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A member of BMO Financial Group 66 April 2012 Perspectives on the Filmed Entertainment Industry 2012 BMO Capital Markets Exhibit 44. The print cost for the top films in release in 2011 was down as digital delivery becomes a measurable part of the distribution plan. The substitution of virtual print fees (studios have had a free ride digitally for the past couple of years while DCIP was getting funded) is growing as digital projection installations increase as a percentage of total screens. The average screens per release has increased meaningfully over the past seven years as studios push for bigger openings to capture consumer dollars on the first weekend, even though this has often led to poor advertising dollar returns when theatrical film rental revenues have not exceeded the advertising spend to launch the film. Unfortunately, some studio marketing executives believe they can buy a theatrical audience through advertising, even if they use the rationale of its being pre-advertising for the home video marketplace. The Release Window Reality around release windows needs to be revisited as territorial behavior and negotiating positions perhaps overstate the opportunity of a premium-VOD period before home video release. The corollary is that the major studios continue to evaluate other ways to leverage the massive advertising spend incurred upfront on less successful film releases by looking at shortening the time until the home video release. Studios crave dual utilization of media spend to rationalize escalating advertising costs. The knee-jerk reaction by many at the time was that this hurts both theatrical and home video. The top 25 releases in 2010 and 2011, however, generated approximately 97%-98% of domestic box office gross in the first eight weeks. The Mega Opening As shown in Exhibit 46, the opening weekend performance of a theatrical film has grown in importance and size. For films opening in 500 or more theaters, we estimate that, on average, roughly 32% of their domestic box office gross is now being generated in the first weekend. As opening weekend revenues have increased, subsequent weekend revenues have decreased, and it is now typical for a film, even a strong opener, to experience a second-weekend dropoff of 45%-65%. This compares with the typical 30%-35% drop-offs experienced just six to eight years ago. The financial press has historically used the second weekend declines to denote a lack of consumer interest or a film’s success when often that decline is more of a reflection that opening weekend screen counts were sufficient to satisfy initial demand and the next event film released the following weekend captures the big audience. Exhibit 46. Opening Weekend as a Pct. Source: boxofficemojo. om and BMO Capital Markets and industry estimates. The average number of theaters in which a film opens decreased 1.

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