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The multiplex backlash

ODEON Cinemas turned into a textbook example of the risks of internet marketing when its Facebook page got trolled out of all existence recently.

A customer called Matt Pledger, based in Wolverhampton, posted a long and bitter complaint about his experience. He concluded: "If you want to see more people in your cinemas... you should really try and cut your prices, hire decent staff and forget the 600% profit margins on your food and drink."

It seems he struck a chord. By the time of writing, he had received more than 173,000 likes and nearly 15,000 comments, most of them venting similar spleen. Hardly good news for a company that is battling to turn around a £70 million loss from last year. So much for being Fanatical About Film. Other big players such as Cineworld and Vue have presumably been looking on with discomfort, hoping that audiences don't lump all their multiplexes into the same penny-pinching basket.

So far, there are no signs of this in the industry's overall performance figures. Cinemas are no longer in the recovery spurt that they enjoyed in the 1980s and 1990s, but the recession does not appear to have done too much damage. According to the British Film Institute (BFI), UK admissions rose more than seven million to nearly 172 million between 2008 and 2011, while takings were up by around 10% to £1.05 billion.

The number of cinemas is also increasing, rising over the past three years by 19 to reach 745 (61 of which are in Scotland). Most of the new ones belong to the big multiplex operators, which have steadily squeezed the pips out of many of the independents.

This has been particularly apparent in cities, since the big operators concentrate on the areas with the big populations. Most cinemas that survive outside the multiplexes in Scottish cities are offering something distinctive. They will either be full-on art house outlets like the Glasgow Film Theatre or Edinburgh Filmhouse, whose incomes are topped up by public subsidies; or semi-populist institutions such as the Cameo in Edinburgh or the Belmont in Aberdeen, both of which are owned by the London-based Picture House chain.

In turn, neither type has much in common with stereotypical independent cinemas in smaller Scottish towns. They tend to have one or two screens and show second runs of blockbusters, sometimes getting by because they are far enough from the cities not to be competing with the big boys.

This mixed bag has been in decline for a long time, with about one in five closing its doors since 1999 alone. Where the multiplexes had 59% of UK cinema screens in that year, they now have 75%.

Of those independents that had not been killed off by earlier waves of this monstrous competition, there has been a steady trickle in recent years that has looked at the circa £50,000-per-screen cost of moving from 35mm projectors to digital projectors and decided to call it a day.

Yet there are signs that the rot might now have stopped. The number of smaller operators grew for the first time in three years last year and, in Scotland at least, it will be going up again this year. Cinemas that previously went bust have reopened in the past couple of months in Saltcoats (the Apollo), Thurso (The Thurso Cinema) and Oban (the aptly named Phoenix). In Lerwick in the Shetlands, the £12m Mareel cinema and music venue opened last week, while there are also plans to reopen the Birks cinema in Aberfeldy after nearly 30 years during which it has lain derelict. The Thurso and Saltcoats cinemas are private businesses, while the rest have been set up by the local council or community. In all cases, they seem to reflect a realisation that there is a gap in the market for cinemas in the small places.

Ron Inglis, director of Regional Screen Scotland, whose Screen Machine mobile cinema tours some of the most remote areas of the country, says: "It's been well known in the industry for a long time that there is this gap. Up and down the coastline, you'll encounter town after town that doesn't have a cinema. They are perfectly capable of supporting them.

"There are a couple of smallish chains taking advantage of this in England, like Reel Cinemas in the Midlands and WTW Cinemas in Cornwall, but it hasn't happened in Scotland yet."

One obvious question is why the multiplex operators have not got there first, inspired by the likes of Tesco Metro. Odeon is said to have given some consideration to smaller outlets, though has not yet acted. One source points out that most of the big operators are owned by private-equity firms, which are more likely to be focused on cost-cutting and milking the cash cow than innovating.

One entrepreneur intending to do something about this is Rob Arthur, who formerly ran the Apollo indie chain in London and is behind The Thurso Cinema. He says that if you can get your occupancy – industry jargon for the average proportion of seats occupied per showing – to about 25%, you should be able to make top-line earnings of about 20%. For a business like cinemas that gives you a great cash flow, that is a decent return by anybody's standards. If he can make Thurso work, Arthur plans to open a number of other outlets around the country.

The Thurso Cinema, formerly an empty warehouse, originally opened along with a bowling alley and eatery in 1999 with subsidies from the Scottish Arts Council. Ten years later, it went into liquidation.

'It lacked professional expertise," says Arthur. They were trying to do too many things. Not all of the food was good. The tickets were overpriced. Three years ago, they were charging £7.95 per ticket. We've gone back in at £5.95, with generous discounts. We started out mainstream with the likes of Brave and The Dark Knight Rises, but now we're going into a season of catch-up films to engage with an older audience. We'll show things like Warhorse and Salmon Fishing In The Yemen."

Above all, he reckons that affordable ticket prices are the key to making a cinema work, pointing out that too many operators have focused on yield per customer rather than simple sales volumes. He certainly thinks this is the case with the big operators.

"There's a sense that pricing is too high or at tipping point. The operators need to work out how to get more people into their businesses and increase occupancy."

Not everyone shares this view, of course. David Hancock, a cinema analyst at Screen Digest, says that you have to compare prices to the cost of other leisure activities, against which they are not so bad.

He points out that ticket prices rose below inflation until 3D started being introduced in 2009. However, he does agree that they probably can't go much higher in central London, where you can easily pay £15.

Hancock explains that these are mixed times for cinema owners. On the one hand, advertising has tanked in recent years, having been hit by the recession and failing to make the most of the possibilities of digital projection. Cinemas have also had to fund this (partly subsidised) new technology, which has been costly but has led to new sources of income from live events such as operas and ballets. For example, Cameo and Belmont owner Picture House is now making more than 10% of its income this way.

Hancock says: "It's never going to surpass films, but it's a very useful additional revenue stream for exhibitors."

Known as alternative content in the trade, it has been spreading like wildfire in Scotland and is probably one of the justifications for all the new cinema openings. Not only can you charge more for tickets, it brings in older audiences who are likely to appreciate more upmarket cafe/bar fare than the popcorn and nachos crowd.

One cinema that has been getting in on the act is the one-screen art deco Hippodrome in Bo'ness, which is celebrating its centenary and has the distinction of being the oldest in Scotland. Owned by the Falkirk Community Trust and having reopened three years ago, venues manager Julia Harkness says: "We have shown Don Giovanni from the Sydney Opera House and Frankenstein from the National in London. We got over 50% occupancy for both of them, which is considered excellent."

With a full ticket price of £5.85 and an emphasis on local fare, offering everything from these live performances to second-run blockbusters to more specialist films is achieving an average occupancy of 29%. "From a business point of view, we are succeeding," says Harkness.

In short, there seems to be a new vanguard of small-town independents emerging on high streets that are combining blockbusters with other types of films and events, together with decent food, drink and atmosphere. The Belmont with added Batman, so to speak. Whether they remain standalone or become part of bigger operations remains to be seen. In the meantime, keep your eyes peeled. For those who would rather not journey to their nearest Odeon, there might just be one opening around the corner.

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