Competition Commission: And Now, The End Is Near

Posted on January 29, 2015 Updated on January 29, 2015

Finally, more than two years after Cineworld plc acquired the City Screen business that operates Picturehouse cinemas (yes, it was December 6th 2012 that this all started), and getting on for two years after the Office Of Fair Trading first referred the purchase to the Competition Commission, the actions that the Competition Commission requested have finally now all been completed and we can – almost – make an assessment of who’s gained and lost in this process. Today it was announced, about a week after the signs came down and the speculation began, that the European cinema chain The Light would be taking over operation of the Cineworld in Cambridge. The chain, started by businessmen Keith Pullinger and John Sullivan, currently operates two cinemas in the UK in New Brighton and Wisbech as well as two in Europe, with plans for another six in the UK over the next two years. Their mission statement on their website is promising, as they pledge:

• Eye catching architecture and contemporary interior design which creates an exciting environment and encourages socialising.
• Adventurous film programming, featuring blockbusters, independent and international films.
• The newest and latest on screen content: opera, sport and music
• A café bar creating relaxed atmosphere, a place to socialise and attract the mix of families, young people and mature adults who make up the cinema audience.

But this process has taken so long, it might be easy to forget how we got to this point. (It’s been frustrating recently for customers of the Cambridge cinemas, but the nature of the legal process meant that no one could formally announce anything until the sale was completed.) With a particular film theme, let’s look at the winners and losers in all this.

The Good – good news for Picturehouse customers

Back in 2012 when the acquisition was first announced, the mood was pessimistic to say the least. It was presumed by many that the change in ownership would see the cinemas transformed into mini-multiplexes, losing their focus and character, yet if you look around the country that hasn’t happened. I can say this with first hand knowledge, having been to Picturehouse cinemas in Norwich, Liverpool, Hackney, Exeter, Southampton and Edinburgh since that day in 2012 as well as my two locals, and they all still by and large have the same quirky, comfortable atmosphere and the same higher end film programme. Each is distinct but clearly part of something larger, and that can also be said of the cinema in Cambridge.

Two of the the Picturehouses did get sold under the Competition Commission decision, in Aberdeen and Bury St. Edmunds. The former was purchased by Filmhouse, who not only run an independent arthouse cinema in Edinburgh but also the Edinburgh International Film Festival, and it has carried on pretty much business as usual. The latter was bought by Tony Jones, former co-founder of City Screen and now back in independent cinema. The Picturehouse programming arm continues to programme for that cinema and a reciprocal agreement on membership has kept discounts in place. Thankfully the cinema had a significant refurbishment before the sale and the bar and restaurant are a delight, and with the news that the Abbeygate (as it is now called) have purchased the bingo hall next door and are converting that to a third screen, the future of quality cinema in Bury St. Edmunds also looks assured.

But these were always likely to be the easier of the two situations. It wasn’t impossible that an independent could have come in and taken over Cambridge, just that there were so many more babies in the bathwater there that a change in ownership could have very easily set the cinema on a path to ruin. The easiest way to maintain everything that the cinema stood for seemed to be to keep the current owners in charge, and that has been the final outcome. The Arts Picturehouse will remain, and for those like myself who stood on the pavement outside the cinema in 2013, placards in hand, and to the 15,126 people who signed the petition directed at the Competition Commission – the vast majority of whom were current or former Arts customers – it is time to breath a sigh of relief, albeit a guarded one.

I’ve been in discussions with people on social media who fear that the change to a mini-multiplex in 2012 was just delayed for Cambridge and that the programming for the Arts Picturehouse will now simply transform it into the mini-multiplex now that Cambridge no longer has a Cineworld in town. There’s a few reasons why I don’t think – and hope, for nothing in life is certain – that this will happen. First off, Cineworld seem to have recognised through this process that Cambridge is one of the crown jewels of the Picturehouse chain and that to dilute it now would be nonsensical. The multiplex that they are selling has around four times the seating capacity in its nine screens that the Arts has in its three, and even the economists of the Competition Commission (sorry, couldn’t resist one last dig) could work out that a profit-based decision would be to sell the arts cinema. Also, if you look at the kinds of areas I mentioned earlier (Norwich, Edinburgh, Southampton, Liverpool and so on), they are a mixture of areas both with and without a Cineworld but all with other competition, and their core programming is not so different to that of the Cambridge cinema. Bear in mind that the programming for all of these cinemas is generally planned months in advance and then fine tuned the week before, wholesale changes are not even possible in that sense for some time to come without massive and unnecessary disruption.

However, one of the big things that sets Cambridge apart – and one of the major motivating factors for trying to protect the status quo – is all of the programming at the cinema which doesn’t come directly from Picturehouse or which marks them out from the competitors. If you look at the latest programme you’ll see there’s still at least one 70mm film a month being shown, there are repertory programmes from the University of the Third Age, the University of Cambridge’s Faculty Of Modern and Medieval Languages, short films from gayinthe80s.com / Encompass Network and films from young trainee programmers at Long Road Sixth Form College. But the two most undervalued contributions come from the Cambridgeshire Film Consortium – who have a dozen educational events in the latest programme alone – and the Cambridge Film Trust, who work to foster film education across the Eastern region and the whole of the UK, and who – not the Picturehouse as most people seem to think – run the Cambridge Film Festival each year. The festival last year moved to late August and saw a 30% increase in attendance on the previous year, and if you’ve ever been to the Arts Picturehouse and wondered what was up the stairs beyond the screens, then it’s these organisations and the projectionists. Hopefully any doubt in what the future held for any of them is now removed.

The one comment that I’ve made before and that I’ll make again is that if the programming changes at the Arts Picturehouse, it’s less likely to be as a result of the sale of the Cineworld and more likely to be down to the fact that the cinema’s programmers are making brave choices that then don’t get backed up by an audience. In November the cinema had screenings of 2001: A Space Odyssey, but none in the much larger screen 1, and the cinema responded to audience requests and moved a Friday night screening into screen 1 which then pretty much sold out. But I was also at two separate films on Friday nights in screen 3 last year that had an audience in single figures, and that’s not sustainable. There’s no point in the programmers being bold if no-one then watches the films, and I would urge any regular customers reading this to check their brochures and seek out the daring films being shown. Quite often these days the more niche films, such as the recent Denis Villeneuve release Enemy with Jake Gyllenhall, get relegated to a 10:30 slot because there’s no confidence they’ll attract a sufficient evening crowd, and I can’t buy all of the tickets myself (as much as I’d like to). Just don’t come complaining if you don’t watch the films and then they disappear.

The Bad – Cineworld Unlimited customers (and possibly all Cineworld customers)

When someone tells you that you have two things and one is going to be taken away, and that you must lose one or the other with retaining both not an option, then it’s almost impossible to campaign for both. I did try to draw attention to the potential risks of losing the Cineworld in terms of cost, but the momentum to fight for the Cineworld just never materialised to the same extent. I personally consume films in huge volume, averaging around 160 a year since I started this blog, and much of that has been made possible by the use of my Unlimited Premium card. I can and will still visit Cineworlds in Huntingdon, Bury St. Edmunds, Haverhill and Stevenage regularly (as well as a host of others if I’m in the area) and I’m hoping that there’ll be a new Cineworld just fifteen minutes away from me in Ely come next summer, but I’ve often relied on seeing three or four films in a day split between the Arts and the Cineworld in Cambridge. The Light have said they will honour Unlimited cards, which also give significant discounts on food and drink, for three months, but after that I’m expecting to see my costs go up every time I have a film day in Cambridge.

The Competition Commission’s research suggested that around 8% of their customers nationally are Unlimited customers (there was no figure specific to Cambridge). But I guarantee that the vast majority of that 8% in Cambridge are seeing two or more films a month, and for them this will represent either a significant rise in cost or more likely a significant reduction in the number of films they can see in the cinema. Frankly, as this blog was founded on the principle of encouraging people to watch as many films in cinemas as they could, that breaks my heart just a tiny bit. I hope anyone that can’t get to another Cineworld still manages to see some films once the Unlimited extension expires.

But what of the other 92%, those that just buy single or group tickets and don’t rely on the discounts of Unlimited? We’ll know tomorrow at noon, when the Light’s website goes live, whether they’ve gained or lost on price. The fundamental basis for the decision by the Office Of Fair Trading to refer this to the Competition Commission in the first place was that more competition helps to naturally regulate price, but we won’t know until tomorrow if there’s any change to the cinema’s costs. The good news is that in Wisbech, the cinema seems to have recently reduced its prices by 20% in an effort to better pitch to the local consumer. One of the things I found out in my research into this in 2013 is that cinema chains set prices locally, so in that sense competition should have an effect, but there’s probably only half a dozen cities in the country with enough cinemas for competition to make any difference, three being unlikely to cut it. With that 20% price cut in Wisbech, a standard Friday night ticket is still 20p more expensive than their only competitor, the single screen The Luxe – your guess is as good as mine as to whether there’s actually any market forces at work there.

I also then looked at that same Friday night comparison for The Light’s other cinema in New Brighton, and that looks less promising. There’s quite a diverse collection of cinemas within half an hour’s travel of that cinema, and the range of standard Friday night ticket prices is impressive:

To give The Light their credit, they are competing a little with the Picturehouse on content, showing Birdman and A Most Violent Year when few of the other cinemas have, but their closest three cinemas geographically are the three on the left, so if you see a mainstream film at The Light in New Brighton, you’re paying significantly more than the local competition.

So I will reserve judgement on the pricing and film choice of the new cinema until their website is live tomorrow. The best possible outcome for the cinema lovers of Cambridge would be The Light starting to compete more on programming with the Picturehouse while making the pricing competitive, but only time will tell. Hopefully customers, now much more conscious of price if this process has had any effect, will vote with their feet if they’re being overcharged in Cambridge and the pressures of the market might actually have the effect that I cynically doubt they will. I am completely happy to be proven wrong on this one.

The Ugly – the Competition & Markets Authority

Yes, this process has been going so long that the body that referred this decision and the people they referred it to have themselves been merged, the OFT and the Competition Commission becoming one in the Competition & Markets Authority. When you’ve processed the irony of that, let’s recall what the intent of this process was to do. The idea of forcing Cineworld to sell a cinema in three areas was to encourage competition in those areas and that in return, that competition would naturally help to control prices for consumers. As was pointed out by others almost on day one of this process, if that were true in and of itself then cinemas in Leicester Square would be the cheapest in the country, but clearly there’s more at work here. What the CMA and its predecessors couldn’t do – because that would effectively be a price control, and that’s not their remit – would be to determine how much competition should influence pricing in the market. At the time of the sale, one of those standard Friday night tickets at the Cineworld in Cambridge would have set you back £9.90, compared to £9.70 at the Vue or £11.00 at the Picturehouse. If in the longer term those figures don’t all just increase in line with the Retail Price Index, then this process will have achieved something. It will be fascinating to see tomorrow how The Light’s starting price compares to the final Cineworld price; I would argue that if it’s even a penny higher, this process has failed spectacularly on the main front it was trying to deliver.

But actually, I’d make a further argument that it’s already done just that: this process has already repeatedly allowed to happen the exact thing it was designed to stop. 

What do I mean by that? Well, although it couldn’t set price controls, the Competition Commission set a test as part of the third party survey conducted in their investigation. The idea was that they questioned people as to whether or not they’d change cinema if the one they normally went to put their prices up by 5%. The principle is that, if enough people would switch from Picturehouse to Cineworld or vice versa if the price went up in one of them, then it would be in Cineworld plc’s interests to raise prices because they would still keep the profit.

What the research showed was that it was in Cineworld plc’s best interests not to raise prices in Cambridge, because three times as many survey respondents said they would go to the opposition (i.e. Vue) as they would stay with a Cineworld plc cinema. In that event, Cineworld loses all of the money rather than gaining the profit, so that one piece of evidence should have told them that not keeping prices competitive would have seen them lose business, and the market was already telling them.

But that’s not the way the Competition Commission saw it, they demanded the sale of a cinema in Cambridge and two other areas. This was taken from one of my blog posts in September 2013, and prices were still at this level when the Commission made its final judgement in October 2013.

Can you guess what happened next? Between then and now, Cineworld have made a price rise of 50p per ticket (more than 5%) and Picturehouse have made two of 50p each (more than 10%). So if there was anything to be gained by customers switching cinemas, then this process has taken so long that Cineworld plc have profited from it three times in Cambridge before the cinema sale went through. Doesn’t that strike you as making this process a spectacular waste of everyone’s time and effort?

Anyway, what’s done is done, and despite our best efforts the process has ploughed on unhindered, ignoring the voices of not only the general public but prominent industry figures and members of both Houses Of Parliament. And now, here we are, with the CMA having taken nearly eighteen months to put a bolt on the stable door, but the horse has already made its exit.

I think there are questions to be asked here of how these bodies have conducted this process: the definition of any kind of success criteria is shaky at best, what I’ve seen an outsider from the reports I’ve read has given the impression that industry feedback has been overlooked in favour of evidence provided by competitors with vested interests in destabilising a competitor and we now have no guarantee that this will actually deliver what it was intended to, especially given that what it was trying to prevent has already happened. Maybe the merger into the CMA dragged out the process, but frankly I would be living in fear and trepidation if this was how the CMA handled an investigation into an industry I worked in. I think, as consumers that this body is working to try to protect, we deserved better.

In Conclusion

Sometimes good things come of bad processes. I would like to give the CMA some credit, for at least in forcing the sale the Picturehouses sold ended up in safe hands of a similar size and shape and we will shortly be in a position to judge if the sale of the Cineworld has had a similarly positive outcome. I truly hope that’s the case here, and in an ideal world The Light would help to keep prices down relative to the cost of living, and we’d start to see them programming some films which might give Picturehouse a bit of competition of the kind we actually need. It might also see the sadly defunct bar next to the Cineworld and the foyer itself given a new lease of life, and possibly an end to the generally loathed allocated seating policies that hadn’t won Cineworld many friends in the last year or so. Putting the Cineworld into the hands of a brand with the best of intentions, but who aren’t as tried and tested as the likes of Odeon or other multiplex operators, is a brave move but it’s not completely without risk either. Like Morgan Freeman at the end of The Shawshank Redemption, I hope, but the next few months will tell us if it’s warm sand between our toes or a dank, muddy beach covered in puddles and time to get out the Wellington boots.

P.S. One last thank you to all the staff at the Cineworld in Cambridge, who it seems are being taken on by The Light. It’s one of the few multiplexes I’ve ever been to where, when I raised an issue with projection, they did something about it, and the staff have always been friendly and courteous to me. I’d just like to wish them all the best for the future.