How does the cinema exhibitor sit in a world that is increasingly abandoning the ownership of goods in favour of rental and subscription? Surprisingly comfortably, as it turns out. David Hancock, research director at IHS Markit, explains.
You may have read recently that IKEA is looking into leasing home furniture and kitchens to customers, rather than selling them outright. With a trial starting in 30 countries, the logic is simple: the global giant (IKEA uses almost 1% of the world’s commercial wood supply) is in a position to do something to help the environment and — more pertinent to this article — consumers are both more transient and can less afford buying houses and equipping them from new each time they do. This is known as the circular economy. The decline of ownership is seen in other areas: the car market is fuelled by the growth of the PCP, a form of leasing in which the customer has the option to give the car back at the end of the deal, using the value in the car as a deposit for a new one. In the UK, 60% of music revenues are from subscription services. Globally, streaming remains the driver of recovering music revenues (third year of growth after 15 years of significant revenue decline) and grew by 41.1% in 2018 to account for 38.4% of all music revenues. Non-linear streaming TV services, on subscription models, build on channel-based pay TV bundles launched 30 years ago and are now disrupting established TV markets globally.
The end of ownership coincided neatly with the financial crash of 2008. Mortgage debt and credit card debt to pay for ‘stuff’ that was intended to maintain a lifestyle all came crashing down, making the world a significantly poorer place. Younger urban people now use Uber instead of owning a car, they rent a bike, stream or download films, music and TV, and have a monthly subscription to a book service. In a digital age, renting (or temporary ownership if you prefer) is not seen as a lower class of solution but a practical way to live and afford life’s necessities and luxuries. These movements signal the end to an economy driven by ownership of things, to one where payment for usage or regular subscriptions are the main economic models. Commentators have dubbed this the ‘Post-Stuff age.
The growth of social spaces
In a world of subscriptions, the circular economy, usage instead of long-term ownership, and higher levels of transience, where does cinema fit in? I contend that it fits in very well. There is still a need for real social interaction, even more so than in the past it could be argued, which cinema has always provided as a core service. As retail moves online, high streets are increasingly populated by coffee houses and other social spaces in the absence of shops. In the UK, the coffee shop sector has registered its 20th consecutive year of growth, now worth over £10bn in sales. Social spaces are sought after, and cinema needs to build on that, creating more attractive spaces, with more vibrant designs.
Which leads us into subscriptions, the latest buzz word for our industry, triggered by the move to this model in the TV world and the rise (and fall) of MoviePass. While these schemes have been around for two decades in the cinema, the disruption caused by MoviePass and the subsequent launch of exhibitor-led schemes to counteract this have led to a near assumption that they are here to stay and will take off in the same way subscription streaming services have.
There are key differences between a subscription for a service in the home and one for a service out of the home, however. Subscription services for cinemas certainly have a place, but the main point for me is that most people don’t go to the cinema sufficiently to warrant such a service. The value needed to attract mass visits is not possible in the cinema world (say $9.99 for an all-you-eat package), where the ticket price is the main unit of division between exhibitor and distributor and a number of revenue-sharing technology services. In the US, frequent moviegoers make up 12% of the population but account for 49% of the tickets sold. These users are likely to be younger and own more tech products compared to the overall population including video streaming devices.
This underlines a key fact: there’s a high crossover between high-volume cinema attendees and those who stream content. So, while subscription models for cinema could account for a significant part of admissions (and they will need to be priced so as not to lose too much revenue), they aren’t relevant to cinema-going frequency. Subscriptions will look after a cinema’s best customers. That is vital, but they will impact revenues for both exhibitors and distributors. The trade-off for more secure revenue streams may well be less revenue from ticket sales, though extra concessions spend could make up for it. This will require buy-in from studios and distributors to make it work.
Cinema: a sector that sits apart
So, in this post-stuff world, where and how does cinema fit in? Cinema has always sat apart from other media. It hasn’t demanded a user’s investment in technology or consumer goods, does not involve buying a physical product and what is played on screen is not governed by the individual. In this sense, while cinema is the major value creator for films, it sits more in the leisure sector than media. The leisure sector is evolving too, bringing in social media, experience and socialising. It also may include multiple elements not just a single one, such as cinema with a meal or drinks. Technology plays a role in several aspects of this evolution. The modern leisure sector is about experience and providing value for money for that experience. This doesn’t mean cheap, quite the reverse sometimes. The experience offered can be a premium one but it needs to be perceived as good value.
I’ve talked about the experience economy for several years, but it’s not my term. Credit goes mainly to B. Joseph Pine II and James H. Gilmore, academics at Harvard Business School in 1998, and it applies to cinema in both the digital economy where it sits and the modern leisure economy. Lip service has sometimes been paid to the cinema experience as a concept, but it needs to provide an experience on many levels: from booking tickets to being immersive, high-quality entertainment. This doesn’t just refer to technology, though that is a lot of what I look at and talk about and it is important. The whole concept revolves around making cinema a premium space for film viewing, differentiating it from the home and differentiating if from other leisure options, while building on the social and communal hub it provides. The success of “Avengers: Endgame” is a robust answer to the question often posed to me: “When is cinema dying?” The right film in the right venue will work, bring people together and create a global experience, let alone a national one.
Periodically, cinema needs to justify its existence and I believe this is one such moment in time. The cinema space needs to offer comfort, design, experience, sensations and a differentiated space from the home. The signs are good for cinema as long as it positions itself within the evolving dynamics of a number of other sectors surrounding it and doesn’t forget its core strengths for its customers. Be big, be bold, be premium, be modern, but above all stay Cinema.
David Hancock is Research Director, Cinema at IHS Markit and President of the European Digital Cinema Forum.