Room for partnership?

Cinema operators say rents expectations in retail and leisure centres are more than the cinema market can support. Landlords, as you might expect, disagree. Is there room for compromise?

At the highpoint in the market rents for cinemas rose to USD 15-17 sqm, and in certain cases over the USD 20 sqm mark, says Sean Bobbitt, Managing Director of Silver Screen World Cinemas. Bobbitt believes that the downturn in the cinema market since deals such as this were signed necessitates that landlords adjust their rent demands to 'realistic' levels. ,Rents in Poland are higher than in EU levels while ticket prices are lower. Operators originally felt this could be compensated for by higher admission levels, but with the economic downturn this simply didn't happen," he says. ,What is needed is a partnership approach, with operators lowering rents but taking a share in the upside if the market returns. No operator will be willing to subsidise his operations indefinitely and will have to decide whether it makes sense to stay," he said, adding that cinemas are usually long term tenants.

A bit of understanding
Pawel Wachnik, General Operational Manager of Ster Century, also believes that land-lords should be sensitive to the situation cinema operators find themselves in. ,I understand the landlords, it's difficult for them to change the contract. But they should understand our situation and maybe come to some arrangement for a year or perhaps 2 years. We are still hopeful of a deal concerning our presence in Galeria Mokotów and Promenada. The current rental situation makes it hard to think about positive development in Poland" he said. Ster Century is known to be looking for a buyer, a fact Wachnik neither confirms nor denies. ,If someone is willing to pay good money then we're open to offers like any other business."

I will not be moved
These arguments leave Adrian Heymanns, Managing Director of ECC, developer of Warsaw's Promenada retail and leisure centre, unmoved. ,Cinema operators basically over-estimated the market in Poland and they're paying the price. You sign deals at market conditions and those were the market conditions." If their operator (Ster Century) were to pull out, he says, he would simply find another one to take its place. ,We have interest from at least one other operator," he said, although he acknowledged he wouldn't get the rents he gets at the moment.

Today cinema operators, tomorrow retailers
A Polish developer, who did not wish to be named as he is in negotiations with a cinema operator for his retail centre, was more conciliatory but had a similar message. ,If a tenant has a problem then the land-lord has a problem. In terms of a compromise, however, today it's cinema operators but tomorrow it might be retailers or fast food restaurants, and then how could the developer pay back his loans." Whether a more partnership-orientated approach should be adopted is directly related to the chicken and egg type question of whether a multiplex attracts visitors to a shopping centre or whether a shopping centre lures customers to the multiplex. Developers say that although it's quite clear a hypermarket brings people in, it's less clear whether a cinema does, and that cinema customers tend not to make purchases in the shopping centre. Operators counter that although a cinema customer may not buy anything when he goes to the cinema he will see shops he likes and will come back. According to Wachnik, the food retailers also benefit because Polish cinema goers tend not to spend money on confectionary in the cinema but buy their ticket and go and sit in the food court. This, he says, does not happen at their cinemas in Spain and the UK.

How many Big Macs to a ticket?
Almost everyone now admits that cinema operators over-estimated the market two or three years ago, although Marek Fraczek, Development Director for Kinoplex, a cinema chain which is opening 9 multiplexes in regional cities across Poland, says this was a mistake made by foreign companies rather than domestic operations such as themselves. While previously cinema attendance grew rapidly year on year, attendance suddenly dropped 35% in 2000. This caught operators unawares and now, with the economic downturn, they're finding it hard to recover. It doesn't help that ticket prices are proportionately high in Poland but low in real terms compared to other European countries. In the famed Big Mac test a cinema ticket in Poland costs the same as 2,16 McDonald's Big Macs, whereas in France it's the equivalent of 1,91 Big Macs and in the Czech Republic it's 1,25 Big Macs.

It's the economy, stupid!
According to Andrzej Kucharczyk of Krakow-based Apropros Info, an independent cinema analyst, the situation won't improve for cinema operators while the economy is in the shape it's in. ,How many cinemas there are is less important than the economic situation. While the economy remains down the cinema market will remain in crisis," he says. It looks like the operators better hope the landlords are in a listening mood.