Category Archives: Business

The Silver Secret of Korea’s Most Successful Cinema

Hollywood Silver Cinema

Most multiplexes in South Korea see occupancy of just 20% to 30%, but one cinema has figured out the secret of selling out almost every show. It is a model that is now spreading all across Korea as other cinemas jump on the trend. It is also one that will have increasing relevance in Japan, Europe and the United States in the coming years.

Hollywood Silver Cinema does not make much of an impression from the outside. The single-screen is a small (just 300 seats), old fashioned cinema on the fourth floor of the Nakwon Arcade located in Seoul’s old Jung-gu district, on the other side of the river from the ritzy Gangnam-gu district that Psy immortalised in his song and music video. Yet according to the cinemas CEO Kim Eun-ju its average seat occupancy reaches a staggering 80% to 90%.

The cinema opened in 2009 as a social enterprise, where previously the Hollywood Theatre attracted young Koreans with American blockbusters. The cinema still shows Hollywood blockbusters every day, but not “American Sniper”, “The SpongeBob Movie” or any Marvel super heroes.

Speaking to AsiaOne Entertainment, CEO Kim explains what films they show:

“The films we select are mostly from the 1940s to ’70s that were ranked first to fifth at the box office at the time,” she said.

Past selections have included “Gone with the Wind” (1939), “Ben-Hur” (1959), “Dr. Zhivago” (1965) and “Cinema Paradiso” (1988).

“We do show recent releases from time to time. Films that we think could appeal to senior citizens such as ‘My Love, Don’t Cross That River‘ (2014) or ‘Masquerade‘ (2012).”

The ‘silver’ in the cinema’s name does not refer to the screen (it doesn’t show any 3D films), nor the nitrate in the 35mm print stock but to the typical patrons. The only fifty shades of grey you will see in this cinema is the hair colour of the audience (those that are not bald yet). But the ‘silver appeal’ is now rapidly spreading throughout Korea.

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UK’s Odeon For Sale Again – Third Time the Charm?

Odeon for Sale

Private equity group Terra Firma has announced that UK/European cinema chain Odeon & UCI Cinema Group (Odeon for short) is for sale. The merged exhibition operation failed to attract bidders willing to match the asking price in both 2011 and 2013 but Terra Firma’s chair Guy Hands is hoping that third time will prove the charm. Yet prospects for potential buyers are distinctly uncertain and Terra Firma has admitted that it may end up seeking a stock market listing instead.

Hands is quoted in a Reuters exclusive as saying:

“We will look to begin the process to sell Odeon towards the end of the year,” said Hands yesterday. “We are likely to appoint banks by May. Possible buyers could include US cinema groups or South American cinema firms, and private equity groups from Europe, the US, and China.”

The blunderbuss approach of targeting pretty much every potential buyer on the planet, while hedging your bets by reserving the right to do an IPO, could be faulted as demonstrating a lack of finesse or coherent sale strategy. It is also not clear what Terra Firma has to gain by announcing its intentions (emphasis on plural) this far in advance of even appointing a bank, unless it thinks it can instigate a feeding frenzy of suitors and bidders.

There is no asking price at this stage, but the figure of GBP £1 billion (USD $1.55 billion or EUR €1.36 billion) has been mentioned, which is less than the failed asking price of GBP £1.2 billion in 2011. The exhibitor has not reported income and profit for the 2014 financial year, but the 2013 figures reported last April saw profits before interest, tax and other charges decline 24% to GBP £69.2 million (USD $107.5 million) while sales shrank by 5% to GBP £706.7 million (USD $1.1 million).

A detailed valuation analysis of Odeon’s worth is beyond the scope of this article and the sort of things banks get paid big bucks to do. For a handy overview of the key metrics and tools for evaluation of (US) cinema exhibition operations we refer those interested to the Fulcrum Inquiries Valuation Guide: Movie Theaters. As a recent guide, Australia’s Hoyt’s was sold last year on undisclosed terms to a Chinese investor but had earlier been valued at AUS $900 million (GBP £473.9 million or USD $731 million) on the basis of revenue of AUS $550 million and profit of earnings before interest, tax, depreciation and amortisation of slightly more than AUS $80 million.

Using Hoyt’s as a model – not unreasonable, since the chain share many characteristics with Odeon – gives a valuation of somewhere between GBP £778 million to GBP £1.156 billion, which gives an average of GBP £967 million. Hands would be more than keen to round that up to a cool one billion pound sterling. But is Odeon worth it and who would buy it?

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Kodak Finalizes Deal With Studios To Save Film

YouTube Preview Image

In news that is sure to make the likes of Christopher Nolan and Quentin Tarantino rather happy, Kodak announced earlier today that they have finalized a deal to continue supplying film stock to all six major Hollywood studios; 20th Century Fox, Walt Disney Company, Warner Bros., NBC Universal, Paramount Pictures and Sony Pictures.

The agreement was reached after roughly six months of negotiations, beginning last summer after studios guaranteed the purchase of set quantities of film stock over the course of several years. The way it was reported at the time, even by us, it seemed as if it was a done deal. Apparently, contractual terms still needed to be worked out, and today’s press release is merely the culmination of those discussions.

The pact will enable Kodak to keep its motion picture film manufacturing facility open for business. As recently as the middle of last year it looked as if Kodak might have to shutter the plant, which the company says costs a minimum of USD $50 million per year to run. Sales of the company’s motion picture film have dropped 96% over the last 10 years due to the rise of high-end digital technologies for production, distribution, exhibition and storage. The demand for film stock dramatically decreased during the last several years as most movie theatres around the world fully adopted digital projection.

Kodak is now the industry’s only remaining film manufacturer. Likewise, Fotokem is the sole motion picture lab in Los Angeles capable of processing film stock.

Kodak CEO Jeff Clarke told the Wall Street Journal the company was “very close to the difficult decision of having to stop manufacturing film”. However, as his press release statement explains:

“With the support of the studios, we will continue to provide motion picture film, with its unparalleled richness and unique textures, to enable filmmakers to tell their stories and demonstrate their art.”

Indeed, besides Nolan and Tarantino, directors such as J.J. Abrams, Judd Apatow and Martin Scorsese were among those who pledged to continue shooting their movies on film for as long as it was possible. They publicly urged studios to reach an agreement with Kodak to ensure the survival of the medium.

Meanwhile, Kodak has set out to increase demand and awareness of its motion picture film stock through a new marketing effort dubbed #FilmWorthy. The campaign is meant to highlight what movies are being shot on film, why directors are choosing the format to tell their stories and to Kodak’s “commitment to not only preserving the medium, but helping it thrive.”

Cinépolis Acquisition of Chile’s Cine Hoyts Signals Global Ambition

Cine Hoyts Chile Cinepolis

Mexican-based exhibitor major Cinépolis has acquired Chile’s largest cinema chain Cine Hoyts. The acquisition, reported in this article in El Financiero, means that Cinépolis is now present in 11-12 countries around the world. It also signals an intention to take on Wanda/AMC for the crown of the world’s largest cinema chain through further acquisitions and in-organic growth.

The deal, which has not been confirmed officially and with no price being revealed, gives Cinépolis Cine Hoyts’ 40% market share in Chile, with 96 screen in nine multiplexes across the Metropolitan Region and Region V. Cine Hoyts Group, which was owned by Chilefilms, which acquired it from Australia’s Hoyts in 2011, has 700 employees and includes 13 3D type four Premium Class and Vip screens, with Dolby installed in most other sites.

As the article points out, the deal gives Cinépolis a major international presence:

Until early December 2014, Cinepolis had a total of 401 multiplexes in 95 cities in Mexico and in 10 additional countries where it operates. Its 3,485 screens are 100 per cent digital, 13 IMAX, 71 XE Macro XE and 304DX totalling 635,430 seats.

With over 40 years experience and fourth worldwide among exhibition chains (the largest outside the United States), Cinepolis has a presence in countries like Costa Rica, El Salvador, Guatemala, Honduras, Panama, Colombia, Peru, Brazil, India and the United States.

In the middle of last year, Alejandro Ramirez told El Financiero that the firm moved into buying a cinema chain in Brazil.

In late 2014 Cinépolis completed the acquisition of Fun Cinema in India, giving it almost 200 screens in the growing territory, though it did not end up buying the larger Big Cinemas chain.

In 2015 Cinépolis plans to open more than 200 screens in Mexico, taking it to over 3,000 screens in its home territory.

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How MoviePass Converted AMC From Foe to Friend

MoviePass and AMC

Last week MoviePass, the unlimited moviegoing subscription service, reached a major milestone in the development of their company and possibly the decades old theatrical exhibition business model. AMC Theatres announced an agreement with MoviePass for a pilot partnership that will let its patrons in Boston and Denver sign up for a premium MoviePass subscription package. The program should be in place in early 2015 in both markets, allowing film buffs to see every movie in cinemas, in any format, including 3D and IMAX.

MoviePass Premium, as the new package has aptly been named, differs from the company’s standard subscription which does not include 3D or large format showings. It also costs USD $45 per month instead of USD $35 per month for the standard subscription.

For those unfamiliar with MoviePass, the company offers a subscription that allows moviegoers in the United States to see an unlimited number of films each month at a rate of one per day. Each film can only be viewed a single time. These features and regulations will be the same between both plans, however MoviePass Premium subscribers will only be able accepted at AMC locations in the pilot markets.

Just a few days earlier I had made a note to check in with Stacy Spikes, the co-founder and CEO of MoviePass, to get an update on how the company was doing for a potential post. The AMC announcement gave me the perfect opportunity to catch up with him in what could arguably be seen as a moment of vindication for Spikes and MoviePass. After all, when MoviePass first attempted to launch a beta in June of 2011, AMC Theatres told its personnel to reject vouchers from the Netflix-like service. The program was quickly halted when other exhibitors complained and it took MoviePass nearly a year to relaunch.

So, I reached out to Spikes the day AMC published their press release concerning MoviePass and, as has always been my experience, he responded within minutes. We were talking by phone within the hour; no publicists and no fuss. If only speaking with all motion picture professionals for a story were that easy.

When asked how it felt to be partners with one of the cinema chains that once tried to thwart MoviePass, Spikes said with a deserved sense of joy, “It’s kind of like a hard fought fight, but it’s a beautiful thing. You know, data kind of wins the day. It’s hard to argue with people who sign up and then want to go to your theatre more often.”

Spikes always struck me as a shrewd business person, as he demonstrated by not holding a grudge against AMC. “I’m excited about AMC,” he said. “They are so smart and they aren’t afraid to take risks. I think we can do some great things.”

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Questions Raised About Wanda Cinema’s IPO

Wang Jianglin, chairman and founder of Dalian Wanda Group

Sina Finance carries a long and excellent analysis of Wanda Cinema’s re-submitted IPO document, written by Enterprise Observer newspaper reporter Zhu Lin. The article raises several pertinent question about the IPO of the world’ largest cinema chain, which also controls AMC in the US.

The article is in Chinese, but is worth reading in full in the Google translation (or read the original here) to better understand this important listing and company.

There is too much covered in the article to regurgitate everything in this piece, but a few interesting nuggets are worth highlighting, not least the family connections underpinning the ownership and control of the company, as well as future challenges that it is likely to face.

The initial application for listing on the Shenzhen Stock Exchange in July this year was refused on account of “insufficient information” in the IPO prospectus document. Wanda has thus had to submit additional information, some of which makes for very interesting reading.

According to the document the Wang family, headed by Wang Jianlin, controls 71.4% of Wanda Cinema’s total equity, meaning that they exercise complete control over the company, and will continue to do so even after the IPO of no more than 60 million shares.

The article provides a breakdown of the family stake(s):

Prospectus shows Wanda Wanda Cinema controlling shareholder investment, holding 68% stake in Wanda Cinema. Wang Jianlin, Hop Hing Investment Limited by Dalian Wanda Group and the Cultural Industry Group Holdings Wanda indirect investment, the actual controller Wanda cinema. And Wang Jianlin, Wanda Cinema son Wang Sicong currently holds 500 million shares, accounting for 1% of the total share capital, Wang Jianzhong Wang Jianlin brother, Wang can, WANG Jian-chun and ??? each hold 0.6% stake in Wanda Cinema.

Wang’s son Wang Sicong four brothers plus five people, accounting for 3.4% of total share capital before the issue Wanda Cinema, plus the 68% stake controlled by Wang Jianlin, Wang’s family holding up to 71.4%, the realization of Wanda Cinema’s absolute control.

It is clear that the listing will thus make Wang Jianlin even more of a billionaire while also making his close family very wealthy.

At an IPO price of 33.33 yuan per share, the market value of Wanda Cinema would be around 18.7 billion yuan (USD 3 billion), giving the Wang Jianlin family a stake of 13.35 billion yuan (USD $2.18 billion) with Wang’s four brothers earning around a billion yuan each  (USD $160 million). So the IPO is a profitable family affair.

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CJ@ECA Conference: New Business Models and New Technology

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Micheal Gubbins of Sampo Media chairs the afternoon panel looking at new business models and new technology for event cinema. He begins with an anecdote about pensioners in his neighbourhood that book up entire opera seasons, go to every performance and all of them dressing up in their best operatic gear. Even the 90-year old gent.

Starting on the far end of the Salim Mukaddam, BBC Worldwide, who works on the music side on thing like the Westlife concert, in addition to Doctor Who and other content. Tom Shaw of Digital Theatre who captured some of the content we saw before the panel started (including flashing Philips lights0. The Matthew Aspray from LANsat/MPS. Thgen award winner Mariusz Spisz of Multikino in Poland (who I  just saw at the SAWA event in Berlin last weeks). And finally the Philips rep – Ronald Maandonks.

Micheal starts off with question to BBC WW about what it is with technology that now makes event cinema possible. Salim begins by stressing BBV WW’s television strength, being the biggest non-Hollywood studio television exporter. “Back in 2009 event cinema was possible and we were looking at things like Met Opera about how we can replicate things for things like the Proms. We split the world with By Experience in US and another company for Australia, New Zealand and South Africa.” Aparently the experience with By Experience was good [but what about the other one?] and they continued doing Last Night of the Proms with them.

They then continued the trials with Robbie Williams’ comback concert and Westlife, both of which were record breaking event cinema events. “It’s really about cost of taking it to the market. Prior to 2009 we would never have done it for the cost of taking such a film to cinema,” Salim states. “It is the move to digital that did it for us.”  The point is made about technology becoming’ invisible’ and now it is about the business model and the experience. Salim confrms that “the key for us is live, so if we can go briefly live over satelite makes it a ‘once in a lifetime’ experience,” as well as “cost effective ways of going live across the globe or near-live” rather than going out on DCPs.

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Paris-based MK2 buys Spanish exhibitor Cinesur

MK2 40 ans

Paris-based exhibitor and distributor MK2 has bought Spain’s third largest exhibitor Cinesur in a deal valued at around €10.5 million. MK2, which this month celebrates its 40th anniversary, is based only in France’s capital where it controls 11 multiplexes with 65 screens, as well as four high-end theatres.

The deal has surprised industry watchers, as there are few obvious synergies between the two chains. MK2 has already announced that it will be closing two Cinesur cinemas in the province of Malaga with a total of 16 screens going dark

Cinesur was established in 1932 by the Sanchez-Ramade family and is focused on the southern part of Spain around Andalucia in cities such as Seville, Cordoba, Malaga and Toledo. The exhibitor was put up for sale in 2011 when the other parts of the Sanchez-Ramade business empire (primarily construction) took a hit.

It was supposed to be bought by UK’s Cineworld, which instead pulled out at the 11th hour and ended up merging with Israeli/Central European chain Cinema City instead. Cinesur has nine cinemas, with a total of 120 screens and 22,000 seats, part of the deal.

According to the then press release, Cineworld was set to pay €18.6 million for the business. Though no price has been announced this time, it is thought that Mk2 paid around €10.5 million, which would imply a near halving of the price and perhaps the primary driver for the deal. The holding company of Cinesur was also in bankruptcy, making the deal faster and cheaper. As Diario Sur put it, the chain was “going through a serious crisis that forced it to hang the ‘For Sale’ sign on their cinemas. ” With both similarly-sized circuits having limited geographical spread and different languages, it is difficult to see what if any immediate synergies the deal offers.

le Salle MK2

MK2 was founded by the legendary French producer/distributor Marin Karmitz, with his son Nathanael Karmitz taking over the business in 2005. In 2012 the company suffered from four costly box office failures (including “On the Road”, by Walter Salles, and “Like Someone in Love”, by Abbas Kiarostami) and switched focus to its cinema and catalogue of around 500 titles. At this year’s Cannes Film Festival, though, the company was once again ubiquitous, handling distribution of the award-winning “Mommy” by Xavier Dolan.

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Premium VoD Just Killed the Cinema Release Window

100,000 viewings DSK movie

One single tweet was the final nail in the coffin of the cinema exclusivity window, given added poignancy by being in French; “100 000 locations en une semaine, rien ne sera plus comme avant” (’100,000 viewings in a week, nothing will be as it was’).  This was the message from Vincent Maraval, Co-Founder of Wild Bunch, the French production and distribution outfit behind the controversial “Welcome to New York”, which was released on video-on-demand without first screening in French cinemas.

In a country (France) that counts cinema admissions rather than box office takings for a film (something that sets most of Continental Europe apart from Anglo-Saxon markets like the United States and United Kingdom), this tweet added insult to injury for what was truly a milestone for the industry in slaughtering its last sacred cow.

The day-and-date release of films in cinemas and on-line is nothing new, but we have now reached a point where the sacrosanctity of the exclusive theatrical window is well and truly dead for the vast majority of films. The recent Cannes Film Festival and the release of the report “Circulation of European Films in the Digital Era” (funded by the European Parliament and European Commission) has thrown this into sharp focus, yet there are many other factors to consider.

Fighting Day-and-Date for Years

“It’s the biggest threat to the viability of the cinema industry today,” is how John Fithian, president of the National Association of Theatre Owners (NATO), put it in 2006 in response to the day-and-date release of the Steven Soderbergh directed “Bubble”, which was released simultaneously on DVD, pay-per-view and in cinemas. Or rather, in a handful of cinemas. In Landmark Theatres alone, to be precise, the sister company of Magnolia Pictures, which produced and distributed the film, both owned by Mark Cuban.

Commenting on the experiment six years later, Steven Soderbergh opined:

On “Bubble” and “The Girlfriend Experience”, we really weren’t able to find out if the experiment worked because frankly, we were blackballed by all the chains. We couldn’t get any screens outside of Landmark, even though we offered to cut them in on some of the VOD and video revenue. They just blackballed us. Part of the point of going day-and-date is that somebody who lives in a place where that kind of movie wouldn’t typically open could watch it through VOD because they’ve read about it, because this whole thing of having to sell a movie multiple times is really f–king boring. We never got to find out if that worked or not because what does Landmark have, 75 screens or something? The movie was not allowed to be shown outside that group of theaters so I don’t know how day-and-date works.

Fithian was skilled in rallying his members to boycott the film, even though he knew that releasing a small independent film with no stars on DVD the same day as it plays in a few art-house screens was not the same existential threat as, say, releasing “Oceans 12″ (also directed by Soderbergh) on all platforms on the same day. But what it did represent was the thin end of the wedge, which is why Fithian was willing to risk coming up with a Jack Valenti-VCR-Boston-Strangler-type of quote.

Soderbergh Bubble

Bubble: “the biggest threat to the viability of the cinema industry today”

The key word in the Fithian quote is ‘today’ and where his greatest success lies was in killing off the discussion and experimentation for another half decade. Fithian is neither a technophobe nor is NATO blind to the direction in which the industry is heading. In response to Soderbergh’s interview, Fithian wrote, “Over the past two years NATO and our members have stated publicly that distributors should sit down privately with their exhibitor partners and their creative partners in dialogue about how the industry moves forward together.” But everything changed in early 2014.

The most serious threat wasn’t “Bubble” in 2006 but the MPAA-FCC exchange in 2009, known by the exhibitor-baiting headline, “MPAA Seeks FCC Okay For Transmission of First Run Movies Directly To Consumers”. While seemingly about day-and-date, we wrote at the time that “the MPAA may simply be hiding behind the concept of protecting content during shortened release windows as camouflage for their true motive; securing high definition digital content as it is distributed into the electronic ether of the home by controlling which devices can playback and display the content.”

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Is It Time To Go Short on AMC’s Shares?

AMC logo

It has been close to six months since the initial public offering (IPO) of AMC Entertainment, meaning that senior management will soon be allowed to start selling shares that they hold in the company. Seeking Alpha therefor asks if the time is right to go short on AMC.

The question of whether AMC managers and officers will start selling shares from 15th of June onwards is an interesting one, because it partly points towards the belief in the company and its future value by those closes to it that know it best, as well as to a larger extent about the prospects for the industry as a whole.

The article ‘AMC: June 15th Lockup Expiration From IPO Could Be A Preview To A Larger Short Play In December‘ summarizes the situation as follows:

  • AMC’s 180-day lockup period will come to an end on June 15th, freeing up 361,348 shares, held by the firm’s directors and officers.
  • An additional 77.8 million shares of AMC stock held by Wanda America will remain bound by lockup agreements until December 17, 2014.
  • While the larger short opportunity for AMC could be in December, the impending June lockup expiration could provide a small window for a short play as well.

While the article says that AMC shares have experienced ‘Unsteady Gains After Disappointing IPO’, the facts are that the shares were priced at USD $18 for the IPO on 17 December 2013. This many have been on the low end of expectations, but the shares have climbed to USD $23 in less than six months, peaking at $25.47 on 7 March.

While this may not be outperforming meteoric shares like Tesla, it is in line with the solid growth of the stock market as a whole this year.

More importantly, it should be remembered that the exhibition sector’s stock market performance was significantly better than the box office itself, as we noted in our February article ‘2013 – Bad Year for Film; Great Year for Exhibitor Share Price.’

Last year was also the first year that cinemas could not count on 3D films’ ticket price hike to boost admissions takings, but had to rely more on advertising, concessions, premium large format (notably Imax) and luxury dining and seating to improve the bottom line.

Seeking Alpha acknowledges that AMC has done a particularly good job of extracting more spending from cinema goers.

Solid First Quarter Results

AMC’s report for the quarter ended March 31 indicated a number of hopeful metrics for the venerable firm. Total revenues grew 7.8% on a year-over-year basis, and admissions revenues-considered amongst the most important metrics for movie theater chains-were up 6.8%. Food and beverage revenues also grew and impressive 8.2%.

AMC also benefits from the significant degree of consolidation in the US exhibition market that has seen the share of box office revenue taken by the four largest exhibitors increase from 35% in 2000 to 62% in 2012. This consolidation process is still underway and we are likely to see the Big Four cinema chains collect two out of every three dollars spent at the box office within the next two years.

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