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12-18-2005, 11:46 AM
The New York Times
December 18, 2005
Digital Domain
Is Mark Cuban Missing the Big Picture?
By RANDALL STROSS
MARK CUBAN is known to many in the sports world as the madcap-billionaire owner of the Dallas Mavericks, the one who relishes every opportunity to defy propriety. Less well known is Mr. Cuban's day job as co-owner, with Todd R. Wagner, of 2929 Entertainment, a holding company encompassing a movie production and distribution complex that is moving toward all-digital delivery.
On his blog, Mr. Cuban has compared the differences between the sports world, which requires consistent repetition of outstanding performance, and the business world, which does not. He wrote: "In business, to be a success, you only have to be right once. One single solitary time and you are set for life." Mr. Cuban is indeed set, his pockets bulging with party-like-it's-1999 money.
His digital media business rests upon one more foundational concept, which Mr. Cuban transferred from Dallas to Hollywood: that fondness for defying propriety. At a conference for digital cinema planners held in September in Montreal, he said gleefully that he had been reading in the Hollywood trades that he and his business had been irritating a lot of people - "and we like that."
Mr. Cuban seems so attached to the pleasures of provoking others, however, that he is unwilling to acknowledge inconvenient trends that may upend some of his plans. His rationale for making hugely expensive investments in Landmark Theaters, the art-house chain owned by 2929 Entertainment, seems dangerously ungrounded in reality.
As a self-made tech billionaire, whose net worth is estimated by Forbes at around $1.8 billion, Mr. Cuban enjoys the presumption of possessing impeccable credentials as a business strategist and a technology futurist. Does it take anything away from those 1.8 billion reasons to listen to Mr. Cuban, the digital oracle, to note that the great fortunes of him and Mr. Wagner were acquired in a brief, anomalous moment in business history? Their start-up, Broadcast.com, was born in 1995 and then sold in 1999 to Yahoo for $5 billion at the tip-top of the bubble, an act of exquisite timing.
The Internet was very, very good to Mr. Cuban, so it's perfectly understandable why his subsequent business ideas circle around digital themes. Upgrading theater projectors, which use film technology that has not changed much since Thomas Edison's time, to digital technology would seem perfectly matched to Mr. Cuban's interests. Digital projection is coming, not only to Landmark Theaters but to the larger chains, too. It is Mr. Cuban, however, who was so eager to have his theater chain credited as the first to adopt a costly new line of Sony projectors with the highest resolution (4096 x 2160 pixel, or 4K) before they were even complete. Actual installation of the first machines, each of which costs about $100,000, has been repeatedly delayed while Sony works on debugging.
People in the theater exhibition industry know what many outside it may not: that the transition from film to digital will not improve the visual experience for theater customers. Nothing yet invented can match the richness of film. When digital projection arrives, the best selling point that theater owners can offer may be, "Don't worry about it; you probably won't notice." The principal reason that the owners will convert is that the movie studios wish to save the considerable expense of manufacturing and distributing film. Digital projection "won't increase our attendance," said Kurt Hall last March, when he was chief executive of the Regal Entertainment Group, the largest exhibitor in the country.
Regal and other exhibitors, though not Mr. Cuban's Landmark Theaters, put off their own orders for digital systems until the studios provided the bulk of the financing. In just the past few weeks, a string of announcements from DreamWorks, Sony Pictures, Universal Pictures, Warner Brothers and 20th Century Fox have finally provided the financial arrangements, using third-party equipment distributors, that exhibitors were waiting for. Next year the industry will move from the testing phase to permanent conversion to digital projection. It will take years before all 37,000 auditoriums in the United States are upgraded.
It may not take so long, however, if the theater business keeps shrinking. Theater attendance in 2005 is down 6 to 7 percent from 2004, after declines the preceding two years. John Fithian, president of the National Association of Theatre Owners, contends that the downturn is an inconsequential blip in a cyclical business. He reassured his members that the "slump reflects the nature of the recent product supply, rather than portends some structural problem with the industry."
Similar reassurances were provided to theater owners in the 1950's, said Robert Sklar, a historian and professor of cinema studies at New York University. During that decade, average theater attendance dropped about two-thirds from the peak in 1948; today, on a per capita basis, we go to the movies only one-sixth as often as we did then. Many developments prompted this change, but the most important was the proliferation of television; the big screen in the theater could not compete against a tiny screen at home. "In 1949, nine inches was a monster screen," Mr. Sklar said. "It was a thrill to have a screen in your home -and it has never stopped being a thrill."
In the long historical view, the movie theater was a makeshift response to immature technology not quite ready for the home, the first-choice place to enjoy entertainment. Now, however, advances in digital technology offer in the comfort of one's own family room a visual and aural experience that approaches that of the theater. The transition to digital in the home, unlike that in commercial theaters, will result in a huge difference: the incumbent technology isn't very-high-resolution film but low-resolution analog television.
Popular demand for wide-screen HDTV sets has reached the point that every retailer wants a piece of the action - even Home Depot sells them. When holiday sales are tallied and as theater attendance continues to sink, the theater operators a year hence may have a hard time accepting today's official party line promulgated by Mr. Fithian that "the biggest challenge is getting good movies, not competition from the home."
Mr. Cuban is similarly sanguine about the business. Last week in an e-mail exchange, he argued that the theater business had only to extol "the virtues of enjoying a movie in a theater with fellow movie fans" - as if sitting quietly in the dark with a few dozen others is no less gregarious an activity as cheering on the Mavericks with 20,000 boisterous neighbors.
The one remaining attribute of theater exhibition that the home cannot match is temporary exclusive access to new releases. The window of exclusivity has become ever shorter in the past year, as studios begin collecting DVD revenue as early as they dare. On this issue, Mr. Cuban speaks not as a theater operator or a studio honcho, but as an anarchist: blow up the rules and release to theaters and to DVD's at the same time. This offers the attraction of a single marketing push, reducing studio costs. But the theaters would suffer dearly. If universal release became standard industry practice, Mr. Fithian said, it would most likely mean the end of theaters.
MR. CUBAN has not had all the necessary pieces of his complex in place long enough to try out his plan. But when discussing the details at the September conference, he tacitly conceded that his studio would have to devise new incentives so that buyers of DVD's would not cannibalize theater attendance. He floated the idea of a rather weak sweetener with every purchase of theater tickets: a soundtrack available for download that was withheld from the DVD.
The problem that Mr. Cuban faces is that 2929 Entertainment is well positioned for the shift to digital only if he leaves out his own Landmark Theaters. His holding company owns two high-def television channels, HDNet and HDNet Movies, but the gains they make in numbers of subscribers will make it that more difficult for Landmark to convince happy HDTV fans to leave home.
Theater operators need not abandon all hope. Mr. Sklar, the historian, offered this prediction: "Teenagers' need to get out of the house will keep theaters alive." It doesn't really matter, he added, what the movie is.
Randall Stross is a historian and author based in Silicon Valley. E-mail:[email protected].
* Copyright 2005The New York Times Company
December 18, 2005
Digital Domain
Is Mark Cuban Missing the Big Picture?
By RANDALL STROSS
MARK CUBAN is known to many in the sports world as the madcap-billionaire owner of the Dallas Mavericks, the one who relishes every opportunity to defy propriety. Less well known is Mr. Cuban's day job as co-owner, with Todd R. Wagner, of 2929 Entertainment, a holding company encompassing a movie production and distribution complex that is moving toward all-digital delivery.
On his blog, Mr. Cuban has compared the differences between the sports world, which requires consistent repetition of outstanding performance, and the business world, which does not. He wrote: "In business, to be a success, you only have to be right once. One single solitary time and you are set for life." Mr. Cuban is indeed set, his pockets bulging with party-like-it's-1999 money.
His digital media business rests upon one more foundational concept, which Mr. Cuban transferred from Dallas to Hollywood: that fondness for defying propriety. At a conference for digital cinema planners held in September in Montreal, he said gleefully that he had been reading in the Hollywood trades that he and his business had been irritating a lot of people - "and we like that."
Mr. Cuban seems so attached to the pleasures of provoking others, however, that he is unwilling to acknowledge inconvenient trends that may upend some of his plans. His rationale for making hugely expensive investments in Landmark Theaters, the art-house chain owned by 2929 Entertainment, seems dangerously ungrounded in reality.
As a self-made tech billionaire, whose net worth is estimated by Forbes at around $1.8 billion, Mr. Cuban enjoys the presumption of possessing impeccable credentials as a business strategist and a technology futurist. Does it take anything away from those 1.8 billion reasons to listen to Mr. Cuban, the digital oracle, to note that the great fortunes of him and Mr. Wagner were acquired in a brief, anomalous moment in business history? Their start-up, Broadcast.com, was born in 1995 and then sold in 1999 to Yahoo for $5 billion at the tip-top of the bubble, an act of exquisite timing.
The Internet was very, very good to Mr. Cuban, so it's perfectly understandable why his subsequent business ideas circle around digital themes. Upgrading theater projectors, which use film technology that has not changed much since Thomas Edison's time, to digital technology would seem perfectly matched to Mr. Cuban's interests. Digital projection is coming, not only to Landmark Theaters but to the larger chains, too. It is Mr. Cuban, however, who was so eager to have his theater chain credited as the first to adopt a costly new line of Sony projectors with the highest resolution (4096 x 2160 pixel, or 4K) before they were even complete. Actual installation of the first machines, each of which costs about $100,000, has been repeatedly delayed while Sony works on debugging.
People in the theater exhibition industry know what many outside it may not: that the transition from film to digital will not improve the visual experience for theater customers. Nothing yet invented can match the richness of film. When digital projection arrives, the best selling point that theater owners can offer may be, "Don't worry about it; you probably won't notice." The principal reason that the owners will convert is that the movie studios wish to save the considerable expense of manufacturing and distributing film. Digital projection "won't increase our attendance," said Kurt Hall last March, when he was chief executive of the Regal Entertainment Group, the largest exhibitor in the country.
Regal and other exhibitors, though not Mr. Cuban's Landmark Theaters, put off their own orders for digital systems until the studios provided the bulk of the financing. In just the past few weeks, a string of announcements from DreamWorks, Sony Pictures, Universal Pictures, Warner Brothers and 20th Century Fox have finally provided the financial arrangements, using third-party equipment distributors, that exhibitors were waiting for. Next year the industry will move from the testing phase to permanent conversion to digital projection. It will take years before all 37,000 auditoriums in the United States are upgraded.
It may not take so long, however, if the theater business keeps shrinking. Theater attendance in 2005 is down 6 to 7 percent from 2004, after declines the preceding two years. John Fithian, president of the National Association of Theatre Owners, contends that the downturn is an inconsequential blip in a cyclical business. He reassured his members that the "slump reflects the nature of the recent product supply, rather than portends some structural problem with the industry."
Similar reassurances were provided to theater owners in the 1950's, said Robert Sklar, a historian and professor of cinema studies at New York University. During that decade, average theater attendance dropped about two-thirds from the peak in 1948; today, on a per capita basis, we go to the movies only one-sixth as often as we did then. Many developments prompted this change, but the most important was the proliferation of television; the big screen in the theater could not compete against a tiny screen at home. "In 1949, nine inches was a monster screen," Mr. Sklar said. "It was a thrill to have a screen in your home -and it has never stopped being a thrill."
In the long historical view, the movie theater was a makeshift response to immature technology not quite ready for the home, the first-choice place to enjoy entertainment. Now, however, advances in digital technology offer in the comfort of one's own family room a visual and aural experience that approaches that of the theater. The transition to digital in the home, unlike that in commercial theaters, will result in a huge difference: the incumbent technology isn't very-high-resolution film but low-resolution analog television.
Popular demand for wide-screen HDTV sets has reached the point that every retailer wants a piece of the action - even Home Depot sells them. When holiday sales are tallied and as theater attendance continues to sink, the theater operators a year hence may have a hard time accepting today's official party line promulgated by Mr. Fithian that "the biggest challenge is getting good movies, not competition from the home."
Mr. Cuban is similarly sanguine about the business. Last week in an e-mail exchange, he argued that the theater business had only to extol "the virtues of enjoying a movie in a theater with fellow movie fans" - as if sitting quietly in the dark with a few dozen others is no less gregarious an activity as cheering on the Mavericks with 20,000 boisterous neighbors.
The one remaining attribute of theater exhibition that the home cannot match is temporary exclusive access to new releases. The window of exclusivity has become ever shorter in the past year, as studios begin collecting DVD revenue as early as they dare. On this issue, Mr. Cuban speaks not as a theater operator or a studio honcho, but as an anarchist: blow up the rules and release to theaters and to DVD's at the same time. This offers the attraction of a single marketing push, reducing studio costs. But the theaters would suffer dearly. If universal release became standard industry practice, Mr. Fithian said, it would most likely mean the end of theaters.
MR. CUBAN has not had all the necessary pieces of his complex in place long enough to try out his plan. But when discussing the details at the September conference, he tacitly conceded that his studio would have to devise new incentives so that buyers of DVD's would not cannibalize theater attendance. He floated the idea of a rather weak sweetener with every purchase of theater tickets: a soundtrack available for download that was withheld from the DVD.
The problem that Mr. Cuban faces is that 2929 Entertainment is well positioned for the shift to digital only if he leaves out his own Landmark Theaters. His holding company owns two high-def television channels, HDNet and HDNet Movies, but the gains they make in numbers of subscribers will make it that more difficult for Landmark to convince happy HDTV fans to leave home.
Theater operators need not abandon all hope. Mr. Sklar, the historian, offered this prediction: "Teenagers' need to get out of the house will keep theaters alive." It doesn't really matter, he added, what the movie is.
Randall Stross is a historian and author based in Silicon Valley. E-mail:[email protected].
* Copyright 2005The New York Times Company