Competition Commission: The Current Summary
I have come to realise over the weekend that this whole Competition Commission situation is getting very complex. So I’ve tried to summarise the current research and findings in some short paragraphs and to answer the questions that I’ve most often been asked when speaking to people.
Summary of the current position
Cineworld Group plc, which runs one of the largest chains of multiplex cinemas in the UK, late last year purchased City Screen Ltd, which among other activities also runs Picturehouse Cinemas. After a referral from the Office Of Fair Trading, the Competition Commission published an initial report in August investigating the potential loss of competition. They confirmed their findings in their final report which they confirmed on Tuesday 10th October, instructing Cineworld Group to sell either the Cineworld or Picturehouse in each area to resolve the substantial lessening of competition (SLC) they believe has happened. Cineworld Group have decided to sell the Picturehouse in Aberdeen and Bury St. Edmunds and are yet to decide which of the Cambridge cinemas to sell.
1. The current cinema benefits of Picturehouse which are at risk of being lost
Cineworld bought Picturehouse to gain entry to a different part of the market, namely the art house sector. At the time of the purchase they stated an intent to run the two as separate businesses and that the two could learn from each other while preserving their identities. So far they have been true to their word.
Picturehouses offer a completely different experience to a standard multiplex (multiplexes are cinemas with more than five screens).
- The Picturehouse cinemas offer cafe bars where hot meals are served and alcohol can be purchased and taken into the screens. The findings from the Commission ignored the role these play in attracting customers, who are looking for a different experience to a normal multiplex cinema.
- The cinemas offer a much wider choice of films, typically at least double the number of films per screen per week than a multiplex, and while a proportion of the revenue comes from films shown at both cinemas, the Picturehouses show a wide range of films and live events not regularly offered at the multiplex cinemas.
- The Picturehouses also offer a range of screenings for parents with young children, senior citizens and those on the autism spectrum and their carers, as well as a monthly club for students with free screenings. Very few other cinema chains offer these services and none with the frequency of the Picturehouses.
- These cinemas also support a wider cinema culture in the form of trusts and festivals that take place year round. Cambridge hosts the country’s third oldest film festival and all three cinemas have a high number of themed or festival-type screenings.
- The cinemas are also capable of a wider range of projection than multiplex cinemas – the Cambridge Arts Picturehouse being one of the few cinemas in the country that can still show 70mm films, and they are reliant on existing expertise.
- Without a Picturehouse, Cambridge and Bury residents would have to travel to London to see these films and Aberdeen residents to Edinburgh, none of which are practical options for most customers.
The only two other art house chains are Curzon and Everyman. Curzon has five London cinemas and one in Knutsford in Cheshire and Everyman has nine cinemas, mainly in London and the south but also with one in Leeds. While they do offer some of the above services, they do so at a lesser level than Picturehouses. There are also other true independent cinemas around the country who attempt to offer these services and come closest to the Picturehouse offering.
2. The cost of cinema tickets
The reason for attempting to retain competition is to control prices that cinema customers have to pay. The Commission believe that less competition is likely to lead to a risk of higher prices. They also commissioned independent research as part of their investigation.
However, cinema operators look at a number of factors when setting price, including what people can afford in each area. Consequently, areas with more cinemas don’t necessarily have lower prices, as the cinemas are all judging what customers can afford and setting prices locally.
The multiplex and art house chains also have different considerations on offering incentives and memberships to customers. The multiplex chains offer the following schemes.
- Cineworld offer an Unlimited scheme for £15.90 per month nationally, which allows you to see any film at any non-West End cinema.
- Odeon run a points scheme, where seeing 12 peak time films will earn enough points to see another peak time film. Points can also be redeemed for food and other items.
- Showcase run an Insider scheme which is free to join and offers £5 tickets for Sunday night, Monday and Tuesday.
- Neither Vue nor Empire currently offer membership schemes.
The art house chains also offer memberships for between £33 and £40 a year. While Curzon and Everyman offer customers two free tickets and £1 discounts, Picturehouse have three free tickets and £2 off per ticket.
Additionally, Cineworld and Picturehouse have dispensed with booking fees. Cineworld all other cinemas offer a myCineworld scheme which is free to register and offers 10% off for online booking. All other chains charge between 21p and 75p for online booking or administration charges online.
So even if another chain comes in to either cinema and charges standard ticket prices for the industry or the local market, customers of whoever takes over a Cineworld or Picturehouse will end up paying more. The real issue is why the other operators aren’t doing as much as Cineworld Group to compete on price, yet they are the two cinemas being penalised. While there is no suggestion that cinemas are actively engaging in price fixing, comparisons of local prices suggest that competition is not doing much to drive prices down.
3. The economic effects of competition
The Competition Commission used a calculation called Gross Upward Pricing Pressure Index, or GUPPI, to work out if there was a risk from reduced competition. What the GUPPI attempts to work out is how much profit a cinema would make from raising its prices, and specifically what Cineworld or Picturehouse would make from raising prices in one and then customers going to the other, which would mean Cineworld keeps the profits. The Commission’s calculations state that the GUPPI would be high enough in the three affected areas to give Cineworld Group an incentive to put its prices up, which is why they need to sell a cinema.
Aberdeen and Cambridge have reduced from three cinema operators to two (both also have a Vue) and Bury St Edmunds from two to one, as Cineworld now own both of the cinemas in the area. They have based their calculations on people travelling up to 20 minutes to reach each cinema. However, if you look at similar sized geographical areas across the country to Aberdeen and Cambridge, they only tend to have two cinemas, and areas the size of Bury to have one within that 20 minute radius. So these areas had a higher level of competition than normal, and the merger has simply reduced them to the national average. The only areas that have more cinemas tend to be those with a Picturehouse, which can sustain against the other cinemas because its offering is so different.
The independent research asked people what they would do if the ticket prices went up by 5%. They made the following findings:
- Members of Cineworld or Picturehouse would retain their memberships and would continue to attend the same cinema.
- For non-members at any of the Picturehouses, no more than 3% of customers would go to the Cineworld instead.
- For non-members in Aberdeen’s two Cineworlds, around 7% of customers would have switched to the Picturehouse but over 20% would have gone to the competitor (i.e. Vue) or not gone at all.
- For non-members at Cambridge Cineworld, around 10% of customers would have switched to the Picturehouse but 30% would have gone to the competitor (i.e. Vue) or not gone at all.
- For Bury St. Edmunds Cineworld, around 19% of customers would have switched to the Picturehouse but 4% would have not gone and another 11% would have gone to a competitor, even though all the competitors are more than 20 minutes away.
Increasing prices by 5% would provide a small amount more profit, but the numbers of customers who would take their business elsewhere would be a loss of all of that profit and turnover. Additionally, around 30% of cinema revenue comes from the sale of food and advertising, and Cineworld / Picturehouse would lose out on this as well from the 20% or so of customers who had left them.
No sensible business – especially not one such as Cineworld which is a public listed company and has shareholders to be accountable to – would raise their prices knowing this. The Commission’s own research has demonstrated it would be financially better for Cineworld and Picturehouse to keep their prices in line with other cinemas, rather than raising them, and giving no economic benefit to selling a cinema either.
4. The question of whether or not Cineworld and Picturehouse operate in the same market
The whole reason for the judgement being passed is that the Competition Commission believe Cineworld and Picturehouse are in direct competition. They have received two sets of submissions, arguing for and against this point.
The only people who support the view that these cinemas operate in the same market are Odeon, Vue and Curzon cinemas. They all had contact with the Commission during the investigation, and expressed their view that there is no significant distinction between the two cinemas. Vue currently operate in two of the three areas under review and Odeon and Curzon would be potential purchasers for Cineworld and Picturehouse respectively, so could not be considered impartial. Odeon have also written to the Commission with a list of further concerns, including that they believe the Commission were wrong to find that three further areas – Southampton, Greenwich and Brighton – did not have an SLC and Odeon believe Cineworld should also be required to sell a cinema in those three areas. Odeon currently operate in those three areas.
Arguing that Cineworld and Picturehouses are in separate markets and should not be judged to be in competition are:
- Over 600 members of the public who wrote directly to the Commission to argue against the investigation.
- A petition which has over 14,000 signatories and counting, which includes thousands of comments from customers supporting this view. (The petition and discussion also received support on social media from industry figures including Mark Cousins, Neil Brand, Peter Bradshaw, Karen Krizanovich, Andrew Collins and Sight And Sound magazine.)
- Letters from industry figures at the time of the original investigation, including Lord Puttnam and David Heyman, producer of the Harry Potter films.
- Following the publication of the interim report the British Film Institute also wrote expressing their concerns.
- Local MPs including Julian Huppert and Andrew Lansley have now voiced their concerns in Parliament
All of the letters sent to the Commission have been published and can be found here on the Commission’s website.
Alisdair Smith, the deputy chairman of the Commission and the leader of this panel, also confirmed in an interview with BBC Radio Cambridgeshire that he believed the two Cambridge cinemas would appeal to different prospective buyers, which would also question why the Commission believe them to be in competition.
5. The potential solutions
The Commission, as well as investigating the potential problem, were also required to come up with a solution. There are two types of solutions: structural remedies, which in this case would be the sale of a cinema, or behavioural remedies, such as price controls on the existing cinemas.
All three local councils in the affected areas proposed that they were willing to put such price controls in place. The Commission said that they were not a feasible solution, as they would be complex to design, difficult to enforce and would end up costing the Office Of Fair Trading money, and selling a cinema in each area is simpler. The sale of a cinema is also agreed by each of the parties to be an effective solution: the arguments listed above would seem to suggest that’s not the case.
So at present the only solution the Commission are prepared to accept is a sale of a cinema in each area.
6. Next steps
A group of local concerned individuals, including myself and those connected to Take One magazine, are continuing the fight. Since we believe that there are losses to either cinema being sold in any area, that the proposed solution isn’t necessary on the basis of the Commission’s findings and that that implementing this solution will cause more damage than not implementing it.
We will be writing to both the Department For Business and Vince Cable, and the Department For Culture, Media And Sport and Maria Miller to look to have this finding overturned. We are also investigating the possibility of an appeal to the Competiton Appeal Tribunal. I have also written to nine other MPs whose constituents have signed the petition looking for their support, but parliamentary rules state that MPs can only act on behalf of their own constituents, so we are looking for constituents in those areas – or any area, as up to 10% of customers travel for an hour to get to the cinemas – to also contact their MPs. We are also encouraging people to continue to write to the Commission in the hope that they see sense, but I am not personally expecting them to change their position without outside intervention.
We would still welcome the support of any other individuals or groups that share our belief, and the belief of so many others, that this is wrong, and please e-mail me at email@example.com if you wish to join the campaign or to offer further suggestions on what we can do to overturn this.
6 thoughts on “Competition Commission: The Current Summary”
October 14, 2013 at 2:50 pm
Thanks, Mark, for the evident hard work that you have put into this summary !
October 14, 2013 at 2:56 pm
Just want as many people to understand how wrong this is on so many levels. Hopefully people will continue the fight to overturn this.
June 29, 2014 at 1:47 pm
So, eight months on, and where are we? I’ve heard a horrifying rumour that Cineworld may sell the multiplex and keep the Arts Picturehouse, which would be the worst of all worlds for the public. Even Cineworld’s competitor in Cambridge wouldn’t want another chain moving in. We’d get a poorer offering at the multiplex (no Unlimited Card!) and Cineworld would be quite free to start showing far more mainstream movies at the Arts Picturehouse if it proved more profitable (which it probably would). Please tell me this can’t happen.
June 30, 2014 at 12:27 am
Where we are, Chris, is waiting for a decision on the last of the three sales. Unfortunately news coming out of the process has been slow, mainly because we entered a phase that legally had to be conducted out of the sight of the public, but things are starting to become clearer. If you’ve not heard, the Aberdeen Picturehouse was sold to the Centre For The Moving Image in March and has now become the Belmont FIlmhouse. It has continued to operate in the same manner, if anything with more diverse programming, since the sale. Earlier this month, the second of the three affected areas also sold its sale, with the Abbeygate in Bury St. Edmunds being sold to Tony Jones, a former founder of Picturehouse who was bought out by Cineworld in 2012 in the merger; a move which ironically enabled him to buy the Abbeygate. Having interviewed Tony for community radio recently, I have no doubt he will also continue to run the cinema in a similar fashion and to strive to increase the quality of the film programme. The final decision is still awaited for Cambridge, as to which cinema will be sold, and I would expect we’ll hear something in the next couple of months.
Despite the best efforts of everyone campaigning, it became apparent that any kind of legal process in this situation is not designed for private individuals, but only for corporations who conduct these kind of processes regularly. Despite offers of financial help to test a legal process, it was established with the help of local MPs that the cost of any actual legal challenge would likely have run into six figures, the kind of resources that we just didn’t have access to. The initial timescales for starting such a challenge were also very tight, and there’s no way anyone but a corporation could have mounted such a challenge in the time available. Most damningly, if an appeal had been successful all it would have achieved would have been to refer the decision back to the Competition Commission to ask them to review it; that was only ever likely to have one outcome, not least because they showed an unremitting desire to be proven right once their findings were made public. Members of both Houses of Parliament demanded action, but none of them were able to intervene directly for various reasons. We do know that Cineworld plc continued to explore a number of avenues with the Competition Commission following the decision, but were eventually forced to concede that a sale of one of its two properties in each area was inevitable.
Cambridge was always likely to be the most difficult situation. The Aberdeen site had the direct support of the local council who were committed to keeping it running as that kind of cinema. The Bury St. Edmunds cinema is small enough that it could be successfully taken over and run by an independent or consortium. But neither of these things apply to the Arts Picturehouse in Cambridge. Realistically, whichever cinema is sold is likely to either be sold to an established chain or, much less likely if it becomes an independent it will have to be run on a purely profit basis in order to survive.
As has been apparent to everyone except the now defunct Competition Commission (replaced by the CMA) in this whole process, losing either cinema is a bad outcome for the citizens of Cambridge. Selling the Cineworld will mean higher prices, even for those without Unlimited cards, although the attitude of the CIneworld chain recently – by introducing allocated seating as a mechanism to introduce paid-for premium seating, despite not increasing its staffing to be able to effectively police the seating policy – doesn’t fill me with confidence that they have the best interests of their customers at heart. (I’m already seeing comments on Twitter that films have been stopped in other cinemas to check people are in their correct seats, which frankly is unacceptable.) Regardless, while those on the outskirts of Cambridge in areas such as Huntingdon, St. Neots or Haverhill or those willing to travel to Bury St. Edmunds can retain their Unlimited benefits, those in the centre of Cambridge are likely to lose out.
The other option is for Cineworld plc to sell the Arts Picturehouse. If it goes to an independent then it will have to be used to generate profit and will effectively become an up-market mini-multiplex. The only likely buyers from major chains would be Odeon, Curzon or Everyman. I would bet my house on Odeon and Everyman playing exactly the same films as Vue and Cineworld, as that’s what they do in all of their other cinemas, and the diversity of the programming would be lost. There’s slightly more help for Curzon, although not much; they do have a better track record of programming in their London venues, but so far their two provincial venues (in Knutsford and Ripon) show very much mainstream fare with the occasional NT Live event, and there’s no guarantee which whey they’d go if they bought the venue.
The one optimistic note I’d offer is that if you look at other Picturehouses outside London, both those with a CIneworld in the same area (such as Brighton and Liverpool) and those without (such as Norwich and Exeter) continue to offer the most diverse programming of any cinema chain in the UK and a step ahead of their competitors. I’ve been to all of those except Brighton and in my view they continue to retain their own atmosphere and character as well as showing a rich variety of films, with no difference whether or not there’s another Cineworld in the area. We should also consider what happens at the Arts Picturehouse at present. I’ve been to see two “art house” films there recently, one on a Friday at 21:00 and one on a Saturday at 13:00 as part of a Children in Film season. Both films were attended by five people, one of which was me – that’s not sustainable for any business, regardless of who owns it. If local people don’t support the wider extremes of the programme, it won’t be new owners that cause those films to no longer be shown, it will be the audience’s apathy. Programming is a delicate balance, and not every film is getting a fair shout – Fruitvale Station, for example, this week is receiving only four screenings – but by and large it’s still streets ahead of the competition.
At this point, any view as to which cinema is being sold is pretty much conjecture on our part. The only people who know are likely to be the board of Cineworld plc and we won’t know until the new purchaser is announced. The bottom line is that one group of people will lose out in Cambridge through the obduracy of the Competition Commission, that much is now inevitable. Those whose priority is seeing a wide variety of films at a low cost will be desperate to keep the CIneworld; those who enjoy a more diverse array of films will only be satisfied if the Picturehouse remains unsold. If, like me, you divide your time equally between both cinemas, you are inevitably going to lose out in some sense. If I believed that someone could come in and do what Tony’s done for Bury in Cambridge, I would welcome it with open arms but I just don’t see where that kind of buyer is coming from at present. I am not pro-Picturehouse per se, I just believe they remain the best option for those wanting to watch a wide variety of films in cinemas.
I wish it was better news; all we can do now is to appeal to whoever the new owners are of whichever cinema is sold to ask that they maintain the current offering as much as possible, and we can only hope that the outcome in Cambridge is half as positive as it has been in the other two areas. Hope that answers your questions, but please let me know if it doesn’t and thanks for taking the time to comment.
June 30, 2014 at 7:40 pm
Thanks for a fantastic response. As a regular customer at both Cambridge cinemas, I have to say that it doesn’t look good. I see that Cineworld are re-introducing booking fees too – sounds like the senior management there are going all out for short-term profits.
December 8, 2014 at 6:01 pm
Sssh, nearly another six months has passed, and nothing has happened. As the only people who wanted the sale have presumably gone their separate ways, hopefully into long-overdue retirement where they can’t do any more damage, do you think that the whole thing might go away? Or is that too much to hope?