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Hard Top on the Big Screen

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					    Hard Top on a Big Screen-Cinema Attendance Limitations in the North American
                       Market under Various Supply Conditions

            John Arnison 2001 CEO Spectrum Group (Aust) Pty. Limited Sydney Australia
                                     johnarnison@spectrumanalysts.com

Lessons on cinema development can be learned from observations of sometimes alarming trends
in attendance. A particularly severe drop in cinema attendance halted an abrupt end to large-scale
multiplex and megaplex development during the late 1990’s. At that time there was gross
miscalculation of the market potential respond positively to increases in the supply of new
theatres.

The demise of the drive-in movie theatre is a useful case study of market saturation and excess
cinema screen supply that also faced new forms of competition from in- home technology and
changing life styles. The problems of the exhibition industry are currently caused predominately by
over development in a market that did not grow in real terms due to the cyclical lapse in the
release of appealing new films. These effects were most marked in the United States although the
experience was also common in other territories. At times there is a real ‘ceiling’ on the average
rate at which people will visit the cinema which cannot be penetrated by increased capacity or
improved technology.

While some of the latest megaplex openings have been highly successful, the average productivity
of screens worldwide at that time fell by as much as one half of previous levels. Older theatres
can operate economically at lower admission levels but the investment in multiple screens serving
markets already supplied in the 1990’s relies heavily on expanded attendance volumes. For a
period of twelve months or more there was relatively little new demand for movie going. For the
investors the problem is heightened by the inflexibility of alternative uses of purpose built multiplex
cinema complexes.

When these are part of an entertainment centre that has secondary tenants who are reliant on
cinema trade, the problem is greatly magnified. The fact that there are differences within the
market both within America and internationally suggests strongly that diligence in the market
analysis stage is the most important ingredient of a development plan.


                              Hard Top on the Big Screen
With its mixture of good and bad examples, the film exhibition industry in North America often provides a
“preview” for what is likely to happen elsewhere. The foremost source of product for the world market has
always been Hollywood, and although the concept of film exhibition did not originate entirely within
America, there are similarities in the practices adopted of development and operation throughout the world.
The faster pace of global change is also now being more rapidly reflected within the relatively smaller
markets.

Accordingly, the sudden end to the wave of investment in multiplex in the United States that occurred at the
in the late 1990’s was repeated throughout Europe and the United Kingdom, Asia and South America. At the
close of the 20th century, in many articles, trade press publications commented on the demise of cinema
operations in America and there were immediate impacts also seen elsewhere. The headlines drew attention
to theatre closures, to corporations filing for bankruptcy, a general restructuring culminating in buyouts
involving all of the major exhibitors such as Lowes Cineplex Entertainment Group and its Canadian affiliate
Cineplex Odeon, AMC, Edwards Theatres Circuit, Carmike Cinemas, Silver Cinemas, United Artists, Regal
Cinemas1,2,3. Only slightly later, the same symptoms were being observed in other parts of the world4

The dramatic halt to steadily increasing numbers of screens and seats in theatres that had been experienced
since the 1970’s has no precedent and raised many questions. For the property developers the unified and
diverse paths that were charted are well worth investigation, particularly as many plans for entertainment
developments rely heavily on the success of the multiplex cinema as anchor tenant. Perhaps the most critical
issue is how to gauge market size potential before taking investment risks.
The Saga of the Drive-In Movie Theatre

In 1933 the sky was the limit for the drive-in movie theatre industry that Richard Hollingshead introduced to
American society5. Screened under the open skies the current movies attracted new audiences and success
flowed freely from an accurate targeting of two great loves of the American people - the movies and the
automobile. Rapid growth in these operations took place over almost a quarter of a century, popularity
peaking in 1957 with a total of around 5,000 drive-ins throughout the United States6. Many more were built
in other parts of the world.

The appeal spanned generations. Parents could enjoy the latest movies along with their young children safe
and supervised in the back of the family car. Drive-ins were both an escape from home and an opportunity to
socialize for experience seeking young adults. The combination of easy parking and viewing in one unit
provided a happy coincidence of convenience for everyone, including the theatre owner benefiting from low
investment in and management costs. Low cost land located beside freeways accessed large populations
within a short drive time from urban settlement and during the 1950’s and 60’s a visit to the drive-in movie
was one of the most popular and regular event for the families comprising the great American Heartland.
However, 40 years later this experience has dwindled to a miniscule part of the entertainment industry.

The major reason for the dramatic change was due to the new irresistible allure of television. However, a
new generation of multi screen cinemas also drew the market away from drive-ins. Introduction of multi-
screen cinema complexes provided a single venue for those who wanted a night out at the movies in an
updated setting. Initially the extra screens were built within overly large single screen auditoriums that were
under utilized, however, the multiplex7, a purposefully designed large-scale venue with more than 7 screens
and free car parking, could show a wide variety of films and attract crowds, which in itself became a draw for
moviegoers.

In the northern states cinema patrons found the multiplex alternative far more appealing. The opportunities
to see movies at drive-in theatres were restricted following the introduction of summer daylight saving
adding to normal seasonal closure during the harsh winter months.

Most importantly, affordable television in the home satisfied an increasing segment of the entertainment
market with further impacts from this medium as improved technology added colour and VCR. Rising
incomes and consumer aspirations could be satisfied by the superior facilities offered by multiplex without
foregoing the easy use of the family car as newer designs of cinemas gave vastly improved viewing standards
and sound quality as well as greater comfort compared to the drive-ins or old style ‘hard top’ cinemas.
Managers of the multiplex theatres found they were able to adjust the seating capacities to match the
increasingly brief life cycle of new films by switching the showings to smaller auditoriums and operating
costs were spread across a bigger source of revenue.

Recognising the more efficient, cost effective and profitable method of exhibition, the distributors began
favouring multiplex, providing them exclusive access to the successful release films. Drive-ins and older
style single screen cinemas were denied access to new release film and eventually many could only show old
titles or blue movies. After 50 years the drive-in era came rapidly to an end and today only a few survive. In
1980 there were 3,561 drive-in screens in the United States but by year 2000 the total fell to 717 screens in
512 theatres8.

The Multi-Screen Phenomenon

The newer method of film multiplex theatres that evolved requires substantially more investment. Land area
or floor space used by multiplex cinemas within a shopping centre is substantial, the construction vastly more
complex and sound and projection technology installations more expensive.

However, based on a much higher volume of ticket sales than the single screen venues, the benefits to the
operators in terms of lower costs are considerable. A multiplex tends to have smaller, less elaborate
auditoriums, shared foyer and other areas and lower personnel and advertising costs per screen. The
concentration of several newly released films shown at one venue focuses activity and heightens the feeling
of a special outing. Food and beverage sales operate more efficiently due to the larger volume of patronage.
The introduction of multiplex cinemas concept prompted a wave of new development. Screens in North
America increased from 16,000 in 1977 to 37,396 in year 2000, a percentage change of more than 130%
within a twenty-three year period 9. However, even more significant was the tripling of box office rising
from $2.4 billion to $7.7 billion. An improved cash flow was important for the industry as a whole as
distributors, producers, actors and so on received their share of the increase.

                                                             Change in Cinema Box Office Revenue United States

                       9000



                       8000



                       7000



                       6000
       US $ Millions




                       5000
                                                                                                                                                    Gross Box Office


                       4000



                       3000



                       2000



                       1000



                          0

                                        Σουρχε: Μοτιον Πιχτυρε Ασσοχιατιον οφ Αµεριχα Ινχ., 2000 ΥΣ Εχονοµιχ Ρεϖιεω
                          1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
                                                                                  Years



Figure1: Cinema Box Office in USA

Cinema Screens and Attendance

The expansion of the market to 7,421 theatres operating in year 2000 has meant there is much diversity. For
a multitude of reasons, although many have closed a high majority of older single screen and converted
cinemas have continued to operate profitably. Currently single screens still make up 32% of the total, while
the multi screen venues represent 43% (conversions). Multiplex account for 20% and megaplex 5%10.

However, surprisingly the expansion in the supply of screens and box office revenues has not been
accompanied by growth in ticket sales the United States. In 1977 the average attendance per person was 4.8
and in 1978 it was 5.1. Although it reached 5.5 in 1998 and 5.4 in 1999, it was again recorded at only 5.1 in
year 2000. The chart shows a fluctuating pattern that may be more closely related to the appeal of films that
are released and perhaps economic conditions, than to the increasing number of cinema screens.

                                                                        Annual Attendance and Screens per Person in USA
                                                                               (screens per person times 100,000)
                       16.0



                       14.0



                       12.0
                                                                                                                                                                  Attendance per
                                                                                                                                                                  Person
                       10.0



                        8.0
                                                                                                                                                                  Screens per
                                                                                                                                                                  100,000 Persons
                        6.0



                        4.0



                        2.0



                        0.0
                          1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000


                                                                                              Source: Ibid.

Figure 2: Annual cinema attendance and screens per person in USA
                                           Within North America there is insignificant positive correlation between the data on the change in screens
                                           per 100,000 people and admissions. There are wide regional variations in average attendance per person as
                                           could be expected. Averaged over eleven years; the States with the highest average rates of attendance were
                                           Nevada, D.C. and Hawaii. All had more than 7 visits per person. Lowest attendance States were Alabama,
                                           Arkansas, West Virginia, Mississippi, Rhode Island and Maine. Nor is there any evidence that the States that
                                           have had the highest increase in screen numbers have experienced correspondingly high increases in
                                           admissions.
  Value




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           S tate
                                           Wyoming




                                                                                                                                                                                                                                                                       Illinois
                                                                                                                                                                                                     West Virginia
                                                                                        Pennsylvania




                                                                                                                                                                                                                                                                                                                                                                                                                   Tennnessee




                                                                                                                                                                                                                                                                                                                                                                                                                                                            Louisiana
                                                                                                       Kentucky




                                                                                                                                                                                                                                                                                                                                                                                     New Mexico

                                                                                                                                                                                                                                                                                                                                                                                                  South Carolina




                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Wahington
                                                                                                                                                                                                                                Dealware




                                                                                                                                                                                                                                                                                                        Connecticut
                                                                                                                                               Rhode Island




                                                                                                                                                                                                                     Michigan




                                                                                                                                                                                                                                                                                                                      North Carolina




                                                                                                                                                                                                                                                                                                                                                                                                                                                  Vermont




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Georgia




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            New Hampshire
                                                                                                                                                                                                                                                                                  Wisconsin




                                                                                                                                                                                                                                                                                                                                       New Jersey




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Maryland
                                                                                                                                                                                                                                           Massachussets
                                   Maine




                                                                                                                                                                                                                                                           Minnesota




                                                                                                                                                                                                                                                                                              Alabama




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Oklahoma




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Florida
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Texas
          Indiana

                    South Dakota




                                                     Montana




                                                                                                                                North Dakota




                                                                                                                                                                                          Missouri




                                                                                                                                                                                                                                                                                                                                                                        California




                                                                                                                                                                                                                                                                                                                                                                                                                                       Virginia
                                                                                 Ohio




                                                                                                                                                              Idaho




                                                                                                                                                                                                                                                                                                                                                    Oregan




                                                                                                                                                                                                                                                                                                                                                                                                                                Utah




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Colarado




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Arizona
                                                                                                                                                                                 Kansas
Hawaii




                                                                          Iowa




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  D.C.




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Nevada
                                                                                                                  Mississippi




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Alaska
                                                                                                                                                                                                                                                                                                                                                             New York
                                                               Nebraska




                                                                                                                                                                      Arkansas




                                                                                                                                                  % C hange in Screen N um bers                                                                                        Screens per 100,000 persons                                                                                           A ttendance per person




                                                                                                      Source: Ibid.
                                           Figure 3: Attendance per person, screens per 100,000 and change in number of screens by State


                                           Demographic Influences

                                           These variations in cinema attendance between states in must be presumed to be due to a range of variables
                                           including differences in demography, available spending and leisure opportunities. They are also
                                           occasionally dependent on the vagaries of placement of administrative boundaries as attendance that may
                                           come from one State may be recorded as admissions in another. There has been a decline in the relative
                                           importance of the youth market for cinema. Whether this has been due to the increases in the age profile of
                                           the population as a whole, the greater convenience offered by multiplex in suburban locations or some other
                                           influences is not known. However, the 12 to 29 years age group now accounts for 50% of the year 2000
                                           admissions with around twice the average annual rate of attendance11. Ethnic background and language,
                                           education and profession are significant in some cultures and there may be a much greater propensity visit in
                                           some areas. Interest in cinema and the public lives of the film stars is heightened by a local production
                                           industry.

                                           It has also been found that inner city residents go to the cinema more frequently than average. While this
                                           may be partly a function of proximity to transport and attractive venues, it appears that those living in these
                                           areas tend to have life styles that include higher rates of movie going. An extension of these phenomena is
                                           the fact that urban dwellers generally visit the cinema far more often than people living in the countryside do,
                                           and the more densely populated cities often have far higher rates of attendance.

                                           Impact of Multiplex on Cinema Operations

                                           The effects of massive expansion in the supply of facilities without comparable growth in attendance have
                                           been significant. Between 1977 and year 2000, productivity per screen fell by nearly half from 66,000
                                           admissions per year to 38,000. Slow increases in population of around 1% per annum and increases in real
                                           terms of ticket prices and concession sales have provided the only source of revenue improvement for the
                                           average cinema operator. There is evidence that the smaller, older cinemas have been severely affected by
                                           the fast rate of new development while in some parts of the country some additional attendance has been
                                           generated by new development.
Earlier research in the US12 into the source of patronage of megaplex, such as The Grand in Dallas and AMC
at Irvine Spectrum in Los Angeles, indicated that about 20% to 25% of the admissions attracted to these
operations were due to new attendance. Average admissions per screen for the megaplex has been estimated
at around 57,000 per year, about 30% above the average. Developments with more than 12 screens have
quickly penetrated the market. The 20 plus category holds a 10% share of the business while the 12 to 15-
screen category have captured about 17%.

However, experience of the megaplex operations generally in the United States has been highly variable.
Whilst the early developments were generally successful, a large number of more recent openings in many
parts of the country have not achieved even average rates of admissions per screen. Some of the early
developments are now returning very low figures and many of the newer megaplex have been outright
failures. Although more than balanced by many successful units, there are sufficient cases to suggest there
may be identifiable causes that can be investigated.

Outside North America, the introduction of big units has not been as rapid but where they have been
introduced their performance has been just as variable as in the United States. Megaplex have been most
successful in Belgium and France, but generally have been most unspectacular in their admission levels
elsewhere.

Implications for the Leisure Property Market

Because multiplex and megaplex are such important anchor tenants for other traders that are part of the
leisure market, it is important to find out the reasons why some work and some don’t. It is also of great
interest to know what is the extent of impact on existing operations in different circumstances. This
knowledge can help with both development and defensive strategies.

To explore these issues, over the past five years a specific analysis of markets in large cities in several
countries has been undertaken. This has been aimed at revealing the way in which new megaplexes and
larger multiplex have impacted the market and the major reasons for their varying performance. Cities with
some of the highest and lowest performing operations were selected for research into the extent of
competition, the demography of their markets, characteristics of the site locations and the response of the
market in terms of attendance rate. Metropolitan Statistical Areas (extended urban areas) where there had
been a large increase in new screens and especially where megaplex had been introduced have been
examined in detail.

Within the United States, these areas included Kansas City, Fort Lauderdale and San Francisco. At the end
of 1998, there were 85 megaplex units operating in the North American market with 20 or more screens
while there were 126 with between 16 and 19 screens and 343 with between 12 and 15 screens – a total of
554 with more than 12 screens per unit. The attendance per screen of these is well above average as noted,
and most of these operations are located in less advantageous positions than those noted above. The typical
site is within a retail or leisure park or, a ‘mega’ shopping mall, with the cinema being supported by an
abundant ‘at grade’ parking and restaurants and bars and both large and small retail outlets. Sites at
situations with these characteristics that do not perform well have been examined in numerous markets.

Kansas City
Situated at the junction of the great Missouri and Kansas Rivers and is part within the states of Kansas and
Missouri. The Metropolitan Statistical Area (MSA) of Kansas City has a resident population of 1.57 million
with few supporting settlements of any size in the surrounding region. The average age of the population is
35 years, median household income is $ 31,600, and median home value is $ 66,000. Most of the population
has a Caucasian White ethnic background, with the main minority being black (13%)13.

Kansas City has a cinema attendance rate of approximately 5.2 visits per year in 1998 comparing closely with
the United States average of about 5.2 (in 1997). Thus the frequency of visit in this market is average,
though it is around 2.3 times more than the United Kingdom average.

The downtown area of Kansas City has been severely affected by the preference for decentralized large-scale
shopping malls and other developments that cater effectively for car borne business. Accordingly, the
majority of activity in the centre is focused on office work, both government administration and corporate.
For some time now, the cinemas have been predominately located in the regional malls and in retail parks.
There is an 18-screen complex that is part of the Station Casino that is also outside the city centre. The table
below lists the operations in the market showing the screen numbers, the box office for 1997 and 1998 years
and estimated admissions.

Table 1   Kansas City Market Cinema Operations 1997 and 1998

           CINEMA NAME                          OPERATOR          SCREEN      1997            1998         1998 Average
                                                                  Number    Estimated       Estimated       per Screen
                                                                            Admissions      Admissions
           Studio 30                         AMC                      27           53,793        777,118          28,782
           Barrywoods 24                     AMC                      24           54,264        785,787          32,741
           The Parkway 22                    AMC                      22          935,359        815,466          37,067
           Cinemark TT 20 (part 1998 only)   Cinemark                 20                0         33,623           1,681
           Town Center 20                    AMC                      20           35,917        470,997          23,550
           Independence 20                   AMC                      20        1,023,653      1,065,452          53,273
           Kansas City 18 Station Casino     Regal Cinemas            18          242,048        425,178          23,621
           Westglen 18                       Dickenson Theatres       18          653,260        572,010          31,778
           Great Mall 16                     Dickinson Theatres       16          231,922        382,025          23,877
           South Quality 12                  Goodrich Theatres        12          582,829        362,251          30,188
           Liberty Cinema 12 (opened 1999)   B&B Theatres             12                0              0               0
           39 Cinemas (Under 12 screens)                              163       2,868,460      2,416,755          14,827
           Total                                                      360       6,681,505      8,106,661          22,519


Over the past two years there have been seven new big units opened in the Kansas City market. These have
added a total of 137 new cinema screens representing an increase of 58% in capacity and increasing the
number of screens per 100,000 people from 14.2 to 22.9. Average admissions per screen fell to a level that is
only 60% of the national average in year 2000. Admissions increased by 23% following the rise in screen
numbers of 61%.

Those parts of the city with the highest concentrations of new cinemas are generally populated by residents
who are predominately white with median household incomes 35% above the average for Kansas City and
median home values that are 45% above the average. As shown in the table, none of the units perform well
in this highly competitive market. The best in terms of number of admissions is achieved at the AMC
Independence 20 screen complex. This is on the eastern side of the city, relatively free of competition from
other large units. It had a very slight improvement in estimated admissions over 1997. Average admissions
per screen were 53,300 and almost 2.5 times above the City average. While this is not a good performance, it
compares very well with other big new units in the Kansas City market.

The 27 screen Studio 30 which is located along the Interstate 35 freeway at Olathe averages only about
29,000 per screen, but even this one still out performs Town Centre 20, Kansas City Station 18 and Great
Mall 16 which all manage to attract only around 24,000 per screen. The average admission total per year per
screen for the new units is about 35,000, which would net 700,000 for a 20-screen complex. The estimated
admissions for the Town Centre-20 screen megaplex 1998 were estimated at 470,000.

New megaplex theatres have a similar external presentation with stadium seating and the latest in film
projection, sound quality and seating. The second best grossing complex in the market is the 22-screen
Parkway, also an AMC operation. This had admissions of around 930,000 in 1997, but lost 13% of its
patronage in 1998. The reason for the decline seems certain to be the increase in competition. Three big
units opened fairly close by (within 10 minutes drive time). The South Quality 12, also nearby, dropped 38%
of its business and West Glen 18 lost 12%.

Miami/Fort Lauderdale
The State of Florida is a major holiday and tourist destination with supporting services and infrastructure
extending over hundreds of miles of coastal estuaries and beaches. It is the 4th most populous state after
California, New York and Texas. The East Coast of Florida tends to have proportionately less retirement
areas than the West Coast, particularly to the south. Centering on Miami and Fort Lauderdale in the
southeast, the market has a multi cultural population (White, Hispanic, Black) with a broad representation of
income groups and an older than normal profile.

Fort Lauderdale is situated towards the southern end of the east coastline north of Miami. From the 1997
census, the Metropolitan Statistical Area (MSA) of Fort Lauderdale-Hollywood-Pompano Beach has a
population 1.225 million but being part of an extended area adjoins MSA Miami-Hialeah to the south where
there are 1.94 million residents and West Palm Beach-Boca Raton-Delray Beach to the north. The average
age of the population of Fort Lauderdale etc MSA is about 40 years, median household income is $ 30,571
and median home value is $ 91,300.
The Fort Lauderdale area has an estimated cinema attendance rate of approximately 9.7 visits per year in
1998; almost double the US average. This has been calculated from box office data at assumed average
ticket prices for the cinemas listed in the table following, with resident population taken from census figures
for the Fort Lauderdale-Hollywood-Pompano Beach Metropolitan Statistical Area. The abnormally high rate
for this area may be due to the patronage of non-permanent residents, as well as the above average access to
modern facilities.

Table 2 Fort Lauderdale Market Cinema Operations 1997 and 1998

         CINEMA NAME                        OPERATOR           SCREEN 1997 Estimated 1998 Estimated 1998 Average
                                                               Number   Admissions     Admissions    per Screen
           Las Olas Riverfront 23         Regal Cinemas          23               0        626,100        27,221
           Pompana 18                     Muvico                 18          94,332        186,324        10,351
           Sawgrass 18                    Regal Cinemas          18         852,791        668,792        37,155
           Oakwood 18                     Regal Cinemas          18         680,284        676,048        37,600
           Delray 18                      Regal Cinemas          18         640,980        630,696        35,000
           Cypress Creek Station 16       Regal Cinemas           16        252,579        827,905        52,000
           Magnolia Place 16              Regal Cinemas           16              0        332,287        20,800
           Shadowood 16                   Regal Cinemas          16         597,998        601,686        37,600
           Movies at Lauderdale           United Artists          13        296,762        233,822        18,000
           Sheridan Plaza                 AMC                    12         484,616        479,284        40,000
           Taft-Hollywood Cinema 12                              12               0              0             0
           33 Cinemas (Under 12 screens) *                       191      4,371,500      3,921,000        20,500
           Total                                                 371      8,273,839      9,185,942        24,800

Source: Entertainment Data Incorporated (Note: Admissions for 26 single screen and small complexes estimated without EDI data)

At 32,700 visits per screen for new operations, the overall performance of cinemas on a per screen basis is
about 25% below the United States average of 43,900. Theatres are relatively large, with 7.4 screens each
on average. Although there were four large new units contributing first year admissions in 1998, the
admissions increased only slightly (7.7%), possibly barely above the national growth rate. The number of
screens were increased by 20% and it could be assumed that performance figures for all new operations was
apparently limited by inelastic demand and the oversupply of screens.

Of special interest is the Las Olas Riverfront that managed to attract very ordinary patronage in the half year
to December 1998. These figures may well represent regular performance. The failure is surprising as the
site appears to be very advantageously located and is as complete as it could be in all of its features. Away
from serious competitors, it is close to a fashionable restaurant and retail strip and is within a large
entertainment complex facing the river, with parking, excellent restaurants and coffee shops, cameo retail and
a very large bar that has an enormous draw.

Silicon Valley San Francisco/San Jose
The market of special interest is the Silicon Valley region that is part of the large extended urban area with
San Francisco, San Jose and Oakland etc. The population is estimated to be around 1.6 million within a
larger extended urban area that includes San Francisco and Oakland.

Noted for its high Tech industry, Silicon Valley in 1998 was a very wealthy community, an no doubt today
remains well ahead of the national average. Median household incomes were $48,000 compared to about
$30,000 in Kansas City and Fort Lauderdale areas while house value were $287,000 in the San Jose
Metropolitan Statistical Area compared to $66,000 in Kansas City and $91,000 in Fort Lauderdale. The
families have a young age profile.

Table 3 Silicon Valley Market Cinema Operations 1997 and 1998


            CINEMA NAME                       OPERATOR          SCREEN        1997        1998               1998
                                                                Number      Estimated   Estimated          Average
                                                                            Admissions Admissions         per Screen
            AMC Mercado 20 Santa Clara      AMC                   20            535,145   2,267,155            113,400
            Century Cinema 16 Mtn View      Century Theatres       16         2,197,870   2,032,861            127,050
            Century Capitol 16 San Jose     Century Theatres       16         1,681,592   1,641,088            102,600
            AMC Saratoga 14                 AMC                   14             87,358     906,287             64,700
            Century Park 12 Redwood City    Century Theatres       12         1,813,771   1,861,314            155,100
            24 Cinemas (Under 12 screens)                         102         6,611,869   5,889,297             57,200
            Total                                                 180        12,929,602  14,600,000             32,719
The AMC Mercado is outstandingly successful, with twice the national average admission rate per screen in
its first year. However, it can be seen that each of the large units, with the exception of AMC Saratoga, is
trading very well.

Century Capital 16 at San Jose shown here has an older style of architecture reproducing an art deco feel.
The site actually has a four-screen drive in theatre sharing the entry and exit lanes. The estimated 1998
admissions for the megaplex were around 1.65 million.

Presumably, the competition in this area is not yet as intense as elsewhere while the high disposable income
and other supportive demographic characteristics of the market lead to high attendance rates.

Other sites in that have been identified within the United States having high performance potential are those
linked to the very successful theme parks close to large markets. Here the lower land costs have allowed
development of Megaplex-proportioned operations at Century City Los Angeles and Treasure Island at
Disney World Orlando. There have also been singular successes at landmark destination sites such as those
that have a Casino or are important leisure positions with supporting restaurants bars etc. Opportunities of
this type are rare.

In addition, some initially very high performing megaplex operations that have been studied are located at
Dallas (AMC Dallas Grand) and Orange County Los Angeles (AMC Irvine Spectrum). The Sony Centre in
New York has only 12 screens but capitalizes on its premium location in the heart of the entertainment
district in Manhattan. It is a high cost property environment, consequently relatively free of direct modern
competition, and in many respects the general situation is similar to Leicester Square in London and other
‘one off’ venues in Paris, Tokyo, Milan etc.

Brussels (Belgium)
Brussels is a city of 1.1 million within its urban area, situated within a relatively densely populated more
general region. In 1988 Kinepolis opened the first megaplex in Europe with 24 screens together with one
special format theatre and seating capacity of 7,600. At that time the cinemas in Brussels were limited to
down town or inner city locations, and were of mixed quality ranging from a modern 8 screen multiplex to
single screen traditional operations. A small proportion of the total business was estimated to be sourced
from outside the city limits based on survey data from general research elsewhere. From 5% to 10% of
patronage would have been due to visits by residents of other parts of Belgium. Total admissions for all
cinemas in Brussels were approximately 2 million.

When the Kinepolis megaplex opened, it had first year admissions of approximately 2.5 million. Of these, 2
million were drawn from the market of 1.1 million residents, with the balance of visits coming from
settlements outside the city including Antwerp some 70 kilometres away (accounting for 7% of the ticket
sales at Kinepolis).

The patronage of the cinemas in the city centre decreased from 2 million to 1.1 million per year. On this
basis, the total market had grown from around 1.9 million to around 2.9 million, or by about 50%. In terms
of attendance rates per person, this growth represents a rise from 1.7 visits per year to 2.6 visits per year due
to the introduction of the megaplex. In 1998 the Kinepolis attracted over 3 million admissions, the highest
annual total ticket sales known worldwide at that time. Now with 61 screens, the Brussels market has ticket
sales of 5.1 million per year, an average annual rate of 4.3 times per person.

Lomme (France)
Situated in the north of France, close to the city of Lille, this region is of particular interest. Two large
cinema complexes opened in the later part of 1996, a 14 screen UGC Multiplex in the town of Valenciennes
45 kilometres south east of Lille and a 23 screen Kinepolis at Lomme, 7 kilometres west of Lille.

The main existing competition, a UGC multiplex in the town centre of Lille was expanded to 14 screens and
extensively upgraded in 1995. While it did not have dedicated parking, it represents City Centre competition
at its most formidable and had been achieving the most attendance of any operation in France.

The first year admissions of the Lomme megaplex were about 1.6 million, but subsequent growth has
increased performance to around 3 million. At the same time, the Lille Cinema total admissions fell by 20%
with the UGC with the 14 screen UGC performing at the rate of around 1.1 million. The town of
Valenciennes had estimated total admissions of around 850,000 with the UGC 14 screen operation there
estimated to have been achieving around 650,000 ticket sales. Overall the attendance rates appear to have
increased by 25% or more as a result of the new developments and were estimated at around 4 visits per year
in the Lille region.
Summary of International Experience

From a wide range of situations, the data from different parts of the world shows that the economic
fundamentals of demand and supply determine the prospects for new developments or market entrants. The
best results occur where the population per screen is low and multiplex or megaplex are not yet well
represented throughout the urban area. Equally important, average admissions per screen prior to the new
openings need to be generally high where new operations achieve high productivity.

The attendance rate per person in the market is one of more important variables in that at times it responds to
new supply of screens. It appears that this is most likely to happen when the supply of screens is low. The
response to new screens is most marked when the new development provides the modern facilities and are
located conveniently to densely populated areas where there is at present a lack of supply. From the range of
different cases that have been encountered, the fine details of the development styles do not usually appear to
have major impact. It may well be that all that is required is the basics of stadium seating, screen quality,
good seating, sound etc. and, where it is not possible to secure a gold plated down town position or within a
unique theme park, a reasonably well positioned site.

The table below summarizes these points. Highest admissions per screen are shown for Lomme, Silicon
Valley and Brussels with 130,000, 113,000 and 105,000 respectively. Here the admissions per screen for the
market as a whole are over 80,000 and in the Lille-Lomme area they are estimated at 120,000.

Medium performance for the new megaplex is recorded in the UK Manchester market at 67,000 per new
screen for the UCI at Trafford Centre and for Buenos Aires which is not too far behind with 46,000 per
screen.
Table 4

                                                     Cinema Data for Selected Markets

                                                                                  Ratios                           Change
                                                      Admissions




                                                                                                                                          Admissions
                            (millions)14
                            Population




                                                                                                                                          per Screen
                                                                                                                                          Megaplex
                                                       (millions)
                             Resident




                                                                                    Admissions




                                                                                                                            Admissions
                                           Screens




                                                                                                              Increase in


                                                                                                                            Increase in
                                                                     Population
                                                                     per Screen



                                                                                    per Screen

                                                                                                 Visits per




                                                                                                                                             New
                                                                                                                Screens
                                                                                                  Person




          Kansas City         1.56         360         8.1           4,350        22,500          5.2          58%          21%             29,000
          Fort Lauderdale      1.6         371         8.9           4,242        24,000          5.7          18%           8%             27,200
          Silicon Valley      1.95         180        14.6          10,800        81,100          7.5          23%          21%            113,400
          Brussels             1.1          61         5.1          18,000        83,600          4.6          80%          52%            105,000
          Lille-Lomme          2.1          70         8.4          30,000        120,000         4.0         112%          25%            130,000
          Buenos Aires         2.8         44         3.8           64,000        86,400          1.4         64%           90%            46,000
          Sheffield            1.2         63         2.3            9,900        36,500          1.7         96%           10%            35,000
          Manchester           2.7         133        5.5           20,200        44,000          2.1         36%           3%             67,000


Visits per person per year are relatively low in Buenos Aires and also the UK cities of Sheffield and
Manchester. However, this factor in itself does not explain the performances of the big operations as there
are examples in the US where the attendance rates are high yet the megaplex has very low productivity.

The reasons for the lower rate of attendance in England compared to America can be isolated without
difficulty. There are several reasons why an American city cinema going demand rate can be expected to be
higher than experienced in most other parts of the world.

Cultural differences and the production and marketing of films are undoubtedly important. The vast majority
of the product available is produced primarily for the American market. Strong evidence for the importance
of a demand for films that reflect the national culture is the success that locally produced films have in their
home markets.

Since the level of admissions depends to a certain extent on ticket price, and the prices have been generally
higher in the United Kingdom than they are in the United States or Belgium and France, this is another
reason why the attendance rate will be lower in this particular market.

There are less American films released outside of the American market than in the US. This follows from the
fact that films are generally much less successful outside the United States than within the home market. In
the US there is an almost continuous supply of new releases.
While there is less certainty about the influence of the supply of modern cinema facilities, it has been true for
some time that the United States market has been provided with a much greater number of modern facilities.
For example, in Kansas City there are only 4,500 residents per screen currently. This compares with
approximately 12,000 people per screen in Melbourne Australia and 9,900 in Sheffield.

Exceptions to the demand supply relationships described can be found in countries were households have
well below average access television or VCR, although these situations are becoming very rare. Other
special conditions creating high attendance potential are those where there is a crowded home environment
frequently for entertainment, such as in the very high density residential areas of Hong Kong or Singapore.
These have been markets with some of the highest attendance rates in the world. In recent years, the
incidence of pirate DVD new release film at street market prices has very much reduced the demand levels.

Looking at the percentage increase for the period following the openings, only at Fort Lauderdale is this
below 10%, although here the proportionate increase in new screens at only 8% is way below the massive
96% increase which was introduced into Sheffield and 36% for Manchester.

An observation made in a report on megaplex in the United States15 was the extreme volatility of the
admissions. The report compared cinema revenue per screen for all major multiplex categories. This
revealed a pattern of wide variation from quarter to quarter of the EDI statistics that was amplified within the
larger categories of operation. The more screens per category, the bigger the swings from quarter to quarter.
For example, the revenue of the 20 screen plus operations fell by 21% in the December 1996 quarter.
However in the next quarter, the rebound was also 21%.

This process is perhaps intrinsically as intricate as is the leisure market generally. Complicated by shifts in
demand by season, the popularity of current new films and the fickle appeal of individual venues which alter
as styles and fashion change, it becomes more than surprising to find as much stability as there is in the
market. There is plenty of challenge not only for the researcher, but also for those risking their futures in the
film exhibition industry.



1
   Source: The Hollywood Reporter (February 2000), ‘Loews Sold for $850 Million’.
2
   Source: The Guardian (August 2000) ‘Showing in a Theatre near you is Bankruptcy’
3
   Source: Screen International (February 2001) ‘US Circuits Paying the Price for Exhibitionism’.
4
   Source: FPD Savills Report (July 2001) ‘Europe Faces Cinema Meltdown’.
5
   Source: Krawitz, J. (1986) ‘Drive-In Blues’ 16mm colour film.
6
   Ibid.
7
   There is no broadly accepted definition of various evolved forms of multiple screen cinemas. As a result, various concepts and usage
of terms are in use. MEDIA Salles, in their European Cinema Yearbook (2000 edition), claim that resulting from this there confusion or
misunderstanding in the perceptions of the public as well as those working in the industry and have taken the trouble to present a
standard that should be adopted. Updating the MEDIA Salles Newsletter and magazine articles in 1999 and 2000, Elisabetta Brunella
has thoroughly discussed the issues. “Multiscreen” it is proposed, is a useful and reasonable term for traditional single screen cinemas
that have been converted into a number of separate auditoriums. The specific design and construction of a multiple screened cinema
complex can then be determined as a multiplex or megaplex. Also an issue for discussion, the number of screens needed to satisfy the
categories of multiplex are designated as multiplex where there are at least eight screens. The term megaplex is reserved for operations
that have at least sixteen screens.
8
   Source: National Screen Service – MPAA Worldwide Market Research (2000) (Statistics include US and Canada)
9
   Ibid.
10
    The National Screen Service adopt the same categories recommended by Media Salle (miniplex [multiscreen] 2 to 7 screens, multiplex
8 to 15 screens, megaplex 16 or more screens)
11
   An important trend has been the rise in the proportion of older adults now attending which has risen from 32% in 1990 to 40% by
1997.
12
    Source: Spectrum Group (September 1997) Major Multiplex Performance North American Market.
13
   US Census Bureau 1998 estimates.
14
    Each of these cases is based on admissions at cinemas located within the metropolitan areas, ignoring the possible inflow of visits by
people living outside and the reverse flow of patronage to other areas. However, balanced by flows in the reverse direction, in most
cases the net business is likely to be a small proportion of the total figure.
15
    Spectrum Group: Major Multiplex Performance North American Market September Quarter, September 1997.

				
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