Is cinema now the fastest-growing and most innovative part of the film business?

It wasn’t supposed to be like this: people of my age were brought up during the decline of cinema. Audiences were drifting away to TV, then video and DVD. Add in the rise of video gaming and the internet and the future of the cinema seemed clear: long run decline. But the cinema business is in good health. Why is this?

Showing films used to be pretty straightforward: sell lots of tickets at the same price, then funnel punters past popcorn and fizzy drinks. Cinemas keep about half the price of a ticket and up to 90% of the money spent at snack stands. For film-makers, the real money was in home entertainment, especially sales of DVDs.
(For a recent blog on this, remember the fuss the cinemas made about the DVD release of Alice in Wonderland),

The Economist has come up with an article that pins down some of the most important points behind the new success of the cinemas:

In 2009 global box-office revenues increased by 7.6%, but total revenue for the biggest Hollywood studios fell by 4.3%, “due to the collapse of consumer spending on DVDs”, according to a research firm. Ticket sales grew strongly during the recession, as people sought a cheapish night out, and have not slowed. Ticket sales have risen by 35% since 2005 outside the US/Canada and are now worth about two-thirds of the global total. A boom in multiplexes—that is, cinemas with at least eight screens—is unlocking hidden demand.

Meanwhile revenues from DVDs, Blu-ray discs and digital copies of films together have fallen sharply. DVD sales of new films fell by 17% between 2008 and 2009 alone. The main culprit is said to be the emergence of cheap, convenient rental services such as LoveFilm.

Part of the cinema boom has been driven by the rise of 3D. Although the premium that cinemas charge for 3-D films has risen steeply from as little as $1 per ticket to $3 or more, consumers have kept coming.

More important is the ‘digitisation’ of cinema. This has made it easier for multiplex owners to shuffle films around screens to cope with surges in demand. And satellite distribution is making it easier and cheaper for films to open simultaneously around the world. This has also helped the spread of IMAX which can be delivered digitally for a few hundred quid and can then be programmed more like ordinary films. Cinemas tend to charge 30-40% above the ordinary ticket price.

Cinema-owners have long suspected that, by charging the same amount to see a $2m independent film and a $200m blockbuster, they were leaving money on the table. The response to 3-D films and IMAX proves that they were. Now cinema is evolving from a commodity into a business that sells differentiated products at varied prices.

This differentiation can be seen most clearly with new cinema formats - widely spaced reclining chairs, with tray tables and even waiter service. Some serve alcohol and food, to great success.

Of course, the UK cinema chain Vue hosts Tutor2u when we go on the road! Proof that the cinemas have proven highly innovative in tapping into new streams of revenue.