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Dear Independent Theatre Operator,
The most significant technological transition of our time—digital
cinema—is imminent. Independent theatre owners risk being left
behind in this historic transition unless we work together to ensure
our survival. Please read this letter and then join the Cinema
Buying Group to protect your business.
The Status of Digital Cinema
The transition to digital cinema is occurring now. In July, the
major studio members of Digital Cinema Initiatives (DCI) announced
the completion of their technical specifications for digital cinema.
The National Association of Theatre Owners (NATO) worked closely
with DCI to provide review and input on behalf of exhibition. More
recently, the major studios have abandoned the concept of a joint
venture of their companies to develop and implement a universal
financing and roll-out scheme for d-cinema. Instead, the various
studios are negotiating with several third-party financing and
roll-out entities. In these arrangements, third parties would
provide or raise the initial capital to fund digital cinema
installations, and would be paid back over time by the studios in
the form of “virtual print fees” for copies of movies distributed in
digital format, as opposed to film prints. The third parties, and
not the studios, will negotiate with exhibitors.
Many of the goals set forth in a resolution of NATO’s Board of
Directors in November of 2004 have been accomplished, as digital
cinema equipment quality has improved significantly, technical
specifications have been adopted, and financing mechanisms have been
developed that are supported by the studios. Nonetheless, because
the studios have chosen not to undertake a comprehensive, universal
roll-out, but have instead opted to support various competing
third-party financing and roll-out entities, there is no assurance
that every exhibition company will be able to participate in one of
the financing schemes. Independent theatre operators must come
together in a buying group to protect ourselves by enhancing our
ability to compete with larger cinema companies as we prepare to
negotiate with the third parties.
The Cinema Buying Group A few years ago, several smaller theatre owners who served on the
Independent Theatre Owners Committee of NATO came together to form
the Cinema Buying Group LLC, which at the time was designed to
obtain group discounts on theatre supplies. A few months ago, the
governing documents of CBG were enhanced to facilitate acquiring
digital cinema equipment and service. On October 26, 2006, CBG
members voted to dissolve the separate for-profit entity and to
reconstitute as a program within the National Association of Theatre
Owners. As described in the CBG-NATO Participant Agreement:
- Purpose: CBG-NATO has been formed to enhance the ability of its
Participants to obtain cost-justified discounts and more favorable
payment terms with respect to their purchases of goods and services
used in their operation of motion picture theatres and to assist
industry manufacturers and suppliers in promoting their goods and
services and in obtaining accurate information regarding product
performance in the industry.
- Separate Program Within NATO: CBG-NATO is a buying program for
independent theatre owners and operators, and subject only to such
NATO oversight as trade association law and fiduciary duties
dictate. CBG-NATO is financially self-supporting and has a separate
dedicated bank account. The program has a separate website, and its
principal place of business is determined by the location of its
managing director. CBG-NATO’s managing director reports to the chair
and vice-chair of NATO’s Independent Theatre Owners Committee.
- Cost of membership: Currently the annual (July – June) membership
fee is $150 for NATO members and $250 for non-NATO members. Fees
will be prorated for applicants joining part way through the year.
Because CBG lacked full-time direction, and had been managed by
generous but very busy volunteers, it never grew to its full
potential. Nonetheless, the new structure of the group can serve as
the foundation for a digital cinema buying group. This new digital
cinema buying group, however, will no longer merely confer certain
benefits on its members. It may mean the difference between
independent theatres existing at all in the new digital world. It is
critical, therefore, that the digital cinema buying group expand its
membership base as quickly as possible. The negotiating and buying power of this group is only as strong as
its membership base. The group needs to represent several thousand
screens to be truly effective. We need you to join the Cinema Buying
Group now. The documents governing the Cinema Buying Group-NATO
program are included with this letter for your review. I want to
draw your attention especially to section 6(g) of the CBG-NATO
Participant Agreement, entitled “Special Provisions for the
Acquisition of Digital Equipment and Service.” These provisions
spell out in detail what we need, as a committed group of
independent theatre owners, in negotiating a favorable digital
cinema equipment and service deal. We cannot give you all the answers at this stage—indeed, you, as a
new member, may well contribute to answers—nor can we issue any
guarantees or assurances. But we know that independent exhibitors
will substantially improve our opportunities in the digital world if
we work together.
Sincerely yours,
J. Wayne Anderson, Managing Director
Cinema Buying Group-NATO |