Friday, December 22, 2006

Movie Theater Business Sees Growth Amid Rising Demand

KIEV, Ukraine -- Following a period of post-Soviet stagnation, movie theaters in Ukraine have been undergoing rapid development in response to increasing demand from a growing middle class looking to spend its disposable income on entertainment.


Lobby of Ukraina movie theater

Although many new, well-equipped movie theaters, including multiplex cinema complexes, have appeared in retail shopping and entertainment centers throughout Ukraine over the last several years, demand for new movie theaters still exceeds supply.

But the further development of multiplexes across the country looks more likely to be done by Ukrainian and Russian networks already in place, according to industry insiders.

Iryna Kostyuk, CEO and co-founder of Kyiv-based Media Resources Management (MRM), a provider of consultancy and research services for media market players, said that Ukraine’s movie theater market has entered a stage of reconstruction and rapid development following a decade or so of stagnation that began in the mid-80s, several years prior to the collapse of the Soviet Union.

“For a 10-year period, attendance at cinemas in the CIS fell 60-fold,” Kostyuk said. “In the mid-90s, the number of people spending their free time at movie theaters reached its bottom level.”

According to Kostyuk, the growth of the Ukrainian movie theater industry is the result of positive economic trends in the country.

“The population’s incomes are growing, and spending for entertainment is increasing respectively,” she said.

Kostyuk said that the improving investment climate, the arrival of more international film distributors and the current construction boom in the country are all contributing to the development of the movie theater industry in Ukraine.

“The construction of retail shopping and entertainment centers with cinemas is undergoing a real boom today … At present, most cinema networks in Ukraine prefer establishing their new premises in shopping centers,” she said.

According to Kostyuk, there were 112 well-equipped modern movie theaters with a total of 168 screens in Ukraine in 2005, an increase of 10 theaters and 14 screens compared to the year before. Kostyuk said she expects a total of 135 movie theaters with 262 screens by the end of this year.

She said that in 2005, 56 percent of all cinema screens in Ukraine belonged to movie theater networks, adding that there are around 10 such networks operating in the country that were created from Ukrainian or Russian investments.

Due to the small number of cinema screens in the country, Ukrainian movie theaters still largely avoid the niche film market, screening the more commercial movie selections meant to attract a wider audience and bring in bigger box office returns, Kostyuk said.

“There is such a practice [screening niche films] in Europe, but it has still not been adopted in Ukraine. These are so-called niche cinemas that show, for example, only art-house movies,” she said.

“But some Ukrainian movie theaters are trying to attract a narrow audience and organize thematic weeks, for example,” she added.

According to MRM’s research, around 18 million Ukrainians out of a population of around 47 million can afford going to the movies. Of these, 12.5 million live in large cities.

Ticket prices for movies currently range from Hr 10 [$2] to Hr 55 [$11].

Box office receipts in 2004 totaled around $18 million, with that figure growing to $26 million last year.

Multiplex expansion

Tetyana Smirnova, the executive director for the Association to Promote the Ukrainian Film Industry, said Ukraine’s movie theater business is currently undergoing an expansion by cinema networks.

“Following the reconstruction of the Ukrainian movie theater sector, the next step is the expansion of networks,” said Smirnova, whose association unites around 70 percent of the players on the Ukrainian movie market.

But the sector’s further development depends on overall market conditions in the country, she added.

“The services provided by the movie market are not a prime necessity,” Smirnova said. “If the entire economic level [of Ukraine] should drop, people would not stop buying food, but they would reduce their spending on leisure and entertainment.”

According to Smirnova, growth on the movie theater market is currently characterized by more multiplex theaters (which contain at least four screens) being developed within shopping and entertainment centers, following a larger, global trend.

She said that multiplexes are not only being constructed in the capital, Kyiv, but in other large Ukrainian cities with populations of over 1 million people.

Kateryna Kholomoytseva, project manager for Multiplex Holding, a Kyiv-based company that invests in the construction of high-end multi-screen movie theaters at retail trade centers throughout the country, said that multi-screen cinemas attract more visitors with their greater variety and more diverse schedule of movies, resulting in higher box-office returns.

“Multiplexes allow planning [movie] schedules in a more convenient way, so that they cover a whole repertoire of movies available for view in Ukraine,” Kholomoytseva said.

Multiplex Holding was established in 2003 by Anton Pugach, former director of one of Ukraine’s largest movie theater networks, Kinopalats.

At present, the company operates two cinemas - one in Mykolayiv in southern Ukraine and one in the eastern city of Donetsk – and is currently constructing its first movie theater complex in Kyiv, which is scheduled to open in March 2007. Another complex is under construction in Kryviy Rih.

Kholomoytseva said that Multiplex Holding also plans to implement movie theater projects in Vinnytsya, Poltava and Dnipropetrovsk.

According to Kholomoytseva, the Multiplex network attracts a largely middle class audience.

She said that moviegoers in Ukraine still lack high-level cinemas to go to, including in Kyiv, resulting in low competition on the country’s movie theater market. She believes that this will likely begin changing in about two years, when the number of cinemas in Ukraine reaches a level that will force them to fight for customers.

Kholomoytseva said she doesn’t expect any more network players to enter the market, not even from abroad. Instead, she added, the sector would more likely take place within existing networks.

“They [foreign networks] can enter Ukraine only by buying one of the existing functioning networks,” Kholomoytseva said. “It is too late to start a new large-scale cinema network. It’s almost impossible to begin from the ground up.”

She said that the Ukrainian movie theater market will likely be divided up among several larger cinema network players that will force smaller companies, which cannot provide a full range of services available at the higher-level cinemas, out of the market.

“This is what is happening in Russia and the West,” she said.

Alisa Sheremetyeva, commercial director for the Odessa Kino cinema network, said that the appearance of about five new movie theaters a year in major cities is the best indicator of the industry’s growth.

She said that with the number of cinema screens increasing, competition will also increase, while the ticket price falls. Sheremetyeva said that, at present, the number of people wanting to go to the movies is increasing faster than the number of new movie theaters being constructed to accommodate them.

According to Sheremetyeva, Odessa Kino’s first modern cinema was reconstructed from a Soviet-era movie theater in Odessa and opened its doors in 1999. She said that the company presently operates a network of six cinemas in Odessa, Dnipropetrovsk and Kyiv.

According to Sheremetyeva, the average visitor to an Odessa Kino cinema is aged 18 to 34 and earns a high income.

Among the main factors holding up the development of the movie theater industry in Ukraine, she said, is the lack of control over the proliferation of pirated movie videos before the movies premiere on the big screen, which cuts substantially into a movie’s box office draws.

Source: Kyiv Post

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