Say there are only two exhibitors in a given city. It's in the film company's long-term best interest to have both of those operators coexist. If one of them bids, loses a lot of money and goes out of business, over the short term the film company has gained a few dollars, but in the long term the balance of power has shifted in favor of the surviving exhibitor. That's a good argument against bidding, from either point of view.

A different step a distributor might take in this market is to allocate its product, giving a Clint Eastwood picture to Exhibitor A and a Mel Gibson picture to Exhibitor B. If this is done to keep both theatres viable, and if both exhibitors agree, there's no problem. In fact, product allocation is frequently the case in the industry today.

Supply and demand also comes into play. In the highly competitive Christmas playing time, if there are sixteen pictures vying for eight theatres in a given city, distributors would jockey for position and screens in a buyer's market. If there are six pictures instead of sixteen, exhibitors would be hungrier and it would be a seller's market.

Ours is an industry built on relationships evolving from trust, integrity and loyalty. The exhibitor who remembers a distributor's help when there were fewer films is likely to return a favor to that same distributor when there are too many films. On the other hand, there are exhibitors and distributors with short memories and little sense of reciprocity.

It is no longer a seasonal business, although the highest-grossing potential comes when children are out of school. 60% of movie patronage is from the age group of fourteen to twenty-nine. As studios move their strongest releases ahead, Christmas starts in early November, and summer starts at Memorial Day. That's still the best playing time. But, as in any self-fulfilling prophecy, if a less-than-commercial film is released in a peak period, it won't do business. And "Home Alone" can open November 9 and become a blockbuster.

If the percentage terms for an offer are 90/10, the distributor receives 90% of the gross receipts after the exhibitor has deducted and retained his "approved house allowance", or nut. In the case of a multiplex, these figures are generally arrived at in that proportion that the number of seats in a specific auditorium bears to the total seating of all of the houses. The house allowance is a figure negotiated between the distributor and exhibitor, which does not necessarily bear any relationship to actual expenses. It's usually more, which allows for some air in the theatre's profit margin. It differs from the "house expense", which is the actual cost of running the theatre including rent, payroll, maintenance, utilities, insurance, etc.

In running the numbers, the distributor will receive the "90/10 over allowance" computation or the stipulated minimum gross percentage for a given week, whichever is greater.

Assume house expenses of $5,000.00. If $10,000.00 comes in at the box-office in the first week, the 90/10 formula would call for deducting $5,000.00 (the house allowance), leaving $5,000.00 to be shared between distributor and exhibitor as follows: 90% to the distributor and 10% for the exhibitor. 90% of $5,000.00 is $4,500.00. However, the weekly minimums stipulated call for the first "three weeks at 70%" and 70% of $10,000.00 is $7,000.00 ($2,500.00 higher than $4,500.00). The 70% figure would prevail, and $7,000.00 would go to the distributor as film rental. On that basis the exhibitor would be out-of-pocket $2,000.00.

Now assume a theatre takes in $50,000.00 that first week. Under 90/10, the exhibitor would retain the first $5,000.00. 90% of the remaining $45,000.00 is $40,500.00. Since 70% of the week's gross of $50,000.00 is $35,000.00, the 90/10 deal would be triggered, and the distributor would receive the higher figure, $40,500.00 in film rental. The exhibitor would wind up with $9,500.00, $4,500.00 more that its allowance for that week.

Let's take a picture that does not open as strongly, with a second week's gross of $5,000.00. In this case the 70% calculation would prevail, giving $3,500.00 to the distributor and $1,500.00 to the theatre. Assuming the operating expenses are still $5,000.00, the theatre would suffer a $3,500.00 loss.

The distributor benefits greatly if the picture is a big success; the best the exhibitor can do is 10% above expenses for a hit picture. And that house expense figure is of course not guaranteed; if the box-office fails to generate more than the house expenses, as in the $5,000.00 weekly gross model, the exhibitor is in a loss position. Also, these figures don't include the theatre's share of local advertising.

A guarantee is a nonrefundable amount of cash that an exhibitor must pay to a studio, often months before the release date, in order to secure a certain picture. If the guarantee is, say, $100,000.00 from a theatre, but the distributor's share of box-office receipts is ultimately only $75,000.00, that exhibitor takes an absolute loss of $25,000.00, since the entire $100,000.00 guarantee is retained by the studio. This differs from an advance, which is not so onerous in that it is refundable, to the extent that it is not earned in film rental by the distributor under the terms of the licensing agreement. Assume the theatre advances $100,000.00, and the distributor takes possession of that $100,000.00 before turning over the print. If the distributor's share of box-office receipt is again $75,000.00, $25,000.00 is not earned by the distributor under the terms of the agreement. That unearned $25,000.00 is returned to the exhibitor.

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