GERMAN DISTRIBS BITE BULLET

“I don’t think this has ever happened before,” says Wolf-Dietrich von Verschuer, managing director of Germany’s film theater association HDF. “Distributors have agreed on a reduction of film rental fees.”

The reduction by 0.2% of the maximum rental fee possible is a part of a preliminary settlement in the bitter struggle over German Music Performing Rights Organization (GEMA) levies, 50% of which theaters want distribs to pay. The GEMA represents artists and distributes third person rights in all media.

“Until now, the fees had continually risen,” says von Verschuer, “and with them, the burden the film theaters had to bear. I think the distributors have finally understood that the rental fees are as high as it’s possible to push them and that they don’t allow room for investments, and in Germany a lot of investment is necessary.”

The battle over high rental fees (which now officially average 47%) had been raging since a new GEMA regulation was installed at the beginning of the year. Previously, GEMA music usage fees were levied on film theaters according to the number of seats, regardless of which films attracted warm bodies to sit there. GEMA levies now are based on net turnover per film (0.065% this year). For the first time, it became possible to ask the distributors of those films to share equally the load.

But the GEMA issue is only one of the bugs eating at theater owners. With two very lucrative years behind them – and a sour one in the works – the union is getting restless.

“Unions are playing hardball in the retail sector all over Germany right now,” says von Verschuer. “The first pay hike negotiations with the union I.G. Medien ended unsuccessfully, and it looks like there will be a tough fight in the near future.”

At the same time, theater owners demand more flexibility. They want employees to be willing to work more in winter months and less in summer months instead of working at a steady weekly average. The next round of talks starts at the end of this June.

But what’s really taking a gouge out of profits are investments – of the necessary kind. Over the past few years, it has become more and more apparent that the future belongs to luxury hardtops, multiplexes, state-of-the-art technology and a mix of entertainment and gastronomical options. For many, that means invest or die.

“The option for smaller indie cinemas is to specialize, band together, join a major partner or disappear,” says von Verschuer. “It’s become obvious that to continue on as before without investing will not work. More and more, management qualities are in demand in small cinemas.”

For the big chains, this not only means endless renovations and more presence in the big cities, it also means expansion, especially into the east. Of Germany’s 3,795 screens, only 467 are located in the eastern states. That means there are a lot of potential ticket-buyers in the east who have no theaters to go to.

But where to take the money to invest? “If the rental fees remain so high, there won’t be much money left for expansion,” says Heiner Kieft of Kieft and Kieft, Germany’s second-largest exhib conglomerate. His sister Marlies and he owned 50 screens when the wall came down in 1989 – they now own 120, many of them in the east.

“And the other costs are rising at the same time,” says Kieft. “Theaters cost more per seat to build here than in other parts of the world. The cities have high requirements for building projects, and the weather conditions demand more elaborate construction. A theater costs 12,000 to 13,000 marks per seat; in America it’s much less.”

In 1994, Germany sold 132.8 million tickets to the tune of DM1.228 billion ($1,731 billion). Many believe a much higher potential is there. “I’m convinced that if we can keep building, we will be able to sell 200 million tickets per year by the year 2000,” says Kieft.

Investments in German film theaters in 1993 totaled $320 million, in 1994 the total was $394 million. According to von Verschuer, those numbers will continue through 1996. But if you’re paying an (official) average of 47% per customer per film, those investments can make themselves noticed.

So at the beginning of the year, theater owners began asking distributors to help carry the investment/GEMA burdens.

At the beginning of this month, a temporary agreement was reached, on the condition that a permanent agreement would be reached by the end of August. The ceiling for rental fees was lowered by a whopping 0.2%. In return, theater owners promise to screen trailers and to take over the burden of collecting the weekly ticket sales data for EDI (previously collected per phone by the distributors).

Coming negotiations will also explore further the subject of reducing rental fees for new-investment cinemas.

The main negotiators (and the main investors) are Germany’s big five: 1. Ufa/Riech with 465 screens and 132 hardtops. 2. Kieft and Kieft with 116 screens and 50 hardtops. 3. The Flebbe Group with 103 screens in 63 houses. 4. Theile Filmtheater with 82 screens at 32 sites (including what many see as the “most perfect” cinema in Germany, the 12-screen Kinopolis near Frankfurt). 5. FTB Georg Reiss with 55 screens in 24 hardtops. UCI follows with 51 screens in four plexes.

The Flebbe Group, backed by real estate kingpin and musical theater impresario Rolf Deyhle, plans to build 14 multiplexes with a total of 135 screens in the next three years. Ufa/Riech is planning on building a total of 116 new screens in 12 multiplexes (or near-plexes) over the next four years.

“The future is multiplexes,” says Heiner Kieft, “but not like in America. Here, the plexes will be in the cities or right on the outskirts. And those cities don’t necessarily have to be major ones.”

Kieft has gained 50 screens in the last three years. He will soon open a 14-screen plex in Dortmund and two more in Chemnitz and Saarbrucken, and plans to invest another 100 million marks in the next three years.

“In the next three years, the battle for multiplex locations will be decided in Germany,” says Kieft.

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