Supplementary memorandum submitted by
the Cinema Exhibitors Association Ltd
I have read a draft copy of the evidence given
to your Committee by Mr Stewart Till CBE, Chairman of the UKFC,
and Mr John Woodward, Chief Executive of the UKFC, on 7 November
2006.
In response to Q597 put by Rosemary McKenna,
Mr Till stated that "the film industry is to be smart and
clever about how it organises its window, which is really only
about two factors, `timing and pricing' ". In response to
Q608 put by Paul Farrelly, Mr Woodward responded that "the
cinema owners will say what they are facing potentially is that
their window of exclusivity is being squeezed by rights holders
who want to get the product out to other media as quickly as possible,
and that takes us to the question of where is that flexibility,
where is that balance?".
Over the past 18 months cinema operators have
conceded that the theatrical exclusivity window of 26 weeks (where
a procedure was in place to breach the gentlemen's agreement in
specific cases when sought by the rights holders) is no longer
sustainable and have effectively agreed that a four month minimum
theatrical exclusivity window is acceptable to exhibition. Unfortunately
this four month theatrical exclusivity window is not followed
by all distributors. We believe that four months should be the
minimum exclusivity window for cinema which provides the rights
holders now, and potentially in the future when Video-on-Demand
(VOD) is common place, the highest return on their investment
in films.
Whilst film theft will not ever be totally eradicated,
it will be controlled and diminish. The price of stolen film to
the public, either through pirated DVDs, or the Internet, will
be the bench mark price for VOD which, in a number of years, will
be the major delivery system for personal consumption of film.
It is most important that all delivery systems for films to the
public have a viable production sector which can only be sustained
through the legal delivery system passing income down the chain
to the production sector. Full VOD where downloaded films can
be played on the device chosen by the purchaser for the time agreed
with the rights holders will not become common place until secure
payment systems are introduced. Initial research indicates that
the price a member of the public is prepared to pay to obtain
a legal downloaded copy of a film is in the region of what they
will pay for an illegal copy. Early adopters are prepared to pay
more for limited download access but the level of payment currently
being obtained is most unlikely to be sustainable, especially
when current blockbuster films now out on DVD can be obtained
at supermarkets for less than £10.
Music industry developments also indicate that
where the product is delivered on-line to the public, the price
that can be charged has to be low to counter illegal downloading.
The cost of legal DVDs for popular films is now £10 and illegally
copied DVDs cost about £5 therefore it is likely that the
cost of legally downloading films will be in the region of £5-£10.
Currently in the USA, where VOD is more developed
than here, the price of a VOD download is approximately $10 whereas
a DVD is approximately $16. The income flowing back to the rights
holders is reported as $4 and $12 respectively. It would appear
that VOD does not produce the same level of income to the rights
holders as the traditional delivery system and there is no reason
to believe that the UK, when VOD is fully developed, will be any
different.
Both Mr Till and Mr Woodward, in their evidence
to you and your Committee, spoke of the importance of cinema both
in artistic terms (that film makers make films for cinemas) and
marketing terms (that the film is marketed to the general public
which can be utilised for all delivery systems) and in social
terms—none of which we disagree with. However, we would
add a further one—the financial return to the film maker.
The digital age, within the next few years, will also encompass
widespread digital projection in cinemas and film exhibition will
become more important in income terms for film makers. It is unlikely
that the income that the film maker and rights holders will be
able to obtain from VOD in all its form will be at the same level
as DVD. VOD will produce income but to balance the income earned
from DVD to the film maker/rights holders it appears that the
number of VOD downloads that will have to be sold will need to
be three times greater than the current sales of DVD. The distributors
of product via download and VOD appear to be relatively more expensive
than the traditional distribution systems.
Cinemas, when showing a film, have an agreement
with the rights holders that they have the right to physically
take their share of the box office if they wish. Their income
share is assured. We believe it is important for the rights holders
to ensure that cinema exhibition continues to flourish, notwithstanding
the small hiccup which we are experiencing this year, to ensure
their income level. Cinema exhibitors believe that without a period
of theatrical exclusivity they will not be able to charge a premium
price which is shared with the rights holders and film makers.
Simultaneous release of a film through all delivery systems will
not produce the overall level of income for the rights holders
as a carefully controlled release with the first opportunity to
watch a film being in the cinema—the environment for which
the film maker produced the work. A cinema release creates the
opportunity for the publicity and marketing of the film, which
cannot be replicated by any other delivery system, but is utilised
by all. It produces guaranteed income for the film maker and for
all these reasons we believe that it is of the greatest importance
that a period of theatrical exclusivity of a minimum of four months
be encouraged, agreed by all parties and, when agreed, adhered
to.
23 November 2006
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