White Book of the European Exhibition Industry - Vol. 1

5 Prospects

5.1 Installed sites

Number of screens

The future of Europe's cinemas is linked to changes in the balance of openings and closures of theatres. The preceding analyses have indicated that the capacities of the exhibition industry are still going to be limited, despite the upsurge in admissions in several countries.

The extent of the decline will depend on the number of factors:

· Factors exogenous to the exhibition industry

The economic context
The maintenance of high rates of interest will penalise the exhibition sector, both in terms of their ability to invest and in terms of their capacity to meet crucial financial obligations. The stagnation of disposable income and unemployment particularly affect young Europeans, who are the heart of the cinema's target audience in numerous countries. Slow, sustained economic growth, provoked by the maintenance of high interest rates, could well hamper, or even damage, the plans of the American groups, who have announced they will build around 120 multiplexes throughout Europe, and the projects of European operators, who have a less strong financial base. The small, single-screen operators will feel the full force of these economic conditions. This pessimistic scenario will accentuate the decline in the number and quality of cinemas.

The technological context
At the technological level, the next ten years will bring a considerable diversification of the various methods of access to audiovisual products and film in particular. "Pay per view" services are going to be put in place in countries where cable has achieved a sufficient level of penetration (cf Germany in particular). The advances in digital compression will make it possible from 1998 to offer commercial services described by the Americans as "near video on demand", with a wider catalogue for pay per view. These technological innovations will profoundly alter the competitive position of the cinema, and cinemas will have to define their competitive advantages vis-à-vis the home-based services.

Numerous indicators lead one to think that these innovations are likely first to hurt the video market more than the cinema-going one. But as their commercial position grows stronger, negative influences on cinema admissions may ensue in the countries which are well cabled (the Netherlands, Belgium, Germany). Everything will depend on the way US distributors leverage the various different channels for achieving a film's value.

· Factors endogenous to exhibition:

As well as factors external to the cinema industry, the industry's prospects will depend on trends within each country. To enable an understanding of these, the best variable for anticipating the magnitudes of changes is undoubtedly the occupancy rate of seats. Four countries show a substantial deviation from the average in a negative direction: Spain, Portugal, Italy and Greece. The sector in those countries will experience more closures, often in significant proportions, amplified compared with those of the last ten years. It is precisely in these countries that the largest proportion of "single-screen cinemas" is found. Germany and France will probably see some decline in their exhibition sectors, lessened if the national or regional government implements ambitious policies for the infrastructure which, at the moment, seems unlikely. On the other hand, in the other countries in the EU the movement will be much slower, even if the closure of run-down theatres continues to occur in every country.

These tendencies towards closing cinemas will be compensated for by a regeneration of a part on the sector centred around the multiplex. We note that the only US investors, UCI and Warner, have announced the construction of nearly 1,200 extra screens in the next five years, that is about 120 multiplexes, which represents an investment of nearly $1 billion dollars. Already, in Great Britain, the major players (Warner, MGM, Odeon, National Amusements, UCI) have invested hundreds of millions of ECUs since 1985. (The trade association's figure is 850 million ECUs.)

As in the United Kingdom, Ireland and Belgium, the process of regenerating the sector in highly populated areas is well advanced (one or two supplementary complexes are still to be built in Belgium; UCI and Warner have some projects planned in the London suburbs), the investment to create new capacity will benefit:

Germany, where UCI has initiated an energetic policy of constructing multiplexes (so far, though, only 3, out of the 14 multiplexes that UCI had proposed to open, have seen the light of day).

France, where the national networks have already begun the construction of new cinemas with more than 8 screens (like the Pathé complex recently built at Toulon), and where numerous plans are announced for the next two or three years: Paris-Bercy, for UGC; Lyon and Paris for Gaumont; Thiais (Parisian region) for Pathé, and Lomme on the outskirts of Lille for the Bert family. These initiatives stem from a need to reinforce the position of the integrated European distribution/exhibition companies, and to ward off any eventual potential US entry. The US companies do not have at this moment any concrete project in France, but if the share of French films in the cinemas continues to fall, France may well become a desirable territory for Warner or UCI.

Important potential exists for new cinemas in Spain, driven particularly by Warner-Lusomundo and UCI in the big cities, which at the moment are dominated by large capacity screens which are under-used.

Italy has so far been bypassed by the grand strategies of the US players but is at present the most attractive market for them in Europe: UCI and Warner are thought to be considering buying out Cinema Cinque. Technical improvements to the industry have been nationally undertaken in recent years, but despite its decline, Italy has retained a cinema-going tradition which is favourable to a resurgence in activity.

By contrast, in countries such as Portugal and Greece, investment in new cinemas has been very limited, because cinema-going is nowadays limited to a small number of large towns.

From a macroeconomic point of view, there will undoubtedly be a contraction of the industry in the next five years, but in smaller proportions than the decline which occurred in the preceding period. Indubitably, as in video and television, the field for new investment in this strategy of revitalisation of cinemas will shift towards southern Europe.

A portrait of exhibition

Everything tends to suggest that, if the present trends continue, the "intensive" model described in the first chapter will also gain ground: the absence of powerful Europe-based groups in the production and distribution industry sectors leaves the field wide open to US films.
The market share of US films is therefore likely to increase further, and that will in turn give the US companies an incentive to control all downstream channels, including those in countries where they are not yet present. France springs to mind in particular, where a plausible hypothesis is that, as the role of French films continues to diminish, US interests will seek a foothold in the market.

These changes will bring with them:

a reduction in the number of single-screen cinemas: in 10 years' time, it is likely that the importance of single-screen cinemas will have substantially declined, even if it is probable that they still represent 20-25% of screens. Two pillars will still support the single-screen cinema:

the prestige cinema, which has developed in some capitals, and which achieves substantial occupancy rates by a policy of massive advertising;

the municipal cinema, a centre of social life of the neighbourhood, or in the town, which will remain the standard for areas with low population density.

a movement of cinemas to the outskirts of towns in the countries of Southern Europe: in ten years' time, the centre of gravity of the exhibition industry is likely to have shifted to the outskirts. Firstly, social changes have worked in numerous countries to bring about a depopulation of inner-cities. Then the concept of a multiplex involves very large and concentrated investment, and this entails an out-of-town location: the land costs are less, the "outing" requires the use of a car by the spectator etc.