President’s Report

December 2018 / Vol. 19 No. 3

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

ACADEMY AWARDS

CINEMACON

DIVERSITY

EMERGENCY GRANT PROGRAM

GOVERNMENT RELATIONS—FEDERAL

GOVERNMENT RELATIONS—STATE & LOCAL

INDEPENDENT THEATRE OWNERS

INDUSTRY DATA AND RESEARCH

INDUSTRY PROMOTION

INTERNATIONAL

LITIGATION

MOVIE RATINGS

MOVIE THEFT

NATO ANNUAL MEETING

NATO MEMBERSHIP

NATO SERVICES

SECURITY

TECHNOLOGY

THEATRICAL RELEASE WINDOWS

NATO STAFF

ADDENDUM—Board Resolution 23-24

CO

NT

EN

TS

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Academy Awards

Academy of Motion Picture Arts and Sciences

Documentary Shortlist Project

As noted in the Board Meeting Advance Report, exhibitors and NATO repre-

sentatives met in June with members of a Motion Picture Academy Future of

Film Working Group tasked with making the annual Oscars telecast more rele-

vant and to consider eligibility requirements for the annual Academy

Awards. The committee, headed by producer Albert Berger and including

such members as Dan Fellman, documentarian Rory Kennedy, and screen-

writer Robin Swicord, among others, met with exhibitor representatives Mooky

Greidinger (Cineworld/Regal), Elizabeth Frank (AMC), Tim League (Alamo

Drafthouse), and Ted Mundorff (Landmark), and NATO staff at the Academy’s

headquarters in Beverly Hills.

Proceeding from a wide-ranging first-of-its-kind discussion focused on main-

taining theatrical exhibition as a requirement for Academy Award considera-

tion, shortening the annual telecast, broadening the commercial appeal of

nominated movies and finding ways to involve exhibition in the promotion of

nominated movies, the Academy has engaged Strand Releasing to re-release

a package of Shortlisted Documentary Features in theaters.

The program is set

to launch

31 December - 21 January

in approximately 14 cities

in 18 locations.

NATO has made the Acade-

my aware of the broad inter-

est of exhibitors in playing

this program. If you are inter-

ested in the program for your

company, please reach out to

Marcus Hu or Mike Williams,

head of theatrical at Strand

for details and terms of the

release.

Strand Releasing

6140 W. Washington Blvd

Culver City, CA 90232

310-836-7500

The Shortlist Comprises:

Charm City On Her Shoulders

Communion RBG

Crime + Punishment Shirkers

Dark Money The Silence of Others

The Distant Barking of Dogs Three Identical Strangers

Free Solo Won’t You Be My Neighbor?

Of Fathers and Sons

NATO continues to talk with the Academy about making the Awards

broadcast available to movie theaters.

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

CinemaCon 2019 –

Celebrating our 9th Annual Convention

Is it almost that time again already? CinemaCon 2019 takes

place 1-4 April at Caesars Palace.

Here are just a few reasons why you need to be at CinemaCon

this April:

The stars and filmmakers will be out in force at major

studio presentations and screenings throughout the week,

highlighting great upcoming product.

Our opening night studio event will again be followed (by

popular demand) with an after-party taking place in Las

Vegas’ premiere nightclub, Omnia.

The trade show is sold-out.

Caesars Palace is also nearly sold-out, so book your

rooms now. Reservations can

be made by accessing the

CinemaCon web site.

The CinemaCon schedule

will continue to offer a diverse

schedule of seminars and

programming for all facets of

your business.

We are pleased to announce John Loeks, President,

Studio C!, will be the recipient of the NATO Marquee

Award during Tuesday morning’s program in The

Colosseum.

International Day will offer our most well-rounded

programming to date, with many topics that may be of

great interest to all NATO members, not just those doing

business overseas.

The final night “Big Screen Achievement Awards” once

again promises to showcase some of today’s most

talented and gifted actors and filmmakers.

For more updates, follow us on Facebook,

Instagram, Twitter, and LinkedIn, and be

on the look out for blast emails

highlighting certain aspects of

CinemaCon.

Our advice at this time is very simple —

rest up now because it’s going to be a

busy, fun and productive week.

If you missed our recent

CinemaCon update memo to members, please click

here to review.

NATO Announces Meeting Schedule at

CinemaCon 2019

The schedule of NATO meetings to be held in conjunction with

CinemaCon 2019 has been announced. The NATO Board and

Committee meetings will be held in Caesars Palace unless oth-

erwise noted. Please keep an eye out for the individual meet-

ing notices that contain specific location information and RSVP

instructions. Most committee meetings are for committee mem-

bers only. Any member with questions about their committee

membership status should contact NATO.

Sunday, 31 March 2019

11:00 am 12:00 pm

Combined Meeting: GR Com-mittee and Regional Associa-tion Leaders

12:00 pm to 1:30 pm Government Relations Committee Lunch Meeting

12:00 pm to 1:30 pm Regional Association Leaders Lunch Meeting

2:30 pm to 4:30 pm Diversity and Inclusion Committee Meeting

3:30 pm to 5:00 pm Past Chairmen’s Meeting

5:00 pm to 7:00 pm

Global Cinema Federation Advisory Board (and NATO

International Committee)

7:00 pm to 8:30 pm Committee of Counsel Dinner Meeting

Monday, 1 April 2019

8:00 am to 12:15 pm Executive Board Meeting

11:30 am to 3:00 pm

Independent Theatre Owners Committee Program Location: The Flamingo Hotel

11:30 am to 1:00 pm

Young Members Committee Lunch (for members 35 years old or younger)

Tuesday, 2 April 2019

2:00 pm to 3:30 pm Ratings Compliance Officers Meeting

Wednesday, 3 April 2019

7:30 am to 8:30 am Inter-Society Meeting

1:00 pm to 2:30 pm Movie Theft Task Force

Thursday, 4 April 2019

7:00 am to 8:30 am Cybersecurity Program Location: The Flamingo Hotel

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Executive Board Votes Continued

Support for the Will Rogers Emergency

Grant Program

At its meeting on 9 October 2018, NATO’s Executive Board

voted to support the Bernie Myerson Emergency Grant

program with an annual contribution of up to $25,000, as long

as NATO continues to produce sufficient surpluses to support

the contribution. The Will Rogers Motion

Picture Pioneers Foundation operates the

fund, which provides financial relief to

individuals employed by a motion picture

theater company who have encountered

financial stress as a result of an

emergency situation. After hurricanes hit

Texas and Puerto Rico in 2017, the

program helped 256 movie theater

employees who were displaced by those

storms, providing financial assistance for

hotel rooms, food, medicine, telephone

equipment and other short-term needs.

More recently, the program provided

financial support to theater employees in

the Carolinas who were displaced by

Hurricane Florence and in California by

wildfires.

Diversity

Emergency Grant Program

Diversity and Inclusion Committee

Survey on Member Participation

NATO's Diversity and Inclusion Committee is committed to

expanding diversity and inclusion among NATO's volunteer

base, including getting a better understanding of what moti-

vates our members to be active within the association. As

part of that effort, in December NATO distributed a survey to

members who have not attended NATO's Fall Advisory

Board Meeting in the past couple years. NATO members

who did not attend the Advisory Board Meeting in 2017 or

2018 are invited to fill out the survey to give the committee

feedback.

Government Relations—

Federal

Election Results: Divided government is coming to

Washington. With Republicans in control of the Senate and

Democrats in control of the House in 2019, it will be even

more difficult to find bipartisan compromise on key issues.

This phenomenon was already at play during the lame duck

session. Indeed, even a legislative initiative like the qualified

improvement property fix (see “Qualified Improvement Prop-

erty Depreciation Fix Languishes in Congress” for more de-

tail), which has bipartisan support, could not pass during the

lame duck session. Neverthe-

less, exhibitors should expect

NATO to remain active and en-

gaged on issues of concern to

the industry in both the regulatory

and legislative arenas.

NATO Files Comments on Paramount Consent Decrees:

In response to the Department of Justice’s (DOJ) request for

comments on the Paramount Consent Decrees, NATO filed

a comment urging the DOJ to retain the prohibition on block

booking. The DOJ is looking to sunset consent decrees that

do not have expiration dates, including the Paramount Con-

sent Decrees, as part of an overall effort to reduce the use

of consent decrees as an antitrust enforcement tool. The

DOJ received over 75 public comments on the potential sun-

set of the Decrees. Based on public comments made by

leadership of the DOJ’s Antitrust Division, it is a strong pos-

sibility that the DOJ will file a motion in the Southern District

of New York (the court that has jurisdiction over the De-

crees) to sunset the Decrees.

Qualified Improvement Property Depreciation Fix

Languishes in Congress: NATO lobbied Congress as-

siduously to fix the qualified improvement property (QIP)

depreciation error in tax reform that prevents businesses

from writing off a larger percentage of their capital expendi-

tures. Current statute requires businesses to take a 39-year

depreciation schedule for QIP improvements, instead of the

15-year schedule that Congress intended to enact.

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Exhibitor participation in this lobbying effort was key. NATO

members visited Capitol Hill to urge Members of Congress

and Senators to move this legislation forward before the end

of the year. Thank you to the exhibitors who took time from

their busy schedules to come to Washington and talk to Con-

gress about this impact this error has on their ability to invest

in their theaters. NATO also facilitated a letter writing cam-

paign that generated almost 350 messages from exhibitors to

over 170 House offices and 41 Senate offices.

Unfortunately, it seems unlikely that this legislation will pass

both chambers of Congress before they adjourn. The House

passed a tax bill on 20 December; however, Senate leader-

ship have said they will not hold a vote on this legislation.

Lawmakers are immersed in negotiations over federal spend-

ing legislation, and do not anticipate having time before the

end of the year to focus on tax matters. However, lawmakers

have in-formed NATO and our coalition partners that a QIP fix

is on their priority list for the new Congress that will convene in

January.

Please keep an eye out for opportunities to write to

your lawmakers about this issue in the 116th Congress so that

they understand the urgency of passing QIP legislation. If any-

thing changes before the end of the year, we will keep you

updated.

Federal Commission on School Safety Releases Recom-

mendations: On 18 December, the Federal Commission

on School Safety released a report containing recommenda-

tions on school safety, including recommendations regarding

youth consumption of violent entertainment and ratings sys-

tems. This Commission was formed in the wake of the school

shooting in Parkland, Florida. The report can be viewed by

clicking this link.

The report cites a couple critiques of the movie ratings sys-

tem, including potential overuse of the PG-13 rating and that

the system doesn’t provide enough information for parents

and viewers. The report makes three recommendations for

the entertainment sector:

1. State and local education agencies should ensure ade-

quate internet safety measures in preventing students

from accessing inappropriate content.

2. Schools should partner with parents on strengthening

internet safety measures.

3. All self-regulating ratings systems should review and

improve their policies.

NATO is convening a meeting of ratings compliance officers

at CinemaCon, during which we will evaluate ratings enforce-

ment policies and ways they can be improved. (See page 4

for the CinemaCon meeting schedule.) NATO will keep the

membership apprised of any developments on this report and

its recommendations.

NATO Joins Comments on Joint Employer Standard: In

response to a proposed rulemaking from the National Labor

Relations Board (NLRB) on the joint employer standard,

NATO signed onto a comment spearheaded by the Coalition

for a Democratic Workplace urging the NLRB to adopt a strict

standard when considering if two entities are joint employers.

The comment also pressed the NLRB to tighten the definition

of “essential terms and conditions of employment” by specify-

ing which actions are and are not considered essential. The

comment period on this proposed rule ends January 14, 2019,

so exhibitors who are interested in submitting comments to

the NLRB can still do so. Comments can be submitted on

regulations.gov.

NATOPAC Outcomes: NATOPAC made donations to nine

candidates in the 2018 cycle. Eight of those candidates were

running for reelection in 2018, and every one of these candi-

dates won his or her races, including those running particular-

ly tough races, like Senator Joe Manchin, Senator Dianne

Feinstein, Rep. Scott Peters, and Rep. Pete Aguilar. The full

list of candidates to whom NATOPAC donated follows:

Rep. Pete Aguilar (D-CA-31)

Rep. Jim Clyburn (D-SC-06)

Rep. Doug Collins (R-GA-09)

Senator Dianne Feinstein (D-California)

Senator Pat Leahy (D-Vermont)

*did not run this cycle

Senator Joe Manchin (D-West Virginia)

Rep. Roger Marshall (R-KS-01)

Rep. Scott Peters (D-CA-52)

Rep. Cedric Richmond (D-LA-02)

Government Relations—Federal (cont.)

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

NATO Executive Board Approves 2019 NATO Grant

Program: At its October meeting, NATO’s Executive Board

approved up to $750,000 in reserve funds to go toward a

grant program in 2019 supporting NATO state and regional

units. The grant program is overseen by NATO’s Govern-

ment Relations Committee, which reviews applications sub-

mitted by state and regional units for grants that cover legis-

lative expenses.

This is a continuation of NATO’s grant program that began in

2018 and has so far disbursed $195,200 in grants this calen-

dar year. This approval followed a vote by NATO’s Advisory

Board on fiscal priorities for the association, including the

grant program, an extension of the industry promotion pro-

gram, purchasing property for the NATO office in Los Ange-

les, and making annual gifts to the Will Rogers Motion Picture

Pioneers Fund. The Executive Board also approved addi-

tional funds for hiring additional staff to administer the grant

program.

State Issues

DC Introduces Open Captioning Legislation: The DC

Council introduced legislation mandating four open-captioned

shows of every movie per week for theaters with four or more

screens. NATO and Mid-Atlantic NATO both testified at a

hearing on the ordinance. NATO described the voluntary

open-captioned shows already being scheduled in the District

and cited data from Rhode Island showing that the general

public prefers not to attend open-captioned shows. The deaf

and hard of hearing advocates countered this testimony with

anecdotes about personal captioning systems not working

correctly. NATO and Mid-Atlantic NATO will be meeting with

advocacy groups in January to discuss improving access for

the deaf and hard of hearing at movie theaters in DC.

Plastic Straw Ban to Go

into Effect in DC: Begin-

ning 1 January 2019, busi-

nesses in DC will be banned

from using single-use plastic

straws and stirrers

(businesses will be allowed

to keep a limited number of plastic straws on hand for cus-

tomers with disabilities). The DC government will begin in-

specting businesses for compliance with the ban at the start

of the new year and will begin issuing fines for violations of

the ban on 1 July 2019.

Michigan Passes Minimum Wage and Sick Leave

Legislation: In December, Governor Rick Snyder signed

legislation raising Michigan’s minimum wage to $12.05 by

2030. The governor also signed legislation requiring employ-

ers to offer up to 40 hours of paid sick leave annually, with

one hour of paid sick leave accrued for every 35 hours

worked. This legislation represents the culmination of effort

by NATO of Michigan to defeat potential ballot measures that

would have imposed a more burdensome minimum wage

increase ($12 by 2022) and sick leave mandate (up to 72

hours annually, with one hour accrued for every 30 hours of

work). Instead, NATO of Michigan and its allies pursued a

legislative solution, which kept the two proposals off the ballot,

and reduced the burden on employers. NATO of Michigan

anticipates that proponents of these measures will try to get

these issues back on the ballot in 2020 and may file lawsuits

challenging the legislative process. The Michigan legislature

is also considering legislation reforming the ballot initiative

process to raise the threshold requirements for getting an

issue on the ballot. The last day of the Michigan session is 20

December.

New York State Issues Proposed Predictable Scheduling

Regulations: The New York Department of Labor issued

proposed regulations requiring employers to give employees

14 days’ notice of shift work.

Local Issues

Los Angeles Councilmember Introduces Ordinance Man-

dating Vegan Food in Theaters: A Los Angeles coun-

cilmember introduced an ordinance mandating vegan food

options in movie theaters.

New York City Introduces Bed Bug Inspection Ordinance:

The New York City Council Health Chairman Mark Levine

introduced a bill that would require movie theaters to certify on

an annual basis, based on parameters set by local health au-

thorities, that they are bed bug-free. Theaters not in compli-

ance with the certification program would be subject to fines.

Government Relations—State & Local

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Columbus City Council Unanimously Votes to Pass a

5% Ticket Tax: The Creativity Fund for the Greater Arts

Council of Columbus will get revenues from a 5% ticket fee

on all arts, culture, entertainment and sports events in Co-

lumbus. Venues of less than 400 seats and tickets that are

$10 or less are exempted. This exemption includes movie

tickets that are under the threshold. The 5% fee is pro-

jected to generate $6 million

annually to support the arts,

artists and arts education.

NATO of Ohio and Columbus

exhibitors will continue working

with the anti-tax coalition that

opposed this ordinance. Steps are underway to simultane-

ously file litigation to address the new tax along with starting

a petition drive for a charter amendment that would allow the

voters to weigh in on the tax.

2018 Mid-Term Results For Sweetened

Beverage Ballot Initiatives

WA Initiative 1634: Yes to Affordable Groceries. In the

state of Washington, voters approved a measure that would

ban cities and counties from instituting new food (including

sweetened beverages) taxes.

This initiative will not repeal

the Seattle tax that was ap-

proved before the ballot

passed. It will, however, pre-

vent any increases in the current tax rate.

OR Measure 103: Voters in Oregon rejected a similar

measure that would have prevented the enactment or in-

crease of any state or local tax, fee, or assessment on the

sale of groceries. Going into the election, Oregon did not

have statewide sales tax—including on groceries—but had

no law preventing local governments from establishing such

a sales tax.

Measure 103's prohibition on taxes or tax increases on grocery

sales would have applied to any tax or fee put in place on or

after October 1, 2017, thereby applying retroactively to any

taxes or fees enacted between October 2017 and the election

on Measure 103.

Boulder, Colorado Voters Approve City Keeping Extra

Beverage Tax Revenue: The City of Boulder is on track to

keep all the money raised by its sugar-sweetened beverage

tax, as voters Tuesday chose to funnel more cash to health

equity efforts rather than sending re-

funds to distributors doing business in

the city.

Sixty-four percent of voters approved

of the ballot measure which is higher

than the 2016 vote that put the tax in

place, which received support from 54 percent of voters. Be-

cause of Colorado’s Taxpayer Bill of Rights (TABOR), any tax

revenues above the original $3.8 million estimate must be re-

funded to those who pay it unless voters okay the retention of

the funds.

Cook County, Illinois Beverage Tax Still Very Unpopular

with Voters: Seven townships in Cook County, IL placed

advisory referendum questions on their ballots regarding the

repealed Cook County beverage tax. While worded in different

ways – in short - the questions asked voters if the county

should reinstate the beverage tax. More than a year after the

Board of Commissioners repealed the ill-fated tax, voters still

oppose the tax by over-whelming margins. The average of the

results from the seven townships was 20.5 percent in favor of

reinstating / 79.5 percent opposed.

Government Relations- State & Local (cont.)

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

NATO Prepares to Transfer the Assets

and Programs of the CBG to the ICA

The leaders of the Independent Cinema Alliance (ICA) are

working to complete a final step that will allow the financial

assets and programs of the Cinema Buying Group (CBG) to

be transferred from NATO/CBG to the ICA. At its meeting in

September of 2017, NATO’s Executive Board approved the

separation of the Cinema Buying Group (CBG) from NATO,

and the transfer of the CBG’s restricted funds to a new non-

profit entity, upon the completion of three prerequisite steps –

1.) a recorded vote of CBG members supporting separation

and the establishment of a separate and independent organi-

zation, 2.) the formation of that separate and independent

organization, and 3.) the approval by the Internal Revenue

Service (IRS) or a legal opinion that the separate and inde-

pendent organization qualifies for non-profit, 501(c)(6), status

and the separation will not endanger NATO’s non-profit sta-

tus. The first two steps have been successfully completed

and the third is nearing completion.

Anticipating that the CBG will soon be detached from NATO

and its assets and programs transferred to the ICA, NATO/

CBG will not be sending CBG dues renewals statements for

calendar year 2019. In addition to the transfer of the current

balance of restricted funds (the monies collected in CBG

dues and CBG program royalties less CBG expenses), the

CBG contracts and agreements with industry partners for

special pricing on goods and services will also transfer to the

ICA. We anticipate the transfer to be completed in early

2019.

Ongoing Division of Work –

ICA and NATO

The formation earlier this year of the Independent

Cinema Alliance (ICA) offered a new forum for

smaller cinema companies within the North Amer-

ican market to address specific business con-

cerns. Despite an overlap in member companies,

ICA membership remains separate from NATO

membership. Given that clear delineation and

complementary relationship between the two or-

ganizations, the focus of each NATO and the ICA

will be different.

Independent Theatre Owners

The stated goal of the ICA is to provide a voice for independent

cinemas on specific issues that NATO is unable to address due

to its collective members’ market share. NATO will continue to

advocate for all members, and promote the value of exhibition to

all relative stakeholders (creative community, distribution, me-

dia, and the investment community). The ICA will serve the

needs of a narrower community: the independent cinema owner.

In addition, as explained elsewhere in this report, the CBG and

all its functions will soon transfer to the ICA.

Any independent NATO member should feel free to continue

relaying their concerns and questions to NATO staff.

2018 Box Office Tops 2016, Heads to

Record Territory

Year to date domestic box office, driven by a record second

quarter ($3.335 billion, +22.77%) and a strong Q3 ($2.7 billion,

+5.91%) and Q4 (+5.75% YTD) reached $11.137 billion

through 16 December, up 7.8% over 2017 YTD and surpassing

2017’s full year total of $11.091 billion. Box office was expected

to top 2016’s record $11.372 billion the following weekend, with

every day of Holiday moviegoing adding to the record. Estimat-

ed admissions were up 5.82% YTD at 1.218 billion, just behind

2017 full year admissions of 1.236 billion.

Building on a solid Q1, the first half box office also set a record

at $6.18 billion, crossing the $6 billion mark for the first time.

First half box office was up 9.6% and admissions were up

5.22% year over year.

Industry Data & Research

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Industry Data & Research (cont.)

Q3 Average Ticket Price Drops

to $8.83

The U.S. average ticket price fell 1.1% from Q3

2017 to $8.83. That is a decrease of 3.4%

from the Q1 2018 average of $9.16. The aver-

age for the first three quarters of the year was

$9.14. Adjusted for inflation, each of those

2018 averages was below the cost of a ticket in

1978. That $2.34 ticket would cost $9.44 today.

Chinese Box Office Headed for Double-Digit

Increase in 2018

The fast growth in the Chinese market continues in 2018. As of 15 December,

the total box office sits at $8.48 billion, which marks a 10.8% jump over 2017.

While the market slowed down a bit in October and November, the box office is

rebounding nicely this month.

Warner Bros. recently found success in China with the release of Aquaman.

The superhero flick was released there ahead of its North American debut, and

as of this writing it has earned more than $200 million. The most successful WB

release in China up to this point is Ready Player One with $218 million.

Overall, it hasn’t been a huge year for Hollywood titles in China, which means

that the domestic/Hollywood split should end up favoring China by 55% to 45%

or so.

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Industry Data & Research (cont.)

NATO and Ernst & Young Conduct Study On Relationship Between

Theatrical and Streaming

As the 2018 box office continues its record pace, we felt it was perfect timing to address the negative perception that streaming will

kill movie theaters.

We worked with Ernst & Young on a survey of 2,500 respondents, 80% of whom saw at least one movie in theaters in the last 12

months. The primary data collected in the survey was: (1) movie theaters attendance in the last 12 months, (2) streaming con-

sumption in the last 12 months, and (3) demographic characteristics of the respondents.

The main takeaways are:

Those who attended movies in theaters more frequently also tended to consume streaming content more frequently.

For every race and age demographic, average streaming hours per week was higher for respondents who visited a movie

theater 9 times or more than respondents who visited a movie theater only once or twice. Moreover, respondents who visited

a movie theater only once or twice in the last 12 months reported an average of 7 hours of streaming per week versus 11

hours of streaming per week for those who visited a movie theater 9 or more times.

Figure E-1. Movie theater attendance and streaming consumption in the last 12 months

Note: The EY survey included

2,500 respondents, 80% of whom

saw at least one movie in thea-

ters in the last 12 months. The

survey results presented in this

chart only include respondents

who saw at least one movie in

theaters and streamed at least

one hour of online content per

week in the last 12 months. All

means are reported as 95%

trimmed means.

Streaming Consumption for “non-moviegoers”

Survey results presented here include respondents who did not see any movies in theaters in the last 12 months.

Those who did not attend a movie in a theater in the last 12 months were more likely to report less streaming activi-

ty than those who did attend at least one movie in the same period. Of those who didn ’t visit a movie theater in the

last 12 months, nearly half (49%) didn’t stream any online content. Of those who did not visit a movie theater at all in the last

12 months, only 18% streamed online content for 8 or more hours per week.

Figure E-2. Streaming consumption of non-moviegoers in the last 12 months

Note: All means are reported as 95% trimmed means.

As of this writing, the study has been picked up by more

than a dozen outlets—both domestic and international—

including Variety, Deadline, Screen Rant, Cinema Blend,

CBC, and SYFY Wire. Estimated coverage views exceed

400,000.

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THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Industry Promotion

NATO’s Industry Promotion Campaign

Gains Momentum

Following the vote from the Executive Board in September

to continue NATO’s Industry Promotion Campaign, we’ve

been moving aggressively in the four main parts of the

campaign:

Media Outreach: We continue to talk to reporters on a

daily basis in order to foster positive articles about exhibi-

tion. Since September 2017—the official beginning of this

campaign—we have influenced more than 90 articles that

have generated an estimated 4.2 million views. The web-

sites we talked to for those articles—outlets such as The

New York Times, The Wall Street Journal, Business Insid-

er, Wired, Variety, The Hollywood Reporter, and Dead-

line—have a combined monthly readership of 1.52 billion.

We will be conducting a big wave of outreach in the final

days of 2018 as we approach a new domestic box office

record.

Meetings with Financial Analysts/Investors: Our out-

reach to the financial community continues at a steady

pace. In December, Patrick Corcoran attended meetings

in New York and Boston with Fidelity Investments; Diamet-

ric Capital, LP; The Baupost Group LLC; Citadel; Kettle

Hill Capital Management, LLC; and Valinor Management,

LLC in order to talk about the long-term strength of our

industry. Our next wave of outreach will come in mid-

January after we release the attendance numbers for

2018. We will also discuss the Ernst & Young study and

the strong 2019 slate with analysts in mid-January. In

2019, we will target important analysts/investors that we

have not met with yet in Chicago and Toronto in addition

to regular contacts in New York, Los Angeles, and San

Francisco.

Filmmaker outreach: In November, we met in person

with Adam McKay and Jason Blum—and via phone with

M. Night Shyamalan—in order to get their thoughts on the

importance of theatrical and enlist them as advocates for

exhibition. McKay, Blum, and Shyamalan are strong sup-

porters of theatrical,

and they agreed to

interviews conducted

by NATO that will be

published by Boxoffice

(both online and in the

magazine). We will

utilize their best quotes

by converting them into

marketing materials

that we will distribute to

all members. Here’s an example:

Festival Presence: We have committed to sponsoring

panels and receptions through Variety at Sundance and

SXSW this year. Partnering with a media outlet like Variety

guarantees prominent coverage, and it allows us to speak on

behalf of exhibition in front of a crowd of industry influencers.

The panels also allow help us build relationships with key

members of the creative community.

In November, we met with representatives from the Independ-

ent Film & Television Alliance/American Film Market. The goal

is to have a presence at AFM next year in order to build a

strong connection with indie filmmakers.

Global Cinema Federation travels to

ShowEast and CineAsia

Representatives of the Global Cinema Federation traveled to

ShowEast in October and CineAsia in December to speak with

current and prospective members about the most pertinent

issues affecting their businesses. It is clear from

those discussions that each of our key priorities

are important to exhibitors and that windows, mu-

sic rights and trade and foreign investment contin-

ue to be priority issues for GCF members around

the world. Music rights have historically not been

an issue in the United States, but we have been

informed of a potential challenge. This is something the GCF

is keeping a close eye on. If you are being threatened with

legal action regarding the music played in your theater(s),

please reach out to Jackie Brenneman (jeb@natoca.com).

The GCF continues to welcome new members. As a reminder,

GCF Advisory Board and Affiliate membership is currently

free. Advisory Board membership is open to exhibitors with

250 or more screens and trade associations that represent

exhibitors. Affiliate membership is open to all exhibitors, no

matter how big or small, and you get the same information as

any other member. The next meeting of the GCF Advisory

Board will be at CinemaCon on Sunday, 31 March 2019 from

5:00—7:00 P.M.

The GCF will be distributing a summary of its accomplish-

ments in 2018 as well as survey highlights in early 2019.

Contact Jackie Brenneman (jeb@natoca.com) or Erin Von

Hoetzendorff (evh@natoca.com) for more information and to

ensure you are on our mailing list.

International

CONFIDENTIAL: FOR NATO MEMBERS ONLY 13 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

International (cont.)

Respective Roles of the GCF & NATO’s

International Committee

NATO’s International Committee met at the recent Annual

Meetings in Beverly Hills, CA. The group discussed and

adopted the following mission statement:

This statement further defines the on-going complementary roles

for NATO’s International Committee and the GCF. In addition to

the mission of the committee, the group also recommended

greater transparency of GCF activities during CinemaCon’s

International Day programming. Given the benefit provided to all

exhibitors worldwide, a report on the GCF will further enhance

the Monday morning schedule in Las Vegas.

Litigation

NATO Investigating Combined Studio

Audit Practices

NATO recently learned of an audit letter many exhibitors

received from Sargoy & Stein purporting to represent nine (9)

studios for a simultaneous audit. Though each exhibition

company will have to respond to the specifics of the audit

individually, NATO’s Executive Board authorized NATO to retain

outside counsel to analyze the anticompetitive threat of this

action, if any. We are currently in the initial stages of this

investigation, and are collecting information from exhibitors to

assist in the research. This will be a fact-dependent analysis, so

any information you may have on potential unlawful information

sharing between the auditors and its studio clients would be

useful. If you have any information you would like to share,

please contact NATO’s General Counsel Jackie Brenneman at

jeb@natoca.com.

Potential NATO Amicus Brief in

AMC v. City of Aurora

NATO is seeking approval to file a “friend of the court” brief for

the appeal of AMC v. City of Aurora. The case concerns whether

film rental is subject to use taxes in Colorado. At trial, the court

found that film rentals were indeed taxable as “tangible personal

property.” AMC appealed. NATO’s brief to the appellate court

would focus on the “true object” of the transaction. For purposes

of use tax, if a transaction includes both taxable and nontaxable

components, then a court will determine the “true object” of the

transaction, and apply the taxes accordingly. NATO would argue

that the true object of the transaction is not the physical data files

(as decided by the lower court), and is therefore not taxable.

NATO has a policy of filing briefs only in cases that are (1)

precedential and (2) could impact the entire industry. Because

this case will be in an appellate court, courts across the country

will look to the findings and reasoning contained the opinion

when they are presented with similar issues. Courts in Colorado

will be bound by the language of the court. The appeal is

scheduled for early 2019.

Patent Case Update

In late April a number of domestic NATO members received

letters from Intertrust Technologies Corporation (“Intertrust”)

alleging that mere adherence to the security requirements of DCI

was an infringement of their patents. NATO’s General Counsel

met with Intertrust and their attorney in late May. In the meeting,

Intertrust described their claims in more detail and specifically

alleged that exhibition is a critical location in the digital cinema

distribution ecosystem where all components of distribution

come together and are used. Intertrust sent a second letter to

many exhibitors in November.

The patents Intertrust cited in its letters describe a process, not

specific software. According to Intertrust, the various steps that

are necessary to transmit and subsequently play a piece of

digital (movie) content per the DCI specification, are not possible

without infringing on Intertrust’s patents. The patents themselves

include very broad descriptions of the individual components of

each process.

Intertrust is a large company based out of Silicon Valley that has

reached large settlements with companies including Microsoft

and Apple. The settlement with Microsoft was nearly $500

million. If you have received a letter or have any questions,

please contact Jackie Brenneman at jeb@natoca.com.

The mission of NATO’s International Committee will be

to address the necessary issues relevant to global exhi-

bition, and offer a forum for all member cinema compa-

nies, especially those that lack the advantage of a local

and/or national trade association. The committee will

identify, research, discuss, and report on matters which

complement the efforts of the Global Cinema

Federation.

The NATO International Committee will meet bi-

annually, except when the Global Cinema Federation

holds a meeting at the same venue and occasion.

The GCF Advisory Board will meet at CinemaCon Sunday, 31 March 2019 at 5:00 – 7:00 P.M.

Emperor’s Ballroom Caesars Palace.

We invite the NATO International Committee members to attend this meeting in accordance with

the recently adopted mission statement.

CONFIDENTIAL: FOR NATO MEMBERS ONLY 14 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Movie Ratings

Executive Board Approves Resolution

Allowing Tests of Differently-rated

Versions of Films in Theaters at the

Same Time

Director James Cameron wants differently-rated versions of

his upcoming movies to be made available in movie theaters

at the same time. Cameron believes there is an audience for

more restrictively rated versions of his reboot of the

Terminator franchise (for which he would like to include ”more

realistic” R-rated language) and the several Avatar sequels

(he believes the Na’avi, as an indigenous people, would be

plausibly topless throughout the movies). While it is

technologically more feasible to shoot both versions

simultaneously, production schedules and expenses must be

adjusted accordingly.

The simultaneous exhibition of differently-rated films is

currently prohibited by the rules of the voluntary ratings

system. MPAA and NATO would both have to approve any

rule change. Following an Advisory Board vote in favor of

testing the concept, the Executive Board passed a resolution

allowing for waivers of the rules on these titles (dependent on

the outcome of the first test) without changing the rules

outright. Following co-ratings administrator MPAA outreach to

its members, NATO will discuss with them how to proceed

with the waiver. See Addendum for a copy of the Board

resolution.

NATO Celebrates 50th Anniversary of

Movie Ratings

The attendees at

NATO’s Board

Dinner on Monday

evening, 8 October

2018, celebrated

the 50th anniversary

of the CARA

(Classification and Rating Administration) voluntary movie

ratings system, first introduced to American parents on 1

November 1968. A brief after-dinner program featured a

conversation between CARA Chairwoman Joan Graves and

NATO President and CEO John Fithian. The two discussed

the NATO-CARA partnership and how the ratings have

evolved over the years to keep pace with the evolving

opinions of parents. The dinner event was generously

sponsored again this year by The Coca-Cola Company.

NATO Welcomes Kelly McMahon as

Deputy CARA Chair; Joan Graves

Announces Retirement

On 15 November the MPAA

announced the retirement plans

for longtime Classification and

Ratings Board (CARA) chairman

Joan Graves. Joan has been with

CARA for thirty years and has served as the chairman since

2000. Kelly McMahon, who has served as vice president and

corporate counsel at the MPAA, will succeed Joan in 2019 and

will serve as deputy CARA chair during the transition.

Joan has been a tremendous partner to NATO and the entire

industry for the past three decades, and has successfully

navigated many challenges to the ratings system. NATO

leadership recently met with Joan and Kelly and we feel

confident that Kelly will continue Joan’s careful stewardship of

the ratings system.

Ratings Compliance

Officers to Meet at

CinemaCon 2019

NATO’s Ratings Compliance

Officers will meet jointly with

CARA and the MPAA from

2:00 pm to 3:30 pm PDT

on Tuesday, 2 April,

at Caesars Palace.

The agenda will include an

introduction to incoming

CARA Chairman Kelly

McMahon, a review of

existing ratings education and

enforcement policies, and a

discussion of ways to

improve and enhance the

voluntary ratings system.

CONFIDENTIAL: FOR NATO MEMBERS ONLY 15 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Camcorder Hotspot Updates

As of 13 December 2018, there have been 63 illegal recordings (11 audio and 52 video/full camcord sources) in the United

States. Hotspots include Texas (1 audio and 28 video/full camcord sources) and New York (1 audio and 6 full camcord

sources). Here are all the cities with multiple incidents so far in 2018:

City State No. of Incidents

Brooklyn NY 5

Frisco TX 5

Arlington TX 4

Dallas TX 4

Plano TX 4

Revere MA 4

Fort Worth TX 3

Garland TX 3

Irving TX 3

Lagrange GA 2

Ponce PR 2

San Jose CA 2

Tampa FL 2

Movie Theft

While the year is not over yet, it looks like there will be substan-

tial drop from 2016 and 2017’s high movie theft numbers. In

2016, the number of illegal recordings was 97 (25 audio sources

and 72 video/full camcord sources) and in 2017 the number of

illegal recordings was 113 (20 audio sources and 93 video/full

camcord sources). Erin Von Hoetzendorff distributes the MPAA/

NATO Hot Spots Alerts weekly and we encourage you to track

this information and share it with relevant employees.

Eradicating movie theft remains a top priority for NATO and the

MPAA. We are constantly working together to find solutions that

are practical and enforceable within theaters. We are currently

working on adding a Movie Theft module to NATO’s Online Em-

ployee Training Module series. If you have other ideas about

movie theft programs that would shape awareness and encour-

age enforcement, please reach out to Jackie Brenneman at

jeb@natoca.com or Erin Von Hoetzendorff at evh@natoca.com.

NATO Members Gather in Beverly

Hills for Annual Meetings

Almost 200 members and guests participated in

NATO’s 2018 General Membership and Board Meet-

ings held 8-9 October in Beverly Hills, CA. The

events kicked off with Committee and Task Force

meetings on Monday, 8 October. Numerous NATO

groups – the Codes Task Force, Conventions Com-

mittee, Government Relations Committee, Independ-

ent Theatre Owners Committee, Membership Com-

mittee, and Technology Com-

mittee – met to address their

specific issues.

On Monday evening, attendees

enjoyed a cocktail reception

and dinner, generously spon-

sored by The Coca-Cola Com-

pany. An after-dinner program

featured a celebration of the

50th Anniversary of the volun-

tary movie ratings system (see

story on page 14).

The agenda for Tuesday’s General Membership and Advisory

Board Meetings included timely reports on industry data, indus-

try messaging, theatrical release windows, streaming models,

Paramount Consent Decrees, federal government relations, digi-

tal cinema patents, and movie ratings. Attendees also received

updates on the activities of the Independent Cinema Alliance

and the Global Cinema Federation. NATO once again employed

audience response technology at the meeting, which allowed

participants to electronically express their opinions and to see

instant compilations of the input from the group. Following the

Advisory Board Meeting, NATO’s newly established Diversity

and Inclusion Committee met to develop its plans. Later Tues-

day afternoon, the International Committee and Young Members

Committee convened to discuss their specific topics. Also fol-

lowing the Advisory Board meeting, the Executive Board met in

private session to address a variety of finance and governance

issues, including the funding of a state legislative grant program.

NATO’s 2018 Annual Meetings were held at The Beverly

Hilton. NATO will return to the iconic property for its 2019

Annual Meetings, 23-24 September 2019.

NATO Annual Meetings

The Beverly Hilton

Beverly Hills, CA

CONFIDENTIAL: FOR NATO MEMBERS ONLY 16 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

NATO Membership

New NATO Members (August 2018 – December 2018)

NATO welcomed nine (9) new exhibition companies since the last President’s Report. These companies operate in

eight (8) different states, and one (1) territory worldwide. Here is a grid of the new NATO members:

The chart below displays the most recent screen count for NATO member companies, including the total number of

companies that comprise NATO:

UNITED STATES

The Prospector Theater (CT) North Park Theatre (NY)

Coolidge Corner Theatre (MA) The Grand Theatre (NE)

Edge Cinema LLC (AL) The Chelsea Theater (NC)

Paragon Cinema (LA) Hollywood Theater (PA)

CANADA

Big Island Drive-In (Canada)

(as of 17 December 2018) # of Screens # of Companies # of Territories

NATO Domestic (US) Members 33,740 610 1

NATO Canadian Members 2,394 24 1

NATO North American Members 36,134 634 2

NATO US Territory Members 333 3 4

NATO International Members (Non-US, Non-Canadian) 31,395 51 90

NATO Worldwide Members 67,862 688 96

Representing More than 67,000 Screens in 96 Countries

CONFIDENTIAL: FOR NATO MEMBERS ONLY 17 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

NATO Membership (cont.)

Non-Profit Cinemas Joining NATO

As previously reported, the NATO Executive Board approved a resolution to amend the NATO Bylaws to allow non-profit (non-

military) cinemas to join the association. The Membership Committee, following a discussion prior to CinemaCon, recommended

that this amendment would help NATO and its members, most notably in its efforts on federal, state, and local legislation.

Several non-profit cinemas have already joined the association, and some participated in the recent Annual Meetings in Beverly

Hills, CA. Here is a chart with NATO’s current list of non-profit members:

Company City State SCR Sites Yr

Found Website Join Date

Gateway Film Center Columbus OH 7 1 2005 www.gatewayfilmcenter.org 2/18/2011

Salt Lake Film Society Salt Lake City UT 7 2 1997 www.saltlakefilmsociety.org 7/26/2018

Michigan Theater Foundation Ann Arbor MI 6 2 1979 www.michtheater.org 7/2/2018

Coolidge Corner Theatre Brookline MA 4 1 1933 www.coolidge.org 9/18/2018

The Prospector Theater Ridgefield CT 4 1 2014 www.prospectortheater.org 8/24/2018

a/perture Cinema Winston Sa-lem NC 3 1 2009 www.aperturecinema.com 6/29/2010

Belcourt Theatre Nashville TN 3 1 1999 www.belcourt.org 7/10/2018

The Chelsea Theater Chapel Hill NC 3 1 2018 www.thechelseatheater.org 11/2/2018

Sie FilmCenter (Denver Film Society) Denver CO 3 1 2012 www.denverfilm.org 6/29/2018

SCERA Corporation Orem UT 2 1 1933 www.scera.org

The Grand Theatre Grand Island NE 1 1 2005 www.grandmovietheatre.com 11/1/2018

Hollywood Theater Pittsburgh PA 1 1 1969 www.hollywoodtheaterpgh.org 11/5/2018

North Park Theatre Buffalo NY 1 1 1920 www.northparktheatre.org 11/13/2018

Update Your Company Information & Data in the NATO Database

We want to ensure that NATO has your company’s current information. It’s an important part of NATO’s mission to represent the

worldwide exhibition industry.

To access your company’s information, go to this webpage: https://nato.imiscloud.com/MyAccount

You must be registered as the COMPANY ADMINISTRATOR for your company. Once you log on, click the company name on

your profile page, then click the PENCIL ICON on the company profile to edit and review. If you encounter any problems, please

email David Binet (db@natodc.com). The above link also allows you to pay membership dues, as well as add personnel to the

distribution list.

We want to assure you that no sensitive company information (such as PLF screen counts or

individual contact information) will be shared with any outside parties. These data are for NATO

internal use only. The online Encyclopedia of Exhibition will only display general company infor-

mation: total screen count, company headquarters, and company officers.

CONFIDENTIAL: FOR NATO MEMBERS ONLY 18 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

NATO Services

Payment Processing

Program Update

The Independent Cinema Alliance will

take over administration of an industry

payment processing solution from NATO.

As announced last summer, NATO did

not renew its payment processing pro-

gram with Vantiv; ending a six-year part-

nership that significantly reduced fees for

small and mid-size exhibitors. NATO dis-

continued the program after it rejected

Vantiv’s proposal to significantly increase processing fees

for its members. NATO has suspended its search for a new

solution in support of ICA’s development of a payment pro-

cessing program.

If you are currently a client of Vantiv, please review your

Merchant Agreement thoroughly. The terms of your contract

should state the process to terminate your Merchant Agree-

ment in the event Vantiv increases rates. For example, in a

typical contract Vantiv must give the merchant 30-days writ-

ten notice of intent to increase per transaction fees. The

merchant may terminate the Agreement upon 60 days ad-

vance written notice to Vantiv—provided Vantiv receives

such written notice within 90 days of the date the Fee

Change becomes effective. The terms of your individually

negotiated contract might be different, so thoroughly review

your company’s Merchant Agreement.

Security

NATO Announces 2019 Cybersecurity

Educational Series

In response to the growing number and severity of cyber

threats, it's critical for exhibitors to understand cybersecurity

principles. To address the scope and complexity of the is-

sue, NATO recently announced it is undertaking new initia-

tives in 2019 with the goal of educating and informing exhib-

itors on the threat posed by cyber criminals and possible

ways to secure a company’s information assets.

NATO Members-Only Cybersecurity

Session at CinemaCon 2019

In conjunction with CinemaCon 2019, NATO will continue its

annual Thursday morning seminar series for members only.

This year, NATO members are invited to join industry exec-

utives and cybersecurity experts as they present important

information on cyber trends, resources, policies, and solu-

tions. Additional session details will be available soon.

Registration is required for admittance to this strictly member-

only session. Please do not forward or share this information

with non-members or media representatives. Please RSVP

today to reserve your spot in this important cybersecurity ses-

sion. We look forward to seeing you in Las Vegas.

FTC Cybersecurity Webinar

Additionally, NATO will kick off its 2019 cybersecurity webinar

series with a presentation by the FTC called, “Cyber Basics For

Theater Owners: Cyber Basics, Remote Access, Vendor Secu-

rity, Web-Hosting.” Please note, the webinar will not be record-

ed. We urge you to join this live event on Tuesday, 12 February

2019, at 4:00 pm EDT. Additional session details will be availa-

ble soon. Questions? Contact NATO Consultant Todd Halstead

at trh@natodc.com.

Security Alert: Be Sure to Report

Suspicious Activity

Protecting theater guests and staff is of utmost importance to

NATO members. Timely reporting of suspicious activity ena-

bles law enforcement to engage efforts to thwart criminal or

terrorist activities. Now, with the busy holiday movie going sea-

son upon us, we’d like to reiterate the importance of front line

staff remaining vigilant.

DHS has provided this online resource to help NATO members

and staff recognize the signs of criminal and/or terrorism-related

suspicious behavior that warrant scrutiny and reporting: Under-

standing suspicious activity.

If suspicious behavior is spotted by your staff or guests, please

immediately report it to local law enforcement and then to

NATO, so we can share the information with our contacts at

DHS and FBI and alert nearby theaters if appropriate.

When contacting NATO on security matters, please call the

NATO office at (202) 962-0054 or email Kathy Conroy at

kmc@natodc.com and/or Esther Baruh at erb@natodc.com.

CONFIDENTIAL: FOR NATO MEMBERS ONLY 19 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

TECHNOLOGY

NATO Technology Committee Meeting

The Technology Committee held our meeting in person at the

NATO Annual Meetings in Beverly Hills on Monday 8 October

2018. We held a lively discussion with many “votes” on

technology issues. Some highlights:

We agreed to set a date for SMPTE-

DCP conversion - 12 April 2019.

We agreed we want to work with

TASA (Trailer Audio Standards

Association) to change the mixing

standard so trailers and features can

be played back at the same fader

setting.

We agreed that NATO should not take

a lead role in maintaining TDL (trusted

device lists). NATO can provide some

(minimal) guidance to point companies in possible

directions.

We agreed that NATO should work with partners to create

an “open test lab” for cooperative evaluation of future

technologies.

DCI’s Statement on Direct View Displays

On 16 November 2018, DCI released

two documents on Direct View

displays and High Dynamic Range

(See http://www.dcimovies.com).

DCI independently created these documents with some

discussions with the technology providers. NATO will respond

to the draft documents and anyone is encouraged to directly

send comments to DCI (email dci.info@dcimovies.com).

Some interesting initial read of the documents:

High Dynamic Range is defined as a peak white of 500

nits. This means that current projectors (14ftL or 50nits) or

Dolby/IMAX (about 100nits) are not defined as HDR.

Studios may create two versions of movies, one for SDR

(standard dynamic range - peak of 50nits) and one for

HDR (peak of 500nits). It is not clear what that will mean

for projectors capable of 100nits.

DCI may be requiring a SDR master that is played on

HDR equipment will need to artificially change the contrast

ratio to match a SDR projector.

DCI implies a black level for HDR projectors at 0.005nits. It

is not clear if test equipment can measure this level and

what theaters have as a background level (including exit

and safety lights).

We expect to have meetings with studios to

discuss and also respond via email to DCI.

Trailer Sound Levels

Two meetings between NATO and TASA

(Trailer Audio Standards Association) have

been held. While this is a very complex and

emotional issue, we are making progress.

Studio marketing groups are very

concerned that no marketing campaign is

disadvantaged by changing the level unless

everyone changes at the same time.

Studios recognize that most exhibitors play back at a much

lower level than the standard and (in fact) adjust for this in

the mix.

We agreed that today’s trailer volumes are very consistent

between trailers, showing that the current standard works,

but may be too high.

This is an active area of cooperative work between NATO,

TASA and the studios.

SMPTE-DCP Transition

NATO’s date-certain of 12 April 2019 for movie distribution in

the SMPTE-DCP format is moving forward. There are

approximately 288 domestic sites that are not qualified for

SMPTE-DCP, but many of these have simply not been tested.

Of these sites, approximate 51 are regularly getting releases.

NATO will continue to work with our partners to encourage our

members to upgrade and test to be SMPTE-DCP ready when

April arrives.

NATO Technology

Committee Webinar

Wednesday, 6 February 2019

Time TBD

Contact David Binet (db@natodc.com) for more

details about the webinar and how to sign up for the

Technology Committee.

CONFIDENTIAL: FOR NATO MEMBERS ONLY 20 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

Theatrical Release Windows

Streaming Services and Theatrical

With heightened attention on theatrical release and streaming

service occasioned by Netflix’s release of Alfonso Cuarón’s

Roma, NATO has continued outreach to the creative commu-

nity and press over the importance of exclusive theatrical re-

lease. Responding to filmmakers like Cuarón and their inter-

est in theatrical release, NATO’s John Fithian extended an

invitation to Netflix at the Toronto International Film Festival to

release Roma and other appropriate films in theaters, but to

“respect the theatrical release model.” Netflix, in its Q3 letter

to investors, declined to release any films prior to their debut

on Netflix:

Just fifteen days later, Netflix changed its mind, opting to re-

lease Roma exclusively to theaters three weeks before its

streaming debut and The Ballad of Buster Scruggs and Bird

Box with one week of theatrical exclusivity. NATO responded

that such a “token release” was insufficient and was disap-

pointing to filmmakers and theatrical audiences. Netflix had

released The Ballad of Buster Scruggs and Roma, but did not

report theatrical revenues. As of press time, Bird Box had yet

to be released.

Meanwhile, NATO initiated meetings in Los Angeles with

filmmakers, major talent agencies, Amazon and Netflix to

encourage exclusive theatrical releases by streaming services

when their films have theatrical potential. The meetings with

filmmakers and talent agencies were encouraging, as

filmmakers and agencies are frustrated with the limitations of

streaming-only or simultaneous releases. Amazon already

releases theatrical films with robust windows before going to

streaming and is looking to increase the number of commer-

cially viable films it releases to theaters. The meeting with

Netflix was frank but inconclusive. Future filmmaker pres-

sure, particularly as Netflix approaches a 2019 release of

Martin Scorsese’s The Irishman, will likely be highly influen-

tial as Netflix considers its future plans. According to Irish-

man star Robert De Niro, the film will be released “the way it

should be, in a theater." What that means in terms of a win-

dow remains to be seen. NATO will continue its outreach to

the creative community and streaming companies, including

Apple, with that filmmaker interest in mind.

Academy Award Eligibility/Promotion

As noted in the section on the Documentary Shortlist Pro-

gram, NATO continues its efforts with the Academy to involve

theaters in promotion of the Oscars, working toward the Os-

car broadcast being seen live in theaters. NATO also is con-

tinuing its outreach to Academy members to emphasize the

theatrical element in Academy Award eligibility. While Netflix

and its allies seek to remove the theatrical component for

eligibility, there is considerable counterpressure to maintain

the current rules and, among some, to require a period of

theatrical exclusivity for consideration. NATO will continue to

work with those members, like Steven Spielberg and Christo-

pher Nolan who advocate for the theatrical requirement.

EST Dates Shorten Significantly

Electronic Sell Through (EST) windows for theatrical releases

continue to shrink. The average for major studio EST win-

dows through 18 December was 2 months 27 days (87 days)

– down a day from 2017 and 6 days from 2016. Dates on

some individual titles since the latest NATO Windows Report

have been far shorter.

Universal’s Night School had an EST window of 74 days, as

did Fox’s The Predator. Universal’s Halloween had a 70 day

EST window. Warner Bros’. Smallfoot had a 67 day EST

window, so did Universal’s The House with a Clock in its

Walls, Sony’s Venom, and Fox’s Bad Times at the El Royale.

These are a sampling of the titles shrinking the EST window.

There are more, reported to members weekly by NATO.

If these windows are of concern to you, it is important that

you express those concerns to your studio partners at what-

ever level you have contact with them. NATO will continue to

report short windows to members weekly.

This December, we'll be launching

ROMA, from Oscar-winning director

Alfonso Cuarón. We support simultane-

ous release in cinema and on Netflix,

and the film will debut on Netflix and on

over 100 screens worldwide, just as we

are doing currently with 22 July, from

Oscar-nominated director Paul Green-

grass. We believe in our member-

centric simultaneous release model for

our original films and welcome addition-

al theater chains that are open to carry-

ing our films to provide the shared-

viewing, big-screen experience to their

customers who enjoy that option.

CONFIDENTIAL: FOR NATO MEMBERS ONLY 21 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

NATO Staff

NATO Consultant Belinda Judson to focus exclusively on NATO Regional Unit

growth and development, while state legislative issues

will be managed by Esther Baruh and a new hire to be selected soon

For many years, Belinda Judson has served effectively in several different capacities for NATO. She has been a

liaison between the national organization and our regional units, and she has coordinated the legislative tracking

and advocacy for state issues across the country. At the same time, Belinda has managed several of the NATO

affiliated regional units in their own local operations.

Now that the Executive Board of NATO has approved an initiative whereby up to $1 million of national funds will

be allocated to state and local legislative initiatives, and now that the various regional units will play an important

role in the use of these funds, we have made some staff realignments to reflect these priorities.

Specifically, Belinda will now focus her time assisting the regional units in ways they can grow stronger -- by max-

imizing their local events, by better organizing their grass roots; by better organizing themselves as non-profit but

effective entities, etc. Indeed, I hope that Belinda will attend and assist at most of the regional events, to help

make them successful.

At the same time all the state and local legislative initiatives will be managed by Esther, along with a new hire to

be announced shortly.

It is my desire that Belinda will bring the assets of the national association to help the regional units be stronger

and viable, while Esther and our new hire will help with the state and local legislative initiatives. In this vein, I ask

that all questions and proposals relating to the strength of the regional associations be directed to Belinda, while

all questions about specific legislation be directed to Esther.

Belinda Judson

Regional Liaison

Esther Baruh

Director of Government Relations

CONFIDENTIAL: FOR NATO MEMBERS ONLY 22 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

NATO Staff Contact Information

1705 N Street NW Washington, DC 20036 USA

4605 Lankershim Boulevard # 180 No. Hollywood, CA 91602 USA

John Fithian

President & CEO

jf@natodc.com

Kathy Conroy

Vice President & Chief Operating Officer

kmc@natodc.com

David Binet

Director of Membership

db@natodc.com

Esther Baruh

Director of Government Relations

erb@natodc.com

Phil Contrino

Director of Media & Research

prc@natodc.com

Enid Palazzolo

Finance Manager

esp@natodc.com

Cheryl Dickson

Executive Assistant/Office Manager

cd@natodc.com

Mitch Neuhauser

Managing Director

mitch.neuhauser@natodc.com

Matt Pollock

Associate Managing Director

matt.pollock@natodc.com

Matt Shapiro

Operations Director

matt.shapiro@natodc.com

Cynthia Schuler

Finance Manager

cynthia.schuler@natodc.com

60 Cuttermill Road Suite 413 Great Neck, NY 11021 USA

Patrick Corcoran

Vice President & Chief Communications Officer

pfc@natoca.com

Jackie Brenneman

General Counsel & Director of Industry Relations

jeb@natoca.com

Erin Von Hoetzendorff

Global Affairs & Administrative Assistant

evh@natoca.com

Todd Halstead

Program Consultant

trh@natodc.com

Belinda Judson

Regional Liaison

bvj@natodc.com

Jerry Pierce

Technology Consultant

jerry@jerrypierce.org

Chris Rauch

Controller

cr@natodc.com

Randy Smith

Legal, Government Relations and Security Consultant

raymond.randy.smith@gmail..com

NATO Consultants

CONFIDENTIAL: FOR NATO MEMBERS ONLY 23 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

RESOLUTION

Waiver of Ratings Rule for Terminator Release

WHEREAS NATO co-administers the Classification and Rating Administration (“CARA”) with the MPAA, and

WHEREAS the ratings rules require only one rated version of a film be in the marketplace at a time and further

mandate a 90 day withdrawal period of the original rated version before a differently-rated version may be ex-

hibited, and

WHEREAS the ratings rules allow the MPAA and NATO to waive the withdrawal period if they believe that the

specific circumstances are sufficient to prevent public confusion, and

WHEREAS James Cameron has approached CARA leadership to request permission to have two differently-

rated versions (PG-13 and R) of his 2019 release, Terminator in the market at the same time, and

WHEREAS Mr. Cameron would also like similar permission for future releases in the Avatar franchise, and

WHEREAS A decision on these issues is material to Mr. Cameron’s shooting schedule and planning, especially

for the Avatar films, and

WHEREAS NATO’s members are interested in recommending a waiver be granted for the release of Terminator

as a test case, and

WHEREAS exhibitors have had success releasing multiple versions of titles (2D, 3D, PLF etc) with little or no

consumer confusion, and

WHEREAS Terminator is likely to be a high-profile release with significant marketing and consumer awareness,

which should further reduce consumer confusion, and

WHEREAS each version of the film should follow the successful model of other releases with multiple versions

including different titles for each version, and

WHEREAS exhibitors are in the best position to make booking and programming decisions for each of their

theaters and therefore any waiver would have to allow for exhibitor discretion including: (1) the option to book

only one rated version of the film, (2) the ability to book different rated versions in the same auditorium at dif-

ferent times (“stacking”), (3) programming the differently-rated versions in separate auditoriums, and (4) stag-

gering of showtimes, among others, and

WHEREAS in order for exhibitors to make programming decisions complex-wide keys should be distributed for

each rated version of the film for each auditorium in the complex, and

Addendum - Page 1 of 2

CONFIDENTIAL: FOR NATO MEMBERS ONLY 24 NOT FOR DISTRIBUTION

THE PRESIDENT’S REPORT December 2018 Vol. 19 No. 3

RESOLUTION (cont.)

Waiver of Ratings Rule for Terminator Release

WHEREAS exhibitors would like to evaluate the performance results of the differently-rated release of

Terminator and any other potential interim tests before officially recommending a waiver for any future

releases, and

WHEREAS when more than 100 members gathered for the 2018 NATO Advisory Board meeting they voted

overwhelmingly to recommend such a waiver with these conditions; therefore

BE IT RESOLVED that the NATO Executive Board supports recommending a one-time ratings rules waiver for

the 2019 release of Terminator allowing both a PG-13 and R-rated version to play at the same time, and

BE IT FURTHER RESOLVED that the board supports recommending a conditional waiver for the Avatar films,

contingent upon the performance results of the Terminator release and any other interim multiple-rated

releases, as well as any other relevant circumstances, and

BE IT FURTHER RESOLVED that all booking, showtime, and programming decisions regarding the differently-

rated versions will be made exclusively by exhibitors including the ability to book only one rated version, the

option to stack differently-rated versions in the same auditorium, staggering of showtimes, and programming

the differently-rated versions in separate auditoriums, among others, and

BE IT FURTHER RESOLVED that complex-wide keys for each rated title shall be issued to each exhibitor for

each auditorium in the complex, and

BE IT FURTHER RESOLVED that the marketing and distribution of each rated title of Terminator will include

safeguards against consumer confusion including differently-titled versions on the DCP, multiple one-sheets

and more.

The Executive Board

National Association of Theatre Owners

8 November 2018

Addendum - Page 2 of 2