For the 1960 release of ‘Scent of Mystery’, US cinemas piped aromas including rose and tobacco smoke into their auditoriums at key moments to complement the film’s narrative. The stunt failed spectacularly.
Audience members complained that the Smell-o-Vision technology was out of sync with the action and the odours mixed together in unpleasant ways.
Five decades later and cinemas are still experimenting — scents included. But this time round, they are having more success and movie theatres are evolving at an unprecedented pace.
New technology, from satellite-connected digital projectors to 3D and 4D cinema, is allowing cinemas to provide a wider range of experiences to moviegoers than ever before. Competition from television, online piracy and the rise of services like Netflix and Amazon Prime has also increased the pressure on cinemas operators to provide more than simply the latest Hollywood blockbuster on a big screen.
“You can’t get away with just showing the same thing again and again,” says David Hancock, cinema analyst at IHS. “All aspects of the cinema experience and the cinema business are now open to change.”
For the world’s biggest cinema operators — including Cineworld, Vue and Odeon & UCI — innovation is critical as box office revenues in mature markets are stagnating. There were more than 3,900 cinema screens in the UK by the end of 2013, representing growth of just 1 per cent, according to the Cinema Exhibitors’ Association.
In a highly significant trend, almost all cinemas have in recent years replaced their traditional tools of 35mm film and mechanical projectors with digital technology. This allows exhibitors to screen any type of content imaginable — including live sport, concerts and opera.
The success of broadcasts from the Metropolitan Opera, which this year screened its live performances in more than 2,000 cinemas across 67 countries, selling more than 2.4 million tickets, highlights the rise of so-called event cinema. Karsten Grummitt, managing director of cinema analyst Dodona Research, says that when he started covering the industry in 1989, there was just one kind of cinema.
“Now you can go to a cinema club with fancy foodstuffs, you can go to one that’s marketed on the basis of technology, or you can go to one that promises not to have children, all of those kinds of things.”
The income generated from such events can be substantial. In the UK, which has embraced event cinema more than any other European country, tickets to screenings of “alternative content” typically cost £15-20, three times the price of admittance to a standard film. The estimated gross revenue for all events in the UK, was £12.5 million in 2012, according to data from Rentrak and IHS Screen Digest.
Exhibitors are also boosting ticket prices by offering premium auditoriums with giant screens and more sophisticated sound-systems. Dozens of chains across the world are now attempting to build premium brands as an alternative to partnering with the Canadian company IMAX.
The latest innovation is 4D, where the seats inside a movie theatre respond to the onscreen action. As well as moving and rumbling, the seats can spray water and emit bursts of air, allowing them to simulate effects such as a bullet whistling past your neck.
Philip Bowcock, chief financial officer of Cineworld, says 4D technology is a niche proposition but an important one. “I’d love to say it’s a pleasant experience for a man of my age but after about 15 minutes I’d had enough,” he says. “But the kids love it.”
CJ 4DPLEX, the South Korean company that created the so-called 4DX technology used by Cineworld, has installed the system in more than 100 theatres across 25 countries since it started five years ago. It expects to triple that figure to 300 by the end of 2015.
Hollywood blockbusters and sales of popcorn and Coca-Cola still account for the majority of cinema revenues and few people in the industry expect that to change any time soon. But thanks to digital technology, an industry that for decades has provided a form of mass entertainment is starting to evolve into something more diverse.
Cineworld made its name building and buying multiplex cinemas across the UK. But with growth slowing in its home market, over the past 18 months it has moved into smaller cinemas and emerging markets. In January, London-listed Cineworld paid £503 million to acquire Cinema City.
The Greidinger family, which founded Cinema City in 1929, has since built up a controlling stake in Cineworld. Mooky Greidinger took over as Cineworld’s chief executive. The company is now expanding rapidly in emerging markets such as Romania, where people go to the cinema on average 0.4 times a year — far lower than an average of 4 times a year in the US.
Cineworld plans to open 400 screens in central and eastern Europe over the next three years. “There’s limited growth in western Europe,” says Philip Bowcock, Cineworld’s chief financial officer.
But even in the UK, where it controls about 27 per cent of the market, Cineworld is still opening new cinemas. At the end of 2012 the company acquired Picturehouse, taking control of an independent chain that appeals to a more highbrow, older clientele than mass-market multiplexes.
Private equity groups love investing in cinemas, thanks to their ability to generate strong and predictable cashflows for servicing debt. But not every buyout goes to plan. Terra Firma, the private equity group controlled by Guy Hands, has been struggling for years to turn around the fortunes of Odeon & UCI, Europe’s biggest cinema chain.
It first attempted to sell Odeon in 2011, but halted the process after bids fell short of its £1.2 billion target valuation. Plans for a second sale attempt last year were scrapped following the poor performance of its Spanish division.
Odeon’s revenues fell 5 per cent last year to £707 million, while earnings before interest, tax, depreciation and amortisation dropped 24 per cent to £69 million.
In an attempt to stabilise its performance, Terra Firma has over the past six months cleared out many of Odeon’s long-standing executives and replaced them with fresh blood. Paul Donovan, Odeon’s new chief executive, is putting the group’s underperforming cinemas into a new division to be managed separately from its core estate.
However he will not have long to fix Odeon’s problems before Hands tries once again to sell the group in 2016. Among the potential buyers is Vue, the cinema chain that was last year acquired for 935 million pounds by two of Canada’s largest pension funds — Omers Private Equity and Alberta Investment Management.
Financial Times