Small Cinemas navigating the COVID crisis (And how to make it to the other side)

It has never been a more critical time for smaller cinemas. Everyday there is another news story that is bad news for our industry. However, as a businessman I can assure you that small cinemas have a better than average chance of making it to the other side. To do this we need to be nimble and fight for our cinemas survival. In this newsletter I will cover a number of aspects we should specifically be focusing on.

In the newsletter I will cover the following issues in this order:

The problem at hand.
Innovation and increased productivity is a major factor.
Operating in a world of no-hollywood-tentpoles for an extended period and how to deal with this. Could it be an opportunity?
Looking at our industries history to understand its likely future.
The likely pressures on smaller cinemas due to the changing industry and how to fight for your survival.
Ticket Prices during a crisis.

The problem at hand

Uncertainty is our enemy. It is extremely difficult to build a bridge over a chasm when you cannot see the other side. With such an emotional situation before us, I tend to want to break it down into more consumable issues based on factors we know to be true.

The biggest issue we have as a society is "When will people feel safe to return?". Cinema is only one of the many industries that is under a lot of pressure. Australia has been extremely lucky. Currently, after the difficult Melbourne lockdown, it looks like the whole of Australia is in a position were, as we come out of lockdown, we can feel safe to go back to Pubs/Shopping Centres/CINEMAS. I am personally extremely happy that it is likely I will have a Christmas this year with family in Sydney.

In reality we are fighting with sentiment, not the virus. The virus will likely be active in the world for many years. If all goes well, the vaccine will hopefully be available and distributed to a level that makes people feel safe mid next year. It could very well be longer. As we already have near 0 new infections per day in Melbourne, we are already at the point where people can feel safe to go back to a pre-covid normality. As a business owner, this is what we must focus on. Not the virus but the sentiment our community has towards feeling safe to venture out.

Unfortunately for the northern hemisphere, the story is very different. A 3rd bump is upon them and lockdowns are starting to spread though the UK and Europe. The huge number of infections per day have the public on edge. Going to the cinema is the last thing on their mind. It is no wonder Cineworld has gone into hibernation, as even if they could get major hollywood films, the people are unlikely to take the risk of going out. And as the northern hemisphere make up the bulk of cinemas in the world. Hollywood has decided to push content or go straight to streaming.

Here in Australia were the public is in a position to feel safe to go to the cinema, we are now in a situation where limited local and arthouse content is the only films we can screen. I personally feel this is ironic as previously it was expected the industry would trend towards more tentpole films in large multiplexes. In reality, cinemas offer a night out. We can make food at home but often choose to eat out at a restaurant. We can watch content at home but often feel like going out to a cinema. What's on the menu or what's on the slate is not so important. Don't get me wrong, a major popular film does make a difference and brings out more people, but a decent set of local and arthouse films can also be enjoyed.

Innovation and increased productivity is a major factor

The Small Cinema Owners Association (SCO) came into existence well before the crisis with a number of trends already existing. Please see below the US attendance (Source, https://www.the-numbers.com/market/) which has been trending down for 10 years, and the Australian attendance (source Screen Australia) that has remained relatively constant for 20 years even though our population growth has been at record levels, indicating the number of trips to cinema per year per person is trending down.

Even before the crisis, our industry was headed for a transition. One of the main focuses of SCO was to bring the industry forward with innovation and improved productivity to make up for the lowering average attendance per person per year. Loss of income due to fewer people coming to cinemas can be mitigated by spending less money to service those who do come.

SCO has spent much of its time attempting to change the sentiment on issues related to this. We have done this by offering:

Free content delivery services for Australian films as a way to ensure the cost saving of moving to digital distribution are passed onto the exhibitor by demonstrating this to the community. (See here)
Improved productivity tools such as the Interactive Release tool and Booking application. Spend less time organising and booking films. (See here)
Contributing to the open source project Clairmeta DCP quality checking tool. I recommend you watch a presentation I gave at the European Digital Cinema Forum (EDCF) Open Day that can be found on youtube here. This tool will make it easier and less expensive to deal with media in cinema exhibition. (Lower costs to do Film Festivals etc)
Online DCP quality check and loudness tools. Only days from going into beta, SCO will be adding free tools to allow Clairmeta QC analysis PLUS loudness checking of content. These tools will hopefully improve pre-show audio loudness consistency and compatibility issues with DCPs supplied to exhibitors. (Stay tuned for a newsletter on this tool in the future)

As an industry we need to embrace these new tools. We need to learn some new tricks. We need to look past current incumbent ways of thinking.

Operating in a world of no-Hollywood-tentpoles for an extended period and how to deal with this. Could it be an opportunity?

With the Northern Hemisphere in terrible shape when it comes to virus infections, we can expect the larger part of cinemas in the world will be at very low attendance levels if not under lockdown. Hollywood is not expected to release blockbuster films ($100-200 million budget) to theatrical distribution during this time as the return will be severely diminished. Estimates have a global box office return at around 20% of last year due to no-blockbuster films or no patrons.

Here in Australia we have the virus under control, and people are far more comfortable to return to pubs, restaurants and CINEMAS. As small cinemas, it is worthwhile opening in this environment, but it's a very different environment. All the blockbuster films have been pushed and are likely to keep being pushed until the northern hemisphere have the patrons build the confidence to return to normality.

The number of films we have access to is greatly reduced. Smaller independent and local content is going to be our staple for the foreseeable future. (See diagram below of release slate.) Typically these distributors have very minimal advertising budgets.

But more importantly, the millions of dollars the major studios spend on advertising for blockbuster films is no longer there to pull the eyes of potential patrons and indirectly promote your cinema. No more ads on the internet. No more outside signage. No print media or radio ads reminding consumers to think of the cinema.

This is a significant issue and we need to change our behavior to invest more in direct marketing. For example, Facebook, email lists, outside signage and partnering with local businesses to promote the cinema. It is highly encouraged the industry turn up the heat on these aspects of running the cinema. Its time consuming and hard, but that's what surviving this crisis entails. We can no longer lean on the major studios to do all the heavy lifting.

There is, however, one bright side to this. I have been comfortably impressed with many of the films of late and feel in some ways we have returned to the age of compelling story and film making over explosions and sparkles. There is still room for mid-budget, well made, independent films. With the choke of major studios demanding excess policy gone, there is no longer a limit to the shelf space we can offer to these independent films. Hopefully this will dispel the belief that smaller independent films are only destined to go to streaming in the future. In my opinion it has been the choke policy practices that have greatly damaged Australian films in the theatrical market.

In a past newsletter (found here) I discuss choke, the technique used by the larger distributors to fill your session space so as to restrict screening of competitive or alternative content. In brief, policy was created to ensure a return on expensive film print (est. $2500) and the limited number of prints they could make. When DCPs replaced film prints (est. $100) at 4% its original cost, there was no limit in number that could be created - you could digitally copy them as you needed them). VPF was introduced and its cost contributed to this reason behind policy. The VPF is now gone. However, distributors have insisted in keeping these restrictions in place. As smaller distributors have generally also abandoned this practice of policy and content restriction (as they should), we should be putting pressure on the larger distributors to explain why policy is still in place, as their stated reasons no longer exist. Currently policy is only used to choke independent and local content off screen or restrict access to smaller cinemas who are expected to show a film 3-4 times a day on a single screen. A cinema cannot show only the one film for 2-3 weeks, so must wait until 3-5th week. In effect they are refusing to supply until after more then 60% of the film gross has already been absorbed by the rest of the exhibition industry.

With this restrictive behavior in place plus the crisis, common sense must prevail here otherwise the culture of cinema may disappear.

Looking at our industry's history to understand its likely future

In this section I will cover historical events specific to the Australian Exhibition industry. Feel free to jump this section to where I discuss the likely pressures that the crisis will bring in the future.

This section is intended to help readers get an understanding of how the industry has historically behaved. This will better position the reader to understand the conclusions following.

The Australian cinema exhibition industry has a very chequered past. In the following I will cover a number of events with a brief description on why they happened and the result.

In 1998, ACCC Complaints lead to Industry Change, establishment of the Code Of Conduct

In 1998 the creation of the industry code of conduct occurred (https://www.smallcinemaowners.com.au/wp-content/uploads/2019/02/FilmCode2013.pdf). This document came into existence after a review of the industry by the ACCC. It was a precursor to the "Australian Consumer Law". In general it represents the same arguments but is more specific to the exhibition industry.

The investigation made specific reference to issues found in the industry:
"Complaints about non-availability of prints has been a major concern of many independent exhibitors. These complaints have been examined on a case-by-case basis in appendixes unavailable to this public report. In most instances the complaints relate to a distributor refusing to supply a print on a particular date to a requesting cinema. It is at a local level where competition between cinemas takes place. Where films are available to one cinema but not another at a particular geographic location, competition will be affected. There have been many allegations that the viability of some cinemas was jeopardised because they were not able to obtain prints of films at the same time as their competitors. It has also been alleged that in some instances exhibitors were forced out of the industry after distributors cut off supply. Such a situation generally occurred after a major exhibitor opened a cinema complex near an independent outlet."

The main reason the ACCC investigated the industry was because of a significant increase in complaints in regards to access to first release content. Up to 70% of cinemas had been forced out of business as multiplexes started to come into popularity and those smaller single screen cinemas were pushed to second run status or restricted access as policy conditions made it impossible to fulfil the first release conditions. Content is king and without the content available to you when people want to see it, these locations became uncommercial.

The code of conduct stipulates conditions on which distributors can refuse supply. This document is recommended for those who would like a clear understanding what conditions distributors can legally refuse supply. If reasons other than those covered in this document are claimed, it would be considered a breach of the code of conduct and Australian Consumer Law (ACL).

Reading Cinema vs major exhibitors

The US-owned chain Reading Cinemas went to the full Federal Court in 2001 seeking evidence in a dispute with a member of the Village group over access to a Brisbane shopping centre. The following was reported by SMH (https://www.smh.com.au/national/price-mystery-at-a-cinema-near-you-20041229-gdke9k.html)
Reading's chief operating officer at the time, Neil Pentecost (a former Hoyts executive), said he knew how the separation worked. In an affidavit quoted in the judgement he said that in Perth everything south of the Swan River was Hoyts territory, while everything north of the river was Greater Union-Village territory. In Queensland, Hoyts was limited to the Brisbane city centre and Surfers Paradise, and the rest of Queensland was left to Greater Union-Village. The other states were divided in similar fashion.
Court docs can be found at: http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCAFC/2002/109.html

This court case was dragged out for many years, but ended in a settlement once the federal court judge ordered discovery in regards the the statement above. This affidavit was never substantiated.

Small Cinema Owners Data Mining Website

Distributors would regularly make representation that the conditions (Policy, access) they offered to small cinema owners was the same as offered to all smaller cinemas (as required under the Code). This was very dubious based on general knowledge of looking at isolated competing cinemas. The distributors would never substantiate such claims. (Supply evidence) Due to this inconsistent behaviour and to remove this excuse for refusal to supply, SCO created a data mining website to collect the information itself. See http://data.smallcinemaowners.com.au.

The website showed such claims were untrue. If such claims are utilized against your cinema, it is recommended you contact SCO as to how to reference this information.

The SCO data website has also implemented a visualization page that maps all cinemas in Australia based on size.
Please see https://data.smallcinemaowners.com.au/dashboard/heatMapScreens

In looking at the example image, you will notice that all cinemas located near the city centres are only small multiplex to multiplex cinemas. (Green - multiplex, Orange - small multiplex, Red - small cinema) Small cinemas with 1-3 screens are mostly located in regional country locations that are less desirable by the major exhibitors. This example indicates that the code of conduct has failed to achieve its intent. Smaller cinemas have all failed due to restricted access to content while in the shadow of cinemas that are not restricted.

Virtual Print Fee (VPF) Scandal, Michael Smith and Omnilab vs DCN

The Virtual Print Fee was a lifeboat to bridge traditional cinemas to the new digital world. To subsidise the replacement of all projectors in the world to digital projectors. In Australia, DCN had all but done the deal when at the last minute, Michael Smith and Omnilab attempted to direct the est. $100 million dollar contract into an alternate company without the knowledge of the studios or the independent cinema owners. Omnilabs fraudulent representation of the deal was presented to the major studios by the ICA CEO at the time. ICA was not joined to the court case as DCN chose not to bring the cinema owners who they were trying to help into the federal court case. However, ICA and many of its board gave evidence in support of Omnilab during the case.

The result of the case fell back on historical document as the judge declared that those giving evidence where not to be believed. Based on historical documents, the four judges that reviewed the case unanimously came down in DCNs favour. The fraud was described as "planned and executed" and "red blooded fraud". It was discovered that numerous independent cinema characters were to receive secret payments if the fraud was successful. The resulting "reasonings" documents created by the judges gave a stark representation of the industry.

The case was drawn out by Omnilab as long as possible (I believe in an attempt to bankrupt DCN and its owners), however, the DCN owners managed to make it to the end resulting in Omnilab announcing it was going into administration to avoid the expected high level of damages.

The ICA CEO and many board members gave evidence for Omnilab and Michael Smith. They have publicly stated they had no hand in what occurred but have refused to make available the board minutes or explain its involvement in the studio meetings or court proceedings.

Due to this court case being adopted as a reference case for teaching lawyers about the behaviour of fraudulent companies/directors, GOOGLE will return thousands of results (Example). The following links are supplied as a better reference:

ICA submission to ACCC for permission to collectively bargain.

In 2017, ICA submitted a request to ACCC asking to allow them to collectively bargain for their members. ICA stated in their complaint. (Taken from the ACCC findings found HERE)

Cinema owners where "often supplied on a ‘take it or leave it’ basis".
"exhibitors are daunted facing the dispute processes with distributors alone, and they fear retribution."
"ICA members currently feel they have insufficient bargaining power to oppose proposed amendments to film licence conditions."
"Greater transparency and more effective negotiations will assist ICA exhibitors to continue to offer and to increase the range of films offered to meet the diverse needs of the people in their local communities"
"Greater film choice - current restrictive policies result in the length of the film season being too long for some (smaller) exhibitors, resulting in exhibitors screening films to an empty cinema. If shorter seasons can be negotiated, more films could be shown to the benefit of consumers, exhibitors and distributors."

ACCC found in favor of ICA indicating that their stated issues are realistic and that allowing the collective bargaining would be beneficial to the industry. ACCC granted the request for ICA to collectively bargain.
"Changes to standard terms and conditions of film licensing agreements and film screening season, sessions and rental fees can affect the viability of ICA members. The closure of the only cinema in a town or the closure of an independent cinema in a metropolitan area can reduce film diversity and have a negative impact on the local community. The proposed conduct may improve the viability of independent cinemas and therefore prevent or reduce the likelihood of cinema closure"

Unfortunately ICA chose a path to centralise negotiation power to the ICA board (which is opaque in nature) and not to actually fix the issues at hand. The ACCC hearings show that problems exist in how the industry works. Specifically around opaque conditions distributors take when negotiating access to content. The complexity of access to content historically comes from minimization of film print costs and then VPF fees. Both of which are no longer applicable to the industry. Distributors also made a strong argument that cinemas will boycott films to pressure distributors. An example of this is VCAT court documents between DCN and Fox, where Fox claim supplying a small site, allowing it to make money for Fox, would reduce its profit. "With regards to the decision (to restrict access) on Snatched and other dating decisions it is based on commercial viability". Please refer to docs Here and here. It is assumed that if allowing a site to take a film will reduce profit, it would be due to another larger location buycotting the film.

During the 1998 ACCC review, the activity of refusal to supply was considered unlawful as it was described as "misusing of market powers" (for example, to ensure only selected cinemas survive, closing down all competitively located cinemas to reduce ticket competition), however, due to print costs, discretionary restrictive access was allowed. Instead of adopting the original decision by the ACCC, indicating that if no print cost existed, any form of restricted access would be unlawful, ICA chose to keep existing conditions in place. The adoption of unrestricted access to content would have disarmed the ability of exhibitor boycotts as distributors would not have been in a position to restrict access to a competitor.

ICA's implementation of collective bargaining is opaque in nature. The members have no transparency on how this is being represented to the distributors. In giving ICA this "power" , the ACCC only extends the potential for inappropriate use of market power to the ICA board. As a small cinema, you must now be a member of ICA to be treated fairly. There are significant problems with this as:

Many small cinemas cannot afford to be a member of ICA and obtain fair treatment.
ICA has shown a willingness to select who can become members and restrict other cinemas from accessing this protection.
ICA could use this power to punish or restrict content from cinemas as there is no transparency.

For the ACCC to best achieve its goals based on past reasoning, the ACCC should go back to its original arguments which stated any form of restricted access was unlawful. This would mean cinemas would achieve success based on consumer demand and not secret handshakes.

In my discussion with ACCC during this period, they did confirm that this would have been a better path, however, they only had the power to approve the requested powers ICA asked for.

Just a side note here. A major factor in deciding to start SCO was due to ICA specifically blocking the offer of free tools to their members. See THIS and THIS as some example emails in which ICA specifically went out of their way to scuttle a project I was working on to bring cost effective content distribution and a free-to-own KDM solution to the Australian small cinema community.

I have spent my life working in cinema, have three cinema locations, have been attending ISDCF Digital cinema steering committee meetings in the US for about 15 years, worked on cinema-based technical documents for SMPTE and ISDCF. I'm well known around the world due to the hundreds of informative CineTechGeek videos I have created to help the industry through transparency and helping cinema owners make informed decisions. I was involved in stopping Omnilab committing a fraud against the major distributors and independent cinema owners that court documents show saved them tens of millions of dollars. However my brother and I are banned from joining ICA. Why would they do this? Marc Wooldridge (ex Fox MD) commented to my brother. "Your technology and ideas are too disruptive." We take this to mean that the incumbents do not like the ideas and innovation we bring to the table as it makes smaller cinemas too competitive.

Code of conduct conciliation process open to scrutiny.

The code of conduct was created by the ACCC in 1998. The head of the ACCC, Allan Fels stated when the code was introduced:
"For some years now, the Commission has received a constant stream of complaints from small film exhibitors about the supply and conditions of films, particularly first release films which are the life-blood of film exhibitors. The small exhibitors argued that refusal to supply or onerous conditions of supply was an abuse of market power by the large distributors. However, to prove a breach of this particular section of the Trade Practices Act, the exhibitor or the Commission had to prove that the distributor had the purpose or intention of damaging or destroying particular competitors. Finding a 'smoking gun' was always a hard call and, besides, there often appeared to be a valid commercial reason for not supplying or supplying under particular conditions." - Distributors argued the cost of prints was the reason to maintain the right to restrict access.

Now we are digital, these arguments are no longer valid.

The code requires the conciliation process is confidential. The behaviour of the distributors is hidden behind the code process. Hidden from other exhibitors and the ACCC. Fortunately due to a VCAT case between DCN and Fox, the confidentiality was lifted from a conciliation meeting and used in a VCAT hearing.

You can access to full court document here. Otherwise I will quote the specific paragraphs of interest below.

The following is an extract from documents submitted to VCAT during a court case. This is based on rough notes made directly after the conciliation.

After pleasantries, the first four odd hours were spent with me putting forward that Fox had obligations under its commitment and as a signatory of the Code, and under laws governed by the ACCC. I referred to sections of the Code, ACCC website guidelines, the ACCC 1998 review, and conceptual examples to make my point, but the process was not achieving anything.
About the ⅔ point, the conciliator pulled my team aside, and suggested quoting the law isn’t going to get you films for the upcoming holiday period. “Why don’t you go in there and ask what you need to do to get films?” So that is what we did.
Much of the suggestions we already did. Thou we did have issues with running marketing for film to come see here in six weeks, when you could see them today at our competitors cinema. I suggested to increase our minimum guarantee across our 3 cinemas from around $1,000 to $6,000 to try and get some films for my 3 cinema venues. The year before I got everything I wanted for my single cinema. This year every distributor had suddenly refused to supply. A day or so later, I up the offer to $30,000 just to verify that the refusal to supply was not linked with Fox revenue. Agreeing to pay $30,000 just to get the right to play Fox’s summer holiday movie releases, during the holidays. To be able to provide kids movies for kids holiday programs. It to was refused. Near the end of the conciliation process, I asked, if we do all these things, will we get film supplied on the release date? Wooldridge explained that Fox was not committing to that supply. I was taken back, I asked is there a time frame, a benchmark, something to aim for, so that we can know when we will receive films like other cinemas?
It was then Wooldridge launched into what felt like a demeaning, smug, diatribe, I felt like I was being talking down to;
“You need to be a good boy. Not open any new cinemas.”
“We decided to teach you a lesson, that is why you do not have any content for Christmas.”
“And if you talk again to the ACCC again, you will not have any friends in the industry.”
“Just run the cinemas you have now, follow our instructions, and we will see, we will revisit supply in time.”

To put it in context, the "we" that Mark Wooldridge was referring to was taken in context to mean the distributors as a group upset over DCN attending the ACCC conference into the industry.

DCN was disappointed with the code conciliation process, administered by the "Film Exhibition and Distribution Code Administration Committee" (FEDCAC). The conciliator, an independent person appointed by FEDCAC, is a court trained expert/lawyer who has knowledge of the Code. It is the conciliator's role to advise both sides of their requirements and responsibilities in regards to the Code-Of-Conduct, and if a party refuses to abide by the Code, refer the matter to the FEDCAC Committee who are to vote on if they will forward the breach to the ACCC. However, the conciliator took the position of "quoting the law isn’t going to get you films". DCN expected the conciliator to independently enforce the intent of the code of conduct and apply it to both sides.

DCN also felt the the conciliators "independence" was not adequate as she worked at the direction of the FEDCAC Chairperson. In this case the Chair had previously been Fox's lawyer. This information was not disclosed and DCN feels this did not meet the level of independence expected.

FEDCAC Chairperson and major distributors represented to the ACCC in 2017 that the Code had been highly successful in achieving it's goals. The transparency of this conciliation process described above is likely to give the reader a better understanding as to why so few cinemas utilise the code conciliation process.

The likely pressures on smaller cinemas due to the changing industry and how to fight for your survival

The cinema exhibition industry has gone though numerous transition periods over the years. See Screen Australia industry trends as an example of the fluctuation in attendance to population over the years and how the introduction of TV, VHS etc affected the business of cinema exhibition.

We are now on the precipice of a new transition. Streaming has changed the industry as the graph above indicates attendance levels per person has been slowly decreasing over the past 20 years in Australia. The collapse of release windows has always been on the radar with larger exhibitors using all their influence to hold it off.

Like many industries, the COVID crisis is making transitions expected to take 10 years happen overnight. The Disney CEO is an example of this as they now position "Streaming" as their priority and have referred to exhibition as a legacy distribution industry.

As cinema industry workers, we know much of this is hot air and "look over here" behavior to ensure the markets maintain confidence in these companies. Everyone accepts restaurants will come back and be profitable after covid. This can only also be true for cinema. You have a kitchen but still go to a restaurant, you have a big screen TV but still go out to the movies.

As an industry we are likely to see a reduction in attendance for some time. As was seen when TV or VHS was introduced, attendance levels fell sharply. We are unlikely to see such a steep fall, but a fall nonetheless. The density of screens in a region will be too high for the lower number of patrons, resulting in the closure of numerous locations.

Access to content is key

Before we continue, we need to get a strong understanding of how access to content is key to our survival. Please take a look at the following diagrams showing how much a film makes over the life cycle of its release.

The data is sourced from Numero and shows the gross income of a film over the weeks it is available. "Infinity War" being an example of a major blockbuster and "Stan and Olly" a smaller independent film. Either way, they perform in a very similar way.

If you remember your high school maths, you will remember the area under the graph shows the percentage of takings during that week covered. It is plain to see that locations restricted to 3rd week have already missed out on a share of est. 60% or more of the total income of the film. At 5th week, your at est. 92% of the gross already gone.

This shows that a cinema that is restricted from playing a movie until weeks after the expected date of release is severely compromised, and likely non-commercial, resulting in eventual closure.

The SCO data website shows the distributors are still actively selecting what sites they want to support (access to date of release) and what sites they want to close (restricted access). I have seen this referred to as the First-Run/Sub-run list and the Whitelist/Blacklist.

With the development of shortening windows, this problem will only become even more acute.

With film prints no longer in use, the VPF over, shortening windows, policy and other forms of excuses to restrict access to content no longer holds up when scrutinised by the courts or the ACCC. (See reference above regarding "ICA submission to ACCC for permission to collectively bargain" where they chose to ask for permission to collude over enforcement of the code.)

I'm on First-Run list, why would I be placed on Sub-Run?

With the reduction in attendance, certain regions of Australia will become over screened. There will be more screens then is required to cater for the attendance level. This will put pressure on the larger cinema exhibitors, who in turn will put pressure on the distributors. Looking to support their bigger partners, distributors will be under pressure to restrict content from smaller exhibitors. This will force more customers to the larger cinemas and result in smaller cinemas going out of business.

Based on historical behavior outlined above and the reduction in attendance due to the COVID crisis, this outcome is extremely likely. All small cinemas need to be prepared to first for there survival.

How can a small cinema protect itself?

Years ago, the code of conduct and the conciliation process was reasonably helpful in these matters, but as recent examples of the use of the code show, the code is no longer achieving its stated goal. However, there are alternate paths to settling these disputes. During the recent ICA/ACCC hearing, in submission from Fox, they suggested, quote: "These options include, most relevantly: The Code, and potentially, the unfair contract terms regime, as set out in the Australian Consumer Law"

The ACCC also made reference to this in a review document in 2006, "Trade Practices Issues and the Cinema Industry":
"Importantly, state jurisdictions now have the capacity to draw down the unconscionable conduct provisions. By doing this, small business will have easier access to justice, often in a less expensive and quicker environment such as a tribunal."

In other words VCAT or equivalent entity in your state is also an available path to settle disputes. In general, this is also a far more cost effective path then utilising a conciliator.

VCAT or equivalent is our best path forward

Unlike the code of conduct conciliator process which is held in secrecy (as described above), VCAT, or equivalent in your state, is held in an open court. All arguments the distributors make are open to the public and can be examined by the ACCC. The cinema and distributor must stand in front of a "member" (like a Judge), and state their case. The Member will have a detailed understanding of Australian Consumer Law and as part of the hearing will be required to read the Industry Code of Conduct. Those giving evidence will be doing so under oath and subject to perjury. These conditions will greatly reduce poor behaviour. The dispute will be heard by an independent arbiter who has the power of the courts to enforce the results of the hearing.

The use of VCAT may take longer before the hearing takes place, however, its is only a small fraction in costs compared to utilising the Code of Conduct process. As the courts are adopting Zoom and other technologies I expect the court process will be greatly improved going forward.

If you find yourself in this position, SCO is happy to take your call and give you advice in how to best submit your VCAT (or equivalent in your state) submission.

Ticket Prices during a crisis

It is never wise to discount the core service you offer as it directly affects long term profitability. In contrast, it's difficult to raise prices as it leaves a perception of your service being to expensive and a potential reduction in attendance. As we are battling the perception of risk when going out the cinema, the use of marketing techniques must be used to attempt to lure customers back to the cinema. If you lower your ticket price now and customers consider that the new normal, it may make it difficult to return to a more realistic price level later.

This is an interesting and complex topic that, as a cinema owners, I have spent time researching. Following is some of the data points that have helped me understand the best path for me and my cinemas.

Are cinema ticket prices expensive?

This is a complex issue as, in real terms, see graph below, the relative average price of a cinema ticket is slightly below the price of a ticket 40 years ago based on inflation over the past 40 years.

This indicates that the price of a ticket is better value then it was 40 years ago.

Unfortunately we are battling perception. Consumers don't look at graphs. All they know is that the cost of general entertainment, music, watching movies on streaming. All these choices are a small fraction of the cost they were relative to what they cost 40 years ago. In general, consumers pay less today then what we paid 40 years ago. It is understandable to weight cinema in this context and many will feel it is "expensive" when in reality its extremely good value.

This is again an example of maintaining perception. As we need to build a perception of cinema being a safe activity to do during this crisis, we also need to maintain the perception of ticket price.

The general rule of thumb is to never reduce the perceived value of a cinema ticket. However, we can introduce special deals and promotions to keep the perceived value but obtain increased attendance due to a more acceptable price.

This graph (data sourced from Screen Australia) the percentage of change in ticket price compared to the percentage change in attendance. In general, you will identify a trend in that when attendance goes up, ticket prices have gone down, and when ticket prices go up, attendance goes down. Conclusion, ticket price has a major impact on attendance levels.

It is specifically important to understand this issue during the crisis as we will be under extreme pressure to attract customers. How we deal with ticket prices will be a major part of the marketing equation going forward.

My advice is try not to lower the perceived value of your ticket price. The use of special deals that utilise marketing campaigns to entice customers back while maintaining ticket price perception is the recommended path forward.

Wishing you all the best with your cinema.

James Gardiner
Founder, Small Cinema Owners Association
james.gardiner@smallcinemaowners.com.au
mob: 0412997011

Link to past newsletters: https://www.smallcinemaowners.com.au/category/newsletter/

Small Cinemas navigating the COVID crisis (And how to make it to the other side)