Insight Analysis: British Cinema – Admissions Strong, Profits Weak

This growth is perhaps in no small part due to the rise in the number of screens in the UK, mainly driven by multiplex developments. There are now almost 3,500 screens in Britain with development continuing, suggesting the conditions are in place for further growth.

A financial warning However, whilst the industry may be growing, by and large it is not profitable, according to a report from Dodona Research published last month. The cinema research company says that the four leading circuits which publish ‘meaningful’ financial figures – Odeon, ABC, UCI, UGC and Cine-UK – all saw significant profit declines between 1996 and 2000, despite increasing audiences and revenues.

Combined EBITDA (earnings before interest, tax, depreciation and amortisation) of the four companies (Odeon and ABC have merged) fell from £100 million in 1996 to £45 million in 2000, or from 30.5% of revenues to 10.5%, according to the report. Whilst this trend is expected to have been stemmed by 2001’s bumper revenues, Dodona argues the industry has some way to go before it regains an ‘acceptable’ level of profits.

Over-building Looking at EBITDA alone is a recipe for over-building, warns Dodona, as it omits the cost of financing and depreciating new cinemas – the cause of over-screening.

Considering pre-tax profit gives a more clear indication of the actual profitability of the industry. On this measure, the same four companies saw their combined profits fall from £68 million in 1996 to losses of £70 million in 2000 – a decline of over 200%.

By coincidence, this £70 million is exactly equivalent to provisions made by Odeon and ABC at the time of their merger in February 2000, but even writing these back in full leaves these leading companies making precisely no profit, says Dodona.

“For the last ten years,” says the report’s author Karsten Grummitt, “there has been a seductive view that you made money by building cinemas. What I hope we are seeing now is a realisation that you actually make money by filling them.”

Cinema Operators in the British Isles December 2001
	Great Britain	Northern Ireland	Ireland	Total
Odeon Cinemas	603			603
UGC Cinemas	386	10	9	405
UCI	355		31	386
Warner Village	361	12		373
National Amusements	243			243
Cine-UK	276			276
Ward-Anderson		70	129	199
Apollo Cinemas	57			57
City Screen	54			54
Ster Century	36		14	50
Independents	634	67	141	842
Total	3,005	159	324	3,488
Source: Dodona Research, March 2002

Consolidation on the cards? Given this background of weak balance sheets, many industry observers expect some degree consolidation to be inevitable. Indeed, Cine-UK, a circuit only set up in 1995, is now displaying a for sale sign.

Dodona says that extra revenues could also be achieved through alternative digital content in cinemas, something which is already being pursued by Odeon, and from new marketing and programming initiatives.

An old audience Perhaps surprisingly, it is the older age groups which dominate the cinema-going audience, according to the research.

Whilst cinema is more popular with the 15-24 year old group, with 50% attending monthly, the sheer size of the older demographic means that it outnumbers the younger one, despite attendance by only 15% of over 35s. There are around 4 million monthly cinema-goers aged 15-24 and 4.6 million aged 35 and over.