That engine you hear revving up is that of CinemaCon 2013 (coming to Caesars Palace only

from April 15 – 18), not “Fast and the Furious 6” (coming to theatres only on May 24)! And

when we hit the road running on Monday, April 15 we may just leave the success of both

CinemaCon 2011 and 2012 in the dust! Things are looking that good and exciting for this

year’s show. Here are just a few reasons why:

All seven major studios are once again on board for major

presentations and screenings.

The trade show is sold-out.

Caesars Palace is sold-out. CinemaCon has arranged for

additional rooms at both Bally’s and The Flamingo, just a

short walk from Caesars. Reservations can be made by

accessing the CinemaCon website.

Registration numbers are tracking ahead of 2012’s

numbers.

There will be more seminars and special programs than

ever before.

One of the most prolific producers of our time, and, the

newly named President of Lucasfilm, Kathleen Kennedy,

will be the recipient of the 2013 “Pioneer of the Year” Award.

International Day offers our most well-rounded programming to date. We urge you to

review the schedule as there are many topics that may be of great interest to all NATO

members, not just those doing business in the international market.

Please watch for the new and improved CinemaCon app available on/

about March 4. This new APP will be a valuable tool for both pre-show and

on-site information. Please dowlnload immediately upon notification.

Check the CinemaCon website

(www.CinemaCon.com) regularly for the most current Schedule of

Events and listing of our Final Night “Big Screen Achievement

Award” honorees. The talent on hand is going to be great!

Once again, rest up now, it’s going to be a great, busy, fun and productive week.

The CinemaCon and NATO teams look forward to welcoming you to Las Vegas in April.

T H E P R E S I D E N T ’ S R E P O R T

F E B R U A R Y 2 0 1 3

CONFIDENTIAL: For NATO Members only

Official Presenting Sponsor

Register for

CinemaCon 2013

TODAY!!

Simply logon to

www.CinemaCon.com

Table of Contents:

CinemaCon 1+

Board Meeting 3

Credit Card Update 4+

Disabilities Issues 5+

Food & Beverage Issues 7

Health Care 8

Industry Data 9

Labor 10

Legislation 11+

Marketing 13

Membership 14

Movie Theft 15

Ratings 15+

Regional Units 16

Technology 17+

Windows 20

R E S T U P N O W — B E C A U S E I T ’ S G O I N G T O B E A B U S Y W E E K !

: C O N V E N T I O N U P DA T E

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Volume 14, No. 1

The President ’s Report Vol . 14 , No. 1 February 2013

NATO Groups to Meet at CinemaCon 2013

The NATO Executive Board as well as numerous NATO

Committees and Task Forces will meet in conjunction with

CinemaCon 2013. On Sunday, April 14, NATO’s

International Committee, chaired by Joost Bert, Kinepolis

Group N.V., Belgium, will gather from 2:00 p.m. to 4:00

p.m. to discuss issues that affect international exhibitors

including movie theft, technology, authors/performers’

rights payments and release windows. Later that

afternoon, representatives of NATO’s certified Regional

Associations, chaired by NATO’s Regional Liaison Belinda

Judson, will meet from 4:15 to 6:15 p.m. to discuss state

and local legislation of concern to exhibitors including

proposed admissions taxes, food and beverage taxes,

alcohol laws, minimum wage and harmful to minors

legislation. Later on Sunday, the NATO Audit Committee

will conduct its regular business at a dinner meeting.

The NATO Executive Board will meet privately on Monday morning, April 15. That

afternoon, the NATO Independent Theatre Owners Committee, chaired by Donald Fox, Fox

Theatres, New York, NY, will meet from 1:00 to 2:30 p.m. to address a variety of issues

that impact independent theater owners. Immediately following the indies’ session, the

members of the Cinema Buying Group (CBG), led by Managing Director Bill Campbell,

Orpheum Theatre, Inc., Sheridan, WY, will convene privately for an update on CBG

business matters.

The NATO Membership Committee, chaired by NATO Secretary Mark O’Meara, University

Mall Theatres/Cinema Arts, Fairfax, VA, will meet on Tuesday afternoon, from 2:00 p.m. to

4:00 p.m. to discuss membership recruiting and retention opportunities for NATO and

other Committee business.

To support our members’ efforts to provide a safe environment for their patrons, we are

planning a private meeting of NATO’s Security Officers on Wednesday afternoon, April 17,

to discuss theater security issues.

The NATO Movie Theft Task Force will hold its semi-annual meeting of exhibitor and

distributor members on Thursday morning, April 18, from 9:00 a.m. to 10:15 a.m., to

address how to best combat movie theft.

Meeting notices with specific meeting room information have been emailed to members

of these NATO groups. Please RSVP to David Binet at db@natodc.com (or, in the case of

the Movie Theft Task Force, to Brigitte Buehlman at bgb@natoca.com) if you have not

already done so.

As you can see, it is going to be a very busy week in Las Vegas. All of us at NATO

appreciate the excellent work and generous contributions made by the volunteers serving

on these NATO groups. We look forward to seeing you all at CinemaCon 2013.

Page 2

: C O N V E N T I O N U P DA T E

Meeting notices with

specific meeting room

information have been

emailed to members of

these NATO groups.

Please RSVP to

David Binet at

db@natodc.com

(or, in the case of the

Movie Theft Task Force,

to Brigitte Buehlman at

bgb@natoca.com)

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NATO Membership Committee meets at CinemaCon 2012

The President ’s Report Vol . 14 , No. 1 February 2013 Page 3

NATO Members to Gather October 1-4, 2013 in Washington, DC

NATO will hold its 2013 General Membership and Board

Meetings on Wednesday-Thursday, October 2-3, at the

Park Hyatt Washington, D.C. On Tuesday, October 1,

the day before the traditional schedule of Committee,

Membership and Board Meetings, NATO will create

opportunities for members to meet with legislative

leaders on Capitol Hill. The Hill visits will be especially

important this year, as Congress is likely

to be considering legislative action on

violent entertainment and/or the

federal minimum wage.

On Wednesday, October 2, several NATO groups – the Codes Task Force,

Conventions Task Force, Food & Beverage Task Force, Independent

Theatre Owners Committee, Membership Committee, Regional

Associations and Technology Committee – will meet to focus on their

specific issues. In addition to the in-person opportunity, the Technology

Committee will offer remote access via webinar to technical people at

NATO-member companies who are not able to participate in Washington. That evening,

Coca-Cola will generously sponsor a cocktail party, dinner and dessert reception to permit

members to connect and socialize with NATO friends and colleagues.

NATO’s General Membership and Advisory Board Meetings will be held on Thursday,

October 3, and will cover a wide-ranging agenda of topics. We are planning to once again

incorporate the audience response technology that proved to be popular at the 2012

Meeting in Santa Monica. Following the Advisory Board Meeting, the Executive Board will

meet privately. Registration materials for the Hill Visits and for the General Membership

and Board Meetings will be sent to all NATO members in May.

Jeffrey Katzenberg and the team at DreamWorks Animation SKG have graciously offered to

invite all NATO Board Meeting attendees to film events immediately following the NATO

Board Meeting. Details of these events will be included with the registration materials to be

sent in May. Please mark these dates and plan your travel accordingly. Here’s a brief recap

of the plans:

2013 F A L L B OA R D M E E T I N G T O I N C L U D E C A P I T O L H I L L V I S I T S

Park Hyatt, Washington, DC

Tuesday, October 1, 2013 Capitol Hill Visits

Wednesday, October 2, 2013 Committee and Task Force meetings

Coca-Cola-sponsored reception/

dinner/dessert reception

Thursday, October 3, 2013 Advisory Board and Executive Board meetings

DreamWorks screening and reception

Friday, October 4, 2013 DreamWorks filmmakers’ presentations

Not for Distribution

The President ’s Report Vol . 14 , No. 1 February 2013

Payment Card Interchange Fee Settlement Update

On September 12, 2013, the U.S. District Court for the Eastern District of New York will

hold a hearing to decide whether to give final approval to a class action lawsuit claiming

that Visa, MasterCard and several banks conspired to charge merchants excessive

interchange fees. Last November, the court gave preliminary approval of the settlement

among the plaintiff class of merchants and the defendants. Under the

settlement, Visa, MasterCard, and the bank defendants will make payments

to two funds:

1. Cash Fund. A $6.05 billion fund that will pay valid claims of

merchants that accepted Visa or MasterCard credit or debit cards at

any time between January 1, 2004, and November 28, 2012.

2. Interchange Fund. A fund estimated to be approximately $1.2 billion

of interchange fees (about two months’ worth of interchange)

attributable to certain merchants that accept Visa or MasterCard

credit cards for an eight-month period to start by July 29.

NATO opposes final approval because the settlement does not institute

solutions to fix fundamental problems with the current interchange fee system.

Furthermore, the proposed settlement requires class members to release Visa and

MasterCard from liability for any anticompetitive rules in place—forever. The changes that

Visa and MasterCard will make, however, end in 2021.

Page 4

C R E D I T C A R D U P DA T E

Exhibitors Have Option to Accept or Reject Settlement

Eligible exhibitors must decide on their own how to respond to the proposed settlement.

Between now and May 28, 2013, exhibitors who conclude the settlement is unacceptable

can let the court know what they think by (1) opting out, (2) submitting a written objection,

or (3) both. Exhibitors who both opt out and object to the settlement will send a greater

statement of opposition to the court.

Opting Out. By opting out, you voice opposition to the proposed

settlement by excluding yourself from the cash settlement class,

which preserves your right to sue Visa and MasterCard for alleged

misconduct that occurred before November 27, 2012—on your own

or as part of a class action suit by all companies that also opted out.

If you opt out, you will not collect any damages from the proposed

settlement.

Written Objection. By submitting a written objection, you might help

persuade the courts that the proposed settlement's terms are

unreasonable and should not be

approved. The court will presume

merchants who do not submit a written

objection approve of the settlement.

Accept or Reject Settlement:

For more information about how to

make a claim, opt out or object, visit

www.PaymentCardSettlement.com.

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The President ’s Report Vol . 14 , No. 1 February 2013

New Visa and MasterCard Surcharge Rules

As part of the proposed settlement agreement, Visa and MasterCard have relaxed the

surcharging prohibitions on merchants as of January 27, 2013 (debit is not included).

Merchants who accept Visa and MasterCard credit cards will be allowed to add a surcharge

to the purchase price equal to the cost of processing the transaction subject to a cap of 4

percent. View the Visa rule changes here and the MasterCard rule changes here. If you plan

to surcharge, please inform NATO at trh@natodc.com.

While merchants are allowed to surcharge under terms of the settlement, the following

obstacles will make it difficult to do so:

Currently, 10 states (California, Colorado, Connecticut, Florida, Kansas, Maine,

Massachusetts, New York, Oklahoma, and Texas) prohibit surcharging. These states

represent more than 40 percent of total card sales across all industries.

While the surcharge can vary based on the type of card (higher for rewards or

premier cards), merchants will have difficulty implementing the rule since they don’t

know the fees for specific cards.

Merchants who surcharge Visa or MasterCard must also surcharge other cards,

such as American Express and Discover. American Express rules, however, bar

surcharges. As a result, merchants who accept American Express cannot add

surcharges to any other credit cards. Note, American

Express’ operating rules are currently the subject of

litigation by the Department of Justice.

Merchants (1) are required to give Visa and MasterCard

notice at least 30 days in advance of beginning to

surcharge, (2) must alert consumers of surcharges, and

(3) update point of sale systems to surcharge.

Page 5

C R E D I T C A R D U P DA T E ( C O N T )

Captioning/Description Rule Expected in May

The Department of Justice (DOJ) announced it expects to issue a proposed rule in May

2013 addressing the requirements for captioning and video description of movies exhibited

in movie theatres under title III of the Americans with Disabilities Act of 1990 (ADA). Title III

prohibits discrimination on the basis of disability in the activities of places of public

accommodation.

An advance notice of proposed rulemaking (ANPRM) published on July 26, 2010, gives

some insight into what the new proposed rule will entail. In the ANPRM, the DOJ said it was

considering a regulation that would contain a sliding compliance schedule whereby the

percentage of movie screens offering closed captioning and video description would

increase by 10 percent on a yearly basis—until reaching the 50 percent mark in the fifth

year. NATO submitted comments in response to the ANPRM in which it argued that

requiring that 25% of screens be equipped would provide wide-spread access for persons

with disabilities.

D I S A B I L I T I E S IS S U E S

If you plan to

surcharge please

inform

Todd Halstead at

trh@natodc.com

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The President ’s Report Vol . 14 , No. 1 February 2013

Law Suits Still Being Filed

Although the feds are close to issuing a final rule and an increasing number of circuits are

announcing plans to equip all of their auditoriums with captioning technology, NATO

members should be aware that lawsuits continue to be filed against exhibitors on behalf of

individuals who are deaf and hard of hearing. Most recently, a class action lawsuit filed in

California alleges that a theater violated Title III of the ADA by failing and refusing to provide

closed captioning for movies and special presentations offered to the public. Additionally,

the lawsuit charges that the exhibitor failed to provide working assistive listening devices to

the hearing impaired. To help avoid becoming a target of a lawsuit, exhibitors should

remember that under the 2010 Revised Regulations of the Americans with Disabilities Act:

Assistive listening devices are required where audible communication is integral to the

use of the space; and

25% of the receivers (or at least 2) must be hearing aid compatible, which means that

the assistive listening receivers must be usable with an induction neckloop that

interfaces with the telecoil in an individual’s personal hearing aid or cochlear implant.

Page 6

D I S A B I L I T I E S I S S U E S ( C O N T )

CinemaCon Panel to Discuss Captioning

Advancements in captioning technology are allowing more and more movie theaters to

provide a quality movie-going experience for Americans with hearing loss. At CinemaCon,

Regal Entertainment Group's Randy Smith will moderate a panel that will explore how

these competing technologies are used to provide captioning for movies in theaters

around the world. The panel, “Closed Captioning For Today’s Theatres," currently includes

experts from Doremi, USL, and Sony Digital Cinema Solutions.

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Other Food and Beverage Taxes

While many states are just gearing up and additional state legislation is being proposed daily,

here is a summary of the other food and beverage tax proposals at the state/local levels at the

time of this report:

Rhode Island, Hawaii, Mississippi, Oregon and San Antonio all have bills on sweetened beverage

taxes.

Indiana has legislation to allow certain local add on taxes on food and beverage.

Maryland has proposed taxes on “junk food”.

Virginia has a Meals Tax proposal in Henrico County.

Final Rules on Menu Labeling Expected in April

After nearly three years of review, the Food and Drug Administration (FDA) announced in its

semiannual regulatory agenda that this April it would issue the final rules to establish menu

labeling requirements for chain restaurants and similar retail food establishments. The rule,

enacted as part of the Affordable Care Act, will require covered entities with 20 or more locations

in the United States to post calories on menus and menu boards, provide additional nutrition

information upon request, and print a recommended intake statement on menus and menu

boards.

Following a series of comments filed with the agency and targeted congressional outreach by

NATO, the FDA excluded movie theaters in proposed rules issued in April 2011, but some

lawmakers, health advocacy groups and trade associations are lobbying for the industry's

inclusion in the final rules.

The President ’s Report Vol 14, No. 1 February 2013 Page 7

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F O O D A N D B E V E R A G E I S S U E S

New York Soda Cup Size Regulation—Law Suit Filed

As previously reported, the New York City Department of Health passed a policy prohibiting the

sale of sugary drinks in containers greater than 16 ounces. This regulation would go into effect

on March 13, 2013.

A coalition of plaintiffs (including NATO of New York) led by the American Beverage Association,

filed a lawsuit against the NYC Department of Health claiming that the Board overstepped its

legal authority by issuing a policy instead of seeking legislation through City Council or the state.

Because it would be unfair for businesses to lose money complying with a regulation that might

eventually be struck down, the coalition asked the judge on February 20 to block the city from

enforcing the rule until he has ruled on its constitutionality.

Other Locales Considering Size Regulations:

The city of Cambridge, MA has already indicated that they are interested in trying to institute a

policy similar to NYC. They are currently “waiting” to see what is going to happen with the lawsuit

in NYC.

And on the helpful side, the State of Mississippi passed legislation barring any local food

regulations.

Soda Regulation

The President ’s Report Vol 14, No. 1 February 2013 Page 8

H E A L T H C A R E

IRS Issues Proposed Employer Mandate Rules

The Internal Revenue Service (IRS) broke in the new year with the release of its long-

awaited guidance on the shared responsibility for employers provision under the Affordable

Care Act. Beginning in 2014, businesses with 50 or more full-time employees

(or full-time equivalents) that do not offer affordable health insurance that

provides a minimum level of coverage to substantially all of their full-time

employees (and dependents--not including spouses) may be subject to a penalty

if at least one full-time employee receives a premium tax credit to purchase

coverage in an exchange.

The guidance includes proposed regulations and a series of questions and

answers that clarify: (1) the basics of the provision; (2) which employers are

subject to the provision; and (3) penalties under the provision.

To view the guidance and the Q&A document, click here and here, respectively.

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Exchange Notice Requirement Delayed

Last month, the Department of Labor (DOL) announced that it has postponed until late

summer or fall of 2013 a deadline (originally March 1, 2013) for employers to provide

notices to employees about coverage options available through federal and state

exchanges, which are mandated by the Affordable Care Act.

According to the 2010 health care reform law, employers must provide a written

notice informing employees about state exchanges, including (1) how to contact

and access the exchanges and (2) potential tax credits to purchase insurance

through an exchange if the minimum-value coverage through the employer is

unaffordable (see the IRS Q&A above on what constitutes minimum-value

coverage). The exchanges will allow individuals and small businesses to compare

health plans, get answers to questions, find out if they are eligible for tax credits for

private insurance or health programs like the Children’s Health Insurance Program

(CHIP), and enroll in a health plan that meets their needs, according to

HealthCare.gov.

The President ’s Report Vol . 14 , No. 1 February 2013 Page 9

Average Ticket Price

The average price of a movie ticket rose to

$7.96 in 2012 – an increase of 3 cents

over 2011. The Q4 average was $8.05, up

27 cents over Q3 and 22 cents over Q4

2011. The wide fluctuations in the average

ticket price in 2012, from a record high

$8.12 in Q2 to $7.78 in Q3 were a

reflection primarily of the movies that were

in the marketplace with more 3D and large

format releases in the second quarter, very

few in the third and more again in the

fourth, accompanied in that quarter by high

-grossing adult-skewing titles.

Record Box Office in 2012

2012 set a record at the box office,

taking in an estimated $10.79 billion, up

5.9% from 2011. Admissions are

estimated at 1.355 billion, up 5.5% from

the previous year.

Box Office 2012

0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

2011

2012

$10.18$10.79

+5.9%

Estimated Admissions +5.5%

$1.70

$7.96

$9.34

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

1972 2012

Adjusted for Inflation Average Ticket Price

I N D U S T RY D A TA

NOTE:

Through Presidents Day, year to date

box office trails the same portion of

2012 by 12%

— $1.27 billion to $1.45 billion.

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The President ’s Report Vol . 14 , No. 1 February 2013

Obama Proposes Increase in Minimum Wage to $9.00/Hour Plus Indexing

NATO welcomed President Obama's commitment in his State of the Union

speech to growing both jobs and the economy. Among a litany of economic

proposals in his address to the joint session of Congress, however, President

Obama proposed indexing the federal minimum wage to inflation and raising

it to $9.00 an hour by 2015. Minimum wage—a perennial issue for

progressives—has not been on the table in Washington, D.C. since it was

raised from $5.15 to the current $7.25 per hour in 2007—when Democrats

still controlled the House of Representatives. And like many of the proposals

the President highlighted in his speech, a minimum wage increase is

unlikely while Republicans control the House. Unsurprisingly, House Speaker

John Boehner (R-OH) criticized a minimum wage increase following the State

of the Union. “Listen, when people are asking the question ‘Where are the

jobs?’ why would we want to make it harder for small employers to hire

people? I’ve got 11 brothers and sisters on every rung of the economic

ladder," Boehner told reporters.

Nonetheless, minimum wage increases have been approved before with Republicans in

control of one house of Congress, and NATO will take the threat seriously. The issue will

become a part of our lobbying strategy this year.

NLRB Recess Appointments Ruled Illegal

President Obama this month re-nominated two Democrats to serve on the National

Labor Relations Board (NLRB) just weeks after the U.S. Court of Appeals for the D.C.

Circuit ruled that their recess appointments to the same posts in January 2012 were

unconstitutional. In response to a refusal by GOP lawmakers to consider the

nominees—Sharon Block, a former Democratic Labor Department official, and Richard

Griffin, a Democratic union lawyer, the President bypassed the Senate to fill the

vacancies last year. The federal court, however, ruled that the President lacked the

power to make the appointments because the Senate was not technically in recess at

the time. Republican lawmakers had gaveled in "pro forma" sessions every three

business days to keep the Senate in session in accordance with the Constitution.

The court has temporarily stayed its decision because it expects an appeal. In the

meantime, the NLRB has indicated that Block and Griffin will continue to serve and issue

decisions despite GOP calls for them to resign in light of the court's decision. If the court's

decision prevails, it will mean the NLRB lost its quorum on January 3, 2012. Thus, anyone

facing an adverse decision issued by the NLRB since that time may appeal the ruling to the

DC Circuit.

Page 10

L A B O R

For additional information:

Associated Press: Court: Obama appointments are unconstitutional

Coalition for a Democratic Workplace: Key Documents Related to Lawsuit

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The President ’s Report Vol . 14 , No. 1 February 2013

Newtown Tragedy Changes Public Debate

Coming on the heels of a July 2012 tragedy at a cinema in Colorado, the killing in

December of twenty young children and six adults at an elementary school in Connecticut

has dramatically changed the public debate about gun violence in America. Policy makers

in Washington and many state capitals as well are determined to address the issue with

some form of gun control legislation. Unfortunately for those working in the entertainment

business, some politicians seek to include violent video games and movies in the debate.

The leaders of the pro-gun lobby themselves have attempted to make a connection

between media violence and real-world violence. Just one week after Newtown, the

National Rifle Association convened a press conference to announce a new program to

encourage armed security personnel at every school in the country. The NRA also blamed

the country’s entertainment culture, including “vicious violent video games” and “blood

soaked films” for the tragedy.

The mood in the nation’s capital is similar, though perhaps even more concerned, than

that which existed in 1999 - 2000 after the high school shootings in Columbine, Colorado.

Many NATO members will recall the legislation proposed back then. Members of Congress

sought to regulate and tax movies with violent content in a number of ways, including

codification of the movie rating system and the imposition of heavy fines and criminal

penalties on theater owners for the sale of tickets for restricted movies to young people.

Page 11

NATO Attends Vice President’s Summit—Biden Pushes For Voluntary Response

In January, Vice President Biden established a task force of government leaders to

examine issues related to gun violence, and held a series of meetings with various

constituencies. One meeting involved leaders of the movie and television industries,

including MPAA Chairman Chris Dodd, NATO President John Fithian, Directors Guild

Executive Director Jay Roth, and others. In the meeting, the vice president reassured

those gathered that he and the president respected the First Amendment rights of the

entertainment industry, but cautioned that other policy makers and

interest groups sought to include entertainment products in the

regulatory and legislative discussions. To avoid such problems, the

vice president argued strongly that the various sectors of the

entertainment industry should redouble and expand their voluntary

efforts to educate parents and strengthen their voluntary rating

systems.

Gun Control Legislative Debate Could Encompass Entertainment

Though it is still early in the legislative debate on gun control, the

Vice President’s admonition may prove accurate. Senator Jay

Rockefeller (D-WV), who chairs the powerful Senate Commerce Committee, has introduced

legislation to study violence in video games and video programming, and his staff has

informed NATO’s lobbyists that he intends to hold hearings on entertainment violence

issues. Similarly, Senator Joe Manchin (D-WV), who is part of a bi-partisan group of

Senators working to draft gun legislation, has also raised the entertainment industry. Many

Republicans are much more concerned with protection of the Second Amendment than the

First Amendment, and are considering legislative amendments on the entertainment

industry when gun legislation moves through Congress.

L E G I S L A T I O N - G U N V I O L E N C E I N A M E R I C A

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The President ’s Report Vol . 14 , No. 1 February 2013

Executive Board-Created Task Force Considers Options

In response to these concerns, NATO’s Executive Board has met twice to assess the

situation in Washington, and has created a task force of members to consider NATO’s

options. The Executive Board has correctly stressed, however, that NATO will first educate

policy makers on the extensive ratings education and enforcement steps already

undertaken by exhibitors across the country. Similarly, NATO will insist that other

industries, such as broadcasters, cable companies, and internet companies, be part of any

additional voluntary efforts. The task force and the Executive Board, however, will be

prepared should additional steps be necessary.

The task force has discussed options in three areas: education, enforcement and

advertising. As for education, a renewed set of rating materials (posters, brochures, public

service messages) could be coupled with outreach to third parties who might have an

interest in providing parents with greater information about the movie rating system.

Regarding enforcement, the task force is examining whether young children (even if

accompanied by a parent) should be allowed in the audience of “R” rated movies, and

whether the NC-17 rating needs to be revitalized or replaced, among other ideas.

Regarding advertising, the task force will assess continuing efforts to ensure appropriate

trailer compatibility in cinemas.

Page 12

MPAA, DGA and Other Allies Weigh In

NATO will not assess these various issues in isolation, but will work closely with allied

industry groups. The Motion Picture Association of America, NATO’s partner in overseeing

the rating system, and NATO are in close daily consultation. Similarly, NATO’s leaders and

selected members are conducting meetings with the leaders of the Directors Guild of

America and other groups as well.

NATO will keep its members informed of developments. In the meantime, it is imperative

that all exhibitors remain vigilant with their ratings education and enforcement efforts.

L E G I S L A T I O N - G U N V I O L E N C E I N A M E R I C A

T A S K F O R C E D I S C U S S E D

O P T I O N S I N T H R E E A R E A S :

E D U C A T I O N ,

E N F O R C E M E N T A N D

A D V E R T I S I N G

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M A R K E T I N G

Marketing – Industry Moviegoing Campaign

At the direction of the Executive Board, NATO has engaged two market research

firms to investigate the feasibility of an industry marketing campaign to stimulate

increased moviegoing. Those firms, Brainjuicer – an online community-based

market research company - and The Richards Group – a Dallas-based market

research and advertising agency - are currently in the field testing messaging

developed through interaction with consumer focus groups and online

participants. We expect to have final reports from both companies in time for

consideration and action by the Executive Board at its next meeting at

CinemaCon in April.

The President ’s Report Vol . 14 , No. 1 February 2013 Page 13

Marketing—In-theater Advertising. In-theater advertising/marketing materials include:

Trailers;

In-theater extended looks;

Clips and footage;

Pre-show advertising;

Static or audio-visual lobby

displays;

Posters/one sheets;

Outdoor theater displays.

As you know, in-theater advertising

standards have historically been created and regulated by the MPAA’s Advertising

Administration to ensure that all advertising content is suitable for the particular audience

that views it. The Advertising Administration’s goal is to “give parents a reasonable

expectation that if they are comfortable enjoying the content of the feature film they have

chosen to see with their children, then they will be comfortable with the content of the

trailers preceding it (www.MPAA.org).”

Existing Industry Policies and Practices Aren’t Effective. The

MPAA’s rules, however, also govern other aspects of in-theater

advertising — such as trailer lengths. Some of these other

policies and practices are not effective. NATO’s Executive Board

asked us to create a task force to look at the current advertising

rules and at the industry’s general customs, and identify issues of

concern with the current system and ways in which exhibition can

improve upon current practices. NATO Task Force and Executive Board Considers Possibilities. NATO’s Marketing Task

Force is putting together a list of voluntary guidelines on in-theater marketing for the

Executive Board to consider. Some of the items we are looking at are:

How early theaters should/will advertise upcoming theatrical product;

Trailer length;

“Extended look” trailers/clips; trailer placement; trailer naming standards;

One sheet delivery/installation;

Guest engagement methods (QR codes, URLs, etc.) on marketing materials;

Ownership of consumer data;

Rules for film checkers/auditors, among others.

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M E M B E R S H I P

New NATO Members (November 2012—February 2013)

NATO welcomed 22 new exhibition companies since the last President’s Report. These companies operate in 17

different states, as well as the Russian Federation. Here is a timeline of when these companies joined NATO:

November 2012

Company Name Main Contact City, State (Country)

Cinemagic Theatre LLC Ralph Freehauf Athens, AL

The Ritz Edith Rollings Thermopolis, WY

December 2012

Company Name Main Contact City, State (Country)

Andrews Twin Cinema John Irvin Andrews, NC

Cinemajik (SMC Entertainment) Sherry Johnson Evanston, WY

Fox Theatre Taft Kent B. Coke San Leandro, CA

Theatres at Mall of America Mayra Franco Minneapolis, MN

January 2013

Company Name Main Contact City, State (Country)

American Heartland Theatre Lilli A. Zarda Kansas City, MO

Danny Boy's Drive-In Theater Inc. Bart Lower Ionia, MI

FGB Theaters Frank Bashara Montpelier, VT

Fountain Stone Theaters, Inc. Craig Jackson Rensselaer, IN

Humboldt Plaza 3 Theater Michael Longmire Humboldt, TN

The Lyon Holly Gerdom South Lyon, MI

Madison Art Cinemas Arnold Gorlick Madison, CT

Redskin Theatre Karen Black Anadarko, OK

Ritz 3 Cinema Sherry Crooks Milan, TN

Showtime Cinema Joe A. Avampato Mooresville, IN

Sun Basin Theatres Bryan Cook Wenatchee, WA

February 2013

Company Name Main Contact City, State (Country)

Fox 5 Theatre Melissa Schaefer Sterling, CO

KARO Film Management Paul Heth Moscow, Russia

Rialto Theatre Virginia Herring Three Rivers, TX

Rochester Theatre Management Jason Yantz Pittsford, NY

Skyview Drive-In Elizabeth C. Walker Carmichaels, PA

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

companies that comprise NATO:

(as of February 15, 2013) # of Screens # of Companies

NATO Domestic (US) Members 30,714 567

NATO Canadian Members 2,295 22

NATO North American Members 33,009 589

NATO International Members (Non-US, Non-Canadian) 15,368 32

NATO Worldwide Members 48,377 621

The President ’s Report Vol . 14 , No. 1 February 2013 Page 14

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M O V I E T H E F T

The President ’s Report Vol . 14 , No. 1 February 2013 Page 15

NATO-MPAA Developing New Anti-camcording Messaging

NATO has partnered with MPAA to produce a new movie theft campaign to include

updated posters and a new 15-second PSA for your screens. Both will premiere at

CinemaCon 2013. If you would like to preorder posters, please contact Cheryl Dickson at

cd@natodc.com.

Training Session Held for Drive-Ins; Next Session for Atlanta, GA

As you know, combating movie theft is one of our industry’s top priorities, which is why

NATO and its regional units have partnered to bring members an interactive, hands-on,

free-of-charge seminar focusing on the issue.

NATO produced a movie theft seminar at the United Drive-In Theatre Owners

Association’s (UDITOA) annual meeting in Kissimmee, FL, earlier this month that focused

on the specific issues drive-in theaters face (audio capturing, surveillance, etc.). To date,

NATO has hosted seminars in Washington, DC; Orlando, FL; Dallas, TX; New York City; NY;

Philadelphia, PA; and Albuquerque, NM.

Our next seminar will take place on Tuesday, March 5 at the CinéBistro at Town

Brookhaven theater in Atlanta, GA. If you would like more information on this seminar

series, or if you/your employees would like to attend, please contact Brigitte Buehlman at

bgb@natoca.com.

CARA Releases Annual Report – Still Too Many “R” Rated Movies

The Classification and Ratings Administration recently released their annual report for

2012, describing the number of movies rated by CARA during the year and the

corresponding ratings for those movies. Of the 726 total movies rated by CARA in 2012,

414 were rated "R". NATO continues to believe that Hollywood makes too many "R" rated

movies in comparison to the number of movies made in more family-friendly rating

categories. We will continue to stress this theme with our partners in distribution.

Appeals Board Members and Movie Directors Make Suggestions

As described earlier in this report (see page 12 under "Legislation - Gun Violence in

America"), the national discussion about violence in our country and our culture has

generated conversations about the movie rating system. The MPAA and NATO, who

oversee the movie rating system, are taking input from all affected parties. Two such

groups have recently given us their thoughts. The members of the Ratings Appeals

Board met with the MPAA and NATO leadership on January 31, and the Directors Guild

of America and several of their leading directors met with NATO and several of our

members on February 22 to give us their input.

M O V I E T H E F T

R A T I N G S

Our next seminar will

take place on

Tuesday, March 5

at the CinéBistro at

Town Brookhaven

theater in Atlanta, GA.

If you would like more

information on this

seminar series, or if

you/your employees

would like to attend,

please contact :

Brigitte Buehlman at

bgb@natoca.com.

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R E G I O N A L U N I T S

The President ’s Report Vol . 14 , No. 1 February 2013 Page 16

Ratings Compliance Officers to Meet via Webinar on March 27

The next meeting of NATO’s Ratings Compliance Officers will be held on Wednesday, March

27, 2013, from 10:00 a.m. to 12:00 noon PDT (1:00 p.m. to 3:00 p.m. EDT) in the Jack

Valenti Conference Room at the Motion Picture Association of America (MPAA) Offices,

15301 Ventura Boulevard, Building E, Sherman Oaks, CA. NATO members are welcome to

participate in person or by webinar.

The agenda for the meeting is

currently being developed. Given

the recent developments in the

guns and media violence debate,

discussion of the ratings system

and ratings compliance is

particularly important and timely.

Please be sure your company

participates in this meeting/

webinar. Representatives of the

Classification and Ratings

Administration (CARA) and the

MPAA's Advertising Administration

will also participate in the meeting.

R A T I N G S (C O N T )

NATO Regional Associations

The annual NATO Regional Summit was held February 20 and 21 at the Universal Hilton in

Los Angeles.

Regional leaders and NATO met

with industry partners from the

Directors Guild of America, Motion

Picture Association of America and

with the Entertainment Merchants

Association. Leaders covered a

myriad of topics such as

federal/state legislation and

regulatory issues, violence in the

media, ratings, movie theft, plus

other association and industry

issues.

If you have not already

done so, please RSVP to

David Binet at

db@natodc.com

and indicate whether

you/your company’s

representative(s) plan to

attend the meeting in

person at the MPAA

offices or remotely via

webinar.

The log-in details for the

“remote” option will be

sent to registrants closer

to the meeting date.

.

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The President ’s Report Vol . 14 , No. 1 February 2013 Page 17

T E C H N O L O G Y - D I G I TA L C I N E M A E N D O F F I L M

Film Stock Supply in Danger

It appears that a perfect storm of events may bring about the end of film around the end of

2013 due to either a worldwide lack of film stock and/or the closing of processing labs.

Studios are weighing carefully the cost to make and distribute film vs. the revenue from

those limited prints.

U.S. D-Cinema Penetration Exceeds 85% of Screens

As of February 2013, 33,383 screens in the United States have been converted to digital

(13,994 of which are 3D capable), and 2,825 screens in Canada have been converted

(1,138 of which are 3D). Congratulations, exhibitors, we’re almost done! However, while

we’re making great progress in the United States and Canada, some international territories

still have a long road ahead of them (see chart).

Digital Screens Digital 3D Screens

Asia-Pacific 21,858 9,485

Middle East and Africa 1,568 1,060

European Union 24,805 14,845

Latin America 4,998 2,942

US & Canada 36,208 15,132

TOTAL 89,437 43,464

Select Digital-Only Releases Have Begun in the United States

Though no studio has announced that they will no longer release movies in film technology,

several "one-off" digital-only releases have occurred. The Weinstein Company recently

released “Dark Skies” only in digital. Similarly, Paramount released "Cirque du Soleil" only in

digital.

Studios Vague on Firm Transition Dates

NATO believes that our members deserve as much advance notice as possible about the

transition from film to digital and the dates on which studios will no longer release movies in

particular territories in film. The studios have already made this transition in some foreign

territories like Hong Kong, Macau and Norway. Here in the United States, however, no studio

has yet set a firm date for the transition. We believe this transition will occur toward the end

of 2013, but have no word yet on specific dates from specific studios.

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NATO’s CBG Program for Drive-In Digital Conversion

After several rounds of negotiations, the Cinema Buying

Group (CBG) and Cinedigm finalized a new exhibitor

deployment agreement for a drive-in-specific Virtual

Print Fee (VPF) program. A formal announcement came

at the commencement of the United Drive-In Theatre

Owners Association (UDITOA) convention held in

Kissimmee, FL on February 4-7.

In addition to a new exhibitor deployment agreement,

Cinedigm/NATO/UDITOA have taken a number of steps

to address the outdoor deployment issue, including

securing exceptions to the Digital Cinema Initiatives

(DCI) specifications applicable to drive-in theaters, such

as relaxed sound, brightness, and masking

requirements.

The deadline to participate in this drive-in VPF program

is fast approaching (April 30, 2013). If you operate

drive-in screens, and have not established a plan to

convert to digital, and you wish to continue showing movies in the future, we strongly urge you

to consider this program.

Only drive-in members of the CBG are eligible to participate. If you wish to join the CBG,

please contact David Binet (db@natodc.com).

CBG drive-in members can contact Jessica Wright, Sales Coordinator (323-978-2074;

jwright@cinedigm.com) to obtain the necessary paperwork for the Cinedigm program.

The President ’s Report Vol . 14 , No. 1 February 2013 Page 18

T E C H N O L O G Y ( C O N T )

HFR’s Limited Future

Regardless of whether you prefer 24, 48, or 60 frames per second, 3D-HFR was a headline

grabber from CinemaCon 2012 for the December release of The Hobbit. We do not yet know

what the future of 3D-HFR will be – we know that Hobbit 2, Hobbit 3, and Avatar 2 are

planned for the format, but are not aware of any other movies planned for HFR. Indeed, in a

recent round of meetings that NATO held with all seven of the largest studios, none were

aware of a producer or director planning to make a movie in high frame rate other than Peter

Jackson (“Hobbit 2 and 3”) and James Cameron (“Avatar 2”).

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The President ’s Report Vol . 14 , No. 1 February 2013 Page 19

T E C H N O L O G Y - ( C O N T ) NATO C O M M I T T E E A C T I V I T I E S

Revitalized Committee Holding Series of Webinars – Next is April 3

Chaired by John McDonald (Executive Vice President-Operations, AMC Entertainment) and

supported by Jerry Pierce (Technology Consultant, NATO), NATO’s Technology Committee

addresses current and emerging in-theater technological challenges and opportunities.

The committee’s mission is to understand technologies that provide the ultimate cinema

experience in an auditorium venue; to analyze and share information about technologies

that may benefit the entire industry and could provide enhanced revenue streams and/or

cost savings for NATO members; and to educate exhibitors on the potential impacts, both

positive and negative, of new technologies for our patrons and businesses so NATO

members can make informed decisions. If you would like to join the Technology

Committee and participate in its webinars, contact David Binet at db@natodc.com. The

next webinar will be held on April 3.

Committee Leaders Met with Seven Largest Studios

On January 28-30, John McDonald (AMC), NATO’s Technology Committee Chairman; Jerry

Pierce, NATO’s technology consultant; John Fithian, Patrick Corcoran, and Brigitte

Buehlman met with the seven major studios to discuss in-theater issues. Agenda items

included a head’s up about NATO’s reinvigorated Technology Committee; immersive audio;

the end of film/their first all-digital release; KDM delivery; hearing impaired audio track

and closed captions on all content, including trailers; inserting the Credit Roll Flag marker;

upcoming technological advances (either filmmaker or product–driven); the SMPTE-DCP;

satellite delivery and DCDC; and the CPL Naming - SMPTE process.

Overall, the meetings went very well. The one ask from studios to exhibition was for

consistency in both 2D and 3D presentations (for everything from audio loudness to light

levels). They want to have better assurance that patrons see and hear movies the way the

filmmaker intended. The studios seemed appreciative that we reached out and most felt

that these meetings should happen once or twice a year.

NATO & UNIC Release Technical Requirements—Immersive Audio

Noting the rapid pace of cinema technology development ushered in by the worldwide

conversion to digital cinema projection, the technology committees of NATO and the

Union Internationale des Cinémas (UNIC) on February 12 released Exhibitor

Requirements for Immersive Sound Technologies.

Neither organization currently endorses this emerging technology, whether called “3D”

audio, object-based audio or immersive audio – nor any proprietary sound format.

However, with the experience of competing, proprietary and incompatible digital sound

formats introduced in the 1990s in mind, both organizations believe it is essential that,

whatever audio rendering solution an individual cinema may choose, it must be capable

of playing whatever movie is released with immersive sound. The Exhibitor Requirements

explore two possible paths to that goal: 1) A single common immersive sound package as

a common deliverable or 2) that ALL movies include ALL of the proprietary delivery tracks.

The Requirements are available on the NATO website here.

If you would like to join the

Technology Committee and

participate in its webinars,

contact :

David Binet at

db@natodc.com

The next webinar will be

held on April 3.

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The President ’s Report Vol . 14 , No. 1 February 2013

Average Theatrical Window Continues to Shrink

The major studio theatrical release window continued to shrink in 2012, with the YTD

average standing at 3 months 26 days as of this writing, down from 4 months 5 days in

2011. While there are still several late 2012 titles without video release dates

outstanding, and studios often use such titles to lengthen their averages, some of those

titles include Academy Award nominees that may seek to capitalize on Oscar buzz with

relative short windows following the Awards broadcast on February 24.

Some Studio “One-offs” Have Particularly Short Windows

In recent years, we have seen more frequent “one-offs” or exceptions to

studio windowing policies in order to accommodate unusual release dates

for some pictures. For instance, “Alice in Wonderland 3D,” which was an

uncommon tentpole release in March 2010, had a release window of 2

months 28 days. The logic being that the unusual March release benefited

exhibitors, while the distributor wished for an early summer home release, in

part to get ahead of the 2010 soccer World Cup. Other releases have come

in autumn and had short windows in order to reach the home in time for the

winter holidays.

Two recent examples, “The Campaign,” a summer release with a short

window to capitalize on the fall elections, and “Taken 2,” an October release

with a short window to reach the home in time for Christmas, had windows

of 2 months 21 days and 2 months 14 days, respectively. It bears watching

how frequent these “one-offs” become, and how short a window studios

seek for them.

Digital Before DVD can be Good or Bad

Studios have begun to experiment with offering digital downloads to the home prior to the

DVD release. This is a way for studios to maximize revenue from the home release prior to

running into the home video pricing free-for-all of rentals and subscriptions.

The first such release, “Prometheus,” from Fox, was released to the home for digital

download at 3 months 12 days after its theatrical debut. In marked contrast to the Home

Premiere DirecTV “experiment” in 2011, Fox sought exhibitor feedback ahead of time and

the home release fell within the broad range of the traditional average release window.

The second release was “Taken 2,” with, as noted above, a 2 month 14 day window. Here

again, Fox consulted with exhibitors beforehand, and the short window is broadly

understood to be an exception to accommodate a holiday home release.

The question facing exhibitors under this download-before-DVD strategy is whether studios

will seek to establish a download window that is distinct and distinctly shorter than the

current home release window. Exhibitors have traditionally been agnostic about the

technology used to reach the home market, whether it was VHS, DVD or Blu-Ray; their

concerns have always revolved around when, not how. Digital downloads do not change

that basic calculation for exhibitors. It remains to be seen whether it changes the

calculation for distribution.

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W I N D O W S

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Thank you

for your

Membership

and continued

support of NATO