Crossing the 35MM/Digital Rubicon

Years ago, Drive Ins in the north could count on three solid months of business (weather permitting) from Memorial Day weekend to Labor Day weekend.  Hollywood released a stream of blockbuster/popular movies throughout that period and they made large print runs such that we could get a copy of any first run movie we wanted.  Furthermore, the studios required us to hold movies for a minimum of only 2 weeks.  When you operate a single screen theatre with a short season, turning over movies is critical to your survival.

 In the past few years, the business model for Drive Ins has been changing in two important ways.  First, the studios have been shifting forward windows for releasing their summer blockbuster/popular movies.  Instead of good product available through August, high grossing films are being released from May through July (actually, now it’s April through early July).  Second, theatres, with the urging (pushing?) of the film studios, are rapidly shifting over to digital projection systems as the primary means of showing movies.

 To the first point, Wisconsin Drive Ins can’t take full advantage of releases in April and May.  We can’t really open much before May 1^st without risking snowstorms and other forms of nasty weather that deters patrons from coming out.  Even in May, school is still in session and the crowds don’t really pick up until Memorial Day weekend.  But now there are no good movies being release in the late July and August time frames.  This means that instead of 14 weeks of solid business, we now only get about 6-8 weeks of solid business followed by 6-8 weeks of slow business.  Of course, film studios don’t consult me on the rational for their release schedule decisions, although I’ve heard theories that the studios want their popular movies to be available in DVD during the Christmas season (which now starts in early November).  To accomplish this and still maintain a 4 to 6 month window (time from theatrical release to DVD release) that the theatres insist upon, they have to release their more profitable films earlier in the season.  This all makes sense for the film studios, but it hurts the Drive Ins.

 The first point is further exacerbated by the second point.  Before digital cinema, movies could only be shown in theatres using 35MM film (there were some 16MM and 70MM venues many years ago, now all gone).  Because of economies of scale, 35MM prints of movies used to cost anywhere from $800 to $1,500 per copy (cost borne by the studios) depending on who you believe.  35MM film is also bulky and heavy, so there is considerable cost to store and transport these prints (also mostly borne by the studios).  Digital movies, on the other hand, can be put onto a small hard drive (in the future even be downloaded from satellite) at very little cost and there are no storage costs and minimal transportation costs.  You can see why the film studios would like to get rid of 35MM and get all theatres on digital; they stand to save a huge amount of money.

 But digital projectors (basically large computers with flamethrowers strapped on the front end) are expensive and theatres have been reluctant to upgrade.  But through a combination of incentives and other factors, the movie theatre industry is switching over.  Roughly half of the screens in the U.S. are now digital and conversions are taking place at the rate of about 1,000 a month.  By the end of 2012, most screens will be running digital.  Overseas markets are also rapidly converting.

 But not all screens.  Roughly 95 percent of the screens in this country are owned by major theatre corporations who have access to capital markets and therefore the means to finance the conversion to digital (roughly $75,000 to $100,000 per screen depending on circumstances).  The other 5 % are made up of small independents, like myself, who do not have the same financial resources or clout as the big boys.

 So with more and more screens going digital, the studios don’t have to make up as many prints.  With fewer prints being made, economies of scale go away and the cost per print rises.  In a couple of years, I’ve heard that the cost per print could be a high as $5,000.  This creates a situation whereby the studios are going to enact stiffer terms as conditions for making up a 35MM print for someone.  Aside from percentage of box office receipt licensing fees, which are already quite high, the studios have begun requiring longer hold periods for films.  This is no problem for a multiplex that can hold a film 2 months and keep shifting it to smaller auditoriums as the crowd diminishes.  It’s a big problem for a single screen Drive In with a short season.  In the past I could turn over first run films every two weeks.  Now I’m increasingly getting three week minimum run demands; can 4 week minimum runs be far behind?  Getting second features is more difficult too.

 Finally, studios are increasingly cutting back on print counts for movies released in the second half of the summer.  They are not as confident that these movies will earn them a return on their money and they want to save on costs (my presumption).  But whatever the cause, when I go to book a movie during this period, more and more I’m being told: “Sorry, no prints available.”

 Now, there are some old-time independent theatre owners who insist that this digital is all BS and that film will always be around.  Maybe they’re right, but I don’t think so.  I think that in two years, film will be pretty much gone and either a theatre pays to switch to digital or go out of business.  Many small independent operators can’t afford digital equipment or their theatres don’t generate enough profit to justify the investment.  I think, and am afraid, that half of the Drive Ins will be out of business in five years.

 So it was gut check time for me: do I invest almost $100,000 more in my Drive In or do I just milk the business for the next few years and shut down?  I could have probably waited another year or two before being forced to make a decision, but I’m being slowly strangled to death.  If I decide to convert to digital, why wait?  Will I get more business with digital?  Doubtful, but my business shouldn’t decline over time as it would if I stuck with 35MM.  Will I save on expenses?  No, in fact maintenance costs will be higher than with 35M.  Is this a good business decision?  Only time will tell.  Bottom line: I’ve already invested too much time, energy, and money in this theatre to just let it die.  My attitude is: ‘in for dime, in for a dollar’.

 So I crossed the Rubicon; I went to the bank and dug further into my meager savings, spent a week in California undergoing Installation and Basic Maintenance training, and signed the purchase order last week.  Equipment delivery is set for April 15^th and hopefully I’ll get this whole thing up, running, and figured out by our opening date of April 29^th.

 As the late, great Jackie Gleason would say: “And away we go.”