Select Committee on Culture, Media and Sport Written Evidence

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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