'A Fistful of Dollars': Challenges ahead, but is the UK Cinema Market set for a recovery?

The cinema market in the UK has faced a cocktail of challenges in recent years, notably due to the rise of streaming platforms, the COVID-19 pandemic and most recently the cost-of-living crisis. This has led to several high-profile operator administrations – threats clearly remain, but we believe there are reasons to be cautiously optimistic about the medium to long-term outlook for the sector.

1. Robust recent performance: The latest data points to strong momentum in the recovery of the UK cinema sector post-pandemic, and suggests that the public remains as willing as ever to flock to original stories, that are well-marketed and tailored for the big screen.
   
   
   • According to CACI, UK cinemas doubled their takings in July compared to the month prior, with many cinemas reporting ATV increase of at least 10% month-on-month.
   
   
   • The Barbie and Oppenheimer films drove UK&I box office revenue to the second highest weekend total ever (£35.7 million).
   
   
   • According to Barclaycard data, entertainment spend (inc. cinemas) grew by over 15% in July - the strongest growth across all spend-categories.


2. Successful operator evolution: Cinema operators are, on the whole, evolving their strategies and innovating to meet new consumer requirements and technology trends.
   
   
   • Operators are adopting technologies such as 4DX, and premium large format screens provide an immersive experience that cannot be replicated at home.
   
   
   • Operators are diversifying revenue streams beyond ticket sales, by exploring opportunities such as event screenings, live broadcasts of performances, and partnerships with streaming platforms for exclusive releases.


3. Positive forecasts / outlook: Available forecasts (which are limited) are broadly positive, and point to continued recovery post-COVID, and relatively healthy annual growth in the next five years.
   
   
   • PwC forecasts strong overall growth in the UK entertainment market - revenue is expected to reach £85bn in 2023, with growth forecast to reach £100bn overall by 2027. 
   
   
   • The cinema market specifically (which forms part of the entertainment category) is forecast to grow over the next four years at a 7% CAGR, and revenues will exceed pre-pandemic levels by 2025, at £1.3bn.
   
   
   • According to Statista, the UK cinema ticket market is forecast to recover strongly from now to 2028, exceeding 2019 levels by 17% in 2023, and by 42% by 2028 (see Figure 1).

Figure 1: Revenue of UK cinema tickets market, 2019 to 2028

^{Source: Statista}

There are undoubtedly challenges on the road ahead, not least the ongoing writers’ strike, which looks set to drag into 2024, and will have a knock-on effect on the film pipeline over the next few years. Additional challenges include increased competition from streaming platforms, potential shifts in release strategies, plus various external factors including overall economic conditions, consumer behaviour, and technology advancements. The cinema market will need to continually adapt and innovate to capture the attention of audiences and provide unique experiences that cannot be replicated at home.

In particular, larger operators need to evolve to avoid further polarisation of the market - profits have stalled for the big players, which are also struggling with large debt liabilities (Cineworld has a reported £4bn of debt, and Odeon £4.7bn). Meanwhile, high-end and small-chain operators have thrived, due to their strategy of providing an evening of hospitality, food and drink, not simply a film.

The industry also needs to embed flexibility - a one-size-fits-all approach is no longer applicable. As with retail, an appropriate assessment of the market will identify catchments that can sustain relevant leisure / cinema activities. And with constantly changing consumer tastes (such as localisation) combined with new entrants, the ability to understand the micro market - as well as the macro - becomes critical to future operator success, and enable them to benefit from the continued overall market resurgence.