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PROJECTING SUCCESS

BY BROOKE COMER

Going to the movies isn't what it used to be. Cinemas these days offer clearer visuals, bigger sound and much more variety. The changes are part of a new business strategy that is bringing audiences back to the big screen. Brooke Comer talks to some of Egypt's top cinema managers and gets a sneak preview of what's to come.

Ten years ago, a trip to many of Cairo's aging downtown cinemas meant sitting on lumpy, broken seats in a dank theater littered with sawdust and pumpkin seeds. Thankfully, those days are over. The new breed of A-class cinemas offers comfy seats, clean acoustics and projectors that don't break down during the movie. Even B- and C-class cinemas are much improved, many offering the same high-quality projectors and Dolby sound systems as their more expensive counterparts, but at a fraction of the ticket price.

New blood has entered an old industry. Young, ambitious graduates of western universities are not only renovating outdated Egyptian theaters, they are changing the way cinemas do business. Single-screen cinemas are out; multiplex cinemas are in, says Hassan Fayek, owner of Cairo's El-Tahrir Cinema and a partner in three multiplexes.

Fayek, who earned a business degree in the US, made his first foray into the movie theater business when he took over the El-Tahrir Cinema, formerly owned by his father-in-law. The single-screen cinema sold 25,000 tickets per month until 1997, when competition from the nearby multiplexes brought monthly ticket sales down to 17,000. Fayek turned his loss into a gain by buying the six-screen Galaxy in Manial and partnering in Alexandria's Green Plaza and the 13-screen Stars multiplex in Heliopolis.

"Cineplexes are the way to go," he says, "Nobody's building single-screen cinemas anymore. Multiplexes are more profitable because people like variety."

Fayek's business studies and interest in technology helped him to gear up his cinemas. He attends trade shows such as Cinema Expo in Amsterdam and Show West in Las Vegas to mingle with international colleagues and stay on top of the latest equipment on the market. Convinced that movie-goers respond to top-quality sound and visuals, he has spent £E 1.5 million per screen to completely outfit his cinemas with all the latest technology, including Digital Theater System (DTS) sound and Kinitron FP20 film projectors.

The Egyptian business model is quite different from its western counterpart, he admits. In the US, for instance, ticket sales are the largest source of revenue, but concession stand sales are critical to a cinema's survival because they generate the highest profit margins. At Regal Entertainment Group, the largest American cinema owner, admissions account for about 67 percent of revenues with a 48-percent profit margin after deducting film exhibition and advertising costs. Concession sales make up 25 percent of revenues, but generate 85-percent profit margins.

For Fayek, however, ticket sales account for nearly 80 percent of revenues, while on-screen ad sales comprise 13 percent and just 7 percent comes from concession stand sales. "Egyptians aren't in the habit of buying candy at movies, and they also tend to be late," explains Fayek. "Americans hurry to the concession stand, but here, they hurry to find a seat, because the movie's already started."
Fayek is trying to change this behavior by offering attractive, novel snacks at his concession stands. But so far his attempt to woo Cadbury and Nestlé to make special movie-sized candy bars has failed. The two confectionary giants "said the market was too small," he regrets. Popcorn, however, is quickly catching on. Fayek reports great success selling family-sized popcorn buckets for £E 10 at his cinemas. "People love it. It's a novelty."

Mohamed Amer, general manager Egypt's largest cinema chain, Arabia Cinema, has taken a bolder approach, introducing hot dogs and cappuccino at his "concession café" pilot project in the Alexandria City Center cineplex. "The concession stand should be a cash cow in every theater," he asserts, adding that the most challenging aspect of concession sales is pricing. "It's hard, because I have to keep prices down. Egyptians are very sensitive and feel abused if they're overcharged." The solution, he says, is "to manufacture your own brands and price them accordingly."

Amer has also taken a bold approach to on-screen advertising, adopting a marketing strategy he hopes will bring smaller advertisers into the fold. He's adapting some of the screens of the company's 83 cinemas to receive digital broadcasts. Digital-friendly screens allow advertisers to broadcast their ads using readily available Betacam or DVD equipment instead of spending about £E 500,000 to convert their ads to 35mm format.

Using digital screens, small advertisers can fill the available 11 minutes of airtime with 20 thirty-second ads. "My goal is to target the chewing gum factory in Assiut, which doesn't have the budget for a big campaign," he says. Digital ads run about £E 1,900 per month per screen in one of Arabia's A-class cinemas, and £E 480 in C-class cinemas. That can be as much as 80% percent cheaper than a similar ad in 35mm format if conversion costs are factored in.

Most cinema managers double as film distributors or producers to survive the limitations of a small, government-capped industry characterized by high start-up costs, content restrictions and heavy taxation. Antoine Ziend epitomizes this kind of multi-tasking. He has two companies: United Motion Pictures - the sole distributor for Fox and Warner Brothers films in Egypt - and Silver Screen, which manages four cinemas.

According to Odeon Cinema partner and Misr Films distributor Gabriel Khoury, one of the biggest impediments to the business is the sheer number of permits required to build or renovate cinemas. The permits, which must be obtained from local district heads, who in turn seek approval from a myriad of state departments, "are not that expensive, but are very, very time-consuming to obtain."
The cost of building a new cinema varies depending on the neighborhood. New cinemas in business-hungry areas such as Sixth of October City are eligible for tax holidays, but a cinema owner that Business Monthly spoke to confirmed that the deferment application process is mired in complexities.
Khoury admits the cost of buying land and building a cinema from scratch is outrageously high. "It just doesn't happen," he says, noting that most new cinemas open in suburban malls, which have a built-in customer base and can offer more variety. The other alternative, to renovate an existing cinema, is also costly. To bring an old theater up to current fire code standards may cost up to £E 1 million.

The cost and complications of running a cinema make the job more feasible for a corporate entity, rather than a small partnership of distributor-producers. But even corporate-run cinemas face the growing challenge of satellite television, which is bringing Egyptian films and Hollywood blockbusters directly into Arab homes. Satellite television, however, is still a luxury of the A- and B-class, making C-class cinemas among the most profitable.

Khoury's C-class Odeon Cinema
in downtown Cairo, for instance, sells 700,000 tickets per year - compared to 440,000 at the more luxurious six-screen Galaxy Cinema. He says seats for the cinema's six presentations a day - seven in summer, including a 3am showing - routinely fill up. Even with ticket prices as low as £E 5 in some sections, the volume ensures a healthy profit.

But like all cinema owners, Khoury must pay an amusement tax on ticket sales. The government takes 20 percent of the ticket price on foreign films and 5 percent on domestic films. The remainder is split 50-50 between the distributor and the cinema owner.

Both complain that the higher tax on foreign films is a burden, as Hollywood films are already encumbered by restrictions designed to protect the local film industry. Existing legislation limits the import of foreign films to just five prints per film - meaning for any given foreign film, only five copies are available for all of Egypt's 200 cinemas. The quota has capped the profit potential of foreign films, which, if unrestricted, could be huge money makers.

Cinema owners have lobbied to increase the total number of foreign prints allowed into the country against stiff opposition from local producers, who churn out less than 25 films per year. Amer of Arabia Cinema, itself a leading producer of Egyptian titles, says the opposition is near-sighted. "They think more foreign films will take sales from their product, but they don't see the big picture," he says. "We're going toward a free market economy, and if you have a demand, you supply what your client wants. And at end of the day, it's your call - if you own a cinema and you don't want to show Arabic movies, why should the government interfere?"

On September 1, a new law will go into effect, increasing the number of foreign prints allowed into the country from five to eight. Amer hails the move, though says it will have only a modest effect on ticket sales given the number of cinemas. If the number of foreign prints is increased to 10 or 20, he notes, it would give distributors bigger ad budgets to promote their movies, which would in turn sell more tickets.

The new legislation, however, includes an exemption for multiplexes, some of which have more screens than the meager local industry can fill. Cinema owners can apply to the Chamber of Cinemas for permits to import extra prints of foreign films to fill these screens.

A similar scenario played out during the last Eid holiday. A ministerial decree, in effect since the 1960s and renewed in the 1990s, forbids cinemas from showing foreign films during the two Muslim Eid holidays. Last Eid, however, there were not enough Egyptian films to fill the 13 screens of the Stars multiplex in Heliopolis, Egypt's largest cineplex. A ministerial decree was issued to allow "The Incredibles," "National Treasure" and "Oceans 12" to remain in the cinema during the four-day holiday.

Now that the law limiting foreign prints has been amended, theater managers anticipate more ticket sales across the board. Ziend points out that Troy made over £E 4 million in gross box office sales, "which is an outstanding amount, considering we only had five prints. Think of how much more money Egyptian theaters could have made if it was released with 10 prints."

He hopes the government will now consider lowering the 20-percent amusement tax on foreign films. "I'm not complaining, but we could be selling so much more. Egypt loves American films."

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