Theaters raise revenue, and tensions, by charging to show trailers

Exhibitors charge extra to run ads before movies

People walk in front of the Regal Cinemas LA Live Stadium 14 in Los Angeles, California, on February 14, 2013. Movie theater chains are putting pressure on studios to pay more to have their trailers placed in front of the audiences they want.

Coming soon to a theater near you: a multimillion-dollar battle over coming attractions.

Theater owners are squeezing extra coin out of film companies by charging them to play the trailers for their upcoming movies.

Traditionally, theater owners were happy to run the advertisements for upcoming movies on the understanding that they drove box-office receipts and concession-stand sales. Studios paid to make the trailers and cinemas screened them. Each movie came with two coming attractions attached, while others ran at the discretion of the theater, often as a result of lobbying by Hollywood marketers.

But now theater owners, realizing the value of having Hollywood’s target audience already in the theater, have begun charging movie companies to run their trailers. Although some trailers still run for free, movie distributors complain that they’re increasingly being asked to pay to get their trailers played — or get shut out.

“We’ve reached the tipping point,” said Jeffrey Neuman, chief executive of Verites, a Burbank, Calif., company paid by studios to check theaters to see that trailers are being shown and that marketing materials such as lobby cards and standees are in place. “If you’re not one of the ones paying for trailers, you’re left struggling for placement.”

In one controversial move, the nation’s largest cinema chain, Regal Entertainment Group, recently cut the number of trailers that studios can run with their own movies for free from two to one. Some studio executives are privately grumbling about the practice, upset that they are being asked to pay still more to a supposed partner that typically keeps half the box-office receipts.

“It’s logical a theater operator has an obligation to market studios’ movies, when we’re spending hundreds of millions of dollars on [making] each one,” said one studio executive who asked not to be identified because of the sensitive nature of the topic. “But they have gone all the way around to wanting to be paid.”

Four of the major studios — 20th Century Fox, Sony Pictures, Universal Pictures, and Warner Bros. — reportedly have made annual marketing deals worth several million dollars with theater chains such as Regal and AMC Entertainment. In exchange, the studios are exempt from the one-free-trailer-only rule and get the best possible placement.

Walt Disney Studios and Paramount Pictures don’t have such deals, while smaller studios may pay as much as $100,000 to play a trailer for one film.

Some coming attractions still make it on the screen through studio executives lobbying and cajoling contacts at theaters with whom they have long-standing relationships. But such old-fashioned methods that don’t involve payments are increasingly rare.

Large theater chains won’t publicly acknowledge that they charge for trailers, nor will the studios that pay them. Spokesmen for Regal and AMC declined to comment, as did representatives of Cinemark Holdings Inc. and Carmike Cinemas Inc., the next largest national cinema chains.

But within the film and exhibition industries, it’s common knowledge — and a growing source of resentment.

“Everybody says, ‘No, no, there’s no money ever paid to show trailers,’ but we know that’s not the case for some of the big boys,” said Rafe Cohen, president of Galaxy Theatres, a Los Angeles-area chain that operates 115 screens. “For us little guys, we’d love to charge for trailers, but we don’t have the leverage.”

There are no official stats on how many trailers make it to the big screen thanks to a payment, but the practice has become increasingly common. Verites checked on about 100 trailers in 2012, compared with 30 in 2009, Mr. Neuman said.

The dispute marks the latest flare-up between film companies and exhibitors, whose symbiotic relationship has been strained in recent years. Turning trailers into a business, some fear, could add to the tension.

“What makes this business run are trailers,” said Chuck Viane, a former president of distribution for Walt Disney Studios. “When the right trailers aren’t seen by the public with the right movie, that can hurt the box office.”

Although Regal’s one-trailer-only rule is new, the free trailer system began to break down in 2001, when Sony paid to advertise its comedy The Animal in front of the hit Universal movie The Mummy Returns. That aberration soon became the norm, with pay-for-play accelerating in the past two years.

As they rose in value, the total number of trailers shown before a movie started going up. Three or four was the norm a decade ago. Regal and AMC theaters now run six or seven before every feature.

“The number of trailers has absolutely exploded,” said Federico Ponce, owner of High Res Hype, a graphic and design company that has worked on trailers for such movies as The Avengers and Iron Man. “When we started out, we’d work on one or two trailers every four months. Now we’re doing three or four trailers at the same time.”

The competition is fierce, and prices high, to run a trailer in front of popular movies such as The Hobbit. Theater chains typically receive $25,000 to $100,000 to run a spot before a popular film at half their theaters — saving an equal amount of time at the other half of their theaters for another paid trailer.

Theater owners charge more for the final trailer before a movie starts because, Mr. Neuman said, “There’s a big difference between how many people see the first trailer and the last.”

Major studios forge “marketing partnerships” with theaters, in deals that cost $3 million to $6 million and include benefits such as special advertising in lobbies and on popcorn bags along with preferential theater placement. And cash doesn’t always change hands. One studio spends heavily advertising on a theater chain’s Web site with the expectation its trailers will be treated better as a result.

Some studios opposed to paying for trailers have been forced to relent.

“It’s unfortunate that we need to make deals for material that is the lifeblood of the industry for everyone involved,” said an executive at one studio.

Executives who are paying Regal now fear they’ll soon be paying other chains too.

“If studios agree to this, and you’re AMC, why wouldn’t you do it?” one said.