(P.21) Cinema projects bleak future despite expansion

by Lisa Buckingham, City Editor, The Guardian
14th October 1999

Finance.
News Analysis - Virgin and Rank evaluate exposure as multiplexes struggle to provide payback

For an industry which is doing so well, there's an awful lot of selling going on. Richard Branson's Virgin group yesterday described the business as "fantastic" but is still in the end game of offloading half, if not all, of its exposure. Despite official denials, the hard pressed Rank group is believed to be considering a total exit. And day after day the property columns are filled with the sector's debris, all at knock down prices.

Recently, the British cinema scene has been pretty gloomy. Yet a glut of multi-screen outlets, the progeny of better days, continued to open. And those multiplexes were fabulously expensive. Built at the top of the sector's investment cycle at the fanciest rates for developers, they have been struggling to provide a decent payback ever since.

Last year nearly 300 screens opened in Britain - more than in any 12 month period for 15 years. Yet attendance dropped below 1997 levels, partly helped by the impact of the 1998 World Cup, which severely dented admissions.

"Building a new cinema is like a turkey voting for Christmas," said Karsten Grummitt, managing director of Dodona Research.

Despite the fact that his company now predicts attendance will rise beyond 140m this year - levels not seen since the early 1970s - he reckons some reduction in capacity, through closures, sales and mergers, would be sensible. Indeed, Warner Village is rumoured to have pulled out of 20-30 planned outlets because of the bleak outlook.

The company does, however, still have adventurous openings on the stocks, while Virgin says it is looking either to sell its cinemas or attract a partner as the business needs to spend £300m to expand in the next few years. Virgin is about to open a 22 screen multiplex in Glasgow, the largest cinema in Europe. Meanwhile, UCI, which owns the Empire and Plaza outlets, has been busy opening four multiplex sites.

"The future of high street cinemas is much worse than a few years ago," said Mr Grummitt, who calculates that more than 60% of all cinema goers now patronise multiplexes, which are often edge of town sites.

Many inner city cinemas are at capacity because of planning restrictions. Even though they charge higher prices and have a heavier spontaneous market, their room for manoeuvring is restricted. Rank's Odeon chain, the largest in the country, is heavily weighted towards London and the cities, while Virgin's 34 strong chain is almost totally multiplex.

Although consumer confidence has been strong, it has not been sufficient to overcome greedy cinema owners who have raised average ticket prices from £3 in 1994 to £3.75 today. And, although there is still a way to go, before we return to the 3,000-plus cinema screens which existed in the 1960s, expansion has been relentless since the early 1980s and the industry is now back to more than 2,600 screens. Over the same period, however, the average attendance has dropped from 9.6 visits a year to just 2.3. That may be roughly in line with most European countries but it is half the American average.

Dodona estimates about 200 new screens will be added this year and that will mean audiences will be even more thinly spread - an occurrence for which the inclusion of bars, cappuccino shops and other spending attractions cannot compensate. Concessions now provide £125m a year of revenue - a growth of 25% in the past five years. Advertising revenues are growing too but still account for less than 20% of box office takings.

There is no escaping the fact that the £750m a year industry is critically dependent on the output of Hollywood. No one will buy bags of popcorn or sit in the back row to soak up advertisements if the films on offer are poor fodder. The chances of a return to the days when most adults went to the pictures once a week are slim enough, with so many competing forms of entertainment.
--------------------------ends

If the figures for total number of screens and total admissions are plotted one can postulate some interesting trends. The number of screens and the number of admissions falls to 1970. Could the cinema attendances be increased by more cinemas with better provision for the customers? More are built. The cinema experience is further enhanced by better choice of films and extensive restaurant and other services. However, it takes till 1990 before the falling attendances are reversed. Cinema building is now a frenzied activity (smaller units). Unfortunately not matched by continually expanding audiences - indeed the attendences flatten off and indeed show a small downward trend in 1998. Where will they go next? Up or down? Is this a Britain-wide phenomenon or are there local variations? Is London "under-cinemaed" as some have claimed? We'll keep a watching brief...

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17/10/99 Last updated 26/10/99