A Bleak Picture for Non-Digital Independent Theaters: Convert or Die

Between 10 percent to 20 percent of U.S. theaters may go out of business if they can't pay tens of thousands of dollars for digital screen systems

For almost 90 years, the Bonham Theater has been a center of social life and a place where the tiny town of Fairbury, Neb., (population 3,942) can gather to catch the latest Hollywood movies.

But two weeks ago, owner Allen Hinkle switched off the movie projectors for probably the last time and closed the theater’s doors, leaving the community without a movie theater for more than 25 miles.

Allen HinkleLike the small town Texas theater in “The Last Picture Show,” turning off its marquee forever in the face of competition from television, the Bonham Theater is under fire — the victim of a shift from film to digital projection.

(Bonham Theater, left. Still from "The Last Picture Show" below right.)

It is a scene playing out for more than a thousand independent and community theater owners across America, who must fork over between $65,000 to $150,000 per screen for digital theater systems or face extinction. And with each cinema that goes dark, a piece of the social fabric unravels with it, theater owners argue.

“They’re cutting the throat of the small guys,” Hinkle told TheWrap.

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Studios have been pushing for the change for nearly a decade, because digital distribution allows them to save thousands of dollars in print fees. As an incentive to theater owners, they have played up the enhanced picture quality that comes with digital projectors and the ability to show films in 3D — a format that allows exhibitors to charge higher ticket prices.

Hinkle had hoped to sell the Bonham, but he told TheWrap that in order to find a buyer he has to pay more than $100,000 to convert the theater from film to digital projection.

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After asking the town to help him raise the money, but receiving little in the way of donations, he decided that it no longer made any sense to stay open and wait for the rapidly approaching day when studios decide to stop providing theaters with 35mm film prints.

“We’re closing it," Hinkle said, "because we’re not going to extend ourselves out with another loan when we want to sell.”

Scores of other independent movie theaters are in the same position, and time is running out. The message from studios is clear: convert or die.

“This is existential at this point,” Patrick Corcoran, director of media and research for the National Association of Theatre Owners (NATO), told TheWrap. “It’s not how much can you make from digital. It’s if you want to be in business, you have to be in digital.”

So far, 3,447 theaters have converted to digital out of 5,700 theaters in the United States, Corcoran said. But those stragglers must act fast, because at some point in the next year he believes it will no longer make economic sense for studios to continue to provide film prints.

It is estimated that 10 percent to 20 percent of theaters may opt not to convert and will join the Bonham Theater in closing their doors.

“We don’t have any hard and fast numbers about how many people have decided to not [convert], but some people still believe it’s not going to happen,” Corcoran said. “It’s been a decade-long process of preparing the industry, and saying ‘it’s coming, it’s coming,’ and some folks are finally getting it.”

Allen HinkleIn particular, a note that 20th Century Fox sent to theater owners last November sent off alarm bells throughout the exhibition community.

(Bonham Theater film projector, left)

“The date is fast approaching when 20th Century Fox and Fox Searchlight will adopt the digital format as the only format in which it will theatrically distribute its films,” the note read.

"We strongly advise those exhibitors that have not yet done so to take immediate steps to convert their theaters to digital projection systems,” it added.

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For Gary Pollard, owner of the Empire Theatre on Block Island, R.I., the letter was a punch in the gut. Pollard had been expecting studios to continue manufacturing a small number of prints to meet demand from rural theater owners like himself who cannot afford to convert. But now he thinks that’s unlikely. He told TheWrap he’s bracing for a day when he may have to turn his one-screen theater into a different kind of business entirely.

Located in a resort community, Pollard’s theater is a seasonal enterprise that is open for only a few months a year. Recently he’s noticed that audiences have begun to taper off, making the prospect of sinking an estimated $70,000 into a conversion an unattractive option.

“It’s not feasible,” Pollard said. “In the last 10-plus years, there’s been a slow and steady decline in theater attendance. It’s not encouraging to want to invest money in building a business that is diminishing."

To their credit, organizations like NATO and studios have worked to ease the financial burden on theater owners by arranging for virtual print fees to be paid to companies that undergo conversion. Under this funding model, exhibitors are given a piece of the savings that studios receive by shipping digital copies instead of film prints, potentially allowing them to pay for roughly 70 percent of the cost of conversion.

However, the upfront financing falls to theater owners like Pollard, who often find banks unwilling or unable to make loans to fund the overhaul, and as NATO is quick to note, the expiration date for signing virtual print fee agreements will likely come by the end of 2012.

In desperation, some theater owners have turned to local economic development corporations, others have asked patrons for donations. A few are even considering the possibility of becoming a non-profit enterprise.

Randy Lizzio is one of those who is making his case directly to ticket buyers. Along with his wife, Cheryl, Lizzio owns and operates the Onarga Theatre in Onarga, Ill. This year, he started a fundraising drive on his website that has brought in $8,000 toward the cost of installing a $65,000 projector. Lizzio plans to start a Kickstarter campaign and host special screenings of movies from the public domain to help bolster those numbers.

“The movie theater is really the heart of this town,” Lizzio said. “I always tell people that the only times there is traffic is when the movie theater is open or when there’s a funeral… I’ll just be happy if we can pay the bills and keep the place going. That’s my attitude towards it.”

But the noose is tightening on those theaters that have yet to convert.

Michael Hurley, owns two theaters in Maine and books films for other theaters around the country. He tells TheWrap that with studios producing fewer and fewer 35mm prints, it has gotten increasingly difficult to book the latest releases. Often it means waiting longer to run a film or paying more to get a copy.

“I’ve had studios say, ‘Hey if you had digital I could give [the film] to you right now, but right now it’s not going to happen,” Hurley said.

Ultimately, Hurley decided to convert one of his theaters this year, securing a bank loan and entering into a virtual print fee agreement. He says he’s pleased with the results and with the fact that having a digital copy means that the films he shows are never scratched or damaged after making the trip to Maine.

Hurley believes that the future is bright for independent movie theaters that survive the often financially painful process of entering cinema’s digital age.

“When I bought my theater, there were no DVDs, no internet, no cell phones and no Netflix,” he said. “The movies have been counted out since radio, but the industry has just made the biggest investment in new technology since the birth of film and it’s not doing that for a business that’s on its way out.”