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The market

As at 12 March 2015

External factors

The cinema industry is dependent upon the customer choosing to spend disposable income on watching a movie.  Customer support has been assisted by developments in technology such as digitalisation of cinemas, which has enabled a greater range of films to be offered, as well as streaming of live events such as opera and ballet. Superior experiences offered by technologies such as IMAX and 4DX are also ensuring that watching a movie in the cinema continues to be a unique experience which cannot be replicated at home or on a portable electronic device. Value for money also remains an important factor and cinema has tended to be a less expensive form of entertainment in the wider leisure markets in which the Group competes. 

Characteristics of the Cinema Market

The Group operates in nine countries and, as measured by number of screens, is either the number one or two operator in each.  The nine countries are a blend of mature and growth markets which provides the Group with both organic and acquisition growth opportunities.

Mature markets tend to be characterised by higher admissions per capita, higher average ticket prices and a much lower population per screen ratio.  Mature markets in which the Group operates include UK and Israel.  Growth markets have the opposite characteristics and provide great investment potential for the Group.  Romania is an example of such a growth market. 

Structure of the Market and Competitive Landscape

There are four cinema chains in Europe with over 1,000 screens, representing 20% of the total European market.  The rest of the market is represented by smaller multiplex operators, which may only operate in one or two countries, and independent operators which are specific to local markets.

European Cinema Industry1
Rank Company No. of screens
1 Odeon 2,236
2 Cineworld Group 1,875
3 Vue 1,787
4 Pathe 1,008
5 Showcase 850
6 Cinemaximum 589
7 UGC 488
8 Yelmo 413
9 CGR 433
10 Kinepolis 401

1Source: Dodona 2013.

Over recent years key players have invested in growth markets where there is considered to be greater opportunities - for instance Vue, predominately UK based, acquiring Multikino in Poland. However the availability of funds to execute on an aggressive overseas expansion strategy remains a barrier to entry for most. 

Market Performance

The industry is dependent on the availability of films for screening and the appeal of such films to the cinema-going public.  Box office revenue is driven by admissions and average ticket price. Admissions depend on the number, timing and popularity of films.  The average ticket price is driven by film mix, the demographics of admissions and local economic factors such as local levels of disposable income and competition.

Box office performance during the year has been mixed, with no global “blockbusters” grossing over £1 bn.  The largest global release during the year was “Transformers: Age of Extinction” which grossed £0.7bn globally. There have been notable performances from a number of popular franchises including the final Hobbit film “The Hobbit: The Battle of Five Armies” and the third Hunger Games title: “Hunger Games: Mockingjay Part 1”.  Hollywood titles, such as these, tend to be popular across all the countries in which the Group operates.  However in certain countries, especially Poland and the Czech Republic, local films are also popular and account for a greater percentage of annual admissions. 

Country

Top 3 films

Origin

UK & Ireland

  1. The Lego Movie
  2. The Hobbit: The Battle of Five Armies
  3. Inbetweeners 2

US

US

UK

Poland

  1. Bogowie
  2. The Hobbit: The Battle of Five Armies
  3. Miasto 44

Poland

US

Poland

Hungary

  1. How to Train Your Dragon 2
  2. The Hobbit: The Battle of Five Armies
  3. Guardians of the Galaxy

US

US

US

Romania

  1. The Hobbit: The Battle of Five Armies
  2. Interstellar
  3. 300: Rise of an Empire

US

US

US

Israel

  1. Zero Motivation
  2. The Hunger Games: Mockingjay Part 1
  3. The Wolf of Wall Street

Israel

US

US

Czech Republic

  1. The Hobbit: The Battle of Five Armies
  2. Tri Bratri
  3. How to Train Your Dragon 2

US

Czech Republic

US

Slovakia

  1. How to Train Your Dragon 2
  2. Rio 2
  3. 38

US

US

Slovakia

Bulgaria

  1. The Hobbit: The Battle of Five Armies
  2. Noah
  3. Lucy

US

US

US

Future Market Trends

Underpinning the overall success of the cinema industry, regardless of territory, is the need for a strong film slate. There is a promising release programme for 2015 which includes “Fifty Shades of Grey”, “Avengers: The Age of Ultron”, “Star Wars: Episode VII”, “Fast and Furious 7”, the fourth and final Hunger Games title “Hunger Games: Mockingjay Part 2” and the next Bond film “Spectre”.

Other Income

Retail and screen advertising revenues are the significant additional sources of income for cinema chains. 

Popcorn and soft drinks remain the most popular retail stand items.  There is however a growing demand for a wider range of products and the traditional offering is increasingly being supplemented with products such as branded coffee outlets.

Screen advertising revenue varies depending on the type of films screened, the number of minutes and value of advertising sold, the number of attendees who view the film and the placement of advertisements in relation to the start of the film.  The lack of blockbuster films created added downwards pressure on screen advertising revenues during the period.  However, this was mitigated by the flexibility of digital projection which significantly reduced the lead time between generating content and showing it on screen. The majority of cinema chains in Europe have digital projection and take advantage of this trend. 

Certain cinema chains, including Cinema City, may also generate other income by acting as the local country distributor for the main Hollywood studios or by directly acquiring the rights to specific titles and earning royalties from not only cinema exhibition but also Video on Demand, DVDs and TV screenings.

Property Market and Development

The rate of new cinema openings is dependent upon local market conditions.  In more mature markets (such as the UK), the rate of new cinema openings has been falling in recent years, partly due to the limited number and associated lead time of new retail and leisure developments.  We have seen the converse in developing markets (such as Romania); uncertainty over the development timeframe in developing economies can result in delayed openings; however the number of development opportunities tends to be greater.

The above is the Market Overview Section from the 2014 Annual Report.