Industry Profile: UK Cinema Industry

In this revision video we look at the oligopolistic UK cinema industry.

The UK cinema market is best described as an oligopoly. This means it is dominated by a small number of businesses – namely Cineworld, Odeon and Vue.

In 2020, there were 4,682 cinema screens in the UK, down from 4,782 a year earlier – an annual decrease of two percent. In both years, more than three-fourths of the screens were installed in multiplex cinemas. The industry has been hit hard by the coronavirus pandemic.

The rule of thumb for an oligopoly is that the leading five firms have a combined market share of 60 per cent or more. In the UK and Ireland, Cineworld, Odeon and Vue, the leading three chains, accounted for almost 70 percent of the exhibitor market combined in 2019. Cineworld also owns Picturehouse and Odeon owns UCI Cinemas. There is often a degree of local monopoly for example in smaller towns where there is only one of the recognised cinema chains.

In recent years, the average price of cinema tickets in the UK has actually fallen. Perhaps this reflects increased competition from substitute services such as online streaming services such as Netflix and Disney+. However, there is a wide variety of prices within the industry. Smaller chains such as Everyman charge much higher prices and typically operate screens with smaller capacities. There is widespread use of price discrimination by cinemas and a drive to increase revenues from ancillary sources such as food and drink and conferences.

The pandemic has had a huge effect on cinema admissions and revenues for the industry. There were only 44 million admissions in 2020, down from 176 million the year before. Many cinemas were shut for months on end with little hope of finding alternative revenue streams. Box office revenue collapsed from £1.25 billion in 2019 £297 million in 2020.

The UK cinema industry faces many challenges:

• The surge in demand for streaming services (to what extent are they close substitutes to seeing a film live?)
• A fall in cinema advertising revenues
• A shift towards simultaneous release by film companies (cinema and streaming at the same time)
• Rising cost base (including higher minimum wage)
• Cost of living crisis causing a fall in real disposable incomes
• Many cinemas emerged from the pandemic with high debt

Revision topics linked to cinemas might include:
Ticket pricing including price discrimination / tacit collusion
Price and non-price strategies between competitors
Business growth – organic and external (benefits & costs)
Fixed and variable costs of operating cinemas / barriers to entry
Application of economies of scale for major cinema operators
The shut-down point – when to close a loss-making venue
How smaller independent cinemas manage to survive
Cross price elasticity of demand (cinema v streaming)
Income elasticity of demand (YED from different groups)
Impact of government intervention (such as furlough & min wage)