Page 3: Making an investment decision
Before UCI makes an investment decision, it has to ensure that the investment will be worthwhile. Building a multiplex is very costly and therefore it is important to have confidence in the final outcome. When a cinema investment takes place, it is essential to predict the various revenue streams - ensuring that UCI can recover its investment and meet profit targets.
Calculating the expected revenues is not easy because they are affected by so many different factors. No matter how much market research takes place beforehand, there is always an element of uncertainty in any investment decision. Key factors include:
- Demographics - population data is a key starting point. It is important to understand the nature and structure of the population of each district plus population projections. Knowing the behavioural, purchasing and lifestyle habits of targeted groups through socio-economic and geo-demographic classifications is also important.
- Ticket prices - seeking the right price is one of the most critical factors in the marketing mix. There are many pricing factors and influences in the market which are constantly changing. For example, the opening of another multiplex nearby might affect ticket prices.
- Movie quality - UCI is an exhibitor and it therefore depends upon the film industry for the generation of high quality films which consumers will wish to pay a certain price to see.
- Other income - ten years ago, only 10% of cinema revenue was derived from non-ticket sales (i.e. popcorn and drinks). Today, this generates more than 25% of revenue.
The location of an organisation's outlets will have a critical effect upon its performance. Deciding where to develop each new UCI Cinema is an important consideration - but how is a new site chosen? Although there has been a recent change in thinking about city centre sites, the trend in the retailing and leisure industry has been to build out-of-town shopping and leisure centres. These developments spearheaded many of UCI's investment propositions - these were areas in which people lived and where shopping centres were being built. The road and transport infrastructure had also been developed to cater for such centres where land was available.
It is not always easy to find appropriate sites for a multiplex development. It would, for example, be inappropriate to choose an area with a low population base where there is already strong competition. On the other hand, areas of high population and low screening (little competition) may not have available land.
Every time a new cinema opens, it must attract a new audience. UCI has to consider what is the most appropriate offering for each location it chooses. A mass of information is used to find prime sites. Demographic and geo-demographic figures help to provide key information about target markets and customer groupings. This can be obtained from census information, family expenditure surveys and trade association figures. Details of regional population breakdowns by age, sex, nature of household ownership and car ownership help develop sophisticated models of local economies and spending patterns. From this it is possible to identify the specifications for each cinema - i.e. if it would be appropriate to build 20 screens or just 6?
When cinemas are located out-of-town, UCI must consider accessibility for customers without cars. UCI has, in the past, subsidised bus routes and provided incentives to bus companies to generate services. Although only around 10% of customers travel by public transport, it is important to have a good public transport infrastructure.
At the end of 1996, UCI opened its third cinema in Dublin - a ‘new generation’ cinema at Blanchardstown. This is a new shopping centre of around three quarters of a million square feet on the outskirts of Dublin. It serves Dublin’s growing north-west sector where 5,000 homes are being constructed in a large housing development. After completing indepth research, UCI decided to open up a 9-screen cinema.