White Book of European Exhibition Industry - Vol. 2

1.2 Trends in the European exhibition industry

All over Europe, the advent of television led to a dramatic fall in the number of cinema admissions, which fell from 2,900 million for the whole EU region in 1960 to 570 million in 1990. The main result of this fall was a drastic reduction in the number of screens in all countries: from over 37,000 in 1960 to 16,650 in 1990 (2). The fall in admissions outstripped the fall in capacity, and as more and more screens closed down, the average number of admissions per screen also kept falling.

Not all countries reacted to the new situation with the same speed, nor with the same solutions. In some countries, like Italy and the United Kingdom, the main result was a reduction and decay of the cinema sector. In the UK, the 1980's saw a major restructuring of the industry with a large scale programme of construction of multiplex cinemas. In Italy, where the single screen cinemas are still the majority, the renovation process has been supported since 1980 by a state policy. In other countries, like Germany and France, many large cinema theatres were split into smaller units. In France cinemas were modernised in the 1970's with substantial help from a comprehensive system of levies and subsidies, whereas in Germany it was largely the initiative of cinema owners to update and modernise facilities.

Charting the trends in the European exhibition industry

Several studies have been undertaken which analyze the developments and discuss the role that multiplexes play in reversing that trend. The main studies which are worth discussing here are:

1 Retailing European Films: the Case of the European Exhibition Industry, a Report by London Economics for the MEDIA Business School, 1993.

2 Il cinema Italiano: Imprenditorialità, Efficienza, Innovazione, SDA-Bocconi, 1992, chapter 4 by Giuseppe Delmestri.(3)

3 The Consequences of 2.5 Years of New Multi-screens in Germany", published in the Dutch trade journal, "Film", J.Ph. Wolff, June 1993, and On Multiplexes and Multi-screens, J.Ph. Wolff, November 1993.(3)

4 Cinemas in Europe: Circuit building and Multiplexes, Screen Digest, July 1991.

5 UK Multiplex Cinemas: Phase 1 nears maturity, Screen Digest, February 1994.

The London Economics/MBS report: Retailing European Films: the Case of the European Exhibition Industry

The London Economics/MBS report argues that the appearance of multi-screen facilities in the 1970's in Europe was mainly a response to the changes in consumer behaviour caused by the greater choice of audio-visual entertainment. It was also the most efficient way to maximise capacity utilisation, as exhibitors were no longer able to fill their large theatres. By reducing the number of seats for each screen and allowing for different screen capacities, the multi-screen cinemas could make a more efficient use of cinema seats, moving films to auditoria of appropriate size.

These attempts were partly successful at containing the fall in admissions, although they did not manage to reverse the trend. Moreover, the decline in admissions throughout Europe did not result in lower average ticket prices. As discussed in the report, cinema became altogether a more up-market product, since the lower-price cinemas out of town centres were the first ones to close down, leaving cinemas to compete with all the other forms of entertainment available downtown.

A more successful reaction to the changes in the sector appeared in the early 1980s with the multiplex. It is characterised by state of the art technology and greater comfort for the viewer. It re-establishes the supremacy of cinema over television by offering a degree of comfort and choice comparable to television, coupled with superior viewing technology. The report suggests that multiplexes have been successful because they offer:

increased choice: more people are able to find the film of their first choice and many can go to a second choice film if the first is not available;

ability to reduce risks by switching films to appropriate capacity levels; and

ability to offer an up-market product at a lower marginal cost.

From this perspective, one can see that the multiplex constitutes the natural development of the multi-screen cinema, at least in some countries. On the other hand, in the countries which failed to respond earlier to the challenge posed by television, multiplexes are a totally new concept. The level of development of the cinema sector prior to the appearance of multiplexes and the characteristics of each country can interact to determine the extent to which multiplexes are likely to make a significant impact in each country. These two dimensions can also help understanding the specific forms that will be successful in the particular market.

SDA-Bocconi Study: Il cinema Italiano: Imprenditorialità, Efficienza, Innovazione

It has often been argued that multiplexes are more likely to increase audiences in areas where there are not many other screens. They are claimed to be more effective in attracting audiences where they offer a large number of screens in relation to the variety of different audiences (younger, older, more middle-class etc.).

According to a study by the SDA-Bocconi on the Italian exhibition sector (4), in countries where there has been no response by exhibitors to change for a long time, multiplexes were able to boost admission levels over what would be expected from screen density. At present, since the demand for cinema has reached the stage of maturity, the exhibitors' strategy is that of catering for different segments of the market. This explains the simultaneous development of different types of multiplexes. Some complexes, mainly American style, are geared towards a very young audience, and offer fast and easy access to a good number of films whilst providing additional space for entertainment. Others seek to attract more adults, by emphasising the up-market, theatre-like feel and look of their auditoria (Germany) or are integrated in greater multi-media facilities (eg in France). More than one type of audience is now present and more than one type of cinema should be available within a given country. As a consequence, the ability to increase admissions is the ability to respond to tastes that were not previously catered for.

The SDA-Bocconi study analyses three significant countries, France, Germany and the UK, in order to draw a life cycle of cinema as a product. The phases of the product cycle and corresponding cinema types are:

tradition	cinema as a social and cheap vehicle to dreamland; typical cinema site: large theatrical sites
first reaction	variety, offering as much choice as television; typical cinema site: cinemas split into a number of smaller units
second reaction	comfort, re-establishing technological superiority of cinema over TV; typical cinema site: high tech and efficient, more expensive and comfortable
development / segmentation	going to the movies as a social event; typical cinemasite: keeping the high technological standards, cinemas emphasise the importance of the look and feel of the site, its common space and ancillary services. Many types are possible.

In a comment on the present situation in Germany the study states that the boost in admissions created by the multiplexes in the UK is considered with caution by Germans. German exhibitors believe that the success story in the UK cannot be replicated in a region where, unlike Britain before the advent of multiplexes, the density and quality of screen is already at high levels.

The German debate: The Consequences of 2.5 Years of New Multi-screens in Germany

Over the last two years the congress of HDF - the German Exhibitors' Association(5) has debated vigorously the impact of multiplexes. Between 1991 and the end of 1992, the number of screens in cinemas with more than nine screens - the definition adopted by Dr Bähr of the German Film support agency, the FFA - increased from 14 to 90. Seven multiplexes have opened in that time period. The great debate has been over:

the threat this new form of outlet poses to the established cinema sector;

and

the impact of multiplexes on overall admissions.

Nobody disputes the enormous impact that these very large projects have had in the towns where they opened. It appears that the argument is largely one about the extent of the impact on the exhibition sector and the degree to which multiplexes continue to attract more admissions, rather than a question of whether they had any impact at all.

The paper by Dr Bähr deals with the analysis of the five regions in which multiplexes opened. It attempts to disentangle the effect of multiplexes on regional admissions and estimate the existence of multiplexes versus other cinemas. Table 1 below is an informative summary from a comment by Dr Wolff. It summarises the effects on admissions in index form. The crucial figures are the enormous increase in admissions in those regions which include multiplexes (plus 40-42% over 1989) against a significant decrease in the remaining regions of West Germany (minus 12%). This paper also demonstrates the drop in admissions for the existing cinemas in five regions with new multiplex cinemas (between 22% and 66%).

Table 1 Admissions in Germany
	West Germany		The five regions with new multi-screens		Remaining West Germany
	adm.	index	adm.	Index	Adm.	index
1989	101.55m	100	7.8m	100	93.74m	100
1991	106.96m	105.3	10.96m	140.3	96m	102.4
1992	93.54m	92.1	11.15m	142.7	82.39m	87.9
SOURCE: J.Ph. Wolff - FFA

Another significant picture emerges from the paper by Bähr, which shows the level of admissions per screen on a monthly basis. Firstly, multi-screen cinemas have a much higher admission level, almost double that of the average cinema. Secondly, there appears to be similar volatility in the admissions for multiplexes. Finally, the trend for multiplexes is upward, while the rest of the sector appears to be on a slightly downward trend.

Screen Digest Survey: Cinemas in Europe: Circuit building and Multiplexes

The impact of multiplexes on admissions is also the focus of a survey on the most developed multiplex park in Europe, the UK, published in Screen Digest(6). Here it is argued that although multiplexes produced a positive net effect, a proportion of their admissions has clearly been diverted from surrounding conventional cinemas. The first impact of a new multiplex is likely to last around a year, during which the surrounding sites suffer most of the damage. But after the initial shock, business could well start to grow for both. In Britain independents have survived, and the number of screens not owned by major chains has actually increased by 11 units from 1989 to 1990, although there is no doubt that their share of total admissions is being progressively squeezed.

Screen Digest Survey: UK Multiplex Cinemas

The growth of UK multiplexes over recent years is the subject of a newly published Screen Digest Survey. This survey asserts that the peak years of UK multiplex growth were between 1989 and 1991, when more than 100 new screens were opened per year. As shown in Table 2 below, of the 604 screens opened in the UK since October 1985, 371 (approximately 60%) were built between 1989 and 1991.

Table 2 Growth of UK multiplex cinemas
	Number of screens	Growth rate (year on year)
1985	10	n/a
1986	18	80%
1987	44	144%
1988	139	216%
1989	285	105%
1990	387	36%
1991	510	32%
1992	548	7%
1993	604	10%
SOURCE: Screen Digest

This rapid growth in multiplexes has been led by the aggressive expansion of large multinational companies such as United Cinemas International (UCI) and Warner Bros. MGM/Cannon, the current market leader in terms of screens in the UK, has also been moving away from its traditional single screen sites and is now a major player in the multiplex sector. The other traditionally very large player in the UK cinema industry, Rank Odeon, has been less active in the area of multiplexes, primarily due to the fact that it employs very tough criteria with respect to returns on investment (pay back within five years). This situation is reflected in the market shares of the multiplex operators as detailed in Table 3 overleaf.

Table 3 Market shares of multiplex operators (measured by number of multiplex sites owned)
	1989	1993
MGM/Cannon	14%	24%
Rank Odeon	3%	14%
Showcase	24%	14%
UCI	52%	32%
Warner Bros	7%	15%

SOURCE: Screen Digest
Although the rate of growth of multiplexes is now significantly lower than in these peak years, this does not imply that the UK multiplex sector is stagnating. On the contrary, Screen Digest estimate that 42 new screens will be added in 1994 and over 50 in 1995. Moreover, industry sources suggest that there are suitable sites in the UK for another 20 to 25 multiplexes (a suitable site is defined as one where 200,000 to 300,000 people live within a 20 minute drive). This would mean that there could be over 900 multiplex screens in the UK by the end of the decade.

Multiplexes in the European exhibition sector

There is a large degree of inconsistency in the way that multiplexes are defined in different studies and in different countries. Some believe that the key factor is the number of screens, but many others also believe that additional features must be present (eg parking facilities) for a multi-screen complex to be defined as a multiplex. In its survey of circuit-building in Europe, Screen Digest describes a multiplex as a "purpose built multiple screen cinema complex with five or more screens". However, developments of new screens adjoining or surrounding older ones were considered multiplexes, while sub-divisions of existing cinemas were not. Notwithstanding the difficulty of separating screens that are built as additions from those obtained by partitioning of the original one, in the analysis carried out in this paper a multiplex is defined as a purpose built multi-screen facility with eight or more screens.

The following tables show the structure of the European cinema sector by number of screens and demonstrates the penetration of multiplexes in various countries in Europe. These tables illustrate a varying picture of the cinema sector in some of the main EU countries(7).

Belgium (Table 4) and the UK (Table 5) have the highest share of multiplex screens in Europe, with roughly 25%.
France (Table 6) has a high penetration of screens in cinemas with more than 5 screens. Denmark (Table 7), the Netherlands (Table 8), Germany (Table 9) and Spain (Table 10) have a relatively low penetration of multiplex cinemas with more then eight screens, with just under 5% of screen capacity.

Table 4 Belgium: screen profile
	Sites	Screens	Share of total screens
1 Screen	75	75	17.4
2 Screens	25	50	11.6
3-5 Screens	42	155	35.9
6-7 Screens	7	45	10.4
8+ Screens	9	106	24.6
Total multi-screens	83	356	82.6
TOTAL	158	431	100