The Cineworld / Picturehouse Merger: The Final Decision And Next Steps

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After an agonising wait over the last few weeks, the Competition Commission have this morning publised their final report, and have given the news that rational supporters of cinema both feared and, if we’re being honest, expected: that Cineworld group must sell one of their cinemas in each of the three affected areas: Cambridge, Bury St. Edmunds and Aberdeen. Cineworld have in turn published a statement, which would seem to suggest that they will not be appealing the decision (no statement is made that they will appeal) and that they currently plan to sell The Belmont in Aberdeen, rather than either of the Cineworlds there, and also to sell the Abbeygate Picturehouse in Bury St. Edmumds. They have not yet made a decision as to which cinema will be sold in Cambridge.

They have also made specific reference to the cafe in Bury St. Edmunds in their findings, in that it does not need to be retained by any cinema supplier. Given that any purchaser will be required to be in competition with Cineworld by the terms of the findings, the possibilty of that cafe being replaced by another screen or a bland concessions area in an attempt to make the cinema more competitive must surely now be very real.

The Commission also had the offer of putting price controls in place on the Picturehouse cinemas, and all three local councils had shown both a willingness to do this and two had comfirmed they have operated similar schemes in the past. The Commission rejected this, effectively on the grounds that restricting prices wouldn’t encourage competition – when the purpose of competition is solely to restrict prices – and that the Office Of Fair Trading would incur costs. Instead, those costs are likely to be passed directly to consumers.

The Commission are also required to consider any benefits of the merger. What they are not required to do in law is to consider any benefits of the two chains that existed before the merger and have been retained by it, but that would be lost by selling one of the cinemas. Consequently, the findings have overlooked the current state of operation of these cinemas, focused on a single point in law which misrepresents how the industry operates as a whole, and have pursused this point to the detriment of cinema lovers in each of these areas.

This is terrible news for all three areas. I remain of the belief that Cineworld and Picturehouses offer better deals to their customers than any of the other operators, in three key areas: price, programming choice and other services, and I say that as someone who has been to cinemas of every major operator in the past three years. The Competition Commission have ploughed a single-minded furrrow through an industry they do not understand, and have come to the conclusion that allows them to have taken the path of least resistance rather than protecting the desires and needs of customers.

As part of their final report they have published a set of letters from customers, including myself, and even one from the MP for Aberdeen that was send directly to them. I can find no response from them on a single question that was posed to them. Spectactularly, there is a post on their website which actually goes to the extent of summarising the concerns of the 600 people who wrote to them directly, and the 13,700 people who signed the petition to date, and then doesn’t respond to any of it.

If you navigate to my letter, you’ll find that I asked four questions of them the day after the initial report was published. I also wrote to them before the deadline and posed some futher questions, which remain unanswered:

1. Was there no requirement to set a suitable threshold for competition in a given area? The areas concerned seem to have a luxury of competition compared to geographical areas of similar size and population density, and this decision is simply regressing them to the same level as their competitors.

When I reviewed the findings initially, I discovered that geographical areas of similar size to Cambridge don’t normally have competition in cinemas, they can normally only sustain one. Consequently areas such as Cambridge or Bury St. Edmunds, less than a quarter of the size of Cambridge, will surely struggle to maintain two cinemas if their offering is not substantially different, as it is now. Aberdeen is larger, but has two Cineworlds; the Commission have not instructed Cineworld as to which cinema must be sold, so customers are faced with the prospect of them retaining two Cineworld cinemas but selling a Picturehouse.

2. Why, when the OFT’s initial report (published in June) indicated that multiplex and art house cinemas operate in different markets, have these cinemas been deemed to be in sufficient levels of competition such that a substantial lessening of competition will arise?

Everyone I’ve spoken to, even those who see benefit to retaining competition in these areas, recognises that these cinemas operate in different markets. Everyone except the Competition Commission.

3. Why is it believed that introducing another party to these areas will have the effect of reducing prices or maintaining them at their current levels?

The only evidence that the Commission were able to provide is that the cinemas in each area monitor the prices of the cinemas of competitors. There is no evidence that they set prices competitively based on the actions of their competitors. A cursory examination of the marketplace suggests that cinema prices in each area are in a narrow range, and that competition is not as much of an influence on pricing as the local cost of living. (See my original post for sample evidence of this, looking at Cineworld prices over a wide area and also prices in Norwich which has more competition.) If the Commission wanted to be truly effectlve, they’d be looking at this issue on a national level. The likelihood is that whoever takes over each of these cinemas will offer a poorer deal for consumers, based on price and choice, and there is strong evidence to support this.

4. Why were membership schemes excluded from the final calculation as these not only create a customer loyalty to particular cinemas, but in the case of these two cinema serve to insulate their customers from price increases both locally and nationally and could act directly to negate the impact of the creation of an SLC?

The Commission’s own independently commissioned research found that 58% of Picturehouse customers are members. Cineworld is also the only multiplex to offer a membership which gives direct discounts or free tickets to its members (Odeon offer a points scheme, but the rewards are significantly less), and also has abandoned booking fees online. These discounts are significantly greater than the 5% increase in ticket prices that the Commission proposed in its survey would cause customers to change cinemas.

5. Is there any evidence of any other part of the country where competition alone is successful in influencing prices? On inspection, the prices seem to be set at a level more related to the general cost of living than the factors used in the correlation in the report, and comparisons with local areas with both more competition and no competition do not suggest any evidence of a strong effect of competition on prices in this sector. The subsequent fear is that any competitor purchasing either of the cinemas will not be able to be restricted from raising prices from current levels, and I would be keen to understand the Commission’s powers to influence in this regard.

Again, the focus of the Commission is very narrow, attempting to ensure competition which will do less to drive down prices than the current operators are doing at a national level. There is nothing to prevent another operator taking over the cinemas and charging whatever they want, as the Commission refuses to engage in any mechanism to control prices.

6. Given that any competing chains in both the multiplex and art house sectors are currently charging similar prices for single price tickets and less discounts to members, what controls is the Commission able to put in place to prevent a change of ownership relating in a direct increase in prices for some or all customers, which would appear to be highly likely on the available evidence?

Three options exist for the purchase of each cinema: another multiplex chain, another independent chain or an independent purchaser.

  1. Other multiplex chains have shown a reluctance to take on small cinemas, as shown in the initial research. But the only other chain competitive on price on a national average is Empire, and they would only be competitive for customers purchasing small numbers of tickets. Any other multiplex purchaser would see an increase in prices, a loss of choice and they would be unlikely to run the other services.
  2. The only other independent chains are Curzon and Everyman. Neither offer the same level of diversity in their programming in their provincial cinemas as Picturehouses, and both offer less discounts to members, so the prices would rise for the majority of customers.
  3. Other independent cinemas in the country do manage to offer similarly diverse programming, but there would be no guarantee on prices. It must also be considered that an independent wouldn’t have the resources of one of the chains should the cinema operation encounter difficulties.

By failing to answer any of these questions, the Competition Commission have failed their duty of care to cinema customers in these three areas. The absolute best case now is that another supplier will come in and take over these cinemas, but all evidence of the industry suggests that prices of single tickets will not be any cheaper, anyone running membership schemes in other areas will offer less discounts, that choice of films is likely to go down and that there is no guarantee of support for the other services offered. The worst cases are that new suppliers fail to make the same success of these cinemas that the current suppliers have, and once the Commision is out of the picture they will each die a slow – or possibly quick – death.

I do not believe this should be the end of the fight. The Cambridge MP, Julian Huppert, has shown a willingness to continue the fight and his support is most welcome, but hopefully the 13,700 people who’ve signed the petition will also be willing to add their weight to finding a satisfactory resolution to this. I will also be contacting MPs in other affected areas today to see what support they can offer, and would encourage others to follow the same course, especially in those areas outside of the cities themselves.

Rest assured that I do not intend to give up the fight to protect what any of these cinemas offer, and the next few days will be spent attempting to secure as much support as possible for the next stages of the battle. To be clear, I still believe that losing either a Cineworld or a Picturehouse in either area results in a poorer deal for consumers and will fight to the last to protect what we currently have. If you have any views on any of the above, or wish to contribute to the battle to save any of these cinemas, please contact me at movieevangelist@btinternet.com as soon as possible. It’s still not too late to sign the petition; although this initially referred to the Competition Commission, it still acts as a focal point and a show of unified support, and the more weight we can put behind it, the better.

http://bit.ly/SaveOurPHs

Thank you in advance for your support.

UPDATE: There will be a public demonstration at 17:15 on Wednesday 9th October outside the Cambridge Arts Picturehouse. If the numbers become too great, it will relocate to Parker’s Piece, almost opposite. It is hoped that Julian Huppert, MP for Cambridge, will be in attendance prior to 17:45. Please do come and show your support if you are at all able.

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