Multiplexes battle it out for profit

By Aleksander Nowacki

Złote Tarasy, the multipurpose commercial development set to transform the face of Warsaw's city center by the end of 2005, is to house yet another multiplex in the city. Multikino, the country's second largest multiplex operator, is currently in negotiations with the project's developer, ING Real Estate, over the conditions of a prelease agreement.

The Złote Tarasy multiplex is not the only such project currently underway in the city's oversaturated cinema market. The Wola Park, Arkadia and Wilanów commercial centers all have plans to include multiplexes, while the Targówek center, run by Danish company Fortas Management, has had to reconsider its plans and redesignate its multiplex space for other uses. Although the company has not formally acknowledged its failure to find an operator for the multiplex, the fact is widely known among real estate professionals.

In view of recent stagnation in ticket sales, the large number of new multiplexes being built has drawn criticism from some operators.

"The market is already beyond the saturation point," said Marek Frączek, investment and development director at Kinoplex, the country's third largest multiplex operator, with an 8% share of the market. "I don't know what would need to happen for all these new cinemas to make a profit. Ticket sales would need to double overnight."

Frączek went on to describe such new investments in the city as a "big risk," adding that if the new cinemas are to be successful, the conditions of lease would need to be very accommodating.

"I don't know if developers are willing to offer such terms," he said. "I would imagine it would be very difficult."

Central European Retail Property Fund (CERPF), which manages the Wola Park shopping center, is an example of one developer that has been experiencing difficulties in the market. Although the mall's entertainment center, set to include a multiplex, is to open in July this year, no deal has yet been signed with a cinema operator.

"We are currently in negotiations with three operators," said Anna Czyż, manager of Point of View public relations agency, which is handling the project's media relations. "The talks are at an advanced stage." She could not, however, say when the movie house would be open to the public.

Multiplex operators themselves accuse each other of excessively aggressive investment policies.

"The market has to be divided in a rational way," said Paweł Wichnik, president of Multikino. "Otherwise we will end up murdering each other." While he sees Warsaw as a developing market, he is bitter about the strategy adopted by Kinoplex in Gdańsk, where two movie houses opened soon after Multikino first entered the market.

"Now we have three cinemas with 26 screens within a three-mile distance of each other," he said. "And none of them are operating at a profit."

While Frączek of Kinoplex is quick to defend his company's policy in Gdańsk, saying that the economic recovery is bound to send ticket sales soaring in the near future, he levels the same accusation against his competitor's strategy in Warsaw.

Wichnik, on the other hand, says that there is space for more multiplexes in the capital, as the market will pick up within a year or two.

However, Leszek Popowicz, president of Best Marketing and Promotion Agency, which specializes in cinema advertising, says that such a recovery is difficult to predict.

Furthermore, Wichnik says that the market and its development is curbed by the fact that the habit of regular cinema going is not ingrained in the local culture. Back in the late 1990s, he said, there was a hope for a rise in ticket sales among operators, which led to excessive investments. As the expected growth of sales failed to materialize, three companies were forced out of the market, while those that remained had to revise their business plans.

Popowicz pointed out that so far new multiplexes have not contributed to increased total ticket sales, merely taking moviegoers away from the competition. Industry insiders hope that the same scenario will not happen again.