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» Report 2008
Part Two - ONCE UPON A TIME THERE WAS CELLULOID
WHICH ACTIVITIES AND RESOURCES
Chapter 3 - Regarding supply
Business
FAs far as all of the activities of entertainment, culture and performing arts are concerned, the cinema has demonstrated itself to be one of the most influenced by both economic developments and technological innovation. Economic trend cycles reveal that in periods of stagnation cinema attendance drops dramatically, as in the spring of 2004, for example, when attendance dropped by 30%. Also in the initial months of 2008, following a robust recovery from inflation caused by a constant rise of raw quotes, recreative goods and services revealed a monthly reduction of between 4% and 5% - less than only one other area, that of the mobility sector, with average decrements of 6% - and in the specific calculation of the relevant areas those relative to cinema attendance emerged among the lowest cost figures of January and July.
To the sensible exposition and fluctuating economic cycles the particular typology of the cinema-going public can be superimposed, where the age group between 13 and 26 years old dominates, and which, for a number of years, orient part of their resources towards alternative consumption, principally in telephone communications for the purchase of new mobile phones, prepaid cards and credit for calls and text messages. A passion for mobile telephones which, among the young, finds its principle motivation actually in the evolution on the multimedia level, expressed, primarily, in the entertainment contents based on sounds and images.
Threatening cinema attendance and takings, technological innovation has, moreover, introduced a sensible re-conversion of cinema consumption towards alternative forms, constantly more evolved and functional towards the personalized fruition in real time: with the offers of home video, first in VHS and then on DVD, then with television offers, via satellite and digital both as pay television and as pay-per-view, finally through the internet (with streaming videos, downloading and peer to peer sharing) and video mobile phones.
In this sense, business and finance is the sector which seems to be the object of the most intense restructuralisation process within the whole cinema industry for at least a decade. This is because in comparison to the evolution of the mix of diffusion channels (and in spite of its effects), which seems to have put in discussion the centrality of the demand market and, thereby, the cinema system, business and finance has been and remains at the centre of a much more complex and profound transformation.



Elaborated from data of Cinetel, source ANEM (Associazione nazionale esercenti multiplex) from “Il cinema italiano in numeri” (2004 – 2008) edited by the Ufficio studi/CED Anica. * The data relative to 2004 only register the sum of the complexes with between 2 and 7 screens.

Interpolation, under the aspect of the policies and commercial practices is neither only a superficial expression; the emerging point of that which could be defined, nevertheless, as an authentic generational change. In the last 15 years, the apparatus of the cinemas has changed as far as the types of system of first and second showing are concerned, in that these have been modified by over 50% and the supply of operational cinemas (working, that is, 120 days per year) in the complexes which constitute the primary commercial network – where over 80% of all cinema consumption is concentrated, have almost tripled. This is a mutation which has brought about, from 1994 to the present, almost 300 new polyfunctional exercises, in other words multi-screen and multiplex cinemas, including 110 of the latter – being those with at least eight stalls – 90 of which were created as recently as since 2000.
The structures which are considered an effective part of the commercial business do not exhaust the effective national availability of sites for film showing. Even if there lacks a complete and definitive overview, in outline certain contours can be reconstructed, unfolding the (little) data known resulting from the surveys which tend to intercept every small entity.




A further statistic, however, concerns the offer of posts in all of the diverse types of premises for film projection, without, moreover, any indication of the number – which is quite significant – of the screens, and in particular whether they are active or otherwise for more than 120 days (a figure individuated to signal an activity limited only to the weekends). According to the Italian ‘Osservatorio dello spettacolo’ based on data of the general management for the cinema of the Ministry for Cultural Heritage, the total number of posts is a total of 1,300,456, of which 43.26% (523.2 thousand) in single screen cinemas; 26.79% in multi screen complexes (348.4 thousand); 19.40% in cinema theatres (252.3 thousand); 9.62% in arena theatres (125.1 thousand); 0.49% in multi screen cinema theatres (6.3 thousand); 0.41% in arena cinemas (5.9 thousand); 0.34% in ‘drive in’ cinemas (4.4 thousand); plus a further 2.65% which are not specifiable in any specific sense (34.4 thousand).33
The process which has redesigned the landscape of cinema screening has, naturally, brought with it a profound re-evaluation of the commercial strategies of the production companies and distribution companies, accentuating the approach to the more structured managerial models of the major international groups. This process has, furthermore, been accompanied by the implementation of all the principle technological innovations introduced into the sector, a factor which continues today, and for which the expected effects – as well as, more incisively, in terms of sector policies and the use of resources, of financial and industrial culture, of organizational choices aside from the integration of entrepreneurial assets – should unfold in the next season or in the short term.
However, such restructuralization of the commercial network for Italian cinema, in all of its sizes and its social and economic implications, remains an unpublished phenomenon.

REAL ESTATE INVESTMENT

The development and restructuring of the so-called outlets have been carried out as a result of the business and finance sector convoying upon itself investments of over 3 billion euros in the last 15 years: an influx of capital (according to the most reliable estimates, even if they are necessarily approximate in this type of evaluation and for similar size orders) almost equal to the amount of resources with which all of the production activity of national films have been financed.
In the footsteps of Great Britain, France, Germany and, even more so, the United States, the so-called developers have also concentrated their operations of development on the real estate market in Italy, towards that which is defined as the leisure sector, or rather of performing arts and all other forms of entertainment. The choice on the part of investment banks, investment funds, and private equities – precisely, the developers, the majority of which are of Anglo-Saxon origin and which operate in connection with the major real estate groups and construction groups – to dedicate 70% of their investment in projects of this type can be explained, on the one hand (but in a very limited measure), by the objective opportunity for renewal outlined in determinate activity sectors such as that of entertainment and, on the other hand, (above all) by pure economic convenience.
In the case of Italy, with cinemas far inferior to the European standard (indicated by the fact that only 10% have air conditioning), the business desirability of multi-screen cinemas and multiplexes is expressed for real estate investment in average productivity of 10.5%, greater, for instance, than the assured profitability from the construction of shopping centres with a spread of 1.5%, with returns time limited to 5-7 years and now moving towards the pay-back-period of the United States of 3-4 years.34
This extraordinary influx of money has also permitted the requalification of the business as a place of consumption. If planning, land, lots division, and construction with basic services demonstrate a variable incidence between 45% and 60% on total investment, the plant design for cinemas (sound, projection, lighting, furnishing and equipment) and so-called professional services almost entirely represent the remaining quota, with an estimated cost per cinema of around 500 thousand euros. The offer of complementary services remains fundamental: car parks, catering space, large foyers, air conditioning, large screens…All elements which permit the eventual extension of activity of the cinemas for events, conventions, other shows or forms of entertainment and above all to attenuate the proverbial seasonality of scheduling and of film viewing which afflicts Italian cinema.
Such elevated financial commitments have also re-styled the map of the principle projection companies, that 3% of management (1,815 company names) which are under around 75% of the revenue of the entire sector. The circuits of multi-screen cinemas and multiplexes that belong to the large international chains or are integrated into the large production groups, have reinforced themselves even more, thereby being capable of moving the necessary capital for intercepting projects at the centre of the latest peremptory development inserting themselves in the investment pool which they have nourished. (as noted in chapter 7).
Other than constituting the most innovative element of the cinema industry in recent years and, undoubtedly, being a growth factor for the market, the achievement of the multiple structures has also contributed to increasing the competitive dynamics of the sector and, in this sense, the spirit and quality competition of the ‘independent’ national entrepreneurs has emerged. In time these have understood how to construct solid circuits with a national character, arriving at the control of from 30 to 50 single screen cinemas. In alliance with foreign financers or autonomously, they have invested in the development of their chains, knowing full well the two ‘principles’ inherent in the same market in which they have developed their activities.
On the one hand, the effect of the mixing and substitution between the diverse cinema businesses which the multi-cinema model has triggered in consumer choices confirms that the influential capacity between supply and demand can be reciprocal and proportional, and not necessarily one way. The first impact hit traditional local cinemas; the second is of interest to the same multi-screen cinemas of small size. On the other hand, awareness of the value that real estate property of such a type (and often brought as a guarantee of new initiatives to undertake) represents, in an absolute sense, as well as in an enduring fashion. Now, they continue to represent, at the primary level, in the parterre of cinema managers.35



Elaborated from Cinetel data from source ANEM (Associazione nazionale esercenti multiplex) from “Il Cinema in Numeri” (2004-2008) edited by Ufficio studi/Ced Anica. - * The data relative to the years 2004 and 2005 only register the sum of cinema complexes with from 2 to 7 screens.


URBAN AND SOCIAL PROFILE

The progressive erosion of that grand catchments area in the context of competitive dynamics, which was constituted, until 20 years ago, by single screen cinemas in the historical centres of the more populated urban areas and in the communes of less than 40 thousand inhabitants, is consistently maturing. According to the most recent estimates of ANEC (the National Association of Cinema Traders) a good 356 have closed their shutters for good in as few as the last five years.36
This phenomenon has not gone unnoticed and the chronicles of the local newspapers refer to it constantly. This is both because part of the discussed phenomenon of the ‘abandonment’ of city centres by traditional services and grass root businesses in favour of boards, institutions, and firms, in the main banking and finance; as well as on account of certain sometimes paradoxical aspects which accompany them. An example for each is the disappearance of every single screen local cinema from the centre of Venice – the city of cinema festivals.
Conversely, the same context recounts, moreover, how the grand multi-purpose complexes of the contemporary, technological and innovative cinema, have become an irreplaceable (and already, therefore, questionable per se) element of the urban landscape. Their planning, sometimes within the context of and within the creation of a pole of services created and set around a shopping/commercial centre, has become part of the administrative local planning and of the interventions programmed for redesigning the landscape and to requalify entire points of the urban belt or of the suburbs.
The structures of the new generation are total real estates of 30-40 thousand square metres, of which, normally, 25 thousand are for parking, with a volume of 50 thousand metres cubed of construction, with a covered area of at least 4,500 square metres plus another 1,500 of flooring, demonstrating that such new structures are, therefore, a formidable instrument of urbanization. Created according to parameters which have become a benchmark of reference, thanks to the first organic projects of Italian architects like Renzo Piano adopted overseas until the beginning of the 1980s, they are, furthermore, furnished with bars, ice-cream parlours, pizzerias, music shops and other spin offs, they host conventions, demonstrations and shows, maintaining the attendance of at least 6 thousand persons.37
From the simple local cinema to the shopping centres of modern cinema they have, in substance, substituted those places of social aggregation, primarily for adolescents and young families in traditional cinemas of city centres and have fully entered into the social and urban policies of the public administrations as well as in the lives of entire communities.

TECHNOLOGICAL INNOVATIONS

In this evolution the role of technological innovation should also be included. Technological innovation always renders the film experience more sophisticated among the cinema complexes of the latest generation, otherwise known as the multiplexes. Informational Communication Technology has taken space away from business and finance, thereby opening new avenues for consumption. It is, in substance, united with management in the defence of that consumption mode – public viewing – which represents a plus. The ongoing competition between the chemists of celluloid and the bits of digital technology presents itself as economically decisive, but also complicated in the interrelationship between sets, editing studios, laboratories for post-production and places for film projection. Even today there does not exist a single film, notwithstanding the fact that it may be traditionally made, that does not contain within its master-copy the result of certain digital interventions.
Bits have entered into the celluloid world through special effects and such contamination has never stopped. Ever since George Lucas filmed “Star Wars Episode II – Attack of the Clones” in 2002 the first completely digital film, the erosion of traditional celluloid has continued without end and now the star system of Hollywood is lending its technology to videogames. Whilst the major international companies and the information technology multi-nationals (Microsoft, Apple, Texas Instruments, Sun, Oracle etc) are pushing towards the channelling of products on the domestic scene which Sony (with its Blue Ray DVDs, perfected for the ultra-flat, high definition television screens in LCD and in the interactive version BD live), Philips, Panasonic & Co are constantly developing and refining, the large producers of systems of cinema filming and screening, such as Kodak and Fuji are already in the third generation of digital products.38
Nevertheless, the cost cuts estimated for digital productions are of the order of 20% to 30%, and the technology – which transfers the focus of film production from the moment of live filming to that of post-production – indubitably permits an increase in creativity. Within the business a mixture of opportunities appears analogous. Using the transmission of films via satellite the logistical costs are significantly lowered: the traders no longer pay for the printing of rental copies nor for their transportation and insurance (the only cost which rises is the investment in projection units which have DLP cinema technology, 4K or 8K, having a price of around 100 thousand euros), whereas the flexibility of the entire system is increased, allowing it to serve, in real time, every structure – even in the most distant or poor quality cinemas – and to manage scheduling more autonomously, up to the point of having, for example, more film titles to screen within a single day.
The “packet” also includes publicity films, with a saving for investors of 65% thanks to the elimination of the dumping onto film of commercials and Walter Villane, absolutely one of the most important circuits, is completing the digitalization of publicity space for the 172 screens of his 17 multiplexes. Sony Pictures Releasing, the groups’ distribution company, in the mean time is preparing to offer an extension of digital applications with cinema projections of important events – such as concerts and sports competitions – in live, simultaneous projections.
In Italy, the first and unique experience in this respect has already been in operation for a number of years, the result of the collaboration between ACEC (Associazione cattolica esercenti cinema – the Association of Catholic Cinema Traders) and other private investors (Strategia Italia Sgr, Piemontech, Club degli Investitori) which, with the technological support of study centres and research by Rai in Turin have, in joint venture, created Microcircuito, a network of 27 cinemas found primarily in North Italy which make available a total of 8 thousand posts.
D-cinema seems to still have, in sum, business and finance in its future, despite already moving towards 3D and stereoscopic vision, in other words vision through spectacles thanks to which the images seem to float in the cinema before the viewers. Technological innovation is, by now, also applied without problems to full length feature films and the proposed titles with this technology are in constant increase, just as the multiplexes which are being equipped as a result (in Italy, for the time being, there are 40 such cinemas, belong to the circuits of Cinecity, Giometti and Arcaida).39

PUBLIC INCENTIVES


The investments which have led to the development and requalification of business and finance have also been maintained thanks to public support. For a number of years the programme of intervention of FUS – Unique Fund for the Performing Arts – administered by the minister for cultural heritage and cultural activity allocates resources for the business companies aiming to “produce new cinemas, restructuring existing cinemas, and the structural and technological adaptation of implantations”, conceding capital contributions (based on the type and dimension of the interventions) or on behalf of the interests in reducing the total burden of contractual loans for financing the work of restructuring, with increasing maximum amounts for the increase in number of screens for each interested complex.
Alternating between the one and the other, the two forms of incentives foresee a supplementary organization when they concern the activation of projection complexes in areas with less than 10 thousand habitants or rather the transformation into multi-screen cinemas in areas with less than 20 thousand habitants: with the intention of favourably promoting the diffusion of national cinema against the prevalent influx of the major foreign companies. In both cases the cinema manager is obliged to schedule a determinate number of Italian films or European productions.



Information source: “Il cinema italiano in numeri” (2004 – 2008) edited by the Ufficio Studi/CED Anica.

In 2007 3 million euros were assigned in contributions in favour of 52 restructuring interventions. – with an average amount of 57.7 thousand euros – out of 300 requests presented with a gross investment value of little more than 5 million. To access the contributions on account of interests for lowering the service costs of the debt a mere 15 requests have been advanced – “that typology is scarcely used” explains the annual report of the same FUS – of which only one has been accepted (the report does not indicate, however, the measure of tax breaks).
Another part of the resources re-enters in the area of support interventions for the initiative of the promotion of Italian cinema and exclusively regards the exercises recognized by the general directors of MIBAC as art films (a category also extended to parochial church cinemas). The concession of assistance – in capital accounts, that is free grants – tending primarily to maintain the activity in the name of the attention dedicated to the diffusion of quality cinema and regarding unitary amounts of a meagre figure.
In 2007 788 supplies out of 834 received requests – on the part of practically 50% of all the potential destinations – of which 788 were collected with the assignment of 2.84 million euros, for an average unitary amount of 3,611 euros.

CASH TAKINGS

At the macro level the development of the sector obviously depends on the choices of the public towards film consumption and the interest raised by the films which, every season, cinema production puts into circulation. In the first case, for example, the frequency of Italian film attendance reveals itself to be not particularly high in respect to other developed markets such as the United States (being first, with a cinema entrance index which is double that of Europe) or the other principle European nations. In the second case, however, the repercussions depend upon both internal and external factors: the predomination of American productions exercises a rather homogenous influence with its first releases onto the various markets, whereas national cinema – in second place as far as importance is concerned – can effectively mark out the takings trends in relation to the popularity expressed by the viewers as regards the latest releases proposed in the course of a year. The sector of business and finance appears, in substance, to have no determining role in the film industry as a whole (cf. table 22).



Elaborated on data from MPPA (Motion Pictures Association of America) for the United States, and EAO (European Audiovisual Observatory) for the European Union and SIAE (Società italiana autori ed editori) for Italy.

Nevertheless, the decisive catch area does belong to the business and finance sector because the viewer base is that of the first instance, where the first economic returns for the whole sector and its employees matures, as a consequence influencing the acceptance and the economic success of the motion picture also in other distribution channels and other consumer platforms (table 23).



Elaborated from data Cinetel of source ANEM (Associazione nazionale esercenti multiplex) from “Il cinema italiano in numeri” 2006-2007-2008 of the Ufficio Studi/Ced Anica..

The question is how many resources divide the business and finance sector from the other areas of the cinema industry? The calculation is complicated by the incidence of innumerable variables and it is only in an indicative manner that an outline of the division of proceeds can be stated, an outline which sees the film projection sector issuing 40.4% - 42.2% of how much collected from the public to the distribution sectors and then those of production. However, as far as the interest quota is concerned it arrives at between 45.7% and 47.5%, from the moment that the box office gross earnings have had both 10% VAT and 2.10% SIAE royalties (for the creators of the film) deducted.
The net proceeds from the cinema takings for the managers of cinemas and multi-screens can, therefore, be estimated as averaging around 245 million euros according to Cinetel reference data and 276 on the basis of SIAE official registration.
The turnover of the management companies corresponds, in reality, to that which in the cinema environment is usually defined as  “net bordereau” whose elaboration is, furthermore, the result of a series of variables which render an average reference estimate for all of the companies uncertain. On the basis of agreements and occasionally undersigned licence contracts, the final sum relegated to distribution companies is calculated in percentage of the net proceeds of the business – deducting, in other words, author royalties and VAT arriving at around 43% - 44% - in function, however, of the week of ‘tenure’ (for those succeeding the first of the scheduling a progressive scale of percentages is applied), of the mix of involved distributors, of the insertion, or less, of titles for projection in a pre-prepared ‘packet’ of films to rent only as a block and so on. This rental commission, which for traditional cinemas located in city centres often arrives at 46% - 48%, is, however, one of the lowest levels in Europe. France and Belgium, for instance, do not go below 46%, whereas Spain arrives at 49%.40
Two other factors are involved when we consider the profitability of the sector. The first, clearly, concerns the incidence of structure costs (season tickets and tickets amount, for instance, to 1%) as well as maintenance, staffing, marketing, cleaning, and so on. The second is linked, however, to the area of collateral business, such as publicity (the contact value is 0.30 – 0.50 euros per viewer, plus a minimum guarantee), the telephone or internet booking services (from 0.50 to 1 euro per ticket), restaurant or catering services which can gain a 25% turnover profit added to the box office takings (the average spending is 1.3 to 1.7 euro per viewer; the profit margin on soft drinks is equal to 25%, that of popcorn 8%), the rental of cinemas for events or conventions (increasing the total business volume by 10%), the management and location of eventual sales outlets and so on.41
According to the surveys of SIAE, which also observes such activity in as much as it is considered an integral part of entertainment sites and paid for representations, the parallel businesses have a value of over 77.3 million euros: 3.6 million for publicity and sponsorization and a good 73.7 for all of the other services. This means that to the gross income of the ticket offices under their responsibility, cinema traders can add a further 20% turnover which is solely theirs and is such as to increase the value of the sector’s total production – on the basis of available estimates – to 465 million euros. .


33 A curiosity: The smallest cinema in the world is found in Italy. The ‘cinema dei Piccoli’, with 63 seated posts is found in Rome inside the Villa Borghese park, and originates from 1934. It was created by Alfredo Annibali and today covers an area of 71.52 square metres. It was originally called Topolino. Restored in 1991 it has a screen of 5 by 2.5 metres, with stereo sound and air conditioning. It is also included in the Guinness Book of Records.
34 Symbolically one can recall as an emblematic citation the Furlan circuits of the homonymous dynasty of impresarios, Safin, Arco Film and Arco Program of the De Pedys family, Ifas, Lucky Strike of the group Stella, Giometi and Quilleri-Di Sarro of the homonymous family, Germani-Poggi, Fumangalli, Missaglia, Bernardi.
35 “Le Multisale cinematografiche”, part of the research “Multisale cinematografiche e centri commerciali: potenzialità di sviluppo immobiliare e sostenibilità economica” by Cesare Ferrero in collaboration with Ezio Poinelli, conducted for ANCE (Associazione nazionale costruttori edili) and published with the same title by Edizione Egea (Milan 2000).
36 The oldest Italian cinema still in use, inaugurated 15th December 1905 and created by the architect Luigi Bellincioni is found in Pisa behind the Agostini Palace: the Lumiere cinema. On 19th October 1906 the first experiments with film sound were carried out by professor Pietro Pierini of the University of Pisa, patented as the ‘Pisa factory of speaking films’ (Fabbrica Pisana di Pellicole Parlate) under the diction ‘Electronic system for synchronizing of movement’ and, later, following technical improvements as ‘Isosincronizzatore’.
37 As a benchmark reference for European multiplexes certain followed parameters in the creation of recent structures are reported (to 9 screens for a total of 2,500 posts) in Italy. Screen surface area: 667 square metres. Unit area for seating: 2.4 metres squared. Average posts per cinema hall: 250 for inferior cinema halls. Box office: computerized and digitalized. Parking: an average car space for every 2-3 rows (however, recent trends are even more demanding: a car space every 2 rows. Surface area for parking: 25 square metres including manoeuvre space. Equipment for internal services: from one to three bars, always positioned before the ticket inspection zone. Diverse commercial space: two or three for the sale of gadgets, film spin offs, posters, sweets. Catering: from one to three businesses, according to architectural size and conformity and, above all, the demand in the immediate vicinity. Seating: 70 – 90 centimetres, with at least 120 cm leg room. Slope of seating floor: (high slope permits optimal vision): up to 20% is obtainable without structural or functional problems; beyond that much leads to entrance and exit problems, with an increase in costs. Cinema Planning: The most common is rectangular (cinema halls, by now, tend to develop in terms of size rather than length); the present normative permits rows with a maximum of 20 posts. Format and development of the structure: horizontal construction prevails; vertical developments are actually more expensive but, nevertheless, are justified by the presence of elevated area costs and size restrictions.
38 The first company to digitally produce a film in Italy was Intelfilm as early as 1998 with “Due volte nella vita” , a dark comedy by Emanuela Giordano with Lorenza Indovina, Antonio Manzini, Dodi Conti and Neri Marcoré.
39 Dedicated to the effects of the diffusion of digital technology within the cinema is “Il cinema nell’era virtuale” Olivares Edition,  (The Virtual Life of Film) by David N.Rodowick.
40 The economic impact of the times of retrocession of the rental commission compared to the everyday running of trader income does not appear irrelevant: the distributor invoices their payment on a weekly basis and the payment is made within 21 days..
41 A part of this information is dealt with in the research “L’economicità e le determinati di risultato nelle strutture multiplex . Aziende di esercizio cinematografico o società di real estate?” by Giuseppe Delmestri, Luigi Proserpio, and Giovanni Tomasi of the Bocconi University of Milan Cinema Laboratori, promoted by the regional Union in Lombardy of AGIS (Associazione generale italiana dello spettacolo) in collaboration with the region of Lombardy.

 

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