Hollywood is at a Crossroads. Q&A with Digital Cinema Report’s Nick Dager

Nick Dager, Publisher of the Digital Cinema Report has a career steeped in media starting as a daily newspaper reporter in suburban Chicago. He then shifted to cinema, studying at NYU’s Graduate School of Film & Television and continued his journalism career upon graduation writing for all the industry trade magazines about motion picture production, including creating the Technology column for Variety. In this provocative interview Dager talks about how cinema has evolved, what the state of the industry is today and how it might trend over the next few years.

CW: Your expansive career has seen a great amount of evolution in the cinema space.

ND: Yes. I have seen the transition in cinema from analog to digital audio followed quickly by the transition from film editing to digital nonlinear editing. Movie projectors were beginning to evolve from large systems that delivered very little light to the powerful digital cinema projectors of today. Around this time Texas Instruments was developing its first digital cinema chip and I realized that with this new technology mainstream movie theatres would no longer be limited to showing only first-run Hollywood movies.  They could present a wide range of content. With that in mind, in November 2002 I started Digital Cinema Report http://www.digitalcinemareport.com/.

CW: Is there a future for Hollywood?

ND: It’s a difficult question to answer and it depends on what you mean when you say Hollywood. There have been several Hollywoods: the silent Nickelodeon boom years era; the advent of talkies and the growth of the studio system through the ‘30s and ‘40s, arguably Hollywood at its finest; the ‘50s and ‘60s when the studios lost their right to own theatres and struggled to differentiate itself from TV; the ‘70s and the rise of independent films and the industry once again at its finest; followed by Jaws, Star Wars and the continuing reliance on tent pole films and the demand for blockbusters.

The easy answer is to say yes, because Hollywood has dominated the motion picture business for more than a century. But people said the same thing about Kodak and 35mm film.

Digital cinema technology has changed everything and Hollywood is at a crossroads. To me, this era most resembles the ‘50s and ‘60s when the studios were challenged with competing with the new medium TV. The current challenge is even more difficult because of the Renaissance in great writing, acting and filmmaking that is represented in outstanding productions on cable and, increasingly, streaming. Pick your own favorites. Mine include, but aren’t limited to, The Wire, Deadwood, Mad Men, and Orange is the New Black.

The theatre owners who manage 39,000 movie screens in the U.S. depend on Hollywood for the reliable content the studios distribute to them every week. They depend even more on the enormous marketing efforts that the studios mount to support those new releases. That marketing effort is why we all have a pretty good idea what movie will be playing this Friday night in our local theatre.

But each year Hollywood makes fewer films. Unlike any other era Hollywood is in a feast or famine mode and medium to small budget movies are not deemed worth the return on investment. But where does that leave exhibitors and their customers?

The core movie audience has remained relatively static for more than a decade and movie theatres make 80 percent of their profits during 20 percent of their billable hours. Digital cinema technology is enabling exhibitors to try a range of non-Hollywood content to attract customers Monday through Thursday. This has included opera, live theatre, rock concerts, cartoon shows for young children, documentaries and sporting events.

For the past decade, the Hollywood studios have punished theatres that ran this kind of content, arguing, with some justification, that they – the studios – owned the projection equipment. But the lease agreements that funded the digital cinema technology transition are expiring and, as more theatres own the technology outright, we will see more so-called alternative content in movie theatres and more kinds of content.

CW: Movies are feeling pressure from other media forms, especially from on-demand. How do you think this will impact the film business in the long term?

ND: This is a period of experimentation in all forms of media; motion picture distribution and exhibition are not exceptions. The mainstream movie theatre is being re-imagined literally from the ground up. Although, as noted above, movie theatres are experimenting with new kinds of content they’re not interested in changing current releasing patterns. That has been an ongoing fight between the studios and exhibitors for more than fifty years. The studios want it and the movie theatres fear it could destroy their business. They believe they can’t survive without the traditional theatrical window of 13-17 weeks that keeps movies exclusive to theatres before they’re released to the home.

This August we’re poised to see the latest challenge to that. Netflix and the Weinstein Company are co-producing Crouching Tiger, Hidden Dragon: The Green Legend, the sequel to the highly successful 2000 film Crouching Tiger, Hidden Dragon, which won the Oscar for Best Foreign Language Film. They plan to release it August 28 simultaneously on Netflix and in Imax theatres around the world. However, AMC, Cinemark, Regal and Carmike, which own more than half the Imax screens in the U.S. have said they won’t show the film. Large chains in Canada and Europe also currently support a boycott. Things may change between now and August. We’ll have to see how that all unfolds.

The Hollywood studios still have tremendous resources and are run by very intelligent people. Most of the corporations that run the studios already have, or are in relationships, with the major over-the-top players. Those that don’t can jump in whenever they feel it’s necessary. They might not all feel the need. The Hollywood studios already own the world’s largest and richest libraries of content. Those libraries could be leveraged and packaged in any number of ways.

In my mind, the bigger question mark for Hollywood is how they deal with the growing power of China.

CW: Many movies are targeted to young males but I have read that movies targeting older adults are achieving greater success and profitability. Do you think that the movie love affair with younger audiences is waning?

ND: No. I think for better or worse, and for the foreseeable future, young men ages 18-25 will continue to be the target audience for mainstream Hollywood movies. It’s common sense. Teenagers and college students are the bread and butter of the movie business. Going to the theatre is a dating tradition and an excellent excuse to get out of the house. It’s also an important social event for that age group. Typically the boy is still the one to choose what movie dating teens see.

Families represent another key demographic, which is why we’ve seen a Renaissance in animated films over the last few decades. Older adults are another key demographic and are a staple of mainstream theatres, art house cinemas and alternative content. Hollywood is beginning to take advantage of this and I think that audience will continue to grow as the population ages. But many elderly are taking advantage of discounts and tend to spend less at the concession stand than teens or families.

The types of movies that appeal to teenagers are also extremely popular around the world and the international tickets sales of many Hollywood movies of the last five or ten years have outpaced domestic box office. This is where the Chinese influence is compelling. If it hasn’t already, sometime this year China will become the number one box office market in the world. There is no end in sight for this because more new theatres are being built each week all across China. China represents at once the largest movie audience in the world and the fastest growing.

We’ve already seen several examples of Chinese officials imposing content restrictions on Hollywood features. Also, undoubtedly, the studios are doing some self-censorship because of the Chinese influence. We will continue to see an increasing number of Chinese actors in movies and movies with China-related stories. This is not necessarily a bad thing but I doubt we’ll see Hollywood ever take an honest look at life in China again. It might make for a compelling film but it would be terrible for business.

It will be interesting to see if Chinese starts releasing its own films here and how they’re received. That country has a rich and vibrant film industry of its own and we’re bound to start seeing more Chinese produced movies here but the cultural differences may be a hurdle.

CW: Do you think that independent films help sustain in-theater attendance?

ND: Absolutely, but not if you’re thinking in financial terms. Independent filmmaking is a labor of love. There is very little money to be made and that’s true for filmmakers, film distributors and the theatres that show them. At the same time, no segment of the film industry is more passionate about movies as an art form than the people who make up this world. There are also some 1,500 film festivals in the U.S. alone and the worlds of art house cinemas and film festivals have started a concerted effort to work more closely with one another.

Russ Collins, runs the Michigan State Theatre in Ann Arbor, Michigan, and founded the industry association the Art House Convergence, which hosts an annual convention for people who work in all aspects of independent film. He estimates that there are 2,000 art house cinemas in the country. This is arguably the most stable and most loyal movie audience in the nation and there are signs that this market will continue to grow. But most of them – including the most successful ones – are non-profit corporations and exist, largely, through fund raising and government subsidies. This was also the last segment of the motion picture world to make the transition to digital. Some of that was budgetary but it also has much to do with the purist’s passion for celluloid. There are real world issues, too. A large number of the world’s great movies from the past have never been transferred to digital because it’s very expensive to do. That includes some very successful films from as recently as the 1970s and ‘80s. Film prints are difficult to find and, when they’re available, must be shown on a 35mm film projector. The top art house cinemas typically have both film and digital systems.

The future is bright for independent filmmakers. It has never been easier, or less expensive, to make a movie, and new business models are emerging. The one that interests me most works this way: a filmmaker raises money through crowd-sourcing sites like Kickstarter. Through social media this can organize or hundreds or even thousands depending on the filmmaker’s talent and willingness to work hard. With social media a built-in audience becomes engaged throughout the filmmaking process. The filmmaker creates a website dedicated to the movie and enables the audience to watch clips, trailers and behind-the-scenes footage. When the movie is finished it is sold for streaming or DVD sales via the website. The filmmaker works to get the movie into as many film festivals as possible and, ideally, garners some critical acclaim. Finally, the filmmaker negotiates what is called a four-wall deal an individual theatre to screen the movie for a night or two. Weeknights work best because that is where the demand is for movie theatres. If the filmmaker understands his or her audience well enough, the theatre is in a community with a large number of the movie’s fan base. Word of mouth helps to grow that audience.

If the movie is a good story, well told, the chances are good that a distributor will find it. One film that used a model similar to this was the 2012 documentary The Invisible War about rape in the military. It did not make a lot of money but it did recoup the investment for the filmmakers. And for $2.99 it can be purchased for live streaming on the Sundance Channel, Google Play and elsewhere. The film was nominated for an Academy Award and, more importantly, started a national conversation that continues today.

CW: Looking ahead to the next three to five years, can you give me some predictions about the future of cinema and predictions on the media in general?

ND: For as long into the future as I can reasonable foresee, people will still be enjoying entertainment in a movie theatre. Many kinds of entertainment – including movies, concerts and sporting events – are simply better on huge screens with a crowd of like-minded people. That and the simple fact of real estate: only the extremely wealthy can afford anything much larger than a ten-foot screen because they just don’t have a room big enough.

Movie theatres a decade from now will look nothing like movie theatres today. That is already starting to happen. The seating alone is undergoing a transformation. Today you can choose a very comfortable seat that reclines, or a chair that moves in time to the action on the screen. Or a couch or even a bed.

Many theatres offer quality food and drinks and even service to your seat.

The physical configuration of theatres is dramatically different. Two companies – Barco and CJ 4Dplex America – have introduced concepts that, in addition to the traditional screen, put screens along the sidewalls of theatres to fully immerse the audience in the action. Movie producers and advertisers are beginning to embrace the concept with new kinds of content.

The Chinese influence goes beyond just content. In 2012 Wanda Cinema, the largest cinema chain in China, acquired AMC, the second largest chain in North America. Wanda Cinema has 1,200 screens at 140 locations. Those numbers may be low because Wanda Cinema continues to build new theatres at a steady pace. AMC has 5,048 screens in 347 theatres. The company is now investing hundreds of millions of dollars to upgrade its theatres.

As part of that effort, Dolby and AMC have partnered to build as many as 100 Dolby Digital Cinema theatres at AMC Prime locations by 2024. The first theatres are opening in the coming weeks. Each theatre is being custom designed by Eight, Inc., the company that has designed all of Apple’s stores. I don’t like to use the term state-of-the-art but in this case it’s applicable. These theatres will screen movies in Dolby Vision and Dolby Atmos sound, which offer picture and sound that are equal to or better than anything else available today.

AMC is also leading the way in trying new ways to approach ticket sales. Virtually every theatre or chain in the U.S. today has created some kind of online outreach program to organize its patrons. AMC recently announced that it’s offering its club members in select trial cities the option of purchasing a monthly subscription of thirty-five dollars for unlimited access to the theatre. Depending on the results of that trial, the idea may be adopted all across the AMC chain.

The content on the screen is evolving, too. During the preshows patrons are being encouraged not just to leave their smartphones on but to participate in a growing variety of interactive challenges, typically supported by advertisers. A new idea from a company called CineCardz enables patrons for $20 to post a personalized greeting card on the big screen during the preshow to wish someone happy birthday or celebrate an anniversary.

Many of these efforts, of course, will not catch on, but some will and other ideas will be tried. This is an era of intense experimentation in the entertainment industry. Software is the new frontier in exhibition and there’s no way of predicting all the various ideas that will be attempted in theatres.

One last thought. The NHK in Japan has, for years, been developing holographic projection. The results, to date, have been crude but there is evidence the concept can and will be brought to market with more work. It’s too soon to predict a Holodeck in a theatre near you, but it’s safe to say it will happen.

This article first appeared in DigitalCinemaReport.com