· The significance of vertical integration and tendencies towards concentration.
 
· Lusomundo's dominant position, both in distribution and exhibition.
 
· The problems of access to films encountered by independent exhibitors.
 
· The appearance of multi-screens, and the beginnings of cinema modernisation.
 
· The declining influence of European product.
 
· The Portuguese Cinema Institute's subsidies.

Made up initially of a collection of independent, single-screen cinemas, the structure of the Portuguese industry has changed dramatically in the last few years. By diversifying into downstream activities, the leading distributors have effectively been the source of a brutal movement towards concentration.
 
Lusomundo is the most important film company in Portugal. By growing both externally (by absorbing other enterprises) and internally, it has gradually become the incontestable market leader in both distribution and exhibition: it distributes the products of several US majors (Paramount, MCA/Universal, MGM, Hollywood Pictures, Touchstone, Buena Vista, Walt Disney etc.) and controls an important cinema circuit. It is also present in other sectors (radio, newspapers, property etc.), and may well be tempted to extend its activities into Spain.
 
This company directly controls the programming of 36 out of 56 theatres in Lisbon, 7 out of 9 in Cascais, and 5 out of 19 in Porto. It also manages a collection of cinemas in the less important towns. In total, it controls directly 57 cinemas, which gives it a share of about 25% of Portuguese screens. It is concerned with single-screen establishments, multi-screens and even small multiplexes (like, for example, the complex in the commercial centre at Amoreiras, which has ten screens, but only 1,330 seats in total). As the cinemas it manages all receive first-run films, its theatres achieve the best occupancy rates and the highest returns in the country. In terms of admissions, Lusomundo's market share in exhibition is estimated to be 55%.
 
Castelo Lopes, another distributor (Fox, Gaumont, UGC, Renn Productions etc.) owns 14 screens (plus a 5-screen complex which is being built in Porto) and currently controls 10% of the market.
 
A third distributor, Atalanta/Medeia, specialises in "auteur" films, and owns 16 screens, in which it presents an alternative programme, based on quality films and European productions.
 
Outside these networks, with the exception of a network of a dozen screens owned by Paulo Martins, there are no players - private or public - who manage more than one or two, and in very exceptional cases, three, screens. Their market share together is low (less than 30%) and their commercial position is particularly weak.
 
Only a few years ago, there was no foreign investment in the Portuguese exhibition industry. However, in 1991, Warner and Lusomundo drew up an agreement to operate multi-screens as a "joint-venture"; this agreement has already been applied in Lisbon and Cascais, and a complex with 7 screens is currently under construction in Porto.
 
 
Access by Films to Screens
 

Companies involved in both distribution and exhibition - 1992	Distribution market share (% admissions)	Exhibition market share (% admissions)
Lusomundo	60%	55%
Castelo-Lopes	-	10%

 
The main characteristic of the Portuguese cinema sector is the particularly high level of vertical integration. It is likely to bring in its wake market distortions, both for exhibitors and for independent distributors, as the first are likely to find themselves denied access to successful films, and the latter are likely to find that their products are blocked out from local markets which are controlled by the integrated structures.
 
The danger of this is all the greater, as there is no specific regulation which seeks to remedy the concentration of this sector. There are various general clauses which were originally intended to stop phenomena of vertical or horizontal integration, but they are very imprecise, and therefore of little practical use.
 
The exhibition sector therefore appears very closed: a new entrant would be effectively compromised, as the integrated structures have succeeded in imposing a rule that, in the case of the reopening of a cinema, the new owner will have to meet all the debts and obligations of his predecessor, at the time the establishment ceased trading even if they were unknown to him.
 
Moreover, and most significantly, numerous exhibitors emphasized the problems which they encountered in achieving an adequate supply of films, by reason of the fact that their cinemas were in competition with those belonging to the integrated structures.
 
In order to obtain prints, the independent exhibitors depend on their competitors, and particularly the leading one (Lusomundo) or its associates (Warner) or other distribution houses relative to whom Lusomundo is clearly in a powerful position (Columbia). As they generally only get a chance to show B films, the room for manoeuvre of the independent exhibitors are thus very restricted indeed.
 
Their position is made all the more fragile by the fact that they have to accept unfavourable rental rates, and that they are only rarely granted written contracts.
 
In this context, there are two possible strategies in relation to the integrated players: that followed by independent cinemas which work within a market "niche" (auteur films), seeking, within that slot, to remain autonomous and to control their own supply (Paulo Branco), or that of exhibitors like Paulo Martins, whose programming depends on the integrated players, and which therefore accepts second-run films which they programme, or content themselves with US B films.
 
 
Ticket Prices and Exhibitors' Shares
 

1992	Portugal	EU average*
Average ticket price incl. taxes (ECUs)	2.63	4.19
Average rental as a % of box office net of tax	50%	47.2%
Exhibitor's average share (%)	50%	52.8%
Exhibitor's share of ticket price (ECU)	1.22	1.93
Exhibitor's average share per screen (000 ECUs)	62	63

* weighted average
 
There are no official statistics on the average ticket price: but our sources vary between 335 and 460 Escudos. The variation about the mean is therefore particularly high, 1:1.45; according to the location of the cinema, its nature and ownership, prices are in fact anywhere from 300-500 Escudos (between 250 and 350 on Mondays).
 
Portugal experiences something rarely seen in Europe: there are some cinemas here which exhibitors rent the distributor, ceding to him their programming rights. However, this situation is fairly rare. As a general rule, the relationship between exhibitors and distributors takes the form of a proportional remuneration with a guaranteed minimum.
 
Rentals vary from exhibitor to exhibitor, and is calculated as a function of expected returns and the average number of admissions per screen.
 
The presence of the integrated players considerably complicates a precise estimate of average rentals, particularly as there is no regulatory arrangement concerning the split of returns between distributors and exhibitors.
 
However, it seems that, in the case of contracts made with independent exhibitors, the distributor's share is valued at more than 50% of box office takings, which makes this one of the highest rental rates in Europe.
 
 
Cinemas Provision
 

1992	Portugal	EU*
Number of screens per 100,000 population	2.36	5.24
Number of seats per screen	412	266
% large screens	24%	24%
% Dolby	15%	51.4%
% multiplexes (7+ screens)	7%	10.7%

* weighted average
 
The last few years have seen a movement towards concentration of sites in the big urban areas. Lisbon and Porto now contain between them 43% of all screens, and 76% of first-run screens. They represent nearly 70% of screenings, and 64% of the total number of spectators. But the number of communities which no longer have any cinema provision is on the increase. These includes some district capitals and middle-sized towns, which, like Santa Maria da Feira (population 80,000) or Penafiel (39,000 inhabitants) no longer have a cinema.
 
As in the other European countries, the location of cinemas within urban areas is also changing. Local cinemas in the main urban districts and those on the outskirts are progressively closing; which means that, today, the majority of cinemas are found either in the city centre, or in shopping centres.
 
And, above all, the last few years have witnessed some modernisation of Portuguese theatres. This modernisation of the sector has two characteristics:

•  The circuits have centred their strategy around the construction of multi-screens, dedicated to better standards of comfort and higher-performance technical equipment than the majority of single-screen cinemas. Already, there are 11 multi-screen complexes in the country (with more than 2 screens), of which 3 have more than 5 screens.

• On the other hand, the public authorities have put into place a policy of subsidies for cinema renovation, chiefly to enable the modernisation of single-screen cinemas located in the provinces.

The concentration of the sector has undoubtedly been accompanied by a contraction of the variety of films on offer.
 
The managers of the network, in their determination to programme the same first-run films in all their different sites, look first to reduce the number of outlets. This is a sure sign of the decreasing range of programme offerings, and it is also accompanied by a decrease in the average length of runs.
 
Such exhibition practices, made possible by using prints already released on foreign markets, are carried out primarily at the expense of European feature films.
 
The number of European films released has fallen sharply: from around 85-90 a year in the mid 1980s, it fell, for the first time, to below the fifty level in 1991. In the same year, less than 30% of releases were European films. An analysis in terms of market share is even more worrying, as American films accounted for 85% of admissions, of which around 60% was just for the feature films distributed by the American majors.
 
The "independent" network Atalanta/Medeia is trying to stand out against this dominant trend, by opting for a more demanding programme, in which European films play a significant role. The period of exhibition for these films is also longer than the national average.
 
This circuit has also begun a considerable effort to arouse interest in films (getting the film's director to present his film, organising retrospectives etc.). It is joined in this drive by several "Art and Experimental" cinemas, even if a precise definition of this terms does not exist, which creates a certain amount of confusion with the "cinema-studios" which appeared under the Salazar regime, as an alternative to traditional exhibition.
 
There are no more than 14 art and experimental screens in the whole country. Their market share, estimated at 3%, is less than half the European average.
 
 
Role of the Public Authorities
 

1992	Portugal	EU*
Taxes:                                - VAT                                - Other taxes                                - Rights (musical)	5% 2% -	10.80% 5.18% -
- Total/ticket (in ECU)	0.18	0.65
Financial assistance:                      - Total (in ECU Millions)	0.2	52.7
- Per ticket (in ECU)	0.01	0.09

* unweighted average
 
The regulatory position of Portugal is currently very unclear: the law of 1973, which regulates the exhibition sector, particularly by providing a quota for Portuguese films, is not applied, even though it is still on the statute books. A new law is in preparation, and currently under review, and will be adopted very shortly(8).
 (8)  This text was written in the first half of 1993, and does not take account of the new law relating to the cinema, which was adopted in the second half of 1993.
 
As we have shown above, there are no specific regulations which seek to control the concentration of the film industry, or its level of vertical integration. There are also no particular regulations concerning the split of takings. On the other hand, several different measures seek to control release windows: unless dispensation is given, there must be a delay of one year from the date of the import of the programme before it can be shown on video; the delay before television broadcast is two years.
 
Since 1985, the Portuguese government, through the Cinema Institute, has been trying to speed up the modernisation of sites, by granting subsidies to exhibitors either to build new cinemas, or to renovate.
 
Up to the present, 671 M Escudos (670,000 ECUs) have thus been given to 76 cinemas. During 1993, a sum of 288 M Escudos (170,000 ECUs) was set aside as a budget. These funds have so far benefitted the provincial cinemas the most (44 screens located in the small towns or villages) and independent exhibitors, or theatres dependent on town councils.
 
Increasingly, the town councils (26 to date) are trying to counteract the lack of cinemas in their locality, by taking charge, usually with the help of the Cinema Institute, of the renovation or construction of establishments.
 
In addition, the Lisbon authorities have instituted a regulation which demands the construction of at least one cinema in each area which has been the subject of property development, if this area has previously boasted a cinema. And in Porto, the city council has started a study to examine the conditions for maintaining the Batalha cinema.
 
The rate of VAT applied to cinema admissions is 5%. With the exception of property taxes, local taxes do not directly affect exhibition activity. When it comes to national taxes, the exhibitor faces both professional taxes (400 Escudos, that is 2.2 ECUs for a single-screen cinema) and an exhibition licence, which currently costs 5,000 Escudos (27.7 ECUs).
 
In addition, until 1989, the Portuguese Cinema Institute collected a contribution of 15% of the ticket price, in order to finance its activities.