BEHINDWOODS COLUMN

Theater contracting methods

Flat Fee Rental

Distributors would pay a fixed rent, and for a week’s time, they would screen the film on their own. Theater expenses are not covered in the rent and to be managed by the distributor.

Minimum Guarantee

Distributors give a percentage from total income or a minimum pre fixed amount –whichever is higher – to the theater owners.

Sliding Scale

Sharing the profit between the distributor and the theater. The percentage starts at 70% in first week, 60% in week two and reduces thereon. The minimum share of profit would go as low as 30%.

90/10

Sharing the total collection after deducting the theater expenses in the ratio of 90/10 (Distributor/Theater).

As discussed before, this is possible as there is no A, B or C centers in the USA. The success level of a movie is same across the whole country. Since USA is a nation, though with multiple races, speaking one common language, all this is possible. Imagine the business possibilities of Rajini, Kamal, Ajith and Vijay films in a scenario where the whole India is speaking only Tamil. The business and massive budget of Hollywood movies are possible by this widespread market.

However, theaters are mass booked from a single point and business decisions are made by technocrats at a senior management level, not even a small data about business is shared with anyone. Each film has its own type of trade agreements and percentage shares. Despite this, leasing out or renting the theaters is not witnessed in a major scale. Most of the business is done on percentage basis.

When more movies are released at the same time (Christmas and summer holidays) competition is generated to get the theaters. The distribution company, which offers the maximum profit share percentage, would get the prime theaters with big screens and maximum seats (300 – 400 seats)

Despite all this, the fact is theaters and movies complement each other. No one could exist without the other. So, even if the buyer does not believe in the film, sometimes, a distributor would go ahead and wide release the film, only for the prospective future business from the filmmakers. Just like the distributors of ‘Uzhaippali’ got the rights for ‘Valli’. In this percentage method, number of screens (auditorium) and number of shows with specified days and even number of seats would be taken into account when fixing the profit share.

For a super hit movie like 2012, New Moon or Avatar, consider the collection is $ 100 million in the first week. Does anyone know what is the theater’s share in this $ 100 million? The fact is that nobody knows the profit share percentage until the deal is inked and signs are done on the dotted line. The producer, distributor, theater owner, manager - none of them. Lot of deals would be discussed continuously till the deal is frozen and till the last minute to strike the percentage share.

The distributors arrange screening shows for the theater owners. If the theater group likes the film, number of screens, shows and timings are fixed in each area. Based on the area, cleanliness of the screens, amenities and the quality of the movie, the agreements are signed. This is why the percentage varies with every film.

No matter how good or bad the collection is, first of all, a theater takes away the operating expense as its allowance. This allowance comprises the operating costs of electricity, maintenance, telephone, rent (according to the locality), insurance and mortgage expenses, you name it. This is the standard income of any theater. Though the amount is different, it is sure to be present in every agreement and known as House allowance or House nut.  This is the only amount known to all before the agreement is signed off. (Even this may differ based on the distributor).

After reducing this Nut, the handsome share of theater is divided from the gross amount. How are these numbers determined? As said already, no one knows actually. First week and second week, for a few movies, the theater may opt only for nut, or it can get a 5-10% profit share. One needs to refer the film agreement document in order to know this.

This is where apart from flat rental, sliding scale and 90/10 processes are adopted. The film’s number of screens, seats and shows would be mentioned in the agreement. The theater abides by the agreement and must run the film in aforementioned fashion, the success or failure of the film notwithstanding. If a film is bombing with second week itself but the agreement calls for daily three shows for a period of three weeks, theater is obliged to honour the commitment as per agreement. No other way.

In the case of films outrunning the agreement period successfully, the agreements would be amended. Most likely, these amendments would have in favourable numbers for theaters. Beside this, when the movie is released in second run theaters after five weeks of the prime release, it is given for very minimal rent.

In the collection amount, the distribution company would acquire its share of 10 – 35% (based on the agreement), and hand over the rest to the producing studio. Don’t you see the share of theaters is pretty less here?

Theaters can pay only electricity bill from the income from the film. They count on, in USA too, the sales of soda and popcorn in their theaters. Yes, their major income is from popcorn and cola - more than 1/3^rd of the total income! When the film ticket could be bought for $10, the popcorn and cola, which is dime a dozen outside, could not be bought for anything less than $15. In India, theater canteens are leased out and that income is used to meet the running expenses of theater. However, since multiplexes arrived, they found the goldmine lying underneath and started to breed the golden goose on their own.

Canteen income is consistent in multiplexes. In a film’s second week the crowd would be less. So are the popcorn sales from that movie. Same time, there would be another big movie in the other screen. Masses would be thronging for that and they would indulge in food counters with popcorn even more. If the movie got picked up late, the theater owners hit bonanza. That means increased profit percentage for them.

Theaters have additional income in the form of movie trailers, consumer advertisements, slides. They also screen non-movie shows (though confined to weekday daytimes), company parties and private shows. Just like we conduct audio release functions in Satyam and INOX.

When Cable network and VCR invaded American homes in 1980s, the film viewership started declining. To mitigate this loss of clientele, production houses and theaters started inventing new technologies like DTS, DOLBY, IMAX, 3D etc. Only this flair for new technology keeps the relation between public and theaters live.

We have pronounced the term ‘collection’ to the extent we get tired on hearing it again. How is it calculated that a film has collected 100 million or 200 million? Who calculates this? It has been almost quarter of century since the success of a film is measured in terms of collection. So who is counting this important collection? Sealing and printing of tickets, and cheating with them happen in India. Is the same possible in the USA too? Simply, how does the Box Office work?

[…to be continued