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CinemaCon: 3 Major Issues Facing the Movie Business

Hollywood is taking the party to Sin City, hoping that theater owners will feel like there’s a lot to celebrate.

CinemaCon, the annual exhibition industry trade show, kicks off on Monday at Caesar’s Palace in Las Vegas. Over four days, in between trips to the slot machines and blackjack tables, movie theater owners and executives will get a sneak peek at the blockbuster hopefuls that will be hitting theaters over the next 12 months. Every major studio will be on hand, a group that includes Warner Bros., Universal,  Sony, and Fox, as well as Focus and Amazon, ambassadors from the indie world. Disney, which commanded more than a quarter of the domestic market share last year and just scored a massive hit with “Beauty and the Beast,” will also make an appearance. The studio, however, tends to save most of its footage for D23, its fan expo, and usually offers up trailers that have already premiered elsewhere. This year Disney will use the event to gin up excitement for “Pirates of the Caribbean: Dead Men Tell No Tales,” premiering the fifth installment in the long-running family franchise for theater owners.

By the time the curtain falls on another CinemaCon, exhibitors and members of the press may get a better sense of what to expect from some of the year’s most-anticipated titles — a list that includes “Alien: Covenant,” “Spider-Man: Homecoming,” “Star Wars: The Last Jedi,” “Wonder Woman,” and “Justice League.”

This year’s gathering commences with the wind firmly at the movie business’ back. The domestic box office is up 5.5% thanks to such hits as “Get Out,” “Logan,” and “Split.” Many analysts expect ticket sales to continue to climb given that the coming months will host sequels to Tiffany franchises such as “Star Wars,” “Guardians of the Galaxy,” and “Transformers.”

“Theater owners and studios always love to go into CinemaCon riding a wave of good news,” said Paul Dergarabedian, senior media analyst at comScore. “We’re on track to have the biggest box office year ever. We’re looking at what could be the first $40 billion year globally.”

Despite the splashy numbers, not everyone is feeling bullish about the state of the industry. Even supporters acknowledge that there’s a growing divide between the films that work, such as “Beauty and the Beast,” a fantasy romance that could hit $1 billion globally, and the list of duds that vanish almost instantly. Last weekend, for instance, the science-fiction thriller “Life” and the cop comedy “CHIPS” opened to just over $20 million combined while costing more than $80 million altogether to produce.

“The abyss is getting bigger,” said Greg Foster, CEO of Imax Entertainment. “When something doesn’t work, it’s not working to a much greater degree than it used to. When something works, it seems like there’s no ceiling.”

There are other challenges, most of it coming from competition from cable TV  and streaming services. Moreover, much of the box office growth, at least domestically, can be attributed to inflation and higher ticket sales. Attendance in the U.S. and Canada is essentially flat. This is all while consumers are showing a greater affinity for streaming content that they can watch on mobile devices or computers. The days of sitting in a darkened theater, a bucket of popcorn in hand, may be waning for a younger audience.

“I like the canvas of a big screen,” says David Permut, the producer of “Hacksaw Ridge.” “But the reality is that some people may not want that — they want to watch it on their iPhone or their iPad. As long as they pay for it, it’s all okay.”

Those who make the trek to the desert aren’t just there for the previews. They come to check out new technologies, from 4D seating that vibrates along with the onscreen action, to virtual reality platforms that offer the promise of enabling theaters to attract crowds of gamers. They also hit the Vegas Strip to debate the issues roiling their business and to get a sense from colleagues about what strategies are effective for keeping seats filled.

“I love the ability to connect with peers and to see what they’re doing so we can stay in the loop,” said Tim League, founder of Alamo Drafthouse, an independent theater chain. “It’s great to get a look at all the studios’ slates and see what they’re planning, because that informs our marketing decisions.”

Here are three topics that are sure to be on theater owners’ and studios’ minds at CinemaCon.

1.) Release Windows Rear Their Head — Again

Last year, the talk at CinemaCon was all about Screening Room. Backed by Sean Parker of Napster and Facebook, the startup wanted to release movies in the home at the same time they debuted in theaters for $50 a rental. It boasted anti-piracy technology and the promise of cutting theater owners in on a slice of the digital revenue, but, for the most part, exhibitors weren’t interested. They feared that what Parker and his partner Prem Akkaraju were proposing was too radical. If it became popular, it might make people think twice about going to the movies, persuading them to skip the multiplexes for the convenience of home.

Screening Room did help convince theater owners to sit down with studios to try to cobble together a compromise. Studios have long wanted to shrink the amount of time between a film’s theatrical debut and its home entertainment launch. Currently, there is usually a 90-day period in which a film is exclusively in theaters, despite the fact that most major releases have made the bulk of their money in their first month of release.

Six of the seven biggest studios — a group that boasts Lionsgate, Paramount, Fox, Sony, Warner Bros., and Universal — are all having separate meetings about a new model that would allow films to come out on premium video-on-demand between 17 days and 45 days after they premiere. These movies would rent for between $30 and $50 a pop. As with the Screening Room, theater owners would get a taste of the rental money. The terms are still being hammered out and sources in both camps stress that a deal is far from being reached. This time, at least, both sides are talking.

2.) Power Vacuum at the Studios

Three of the seven top studios are undergoing massive shakeups. By the time 2017 ends, Warner Bros. could be looking at a new corporate parent. Time Warner, which currently owns the studio, is in the process of selling itself to AT&T in a $85.4-billion deal that still needs to receive government approval. If that takes place, it will give Warner Bros.’ films a direct pipeline to AT&T’s millions of subscribers, potentially shaking up its business model. These movies could be seen as an inducement for subscribers to keep their phone service, making box office one part of a larger value proposition. Often, a merger means a shakeup in the corporate ranks, so it remains to be seen who from Warner Bros. will be making the trip over to AT&T.

Then there’s Sony and Paramount, both in the throes of leadership shifts. Last month, Paramount ousted its chief Brad Grey, after a dozen years and a string of flops. A deal is still being negotiated, but it looks increasingly likely that it will fall to Jim Gianopulos, the former head of Fox, to try to revive the studio’s slate. It’s no small task. Paramount lost $455 million last year, and aside from this summer’s “Transformers: The Last Knight,” the studio doesn’t have many movies coming up that look likely to mint money.

Sony is also looking to make changes. Michael Lynton is stepping down as head of the entertainment division, and Sony has yet to name a successor. Everyone from former Hulu chief Jason Kilar to former Fox Networks Group head Tony Vinciquerra have been mentioned as a possible new head of the division, but until a decision is made, life at the studio remains uncertain. Whoever takes the reins may want to assemble their own team. That could spell the end of the line for Tom Rothman, the brainy, but temperamental studio head who has clashed with staffers while trying to find hits. To be fair to Rothman, when he took over Sony’s motion picture business in 2015, the unit was in tatters. The studio had just been through a hacking from North Korea that became an international news event, and the films it had in production consisted largely of duds such as “Ghostbusters” and “Pixels.” Rothman’s had time to begin to make his mark. He’s hoping that upcoming releases like “Jumanji” and “Spider-Man: Homecoming” snap the losing streak and prove he’s an indispensable component to any revival.

As Sony and Paramount have struggled to find their footing, it’s unclear if the movie business can support this many major studios. A period of consolidation seems likely. Theater chains have already undergone their own wave of mergers. Just last year, AMC, the country’s second-largest chain, swallowed up Carmike, its fourth-biggest, to become the top exhibitor in the world. Other chains, from Regal to Cinemark have snapped up smaller circuits, looking to increase market share and making the industry one that is ruled by fewer and fewer companies. Will the same thing happen with the studios?

3.) The Trump Effect

The movie business has grown increasingly international in scope and complexion. At the same time, the election of President Donald Trump was fueled by an economic populism that is insular and protectionist. President Trump has openly flirted with the idea of having a trade war with China and is considering imposing high tariffs on imports. His administration has made toughening immigration laws a staple of its agenda, from erecting border walls to instituting travel bans on immigrants from certain Muslim-dominated countries.

Trump’s presidency is still in its infancy, but his rhetoric and actions have already unnerved some sectors of the business. Foreign markets comprise roughly 70% of ticket sales. Movies are shot around the globe, and rely upon actors, directors, and top talent from around the world to get made.

That’s not all. Hispanics, an ethnic group that Trump has enraged by saying that many Mexican immigrants included rapists and criminals, attend movies with greater frequency than any other demographic. China, another of the president’s favorite targets, is the second-biggest movie market, while Chinese companies own theater chains and movies companies, and invest in Hollywood films.

In a globalized world, movies are made to transcend barriers and unite people in disparate parts of the globe. What will Trump’s ascent mean for that mission?

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