HMV cinemas: coming to a high street near you

http://www.guardian.co.uk/business/2009/oct/25/hmv-curzon-artificial-eye-cinemas

Joint venture with Curzon could deliver earnings of £3m

guardian.co.uk, Sunday 25 October 2009 16.06 GMT

HMV group has joined forces with cinema operator Curzon to launch a chain of cinemas on the high street. Photograph Newscast

"It's like two of your best friends getting married," gushed Four Weddings and a Funeral director Richard Curtis. "Can't think of a better combination," enthused Stephen Fry.

At advance screenings last week, actors and Hollywood glitterati gave rave reviews to a partnership between HMV and cinema operator Curzon that could create a new national chain.

The joint venture is part of HMV chief executive Simon Fox's plans to turn the retailer into an entertainment group for all seasons.

It taps into a rich vein, as cinemas are booming. The downturn, and cheap DVDs at the supermarket, have not deterred cinema-goers, with the industry enjoying increases in box office and admission numbers. There is also a buzz around a new wave of 3D films thanks to the cartoon Up and James Cameron's hotly anticipated Avatar. "Cinema tends to be recession resistant as it offers inexpensive escapism," says Philip Knatchbull, chief executive of Curzon Artificial Eye, which is joining forces with HMV.

Cinemas began to disappear from towns in the 1980s as developers anchored their new retail parks with giant multiplexes.

But Knatchbull says there is a gap in the market: "There are the multiplexes on one side and the indies on the other. The same person can enjoy a blockbuster like Dark Knight and the Palme d'Or winner White Ribbon."

Unlike in the US and Spain where attendance is dwindling, UK cinema admissions increased 1% to 164m in 2008.The industry enjoyed its best summer since 1969 as films including Abba romp Mamma Mia pulled in the crowds. According to UK Film Council data, the box office take rose 3.5% to £850m, with figures pointing to significant growth again this year.

Fox says the HMV Curzon is a new breed of cinema that is miles from the "coke and popcorn" experience of the multiplex. "This is about bringing cinema to the high street, not visiting a soulless retail park." If it is well received, the two companies plan to begin converting dead space above HMV's stores into cinemas.

The first venue, which opened in Wimbledon last Friday, has a studenty feel with licensed bar and pictures of Clint Eastwood and Audrey Hepburn signalling the gents and ladies' loos. Unlike some theatres, customers can take their drinks in with them. "We want this to be a superior experience," says the lanky Fox, as he settles into the roomy seat before a screening of The Imaginarium of Doctor Parnassus.

Fox has a tough brief. He needs to rebuild profits at HMV Group, which also owns Waterstone's bookshops, and is proceeding on many fronts, converting stores into gaming centres and buying 50% of music venue operator MAMA Group to gain a foothold in the lucrative live music scene.

This imaginative thinking attracted the attention of headhunters seeking a new leader for troubled broadcaster ITV but he has publicly demurred several times over: "I am very happy where I am," he said.

Fox still has a long way to go. Annual profits of £62.5m are still half those enjoyed by the group back in the heady days of 2005 when it made £131m.

The cinema landscape is dominated by five chains which have three-quarters of the market. Odeon, the largest, with 107 cinemas, is owned by private equity firm Terra Firma. Behind it Cineworld and Vue have 74 and 63 sites respectively. Curzon has just 5 sites in its own right but the link up with HMV means it has scope to gain scale quickly should the Wimbledon trial be deemed a success. Singer analyst Matthew McEachran estimates a 20-strong chain could deliver earnings of £2-3m. Recent speculation has focused on the health of Waterstone's rather than HMV. Industry magazine the Bookseller has reported delays with customer orders and other problems arising from its new state-of-the art distribution "hub" in Burton-on-Trent. Fox dismissed the reports, adding: "I am very confident there won't be a problem supplying stores this Christmas."

There is no doubt cinema is a neat fit for HMV. The audience for the top 20 films in the UK is predominantly young, with 7-34 year-olds making up 64% of the audience. Now the resurgence of 3D means the industry is entering a new phase some have billed as being as important as the shift from silent films to talkies. "3D is a fantastic step forward for the industry as it's an experience that can be created at home," says Cineworld chief executive Steve Wiener. From now on all Disney and Pixar's animated films will be in 3D, with Wiener pointing to a pipeline of 30 movies including Tim Burton's Alice in Wonderland next year.

Progress means the tacky red-and-green glasses required to watch Jaws 3D in 1983 have been replaced with Aviator-style sunglasses. It will be up to investors to judge whether the future for HMV is bright enough to wear shades.