Malice in Wonderland: Burton's film has become pawn in bitter battle between studios and cinemas

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With its red carpet, parking for limousines and baying fans behind crowd barriers, the Odeon Leicester Square has long been the venue of choice for film executives wanting to bring the full glitz of a Hollywood premiere to Britain.

Tomorrow evening will be no exception when a host of stars, including Johnny Depp and Anne Hathaway, parade before the cameras for the first showing worldwide of the next would-be 3D blockbuster, Alice in Wonderland.

What makes the unveiling of director Tim Burton's latest project unique is that, barring an unlikely last-minute change of heart, the gala showing at the Odeon Leicester Square is the sole occasion on which the multi-million pound film will be seen at any of the 834 screens operated by Britain's largest cinema chain.

Odeon & UCI, which operates more than 107 sites in the UK, confirmed yesterday that it is boycotting Alice in Wonderland because of a row with the film's maker, Disney, over how long they will be allowed to show the movie before it is released on DVD. Odeon, whose decision could cost Disney between £10m and £40m in lost revenue, will not be showing the film in its Irish or Italian cinemas either.

It may seem like just a squabble over whether cinemas should be given rights to show a movie for 17 weeks – as Odeon demands – or 12 weeks – as Disney is seeking to achieve. But there is a far more fundamental dispute that goes to the heart of the ability of the Hollywood studios and their $65bn (£42bn) industry to make enough money to survive.

A mixture of piracy and the economic downturn has reduced DVD sales in Britain by about 10 per cent and in the US by 13 per cent. One studio, MGM, is facing a fall in America from $140m in 2007 to a projected $30.4m for 2010. According to one industry estimate, the global loss in revenue from DVDs to Hollywood could be as much as $14bn by the end of 2010.

But with cinema ticket sales booming, does this matter? In Britain last year, admissions grew by almost 10 million to 173.5 million – more than triple the 1984 figure of 54 million – despite prices which can be as much as £20 per person in the premium seats of a West End cinema. The problem for Hollywood is that DVD sales make up 50 per cent of income from every film made. Only 20 per cent comes from their share of ticket sales.

One UK-based studio source told The Independent: "The industry has allowed itself to become over-reliant on income from DVD sales. When those sales go down, all the red lights start flashing and we need to find new ways of reversing that decline. One key problem in the digital age is to ensure that those DVDs get to the market quicker and, I have to admit, Disney is leading the way. This is a fight we have to win, even if we get a bloodied nose from loss of sales."

The result so far has been a split between Britain's cinema operators as Disney seeks to use its 3D flagship Alice in Wonderland, which stars British actors including Burton's partner Helena Bonham Carter and comedian Matt Lucas, to set a new three-month gap between cinema and DVD release for some of its films.

While Odeon, which is owned by Terra Firma, a private equity company that also counts troubled EMI among its assets, has gone along with a "gentleman's agreement" between cinemas and studios to set the gap at 17 weeks, Cineworld, the UK's second-largest chain, has struck a deal with Disney to show Alice in Wonderland for 13 weeks. Steve Wiener, the firm's chief executive, said he did not want Cineworld customers to miss out on "such a visual spectacle" after the success of James Cameron's Avatar.

Vue, the third-largest operator, is understood to have initially sided with Odeon but last night reached an agreement with Disney to put the film on for "around 13 weeks" from its general release on 5 March. The same debate is being played out across Europe and North America. The four largest cinema chains in the Netherlands are refusing to show Alice in Wonderland while in the US only one of the major "exhibitors", Regal Entertainment, has so far agreed to carry the film.

Odeon points out that while the DVD release "window" has dwindled from six months to 17 weeks in the last decade, it has had to spend large sums of money on upgrading to digital technology. The chain is also concerned that if it surrenders to Disney's demands, a 12-week release will become the norm and film-lovers will choose not to go out to see the latest movie, because they know that a DVD version will soon be available.

An Odeon spokesman said: "The negative impact on cinema attendance will threaten the continued existence of many cinemas, especially smaller and medium-sized cinemas, which are often important parts of the fabric of communities."

Disney says it only wants the 12-week window for two or three films a year. Bob Chapek, the president of distribution for Walt Disney Studios, said: "We think this is in the best interests of theatre owners, because a healthy movie business is good for them and allows us to invest in high-quality, innovative content."

Nick James, editor of Sight and Sound magazine, said: "Disney and the other studios are desperate to narrow the window in which pirates can get hold of a film. That is why they are prepared to force the issue with Alice in Wonderland, even if it costs them as much as £40m in lost sales in Britain. By their next release they want to have a gap of 12 weeks. The problem is that there is no guarantee the cinema chains will give in."

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