Curtain call on the silver screen?

A lack of blockbuster films being released over the past five years has contributed to an average annual decline in revenue for this industry. IBISWorld estimates that industry revenue will fall at an average annual rate of 2.5% over the five years 2009-10. The unfavourable economic climate and continuous adverse affects of rising unemployment have also contributed to the decline.

No significant rise in profitability is expected for this industry during the current period as reduced demand is forecast for the final year due to a subdued economy which will impact on value added services such as confectionary and beverages.

Trends towards the use of multi-screen developments have meant that independent theatres must continue profiling first-run movies. This has significantly increased their costs of operation as more film hire costs have resulted from little demand for classic or repertory films.

Average real cinema ticket prices have generally increased over the five years. Ticket price competition and a vast expansion in supply of screens have characterised this industry over the current period.

Recent household investment into home theatre systems with plasma and LCD screens has also refocused household’s attention towards in-home entertainment and away from this industry. Further, during the performance period, theatres have increasingly focused on converting to include digital screens, audio and projection facilities, especially in 2007-08.

IBISWorld forecasts that industry revenue will grow at an average annual rate of 1.9% during the five year period to 2014-15. Industry profitability is expected to grow over the next five years. This will come about from cost savings from digital film distribution technology as well as a continuing decline in industry employment.

Underperforming industry players will continue to rationalise their operations under pressures of competition from entertainment substitutes. High investment costs associated with the digital conversion of screens occurring until the early 2010s will also work against smaller and independent industry companies. Reduced demand for cinema attendances will influence a decline in revenue during the early stages of the outlook period as will a lesser need for high margin, value added products sold by cinemas such as confectionary.

This industry will be adversely impacted by both digital pay-TV and digital multi-channelling TV facilities offered by free-to-air TV stations from 2012 onwards. Continuing competition will also come from other areas of leisure and entertainment as well as reduced leisure time of many households.

Due to significant investment in multiplexes, independent operators may develop chains of second run/release cinemas which screen films again after their first release. The industry is well oversupplied with screens and this may translate to new opportunities for openings.

Key success factors for operators in the industry:

• Easy access for clients. Being in a very accessible location, such as a major suburban shopping centre, assists in attracting movie-goers due to the convenience factor, as well as impulsive movie-goers.
• Production of goods currently favoured by the market. Choice and screening of films with popular appeal/appeal to a selected target audience/population within the catchment area for the cinema will assist with ticket sales.
• Access to the latest available and most efficient technology and techniques. Having the latest in digital theatre screening and sound, as well as comfortable seating and ticketing equipment (including internet ticket purchase), is now expected by audiences.
• Market research and understanding. Understanding the demographic profile within the catchment area of the cinema and screen suitable films will assist ticket sales.
• Guaranteed supply of key inputs. Very strong links with major movie distributors to ensure a good flow of suitable and popular new releases will assist in ensuring year round ticket sales.

Robert Bryant is the general manager of business information firm IBISWorld.