Russian exhibs eying new targets

With cities tapped out, developers turn to rural areas.

MOSCOW -- Igor Ilchuk, CEO of Russia's leading cinema exhibition chain, Karo Film, was in a bullish mood as he spread project plans, growth charts and graphs over the expanse of his office desk like a general planning a new offensive.

"By the end of (2006), Karo Film (had) 22 cinemas and multiplexes with a total of 97 screens -- two times bigger than our nearest rival, Formula Kino," Ilchuk says enthusiastically. "We're signing contracts for multiplexes across Russia that will break ground between now and early 2009. Forecasts are that, within two years, we shall have a chain of 31 theaters with 160 screens and 31,525 seats."

After a couple of years in which growth slowed, a new race for market position is poised to take off in the wide open spaces of Russia's scores of provincial cities.

"The cinema theater business is turning into an 'entertainment business' more and more, including diverse ways and means of entertainment," says Oleg Berezin and Ksenya Leontyeva of St. Petersburg's Nevafilm, Russia's leading exhibition market research outfit. This is reflected, they say, in the development of a new concept in movie theaters, turning them into entertainment complexes that include other attractions such as waterparks.

According to their latest research, the number of modern cinema screens in Russia had reached 566 theaters, or 1,114 screens, by the end of 2006 --a tenfold increase from 105 screens in 2000.

Development by Russia's top 10 cinema networks was not as strong in the first half of 2006 as it was during the same period the year before. They were collectively responsible for 66% of all new screens, compared with 80% in the first half of 2005. But Nevafilm notes that regional growth is the new front in the battle for market share now that Russia's key two "capitals" (Moscow and St. Petersburg, which account for a combined 35% market share) have effectively reached saturation point.

Such top 10 companies as Karo Film, Kinomax, Cinema Park and St. Petersburg's Kronverk Cinema are all targeting the country's fast-developing provincial cities.

Underpinned by a booming domestic and international movie distribution market that last year grossed $340 million on nearly 92 million admissions and is on target for $400 million this year and a predicted $800 million by 2010, the key shift is toward cities with a population of at least 1 million.

Most new cinema and multiplex openings in the second half of 2006 (42% of the total) were for what the Russians call "millionaire cities"; 17% were in cities of 500,000-1 million people; and 10% were in smaller cities of 100,000-250,000.

While Russia's recent trend of building cinemas as part and parcel of the country's mushrooming shopping malls continues -- 71% of new cinemas opened in the first half of 2006 were this style, and now 32% of all modern screens here are located in malls -- there are signs of diversification. Nevafilm's research found plans by municipal authorities in both Moscow and St. Petersburg to restructure municipal cinemas by putting them out to tender for private-sector redevelopment with guarantees that the cinemas will be retained.

For Ilchuk it is all grist for the mill: Karo Film is planning to take on 700 million rubles ($26 million) of debt to fund the first wave of 162 new screens it plans to build over the next three years, in addition to the 160 new screens it already has under way.

There is talk of an IPO down the road to help fund further expansion -- also part of a trend. Other top 10 exhibitors that have indicated the need to attract public funds include Kronverk Cinema and Kinomax.

"Moscow is near saturation point -- there are many projects but hardly any good places left. Paveletsky (railroad station) is the last good site in the city center," Ilchuk says, indicating one of the few capital city sites Karo Film plans to develop.

Provided Russian domestic directors and producers keep churning out hits the size of Timur Bekmambetov's "Day Watch" -- which grossed more than $34 million at the local boxoffice -- Ilchuk believes the dollar value of Russia's exhibition market should double to $600 million in the near future.

Alexander Semenov, publisher of Moscow-based industry weekly Russian Film Business Today, agrees that movies are motoring in Russia, but adds a word of caution: "There is still space for new cinemas in Russia, but distributors must be careful not to release too many prints. More than 400 copies is not realistic and can really hit films that do not do big boxoffice, though of course multiplexes tend to support only the bigger films."