The global cinema industry is going through its fastest pace of change since the introduction of digital projectors. Customers have more ways to consume content, in more formats and from more sources, than ever before. But while many think Video-on-Demand will hit cinema attendances, we think they benefit from it.
But like televisions, VCRs and DVDs, Video-on-Demand – VoD – will require cinemas to refresh their proposition.
Cinema admissions in the US have been fallen by an average of 1.6 per cent a year since 2000. But while VoD is having some impact in developed markets, we believe the majority of this decline is due underinvestment in cinema properties and variable film content. Sites that are refurbished report attendance growth above traditional cinemas.
Emerging markets, especially China, are seeing attendances increase and more cinemas opening. They have not seen the same growth in VoD, though this is changing quickly as smartphone adoption increases. However, they focus on traditional TV media.
The argument that VoD will disrupt the cinema industry is that by providing greater on-demand content to consumers at home, demand for going-out will reduce, impacting cinema admissions. However, we believe cinema is a leisure activity, not just a channel to consume content.
Analysis suggests cinema admissions benefit from VoD because the most regular cinemagoers stream the most content. Very few non-cinema-goers stream video content for long periods.
Also, VoD is more focused on traditional television viewing rather than on cinema. In emerging countries especially, VoD focuses on shorter content, thus competing with TV.
The major US companies offering VoD are seeing memberships rise, but while their content libraries are dominated by movies, films account for only 30 per cent of viewing time. Their TV content has increased sharply while movie content has decreased markedly.
Studios are also looking to develop their VoD offerings, sometimes making prequels available there before new cinema releases.
And VoD is showing signs of maturing in developed markets. As studios invest in film content and cinemas update their proposition, we expect admissions to grow.
VoD is now leapfrogging into emerging markets as internet use grows and smartphones provide another channel to consume content away from TV viewing. People currently visit cinemas less often there than in developed countries, but without overcapacity problems, emerging nations can continue opening new theatres and increasing attendances.
US overcapacity will remain structural, but admissions should shift to newer and refurbished properties, creating a tier of more attractive cinemas.
The top US cinema operators have so far refurbished less than a quarter of the country’s total screen capacity but these premium format cinemas will capture the majority of admissions. Meanwhile emerging markets are bypassing older cinema technologies and introducing premium formats.
Global box-office takings are set to grow in coming years with the Asia-Pacific expected to be the main contributor, thanks to strong growth in China and India.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Ali Naqvi
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