The active construction over the next three years of retail trade centers, or malls, that include the placement of multiplex cinemas within them is threatening to enhance the level of competition between the “new” and “old” cinemas. At the same time, the latter will have a disadvantage.
At present, the primary tendency of the market is the construction of new multi-screen cinemas (multiplexes are considered to start from a minimum of four screens) in malls. In just Almaty by the beginning of autumn, launches of 12 new screens are planned.
As noted by the participants of this market, due to the construction of new malls, along with the theaters inside them, competition between the new and old players will only intensify. The result of this will be a considerable flow of viewers into the new multiplexes. However, the market leaders do not intend to simply give their positions away, and are already now preparing a response.
Unfortunately, in contrast to Russia, where serious research of the cinema market is undertaken on an annual basis, Kazakhstan has yet to follow such a practice. Even the most widely recognized leader of the market, Otau Cinema, a network of movie theaters, has not carried out such studies thus far. Only perfunctory marketing research has already been conducted within this sphere. However, just this summer the company plans to fill in the existing information gap by performing serious research and analysis of the national market.
But still, certain information can already be derived. As per the statements of experts, the domestic market is among the top three leaders within the CIS, taking third place after Russia and Ukraine. Incidentally, last year our northern neighbor reached the benchmark of 1,000 screens, among 545 total cinemas, nationwide. At the conclusion of Q3 2005, in Ukraine the number of cinemas was 112, with a sum of 168 screens. According to data from the web portal www.kino.kz there are approximately 30 theaters in Kazakhstan, most of which are located in Almaty. However, the number is probably nominal, as this web portal only provides information about cinemas that publish their schedules. As a basis, we may utilize this data, the portal includes info on all the large and medium-sized theaters.
Taking into account the short history in the establishment of the domestic cinema market, characterizations include high growth dynamics and large development potential. The evolution in the establishment of domestically operating movie houses can be divided into several stages.
The first phase occurred under the flag of privatization of the old Soviet cinemas located in Almaty, including the investment of funds into these (renovation, installation of modern equipment, arranging distribution, and so on). The pioneer of this industry is Otau Cinema, which began developing its network in 1999, beginning with the Iskra theater, located in Almaty. Later on, one more player came onto the market, the cinema complex Arman (also in Almaty). Three years following the opening of the first modern cinema, the attendance for all cinemas around Kazakhstan reached 500,000 patrons. This number could be achieved due to overall economic growth, an increase in disposable income, and because of upgrading older cinemas to modern standards, including installation of new sound systems (Dolby Digital format). An additional factor included the glut of supply on the home video market, with viewers eventually acquiring the desire for larger screens, maintained by their interest to see first-run films, which the domestic cinemas then tried to provide without any delay. A bit later on, single-screen theaters were opened in the new malls of the southern capital, including Ramstore and Promenade.
The second stage was characterized by the development of the cinemas in the capital of Astana and the other regions, with the participation of the Almaty cinema networks. The construction of new screens occurred in the same manner of privatization, with the older Soviet cinemas being upgraded. The Kostanai cinema, in the city of Kostanai, is the largest in the country. That theater has 862 seats.
The third period was distinguished by the opening of two-screen theaters in such cities as Atyrau, Aktau, Uralsk and Pavlodar. And finally, the latest trend is the construction of multi-screen cinemas in malls. The pioneer of multiplexes is the Silk Way City cinema, located in the eponymous mall, which has four screens. For example, in Russia a multiplex theater is considered to be one that has eight or more screens. A cinema having from two to seven screens is classified there as a “miniplex”.
From 16 and Up
As is known, the majority of cinema viewers are younger people, including older people up to the age of 35-40. The major categories of viewers include school children and students. According to Burzhan Shukenov, the program director at the Arman cinema, “The local cinema audience does not principally differ from the patrons in other countries – these are principally younger people. This is why most of the movies are chosen for this category of viewers. The largest number of modern films are produced primarily for young people, and they consume them with pleasure.”
Market participants have noted that nowadays very few quality films are being produced for family viewing. Only a small number of films are suitable for the whole family. When they arrive for distribution, many people come to watch them. The situation is much more complicated as regards movies for adults. Motivating a person older than 45 to attend the cinema is quite difficult. In order to achieve this, a film should be of interest to that group. The following movies have successfully achieved this: “The Da Vinci Code”, “The 9th Troop”, “Oligarch”, and “The Nomad”. For example, “The 9th Troop” was viewed by real-life peers of the film’s characters. A completely different story centers around art house movies. The main target group for these is people from the age of 35, who are attracted by the genre.
The fact that children in primary school began attending cinemas more often is considered to be a positive trends by those operating in the market. The reason for this is the fact that a generation is being formed, which will already have the habit of visiting movie theaters, and will later on become major clients of the cinemas. Muslim Chinguzhinov, the lead manager for film distribution and advertising at silk Way City Theater, stated, “About 4,000 people visit our multiplex cinema each weekend, and out of these 85% are students and schoolchildren.” Currently, the numbers in attendance increase by 40-70% during holiday and vacations times. Accordingly, during such periods the costs of children’s tickets are decreased.
Very important criteria in the choice of a cinema are the convenience of the location and ticket pricing. For example, in residential regions, such as the 12 city district suburbs (known locally as the “microregions”) and the Orbita region of the city, the ticket price for the cinemas Sary-arka and Baikonur is an average of KZT 100 lower. The administration of the Otau cinema network has specifically set up this pricing policy in order to attract a larger number of viewers from the lower income groups. However, the flow of viewers in this area is also effected by a lack of alternatives. Nonetheless, the situation is expected to change soon, as by the end of summer the launch of a new multiplex cinema of four screens in a new mall planned for the area of the Sairan bus station is planned.
The Tselinny cinema, which as per the results of a poll carried out by the Otau cinema network, is the most popular of the theaters, receiving 50% of the vote. This location is distinguished by having the highest prices, and is dedicated to young representatives of the middle and upper classes, who constantly seek entertainment in the central area of the city. For the sake of fairness, we should note the Otau cinema network maintains the highest ticket prices in Kazakhstan.
Since the prices for evening shows are usually quite high, the management of various cinemas lowers the cost of movies playing during the morning and afternoon. The price difference between morning and evening showings may be up to 50%. Four price categories of tickets also exist (in increasing order): children, students and pensioners, adults, and VIPs (with separate, more comfortable seats within the hall). During first-run films, the increase of ticket prices in cinemas may jump by 30%. Later on, a gradual decrease occurs. If the cinema is part of a chain, then the film will be transferred to second-run theaters following the initial two weeks at one of the mainstream locations. In general, a major film will play in a two-screen theater for around two weeks.
Mr. Shukenov has stated, “This happens not because of a decrease in viewers’ interest, but can be explained by the very high influx of new films. In Kazakhstan, there are first-run films almost every week. In this regard, for network players, existing in this market is easier. Distributors prefer to work with cinema chains operated by a single company, instead of with separate cinemas. The reason for this is that the distribution of movies is done to almost all of the theaters within a network, thus maximizing the number of viewers due to the various pricing policies of cinemas and their screen policies. As a result, a film achieves its maximum penetration.”
Concerning this, Mr. Shukenov also notes an obvious advantage of multiplexes as compared with other cinemas, since the issue of second and further runs are resolved through maximizing the screenings within a single location, with a gradual decrease of the ticket price. Otherwise, when showing a film in Almaty a necessity exists to send the copy on to second-run locations or to the regions. Yet, if the theater is a multiplex, a movie can play for a month. With the development of multiplex cinemas, this problem will disappear, allowing a fewer number of copies to earn for longer periods.
Mr. Chinguzhinov agrees with this assessment, adding, “Usually the standard run of a film is about two weeks. Over this period, the first-run movie shows. To be honest, exceptions to this rule exist due to high demand, such as for “Day Watch”, which showed for two months [on a main screen]. Here, everything depends on the quality of the movie and on the demand. Due to the fact that our cinema has a multiplex system, we currently have very strong competitive advantages in the market. This is related to the fact that one or two screen cinemas cannot afford a wide variety of films. While in multiplexes, such a difficulty is easily overcome.”
A very convenient time for annual price increases is in the autumn, as migration flows into the cities increase during that season. As was stated by market participants, prices that had been increased over the previous year will be again raised in the immediate future. This has to do with the process of inflation, the increase of energy prices, and other factors. Consequently, cinemas have begun selling personalized, multiple-entry plastic cards, which have a validity period of one year.
Due to the smooth delivery of new movies to the Kazakhstani market, a local viewer sees international first-run films with merely a week’s delay. At the same time, in Kazakhstan the playing of movies occurs simultaneously with releases in Russia and Ukraine. Major players on the market cooperate with the same distributors, which is why copies of films into all cinemas arrive practically at the same time. Therefore, competition among the major cinemas is dependent upon the level of service. Usually, 12 copies of any given film arrive for use in the whole of Kazakhstan. For comparative purposes, Russia requires around 400 copies, and Ukraine about 40 copies. About 50% of the consolidated revenues for showing a film are paid back in the form of distribution fees.
In considering the various channels of film promotion, one should note that the primary outlet is via television advertising. About 10-15% of the total income from showing films is spent on television advertising.
According to the prognosis of market leaders, by 2010 the attendance levels of cinemas may reach that of Soviet times, but they refuse to provide any definite figures on this. According to Mr. Shukenov, “The primary operator on the market will be a multiplex cinema. With regards to that, Kazakhstan will follow the worldwide trend in multiplex dominance. The modern person lacks time, and multiplexes permit individuals to attend a new movie starting each 15-20 minutes. One more benefit of this category of theaters is their convenient locations – inside malls. A visit to a mall is no longer simply a reason to make purchases of necessary products. Currently, such locations are also for taking advantage of entertainment opportunities. Nowadays, upon entering a mall, all members of a family may satisfy their different wants, including visiting a cinema in which films begin every 15 minutes. When comparing all these factors, one may suppose that the largest groups of viewers will be concentrated in multiplexes. Consequently, single-screen theaters will have an outflow of clients.”
One can agree with Mr. Shukenov on the above issue, especially if one considers the activities of the first multiplex cinema in Kazakhstan. Mr. Chinguzhinov says, “In 2004, when our theater was just opened, it became extremely popular among viewers. Why? First of all because of the ability to meet the demands of many clients. Our screens show films from 10 o’clock in the morning up until 2 o’clock at night. Intervals between starts of movies are 20-25 minutes. As a result, our filmgoers save time. Moreover, one should take into account the convenience of the location – in a [mall with a] supermarket. Following a film, our customers may do their shopping, have a snack, and deal with other household related issues. Second is the large variety of films. Our screens can show up to 12 movies in a given period. No other cinema in Kazakhstan provides such a choice. We turned out to be the first multiplex theater in the history of the development of the cinema market in Kazakhstan, which proved the effectiveness of the multiplex system by example.”
However not all of the market’s participants share this opinion. Roman Korotaev, chief distribution manager of Otau cinema network, believes, “In order to intensify the level of competition on the market, the construction of relatively large multiplexes is necessary, both as regards the number of screens and amount of seating.” Truthfully, in comparing the multiplex cinema Silk Way City with its four screens and seating for 340, and the Tselinny theater with two screens and seating for 650, one can note [due to the limitations of both] that in order to enhance competition on the market the creation of a new generation of multiplexes is necessary. Even at present, in people’s minds, no difference exists among the domestic cinemas.
The Mega Alma-Ata mall (Rozybakiyeva and Al Farabi) is trying to introduce competition into this sphere by the upcoming autumn. The company Mega Center Development, a part of the Astana Group of companies, is developing a project for developing a network of trade and entertainment centers. Besides Almaty, the opening of such malls is planned for Astana and Shymkent. According to the project’s concept, each mall will include a large retail trade area with leading international brands, a grocery store, large food courts, and various service businesses.
Sino Alizoda, marketing and advertising director for Mega Center Alma-Ata LLP, explained that “the area of Mega Alma-Ata will be 80,000 square meters. There are to be 20 cafes and restaurants, 120 boutiques, an artificial rock climbing area, bowling, billiards, skating rink, and an eight-screen multiplex cinema. Incidentally, Star Cinema Management, a Russian company, will be developing the multiplex cinema. The total number of seats is to be 1,517. An average repertoire of 14 different films will be showing at any given time, with a movie beginning every 10-15 minutes.”
The fact that Russian cinema networks have begun entering our market speaks about the large potential of the cinema industry. As well, domestic cinema chains have already started work on capitalizing [on trends] by taking over and merging with other networks. On this note, last June the ownership Otau cinema network changed. Moreover, this chain has even tried to enter neighboring markets, particularly Tajikistan. However, that project has been temporarily stopped.
According to an unofficial source, by the end of this summer, that new four-screen multiplex to be opened in a mall located near the Sairan bus station in Almaty is also being developed by a Russian company.
A Russian consortium, Alfa Group, plans on creating its own Russian-wide cinema network, using the Kronwerk Cinema network. Aside from Russia, the Kronwerk chain is to be developed on the territories of other CIS countries – most likely in Kazakhstan as well. As a reminder, at the beginning of the current year, the A1 company, an investment division of Alfa Group Consortium, bought out the Kronwerk cinema network. According to the results of 2005, the chain ranked as one of the top five cinema networks in Russia.
In their turn, the existing players on the market also intend on actively developing the multiplex concept. Particularly, the Arman cinema center is continuing expanding its location through the construction of an additional 2-3 screens. As noted by Mr. Korotaev, the Otau cinema network will soon expand by means of developing multiplexes. Nonetheless, the major player on the market plans to place major stress on the quality of customer service. The outcome of the “dialogue” between the old and new generations will be seen in the near future.