company announced the acquisition of Ster Century’s U.K. and Ireland circuit of seven multiplexes.

Meanwhile, venture capital firm Arts Alliance Media has taken a majority stake in City Screen, the largest U.K. exhib specializing in indie fare.

Observers say the raft of buyouts indicates that the exhibition industry is in robust health, offering substantial cash-flow benefits. They also point to the upward curve in admissions and box office in recent years.

Even with the double whammy of increasing film piracy and shrinking release windows threatening profitability, significant factors promise increasing and sustainable revenues from the business.

Digital cinema, according to U.K. industry analyst Dodona Research, will not just be the most significant tech change in cinema exhibition since the introduction of sound, but it will be an opportunity to rewrite the financial rules for how films get distributed and screened. Past discussions, says Dodona, have centered on technology and standards, with the focus only recently shifting to issues of business and finance.

The comprehensive rollout of high-end digital projection in cinemas is now a reality. Already there are several thousand low-end, networked digital projectors installed in cinemas around the world that are being used daily, whether for preshow advertising, alternative content, business conferences, gaming and more.

And now, after years of hype about a revolution in the film industry, digital cinema –at least a 2k standard — is about to take off. Major announcements in the U.S., U.K. and Ireland signal the beginning of a large-scale deployment of digital equipment.

Ireland has been the first country to announce that its entire screen base will be digitized, with a $48 million project to convert all the country’s 600 screens to digital.

With the Hollywood studios having agreed to a common standard (Digital Cinema Initiatives), and the technology has reached a level acceptable to them, investment plans — for cinema projection and supply systems — are becoming more realistic and attractive.

In many markets it has been the independent and arthouse sector that has been driving the switch to digital — although mostly e-cinema as opposed to d-cinema.

The U.K. is taking a different approach in using public funds to create a countrywide digital network, with the aim of increasing diversity in film programming. The U.K. Film Council selected digital cinema services outfit Arts Alliance Digital Cinema to install and maintain what will be the world’s largest digital screen network, a contract worth $20 million.

Impeding the rollout of the digital market globally has been the relatively small number of films released in digital. In a chicken-and-egg standoff, exhibs have held back due to a dearth of digital films, while distributors have held back because of the lack of digital projectors.

But that looks likely to change soon.

In addition to projection systems, companies have identified new opportunities in the rapidly growing digital cinema market.

Kodak is just one of many outfits to offer a sophisticated upgrade to operators who are investing in digital projection equipment. The Kodak CineServer, according to chief Bill Doeren, is an integrated preshow and theatrical operating system that provides the link between projectors and digital film.

At Cinema Expo, Kodak will be demonstrating its upgrade for a preshow system: from standard to high definition.

Says Doeren, “It’s an important early stage application of digital technology to exhibition. It’s the foundation for the platform for the other upgrades that will come over time.”

Kodak also will be using Cinema Expo to demonstrate its CineServer in combination with 2K theatrical projection, in association with Barco.

Kodak’s entry into the digital cinema sector highlights how competitive the market has become. Companies such as Dolby, NEC, QuVIS, Christie, Barco, Qualcomm, Boeing, EVS, GDC, Texas Instruments, Sony and Technicolor, to name only the major players, are all now seeking to exploit new applications and services for the digital market.

But digital cinema is not just about the long-term cost savings of print production and the efficiencies of distribution and exhibition.

An awareness of the growing competition to cinema — from film piracy, shrinking release windows and advances in home entertainment technology — has prompted the development of initiatives to distinguish cinemagoing from the home theater experience.

Real D, a U.S. company, offers an upgrade package to digital cinemas for the delivery of 3-D entertainment.

Providing a turnkey service based on a licensing model, Real D supplies a package to cinemas allowing for the higher-quality viewing of both 2-D and 3-D that is more advanced than previous “red and green” 3-D technology.

While a product demonstration will not be ready in time for Cinema Expo, Joe Peioxto — recently hired to head up Real D’s ambitious plans to install its D-cinema technology in 1,000 theaters by summer 2006 — and his colleagues will attend the confab to promote the service.

But one of the most innovative developments comes from National Amusements, the only private company operating a major cinema circuit in the country.

NA’s Showcase has plans to build massive and lavish cinemas in at least six sites over the next three to five years.

Showcase operations are overseen by Shari Redstone, daughter of Viacom chief Sumner Redstone. Because it has no venture capital demands on its bottom line, it’s a very powerful force, observes a rival exhib.

The company recently signed a contract for the first of its Cinema de Lux sites in the U.K. Scheduled to open in 2008, the 13-screen cinema in Bristol will feature Cinema de Lux’s premium auditoria concept, called Director’s Halls, which include a concierge-style desk service, leather rocking recliners, reserved seating, live preshow intros, and food and beverage service.

NA intends to include a number of other types of entertainment on the site — including music and videogames.

Jennifer Hanson, director of corporate communications, says the company is aiming to provide an entertainment venue that is unrivaled in the U.K.

The Cinema de Lux concept already has 10 sites across the U.S. and two in Russia.

And yet, with recent rumors of some venture capital cinema owners considering IPOs, just what the U.K. cinema landscape will look like this time next year remains, as they say, to be seen.

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