Competition Commission: The State Of The Cinema Nation

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The fight against the Competition Commission’s decision goes on, although since much of that continues to go on in darkened boardrooms and we occasionally get whispers of the latest developments, it’s hard not to feel a little disenfranchised at the moment. So with my own involvement in the campaign reaching a temporary lull, partly because of allowing the likes of Cineworld to pursue their own appeals and partly because, to paraphrase Derek Zoolander, I’m really really ridiculously busy right now with things that don’t relate to the inside of a cinema, I felt it was an ideal opportunity to dig deeper into one of the aspects of the debate that’s bothered me most.

When coming to the conclusion that the Cineworld and Picturehouse cinemas were in direct competition, one of the pieces of supporting evidence revolved around the fact, supported by evidence from some of the cinemas, that the divide between art house and multiplex cinemas is breaking down and that digital projection allows cinemas to program a wider variety of films. Here’s some relevant paragraphs from the Commission’s final report on the issue.

Distributors are responsible for the marketing of the films they handle. Their aim is to maximize a film’s profitability through promotional activity, the timing of the film’s theatrical release and the subsequent exploitation of DVD and television rights.
Although the number of film releases has increased rapidly in recent years, the majority of new films do not achieve widespread release. Films are generally classified as mainstream or specialized (or non-mainstream), the latter category including foreign language and subtitled films, feature documentaries, art-house productions and films aimed at niche audiences. The BFI told us that the definition of specialized films included both films which were obviously specialized but also a range of films which were not inaccessible or challenging but which appealed to a specific demographic. Specialized films generally account for about 8 per cent of box office revenue.
Cinema exhibitors told us that digital technology had delivered a number of benefits: it had given a high-quality experience to customers, enabled the growth of 3D, and made it easier to change programming and advertise with shorter lead times. Odeon commented that the full benefits of this had yet to be realized, as there was potential to programme even more flexibly… In particular, Odeon anticipated that digital distribution would reduce the requirement for a fixed number of shows per week (historically a minimum of 21) and might result in any digital cinema being able to programme more varied content each week.

That gives some general background on how the industry currently sees itself. Now, something a little more specific from the cinemas, and the only paragraph I can find in the report that shows the cinemas are in competition in terms of programming, above and beyond a revenue comparison.

Non-multiplex cinemas are typically located in town centres. Some of the non-multiplex cinema chains and independent cinemas focus more on showing specialized films. Some of these cinemas show exclusively specialized films (and are typically referred to as ‘art-house’ cinemas), but the majority show a mix of mainstream and specialized films. Vue told us that in its opinion there were only a very small number of cinemas that played only specialized films, for example the Cornerhouse in Manchester, the Watershed in Bristol and the Showroom Cinema in Sheffield. Odeon said that there was no longer a differentiation in the eyes of the industry between ‘Hollywood films’ and ‘art-house’ films and that the distinction between different types of cinemas had been eroded by more complex fragmentation, with cinema exhibitors trying to meet commercial targets by programming the most successful films for each cinema on a week-by-week basis. A number of parties told us that they expected to see more overlap in future between film programming in multiplex and non-multiplex cinemas as digitization allowed all cinemas to be more flexible in their film programming.

So the view of the industry appears to be that the barriers are falling down. This must mean that access to the specialized films is becoming ever easier for customers, right? Although given that they only make up 8 percent of the market, maybe they’re not commercially appealing enough. What it doesn’t indicate is whether price or choice is viewed as more important. There is one paragraph that does comment on this, however.

Similarly to the parties, Everyman told us that Picturehouse offered a different experience, product and programming mix to Cineworld. However, Everyman also stated that it competed with both Cineworld and Picturehouse in that they operated in the same industry but did not currently operate sites in locations where they competed directly against one another. Everyman believed that if it were to compete with Cineworld and Picturehouse it would be on a mixture of product offering and quality of service and that price would not play a major factor. We also received a considerable number of letters from the general public stressing the differences between the product offerings of the Picturehouse cinemas and the Cineworld cinemas in Cambridge and Bury St Edmunds. A smaller number of letters commented on competition between cinemas in Aberdeen.

So at least one independent cinema chain, and the customers of the cinemas themselves, appear to contradict the views of the rest of the industry that these lines are blurring. But don’t worry, the rest of the industry was keen to contradict its own customers one more time.

By contrast, Vue and Odeon did not draw such clear distinctions between the positioning of multiplexes and independent cinemas. Odeon told us that it was constantly evolving its cinema offer and attempting to ensure that each cinema catered for the widest demographic and taste and gave examples of refurbishments and upgrades it had carried out to meet specific needs. Vue stated that ‘a cinema is a cinema’. These views were echoed by Curzon: it believed that there was a large overlap between cinema types, with 60 per cent of customers willing to go both to multiplexes and independent cinemas.

There is clearly a marked divide between how much of the industry perceives itself, and the opportunities that digital distribution can provide, and how the customers in the affected areas see this. But are Aberdeen, Bury St Edmunds and Cambridge unique cases, or symptomatic of a greater national divide?

There is only one way to find out, and that’s to look at what cinemas across the country are currently showing. To do that, I’ve taken a snapshot of the fifty largest urban areas in England and Wales. I will admit up front that I’ve taken a slightly different approach to the Competition Commission; they effectively stuck a pin in the centre of an area and drew a twenty minute circle around it to consider how far people would travel. I’ve considered urban areas, simply on the basis that it’s easier for me to work out, but also on the presumption that public transport would allow access for anyone within that urban area to see the films listed. The full list of areas can be found here, and Cambridge – our test case in terms of the Commission debate – is the 45th largest urban area on the list.

I’ve then looked at the films showing this week, between Friday 29th November and Thursday 5th December, in any cinema in each of those 50 urban areas. I’ve narrowed the field slightly; I’ve looked at those films given some form of general release in the calendar month of November, so either in this week or the four preceding weeks. I’ve taken my list from the films listed at Launching Films. (Cinema listing times have been taken from Google’s cinema listings pages.) There are a handful of mainstream films, including Thor: The Dark World, Jackass Presents Bad Grandpa and Captain Phillips that were released prior to this date that are still showing in the majority of areas. A number of cinema chains have had advanced previews this weekend, including screenings of Frozen in a number of cinemas. As well as that, the Picturehouse chain had advanced screenings of Nebraska on Sunday, Cineworld had The Secret Life Of Walter Mitty on Monday and Showcase had previews of Additionally, I’ve ruled out live events and Bollywood films for now to make the count easier – I’m hoping to automate the counting process with some of my IT knowledge from my day job, so that in future I can cover those too.

So of those films released in November, there are a total of 30 still showing somewhere in one of those 50 urban areas this week. I believe they break down into three distinct categories: the mainstream films, which are showing exclusively at the multiplex type cinema (or their smaller cousins); there are the specialized films, which are showing pretty exclusively at the Picturehouse or independent cinemas; and then there’s the crossover films, those films likely to be showing in almost any cinema that has the capacity. This last list is the shortest, and they can be easily categorised at this time of year by the approach of awards season. If you had to go through the list of thirty and pick out the four most likely to be on awards ballots come January next year, it would be these four. Consequently, they have a broad, cross-demographic appeal that neither of the other lists can claim.

Here’s the list of films, and the number indicates how many of those urban areas are still showing the films in question.

State Of The Nation 1

So if you want to see time travelling turkeys or futuristic child slaying, you’re in luck as those are the two films guaranteed to be showing everywhere this week. If you live in Barnsley, you may have to make do with those, as it’s the one area not showing Carrie and no longer showing Gravity. You also can’t see Saving Mr Banks there, and if you live in Slough you’ll also have to travel. So this shows that there are effectively eight films fighting for the largest share of the box office, showing in more than two-thirds of areas, and whether or not you can see the other films is a form of cinematic postcode lottery. In terms of the overlap between cinemas, only one film provides any evidence: Joe Swanberg’s Drinking Buddies, a film from a small but prolific American director with a more mainstream cast, had one-off showings in thirteen Vue cinemas on Tuesday night. It certainly shows the potential of digital alluded to in the report, but it’s hardly being exploited to the full benefit of customers yet.

But it’s not one that relates to the size of the area that you live in. Of the thirty films, I couldn’t find five of them showing in London this week, but there were still screenings at other cinemas around the country. But this is how the urban areas break down in terms of the proportion of those 30 films you can see this week in your area.

State Of The Nation 2

While the larger areas have congregated towards the top, there are a few anomalies. The people of the larger areas of Birkenhead and Luton would likely be looking at a long journey to catch most of the films listed, although in Luton’s case there are a high proportion of Bollywood titles on offer as well; Birkenhead residents are faced with a trek to at least Liverpool to catch a wider variety of films. At the other end of the spectrum, Ipswich performs very well thanks to a community based cinema, and both Oxford and Cambridge perform especially well. Cambridge manages to come out joint second, despite having only three cinemas, and actually has performed consistently well; if you look at the list of specialised films in the first table, every one of those films has shown in Cambridge during November. A total of 24 of those 30 films have shown in Cambridge at some point in the past three months, a figure which makes me very glad to live where I do. You can then add in special, one-off screenings of classic releases or themed events, which would put another four onto the Cambridge total this week alone; the areas with cinemas engaged in such activities are almost all in the first column of that second table.

So the diversity of films available in Cambridge is significant, and is the rival or the superior of any city outside London. But when the Office Of Fair Trading and the Competition Commission are fighting for the interests of customers over price, who is protecting the interests of customers over choice? Not the Department Of Culture, Media And Sport, who seem to have no interest in this debate (and a number of us have written to them, and received dismissive replies). But what are customers truly seeking? What’s most important to cinema customers in terms of what their local cinema offers them? If only we had some form of survey to answer that question, such as the independent survey undertaken by GfK for the Competition Commission as part of their investigation.

State Of The Nation 3

This is slide 31 from their full presentation, available here. It shows that, of the 21,000 people surveyed, the choice of film is the single biggest driver to their reasoning. It would have been fascinating to see if that survey had given people the choice of one or the other, price or choice, to see which is the single biggest factor.

So the residents of the Cambridge area remain worried that their privileged position of cinematic choice is being put in jeopardy in an effort to protect them from a potential price rise. But my survey also shows that the ideas of the cinema chains such as Vue, Odeon and Curzon that the barriers of the marketplace are breaking down are nowhere near coming to fruition. Only two multiplexes, one in Cardiff and one in London, are showing Blue Is The Warmest Colour this week, a film only released a week ago and winner of the Palm D’Or at Cannes this year. Almost everything else on the specialised list is studiously being avoided by the big cinemas outside of London, and while the likes of Odeon and Curzon are diversifying heavily in their London outlets, that pattern is the complete opposite of the rest of the country.

There is still a clear divide in terms of cinema exhibition, with Picturehouse, Curzon’s London cinemas and a selection of independents (Manchester Cornerhouse, Leeds Hyde Park Picturehouse, Watershed Bristol, Showroom Sheffield, Newcasatle Tyueside, Broadway Nottingham and a few others) on one side showing a wide mix of crossover and specialised films, and the remainder (Cineworld, Odeon, Vue, Showcase, Reel, Empire and Everyman, plus smaller independent cinemas not in large urban areas) showing a mix of crossover and mainstream films. The only stipulation from the Commission is that cinemas have to be sold as a going concern, so any sale of the Picturehouses in Cambridge, Bury St Edmunds and Aberdeen could be to a cinema operator in the second list, not showing specialized films or at a drastically reduced rate, and at present no-one is fighting that corner on behalf of the customers who rate that more important than the price concerns raised by the OFT and the Competition Commission.

This survey isn’t intended as a critique of any one particular cinema or chain of cinemas, but a call to all of them to be doing the most they can for their customers. I intend to run this survey on a regular basis, hopefully at least monthly, in an effort to understand if there is any movement in the right direction, and that movement needs to be on a national basis, not just in one area. In a world where these specialized films make up just 8% of revenue already, does that seem commercially appealing to new operators of cinemas when the regulatory bodies are prioritising competition over choice? So who is going to fight for choice in our cinemas, not just in Cambridge or the other affected areas but across the country? The BFI? (Here’s a copy of their letter to the Competition Commission on 30th August, expressing just these concerns, but which didn’t carry the same weight as the cinema operators in the final analysis.) Maybe it should be other local independent film trusts and film clubs? Maybe it’s the customers of the cinemas, who surely should have the most influence over the operators if they put their mind to it? Or does the answer simply start with you?

(In case you're interested in more detail or want to check my workings - a move that I'd always encourage - here's the spreadsheet I compiled with my review of the 50 areas:
State Of The Nation Spreadsheet - November 2013
Any and all feedback welcome, as always.)

Competition Commission: The Definition Of The Cinema Market

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The man with the red letters refused to bow to George Lucas and his insanely long titles.
The man with the red letters refused to bow to George Lucas and his insanely long titles.

I’ve written a huge amount about the Competition Commission’s decision making process over the past few months, but one thing has been at the core of all the debates, and that’s how you define a cinema and its market. The Competition Commission and The Office Of Fair Trading have taken counsel from the people who ought to know how this works: the industry itself. However, the definition that they’ve come up with is one which simply differentiates between multiplex and non-multiplex cinemas, and has missed that there are other types of cinemas out there.

I do wonder if there had been a more accurate definition of the different types of cinema in the marketplace that we wouldn’t be in this mess now. What I do strongly feel is that, no matter the outcome of this process, that if we get into this debate again over any future mergers or acquisitions that the cinemas need to understand their own market and their customers better.

So I believe the market actually consists of five main types of cinema:

Large standard

Cinemas that focus on American and high profile British films currently on general release, typically with five or more screens. They may have some form of social area, and serve a small range of food and drink concessions to be taken into screenings. They will usually be found in either out-of-town areas in areas of high population concentration and are likely to form part of a large chain. They will focus on digital projection of films.

Small standard

As Large Standard (similar range of films shown and food and drink offered) but with less than five screens. They may be found either in or out of town, typically in smaller towns that cannot support a Large Standard cinema. They will typically be required to upgrade to digital projection if they haven’t done so already.


As Large Standard (similar range of films shown via digital projection and food and drink offered), and may form part of a Large Standard cinema. They will offer increased comfort and at-seat food and drink in return for ticket prices higher than those of a Large Standard cinema.


Cinemas that show a mix of both American and high profile British films, as well as world cinema and lower profile British films. They will offer a greater range of special interest events and showings of classic films, will have an alcohol licence and will offer hot and cold food for consumption in a dedicated area. They will also retain analogue film formats wherever possible.


Cinemas that will focus almost exclusively on world and low profile British cinema at the expense of American and high profile British films. They are most likely to have screenings of older films or special interest events. They will have little or no focus on food or drink offerings, and will also retain analogue formats wherever possible.

I believe that 99% of cinemas in this country will clearly fit one, and only one, of these definitions. (There will always be the odd exception: take the Prince Charles Cinema in London, which is probably Independent with a bit of Small Standard by these outlines.) There are two things I don’t think you can apply to these definitions: the first is any sense of membership or ticket price definition, as cinemas in most of these sectors offer memberships which differ wildly in concept and execution and ticket prices will vary by geographical area. The second is live events, such as the National Theatre or the RSC, as these are increasingly being shown across all these types of cinemas. It is the films themselves, rather than live streamed events, that create the separation in definition.

These are the kind of cinemas I see fitting into these definitions:

Large Standard: The vast majority of cinemas owned by the major chains, including Odeon, Showcase, Cineworld, Vue and Empire, as well as the larger cinemas owned by Reel.

Small Standard: Cinemas in small towns, typically where there isn’t a Large Standard cinema present, such as some of those owned by Hollywood or Reel cinemas. They may also be the run by provincial operators such as Everyman who would be operating Quality cinemas in areas such as London.

Premium: The Showcase De Lux screens, Cineworld’s Screening Rooms in Cheltenham or the Odeon The Lounge Whiteleys.

Quality: Picturehouse cinemas nationwide, as well as the likes of Curzon and Everyman cinemas in London and major independents such as the Watershed in Bristol, The Cornerhouse in Manchester, The Showroom in Sheffield and the Tyneside Cinema in Newcastle.

Art-house: The ICA or the NFT at the BFI in London.

As digital projection increases, I can see cinemas who are currently small standard looking to make the transition to quality based on a wider range of offerings. The cinema most local to me in Ely, which operates for only one or two days a week, has recently made the transition to digital and they’ve already begun to open up the scope of their events, which is heartening news for locals.

Eventually it may be the case that these definition start to merge, that the distinction between Small Standard and Quality, or between Quality and Art-house, begins to break down. However, change is not always an agent of speed, and this could well take decades rather than years. But for now, there is a fight to protect cinemas in Aberdeen, Bury St. Edmunds and Cambridge which fall into the definition of Quality. If under new owners they become Small Standard, then they simply won’t be able to compete with the Large Standard cinemas in close proximity, and becoming Premium cinemas will remove all of the current customer benefits of price and choice that I and so many others have fought to protect these last few weeks. Hopefully the cinema industry will wake up to itself before it’s too late.

Competition Commission Plan B: The Manifesto For Quality Cinema

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It has now been almost four weeks since the Competition Commission published its findings into the Cineworld / Picturehouse merger and determined that Cineworld must sell a cinema in each area. They immediately decided to sell Picturehouses in Aberdeen and Bury St. Edmunds and are still deciding whether to sell the Cineworld or the Picturehouse in Cambridge. Cineworld have now actively been seeking purchasers for the various cinemas and we appear to be approaching a final decision in the next couple of weeks.

However, in the process of reaching their final decision, the reports attempted to define how the cinema market is broken down. It’s at the core of every argument that has followed about how Cineworld and Picturehouse cinemas are – or aren’t – different. The definition in the Commission’s final report broke the market down into just two types, multiplex and non-multiplex cinemas, simply by the number of screens. They had the following submissions from other cinema chains in paragraph 4.17 about non-multiplex cinemas:

Some of these cinemas show exclusively specialized films (and are typically referred to as ‘art-house’ cinemas), but the majority show a mix of mainstream and specialized films. Vue told us that in its opinion there were only a very small number of cinemas that played only specialized films, for example the Cornerhouse in Manchester, the Watershed in Bristol and the Showroom Cinemain Sheffield. Odeon said that there was no longer a differentiation in the eyes of the industry between ‘Hollywood films’ and ‘art-house’ films and that the distinction between different types of cinemas had been eroded by more complex fragmentation, with cinema exhibitors trying to meet commercial targets by programming the most successful films for each cinema on a week-by-week basis. A number of parties told us that they expected to see more overlap in future between film programming in multiplex and non-multiplex cinemas as digitization allowed all cinemas to be more flexible in their film programming.

Sorry Vue, but the independent cinemas you list all do what the Picturehouses do, and show films with an appeal across a wider demographic (the Alan Partridge and Richard Curtis type films) and supplement them with a diet of more specialist films. Odeon, you need to consider why there are films you show in the majority of your cinemas and those you don’t, particularly when considering what you show in your London venues such as Covent Garden and Panton St and what you show outside London. If you can’t see the difference, customers clearly can.

If you want a simple definition of films that illustrate the divide, then start with world cinema. I’ve seen films from over twenty countries in the Picturehouses and independents that I’ve visited in the last year alone and they are a staple of these kind of cinemas. You can normally spot when a subtitled film is playing in a multiplex: the cinema will sometimes have to put a sign up near the ticket kiosk warning people that the film is subtitled to attempt to reduce complaints, and the trailer for the film will feature little or no dialogue, so as not to give the game away. You could also add most low budget British film to this divide; I saw Clio Barnard’s outstanding British film The Selfish Giant last week at the Cambridge Arts Picturehouse, but I challenge anyone to find any multiplex outside London that’s shown it. Add in the screenings last week of classics such as An American Werewolf In London in Bury last Friday and E.T. in 70 mm, both of which were strongly attended and which are the rule at these cinemas and the exception elsewhere, and the quality of film needing to be protected becomes clear.

The report also made note of various cinema chains, including Showcase, Vue, Cineworld and Odeon who are offering whole cinemas or screens in existing outlets based on a premium cinema offering. These have larger and fewer seats and will bring food into screens for you. They charge at least 60% more, and show exactly the same kinds of films being shown in ordinary multiplexes, as confirmed in the report by Cineworld and obvious to anyone who looks at their cinema listings. This is fundamentally not the same as the current Picturehouse offering, and if any cinema owner attempted to convert a Picturehouse to this model, the increase in price would be several orders of magnitude higher than anything that the Commission originally envisaged Cineworld imposing and would lose at a stroke the quality of the current film offering.

It’s clear we need a better definition of types of cinema, if nothing else to stop us getting into this kind of mess in future. But more critically, with the sales of either two or three Picturehouses imminent, there is a clear demand from customers as to what they want from these kinds of cinemas, but the cinema industry itself has singularly failed in its attempts to describe this, and if we don’t make this clear to both the Competition Commission and the potential purchasers, we run the risk of these cinemas being run incorrectly, denying customers what they demand and putting their futures at risk. So it’s now down to us, the customers, to try to make it clear to the cinemas and the Commission how we see this breaking down.

So here’s my definition of a quality cinema, which I believe is a better representation of what the Picturehouse and other independents offer.

Manifesto Of Quality Cinema

A quality cinema is defined to be a cinema that has:

  1. a requirement to show at least 50% of film or event titles per week on average over a given period that are not shown at the multiplexes, although this may be a single screening for a given title
  2. in addition to this, a requirement to show an average of one title a week with at least one screening per day that is not showing at the multiplexes on a regular basis
  3. a requirement to offer off-peak screenings for over 60s for at least one day per week, screenings for parents with young children at least once a week, regular screenings and events for young children and students and provision for autism friendly screenings
  4. a commitment to offer access to festivals, including any currently operating festivals at any of the cinemas*, and to allow their operation on a like-for-like basis to current events
  5. a commitment to maintain any currently operating single screenings**, and to allow their operation on a like-for-like basis to current events
  6. a commitment to maintain an alcohol licence and the provision of hot and cold food not currently served at multiplexes***
  7. a commitment to maintain streaming of live and pre-recorded theatre and other cultural events other than films on a like-for-like basis with the current operation
  8. that they be allowed reasonable access to events distributed by the Picturehouse distribution arm in the manner of other similar cinema operators not owned by Cineworld
  9. a commitment to preserve any non-digital projection methods currently in use and to maintain any other support necessary to use these facilities
  10. to allow access to film clubs and other societies to host screenings or events such as film quizzes on a reasonable basis

* events such as the Cambridge Film Festival or other festivals where a series of films run under a specific theme
** events such as film clubs, or the regular Staff Pick events at the Abbeygate Picturehouse
*** the Competition Commission do not currently require any new purchaser to maintain the cafe at the Abbeygate in Bury St. Edmunds, which I believe has been an integral part of its current success

The Picturehouses would all currently meet this requirement, and I believe that any supplier, whether a chain or independent, taking these over should be required to agree to meet this set of criteria in principle.

The Competition Commission previously dismissed the option of applying behavioural controls, so this is intended to be something simpler and that wouldn’t require formal monitoring on an ongoing basis. It’s effectively an informal contract between us, the customers and any new operator, and indicates what we believe makes this a cinema we’d want to attend. The independent cinemas listed in the report and mentioned above would also fit into this definition or something very close to it. I still believe that the best option for price and choice for customers, and for their long term sustainability, is for them to remain in Cineworld and Picturehouse ownership, but if this cannot be achieved then I see this as the next best alternative.

The immediate action before any sale is agreed is that I believe the Commission should apply the above criteria as a test to any prospective purchasers. They have repeatedly and publicly acknowledged that there are differences between the Picturehouse and the other operators, and I believe they have a moral obligation to ensure that these differences are maintained while what they perceive to be the competition requirements are restored.

To be clear: the whole objection of the Commission and the Office Of Fair Trading is that the merger allowed Cineworld to profit at the expense of customers. If Cineworld is allowed to sell to the highest bidder without any form of quality control, they will have profited at the expense of customers. The only people who now have any direct power to influence Cineworld over who purchases their cinemas are the Competition Commission.

I have the support in principle of my own MP in seeking such assurances, and will be seeking other support to this view as well. I am prepared to organise a second petition if necessary to support this view. I will be contacting the Commission today with this proposal and I am keen to ensure it reflects public opinion as clearly as possible. At present the only written commitment from the Commission is to ensure that these are run as a cinema by the new owner. The fear is, as it has always been, that if someone attempts to run these cinemas without these kind of offerings that the customers will be poorly served and the cinemas will struggle to remain open, putting their futures in jeopardy. If you feel that anything needs adding to or changing in this manifesto, please let me know.

If you believe that the Commission needs to follow this or similar guidelines when reviewing any potential purchasers of these Picturehouse cinemas, then you can make your feelings known to the Commission either by contacting them directly at CineworldCityScreen@cc.gsi.gov.uk or by contacting the deputy chairman Alisdair Smith who chaired this panel at Alasdair.Smith@cc.gsi.gov.uk.

Competition Commission Plan A: The Legal Challenge

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It has now been almost four weeks since the Competition Commission published its findings into the Cineworld / Picturehouse merger and determined that Cineworld must sell a cinema in each area. They immediately decided to sell Picturehouses in Aberdeen and Bury St. Edmunds and are still deciding whether to sell the Cineworld or the Picturehouse in Cambridge. Cineworld have now actively been seeking purchasers for the various cinemas and we appear to be approaching a final decision in the next couple of weeks.

There remains an option to challenge the Competition Commission’s decision, through the appeals body known as the Competition Appeal Tribunal (CAT). Anyone with a grievance against such a decision may formally apply to the CAT to review a decision such as the one the Commission have reached. However, this is now entering a legal framework and as such the only way to overturn the decision is to find, in the words of the CAT, “that the disputed decision was based on an error in fact or was wrong in law.”

I still believe there are a number of misjudgements in the findings, ranging from the actual judgement of what constitutes the market to the economic arguments on which the final findings are based. However, my belief in that and being able to prove that to an appeals tribunal are two entirely different things, and so those working to protect these cinemas have come up with a plan of how to challenge this finding. Time is running out, and if an appeal is to be lodged then there are only four weeks left in which to do so, maybe less if a sale is agreed soon and would happen quickly. I still believe that the most stable future for these cinemas and their customers is if they remain in their current ownership, and consequently believe legal action to be the best route to securing that future – IF we can attract suitable support, and quickly.

The plan is as follows:

  • A number of us working together to fight this decision believe we have secured the potential services of a London barrister who is an expert in CAT proceedings and who will review the case to determine any possible successful avenues of appeal based on the case and the evidence we’ve collected.
  • This would cost a total of around £600; we have some offers of help with regard to this, but still need more to get it off the ground. In theory, with 14,400 people having signed the petition, finding 120 people to offer £5 each shouldn’t be hard, as it’s still less than 1% of people that signed.
  • This would then form the basis for a formal appeal, and we are then looking for further legal help to realise that case. However, the review should provide a stronger basis and make securing such support easier.
  • In the event that the legal review doesn’t find enough of a strong case to answer, we would reluctantly focus our efforts on other options (namely Plan B).
  • We will need to confirm funding in the next couple of days if we are to make any progress with this plan.
  • You should be aware that we have contacted Cineworld to attempt to understand why they are not pursuing an appeal, but have so far had no response.

I am aware that various parties, including some of the MPs we contacted, are still contacting the Competition Commission to try to get them to overturn their decision. Even if we had convinced the Commission that their argument was wrong, they have no powers to set aside their own findings once they are published, and despite Vince Cable stating in the House Of Commons that he was a former customer of the Cambridge Arts Picturehouse and generally sympathised with the view, he has no powers to overturn the decision either. The only way currently to stop the actions required by the Commission is an appeal to the CAT.

If you feel you would be able to make any contribution, no matter how small, to the appeal itself in the form of legal support or to the review in terms of financial support please e-mail me at movieevangelist@btinternet.com. A decision will be made in the next couple of days if there is enough support for this plan for it to move forward. If there is sufficient backing for this plan, I will then advise supporters of a transparent and secure method for making any contributions and keep people updated.

An Open Letter To Anyone Who’ll Listen In Response To The Competition Commission’s Open Letter To Me

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This is a long post. I apologise again, but feel the need to be thorough. I will try to summarise at the end if you want to skip to that. Probably after a picture of a kitten or something. If you’re going to read the whole thing, no-one would blame you for getting a cup of tea, then coming back. People have written shorter dissertations than this.

On Monday, around two weeks after it loses the legal ability to make any material difference, the Competition Commission finally issued a response to the questions that I and many others had been asking them since a day after they published their initial report on the 20th August. That date now feels a lifetime ago, and so much has happened since, that it’s starting to become increasingly difficult to disentangle the truth of the situation from the many arguments and counterarguments that have raged ever since. And by arguments, I mean the views of the general public, several MPs, an MEP, at least two Lords, the most significant independent film body in this country and several key members of the film and film journalism communities, and by counterarguments I mean the position of the Competition Commission and my local MP, James Paice, who to this date is still quite literally the only person to have agreed in any way with the Commission’s findings. If you find any more, please let me know, I’m still looking.

So let’s get something clear. In all of this, I still believe that the Commission genuinely believe they are acting in the best interests of the general public. I still think they believe that if they had not acted, that consumers would have been left at risk of a price increase. Not an actual price increase, mind you, a risk of a price increase. Those that know me and have read this blog regularly will know that I’m fond of analogies, and the only suitable one I can think of is trepanning. Sure, there are reasons and occasions why this may be a legitimate and necessary medical procedure, but you shouldn’t go drilling a hole in the head of everyone who’s got a headache; you’re liable to do far more more harm than good. I remain resolutely of the belief that the proposed course of action here will do far more harm, and is far more likely – in fact, guaranteed – to drive up prices, reduce choice and remove the quality of service, than the substantial lessening of competiton ever would have done, and I’m almost more frustrated that the Commission can’t see that than their inability to distinguish on markets.

I’ve tried to remain professional through all this, despite having had to attempt to understand hundreds of pages of documents in a short space of time, many of it written in a legal speak to which I am entirely unfamiliar, in the face of a group of people who to outside observers have seemingly gone as far out of their way as possible not to understand the arguments being made to them, and clinging resolutely to their single defence and line of argument. I am now going to attempt to respond to the points made by the Commission yesterday, and in doing so I apologise in advance if that professional demeanour slips just occasionally, as it nearly did in the title of this post. (Also, dear reader, you keep having the patience to read this stuff, so I’m sure you’ll understand my need to make this as easily readable as possible.) Finally, I’m using edited sections of the full letter here; please refer to the full letter if you need further clarity – it might be worth reading it in full first before you read this if you haven’t – and if you feel I have misconstrued any of the Commission’s points by the edits I’ve taken, please let me know, as my intention is to try to clarify my thinking, not to cloud theirs. Portions of the Commission’s letter are in italics for clarity, and any extracts from the final report are in a smaller font.

Here goes.

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An Open Letter From The Competition Commission To Me

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After repeated letters to the Competition Commission, including letters sent to the Commission e-mail address on the 3rd and the 10th September this year, in which I sought a response to a number of questions around their findings, the Commission have finally responded to me via the deputy chairman and the head of this particular panel, Alisdair Smith. I am grateful that the Commission have finally engaged in dialogue, around two weeks after their decision has become legally binding.

They have given me a response to my initial queries plus a subsequent post on the condition that I reproduce it in its entirety, without edits, and I do so below. I will be writing my own response to their response tomorrow, but until then feel free to make your own mind up.


Dear Mark


In your Movie Evangelist blogs, you have made several reasoned criticisms of the  Competition Commission (CC) decision on Cineworld’s acquisition of Picturehouse. Several of your points have been picked up by other commentators or members of the public who have written to the CC.

As you know, the period after the publication of the CC’s provisional findings report in August was when interested parties could influence our thinking. The legal framework within which we operate does not allow us to re-open an inquiry after the publication of the final report.

Nonetheless, we think it is in the interest of public understanding to address the points you have raised. That’s why I am writing this open letter to you. It serves only to state our position on certain issues. It is not being sent to initiate a further debate. And we must stress that the comments that follow are not formal positions; our Final Report, published on 8 October, is the definitive legal statement of our findings.

Letters from the general public

It has been suggested that we have taken no notice of the many comments from the general public we received on our provisional findings of 20 August 2013. That is not the case.  We gave these comments careful consideration and indeed sought to address points made in those letters where we felt that our provisional findings had not sufficiently explained our thinking.


In particular, we explained at paragraph 6.5 of the final report how we had taken into account the differentiation between Cineworld and Picturehouse in our analysis of the impact of the merger. Similarly, we responded to your specific and interesting point on the effect of Cineworld’s Unlimited Scheme directly in the final report at paragraph 6.55.

Specific points

In your blog dated October 8, you make several points and ask a number of questions. I respond below to some of the numbered questions – although this does not mean that we agree with the other points you have advanced but on which I have not commented.


1. Was there no requirement to set a suitable threshold of competition in a particular area?

The task of the CC in a merger inquiry is to decide whether there is a substantial lessening of competition in a particular case referred to it by the Office of Fair Trading (OFT), given a particular set of circumstances. Our task was not to consider the whole landscape of competition in cinema exhibition in the UK.

The CC is required by law to identify the market that is relevant to the merger in question.[1] The market for cinema exhibition is largely a local market, so the question becomes whether there is a substantial lessening of competition in particular localities. Indeed, cinema exhibitors told us the specific local conditions of areas were key drivers of their product offering. The report summarises the evidence we received on this matter in paragraphs 6.6 to 6.20. There is no simple rule which determines how many competing cinemas could successfully operate in a given area.

There may well therefore be communities comparable to Bury St Edmunds which are served by a single cinema operator, but that has no bearing on whether this merger results in a substantial lessening of competition in Bury St Edmunds.


2. The OFT’s initial report indicated that Cineworld and Picturehouse operate in different markets

This is not the case: paragraph 110 of the OFT’s report of June 5 referring the merger to the CC states: “The OFT has analysed the transaction against a market for film exhibition services in this case. It has considered whether it is appropriate to segment this wider market by art-house and multiplex cinema. The parties failed to provide sufficient evidence in support of their arguments that the product market should be further segmented, Further, a number of pieces of evidence including: survey evidence, entry analysis, price concentration analysis and film overlap analysis indicates that there is competition between art-house and multiplex cinemas and it would not be appropriate to segment the market in this case.”


3. Why is it believed that introducing another party to these areas will have the effect of reducing prices?

The evidence discussed in paragraphs 6.14 – 6.20 and the econometric analysis of the relationship between prices and local concentration in Appendix C suggest that the extent of local competition affects prices.


4. Why were membership schemes excluded from the CC’s analysis?

Membership schemes were not excluded from the CC’s analysis. In our survey, as described in 4(b) of Appendix D on consumer surveys, separate questions were asked about membership schemes. We agree that the Cineworld membership scheme effectively sets a national price for membership. However, the results of our analysis gave us more concern about future Picturehouse prices than Cineworld prices in Aberdeen, Bury St Edmunds and Cambridge. The Picturehouse membership scheme is different the Cineworld scheme and does not insulate members from local price increases.  The different cinema membership schemes are described at paragraph 6.22 of the Final Report and the specific point made by you about Cineworld’s Unlimited Scheme is considered at paragraph 6.55.


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.

As explained in the CC’s merger assessment guidelines, competition between firms is generally expected to create incentives for firms to cut price, increase output, improve quality, enhance efficiency, or introduce new and better products.[2]

In relation to cinemas specifically, our econometric analysis found local competition effects after allowing for local cost effects. It is the strength of local competition which will restrict a purchaser of the cinemas to be divested from raising prices.


6. What controls will the CC put in place to prevent price increases as a result of a change in ownership?

The CC is not proposing price controls and we see no reason why a change in ownership should result in a price increase.

Economic terms

You entitled a blog of  October 13  “A request for the Competition Commission to explain basic economics to me”, and particularly asked about “GUPPI”.

GUPPI calculations, described and used in Appendix F to the Final Report, on Pricing incentive analysis, are a standard tool for considering the effects of reduced competition following a merger in markets, like cinema exhibition, where sellers offer products which are differentiated from the products of their competitors. It is perhaps worth adding that the GUPPI calculations were only one element which went into the judgements about whether there would be a substantial lessening of competition.


Primacy of the Final Report

We hope this open letter goes some way to help you and other critics of the CC come to a better understanding of our findings on Cineworld’s acquisition of Picturehouse. We must stress again in conclusion that these one-off comments are intended solely to help you and the wider public understand our reasoning; and the CC’s final report remains the definitive legal statement of our reasoning.


Kind regards


Alasdair Smith
Inquiry group chair on behalf of the inquiry group and staff


E: Alasdair.Smith@cc.gsi.gov.uk

T: @Smith_Alasdair

Competition Commission: The Current Summary

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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 movieevangelist@btinternet.com if you wish to join the campaign or to offer further suggestions on what we can do to overturn this.

A Request For The Competition Commission To Explain Basic Economics To Me

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It’s been four days since the Competition Commission published its final report and since then those who find the decision baffling or unprincipled, including myself, have been on the campaign trail. On Wednesday a group of protesters gathered outside the Cambridge Arts Picturehouse to protest the decision, with the local media in attendance. Julian Huppert, Liberal Democrat MP for Cambridge, also attended and has now started his own petition as a wider protest against the action and inaction of the Commission, which you can sign here.

Mr Huppert then raised the issue in Parliament on Thursday, and received this response from Andrew Lansley, another Cambridgeshire MP and also Leader Of The House:

“The Competition Commission’s job is to identify markets and act to restrict monopoly in the markets it identifies… I do not think this is the same market.”
“I feel the point [Mr Huppert] makes is a good one. Speaking purely personally and not for the government, I share with him his view that there is no case for the Competition Commission to seek to intervene in the ownership of the Arts Picturehouse.”

Except it already has intervened. As it presently stands, the Belmont in Aberdeen and the Abbeygate in Bury St. Edmunds must be sold, and one of the two cinemas in Cambridge, which is a decision which Cineworld Group itself is allowed to make.

Julian Huppert is intending to speak to Vince Cable this week, but further activity is clearly required and those of us working to overturn this decision continue to explore all avenues, and will hopefully have further news on our next steps in the next couple of days.

But most of the debate this week has centred on the nature of what the cinemas offer, and the fact that they exist in different markets. When the initial report was published, the Commission published a large amount of detailed research they had conducted to determine the economics. I finally have some definitive research of my own to be able to publish.

Economics 1

Those four people in the right hand column are the members of the Commission’s panel on the Cineworld merger:

Alisdair Smith, deputy chairman of the Competition Commission, professor of economics at the University Of Sussex for thirty-two years.

Rosalind Hedley-Miller, managing director of Commerzbank AG, where she has worked for over 30 years.

Jon Stern, a founder member of the Centre for Competition and Regulatory Policy in the Department of Economics at City University London.

Jon Wotton, retired solicitor who during his career had a principal focus on EU and competition law, public procurement law and media regulation, and two years ago was the President of the Law Society Of England and Wales.

The first person in the left hand column is:

Mark Liversidge (me), call centre planning manager who has been helping to prepare call centre budgets for call centres of up to 3,000 people for over 10 years and who has a degree in mathematical sciences, and who visited 28 different cinemas in 2012.

So assume for one moment that the cinemas operate in the same markets, in the face of 14,108 people who believe they don’t. Actually, it should be at least 14,113, as in addition to those who signed the petition you can find letters here on the Commission’s own website from Lord Puttnam and David Heyman, producer of the Harry Potter films, stating that these are separate markets and that judging them in the same market would be damaging to the industry as a whole. We also need to add the two MPs and also a Labour MEP for the East Of England.

For those keeping score, that’s a Lib Dem and a Conservative MP, a Labour MEP and a Labour member of the House Of Lords opposed to this on general principle. If you need any further evidence (really? OK), the BFI also wrote to the Commission here, stating their concerns that consumer choice will be damaged by the proposed sale. In the interests of balance for the other column, the final report has three other organisations who support the commission’s views: Cineworld’s competitors.

By contrast, Vue and Odeon did not draw such clear distinctions between the positioning of multiplexes and independent cinemas. Odeon told us that it was constantly evolving its cinema offer and attempting to ensure that each cinema catered for the widest demographic and taste and gave examples of refurbishments and upgrades it had carried out to meet specific needs. Vue stated that ‘a cinema is a cinema’. These views were echoed by Curzon: it believed that there was a large overlap between cinema types, with 60 per cent of customers willing to go both to multiplexes and independent cinemas.

The problem with this definition is that an independent cinema is defined purely as a cinema with less than five screens, not what most people would describe as an art house cinema. Based on every single documented criteria except price, a clear divide emerges between Picturehouse and other art house cinemas and all of those listed above, including Curzon to a certain extent. It’s also worth noting that Odeon support the findings, but also claim that the same finding should have been made about Southampton, Brighton and Greenwich as well (letter in the same link as the BFI link). They already operate in each of those areas, so wouldn’t be looking to take on a cinema in those areas, but presumably one less cinema in each area wouldn’t harm their current operations. [EDIT: While I am not suggesting their lack of understanding of the market is anything other than innocent, it should at least concern customers that they don’t understand what Picturehouse offers to differentiate itself and may be poorly positioned to replicate it.] But I digress.

Let’s assume that these cinemas are in competition. The Commission’s process consisted of two things: conducting a survey with a large sample of customers, both members and non-members, and then asked them a series of questions to determine what they’d do in the event of various scenarios, including both Cineworld and Picturehouse raising their prices by 5%. They then looked at a calculation called the Gross Upwards Pricing Pressure Index, or the fantastically named GUPPI. The GUPPI is a measure of how much their margin, or profit, would increase based on customers swapping between Cineworlds and Picturehouses. The Commission’s argument is that, by owning two cinema chains, when prices went up the benefit of anyone switching cinemas would have previously gone to their competitors, but now Cineworld would reap some of the benefit.

I struggle to get my head round that without something to base it on, so I’ve produced a worked example. To keep the maths simple, I’ve taken a sample day – Thursday, in this case – and then looked at the pricing in the Cambridge cinemas on that day. I’ve also assumed that reductions for children, families and other special groups would apply in the same broad proportions, and assumed the Silver Screen isn’t running in Picturehouse that particular Thursday, and also excluded the surcharge for VIP seats that Vue levy. I feel safe in doing this as factoring them in would reduce Cineworld group’s turnover and margins, while increasing that of Vue, making this a best case position. So I’ve attempted to work out the turnover of each of the cinemas – the total for the two Cineworld Group cinemas and for Vue – for a typical Thursday.

Economics 2

So the Commission’s logic is that by raising prices, Cineworld Group get to keep more of the profits, and as there’s less competition, there’s less to stop them raising prices. They then get to keep more of the profits, so there’s a direct incentive for them to do it. Forcing the sale of one of the cinemas is designed to counteract that by retaining the same level of competition.

But does it work that way? In theory, Cineworld Group could raise its prices to any level, and the more they raise them the more they keep; but every single cinema operator when asked confirmed that there is a local level of pricing to which they must adhere, at least in part. Besides, the Commission’s research was based on a price increase of around 5%, so we have to assume that increase in our worked example. Let’s then see what happens if both Cineworld cinemas put their price up by 5%, and we then extrapolate the results using figures taken from the independent research company used by the Commission to gather data.

Economics 3

What’s happened here is that Cineworld’s turnover has gone down slightly, and Vue’s has gone up sharply. This might not be an issue for Cineworld in isolation – shareholders will generally take a favourable view if your turnover has decreased if you’ve managed to increase your profit – but to do so by handing an advantage to your direct competitor would be a lot less palatable.

So Cineworld have increased profit, but in the process they’ve reduced their overall attendance by around a quarter. This is then likely to have a further impact which doesn’t appear to have been accounted for in the calculation, although the report isn’t totally clear. Vue’s original submission indicated that 70% of their revenue comes from the box office receipts, 25% from food and concessions and 5% from advertising revenue. Assuming that a similar ratio holds for other operators, with attendances down by a quarter that will also reduce the concessions by a quarter – with no extra margin on them as the price wasn’t factored into the survey – and the cinemas will now be less appealing to advertisers.

What it appears the Commission have done is to conduct an incredibly valuable piece of market research for Cineworld Group, which indicates that a price rise of 5% will cause 30% of non-members / online bookers, or 24% of their total audience, to divert to their nearest rival or to stop coming completely. This would appear to be a strong and compelling argument to them not to raise their prices and effectively capping them to raising prices in line with the competition, and would suggest that not selling a cinema in Cambridge would still be effective in controlling prices.

But that scenario isn’t going to happen now, as one cinema must be sold. We can now be slightly more certain about the permutations of that outcome. If the Cineworld is sold, then it will be to another multiplex. The other three major chains charge the following prices in their cinemas nearest to Cambridge:

Economics 4So for customers paying on the day, Empire would be cheaper. Showcase offer a free Insider scheme which gives discounts from Sunday evening to Tuesday evening inclusive, making Sunday evening and Monday cheaper than Cineworld. Odeon offer a points scheme which is the equivalent of one free film for every 12 seen at peak times. The customers set to lose out most significantly are the 8% of customers with Unlimited memberships, as there is no direct equivalent operating in any other chain at present, and currently that allows as many films as a customer can watch for £15.90 a month, unless they wish to travel to Huntingdon or Bury St. Edmunds.

From an economic standpoint, the potential Picturehouse sale is unsurprisingly more concerning. The Commission’s decision will force the cinema into doing what it isn’t currently, and competing on equal terms if it is to survive. Except when your cinema is in the city centre in an older building with higher running costs – a reason quoted by Vue as to why they had no interest in taking over Picturehouses – then your margins will be lower before you start. Given that the new owners will only have a capacity of 512 seats against the 1,700+ competitors in the city, any hope of showing more diverse films will be lost. In Norwich, the smaller independent cinema, run by the Hollywood chain, attempts to compete against three chains (Odeon, Vue and Picturehouse) and has to charge around £2 less than any of them. Lower running costs will make margins yet more precarious and any services such as the bar which add to the running costs may need to be dispensed with to protect enough profit to run the business as a going concern. In 2010 another Hollywood cinema failed, and was rescued by Picturehouses in – you guessed it – Bury St. Edmunds.

Bury St. Edmunds is the one area with no competition, but the findings of the original survey did demonstrate that for full price paying customers, 15% of Cineworld customers would switch to a competitor or stop coming completely on a 5% price increase and 2% of Picturehouse customers would make a similar decision. Notably, the 11% looking for another cinema would most likely end up at the Vue in Cambridge, the nearest competitive multiplex. Even with no direct competition in the immediate area, it would be to Cineworld group’s financial detriment to put up prices. So setting aside the discussions of programming, it would appear that the better option from an economic standpoint would be to not sell the cinemas, based on the Commission’s research. But that’s just my view, based on calculations and estimates I’ve had to make without the benefit of confidential information removed from the reports. It must be wrong, because the only reason this is happening is that this is supposed to be in the customer interest, but the most likely option to control costs and protect choice appears to be not doing anything.

But I’m just a lowly cinema buff, with only a statistics background and a basic knowledge of the fundamentals of business. I invite someone – anyone – whether it be the Competition Commission members, with their combined experience of over 100 years, or indeed any member of the public, to highlight the flaw in my thinking or my numbers, because this is only going ahead on the basis of increasing competition and in turn controlling costs. If the numbers don’t stack up, then surely this decision has to be set aside or overturned?

A Letter To MPs To Review Or Overturn The Competition Commission’s Findings

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I have written today to my local MP and to ten other MPs whose constituencies contain or border the cinemas under threat from the Competition Commission. However, MPs in the UK are only supposed to act on behalf of their own constituents, so those other 10 MPs may not be able to do anything directly to follow up on my letter.

So I am making publicly available the letter that I’ve written. If you intend to contact your MP you have my permission to attach a copy of this letter to your contact.

The letter in full – you may wish to exclude those paragraphs in square brackets:

Dear Member Of Parliament,

[I am writing to you as both a constituent in one of your areas (East Cambridgeshire), but also on behalf of over 13,700 people that recently signed a petition to protest the sale of cinemas that your constituents currently attend, and those 13,700 people include constituents in each of your areas.  I will try to summarise the situation as briefly as possible.]

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 a chain of independent cinemas. After a referral from the Office Of Fair Trading, the Competition Commission published an initial report in August which they confirmed yesterday, instructing Cineworld Group to sell either the Cineworld or Picturehouse in each area. Cineworld Group intend to sell the Picturehouse in Aberdeen and Bury St. Edmunds and are yet to decide which of the Cambridge cinemas to sell.

I believe this decision is wrong for a number of reasons, and that that the research commissioned into the problem is fundamentally flawed.

  • There is no evidence, either supplied by the Commission or independently, that competition is effective in setting prices in this industry. Cinema chains set prices at similar levels in geographic areas, with competition seeming to have a much weaker effect than the local cost of living and other factors, and forcing the sale of one cinema will just bring in another cinema with no obligation to charge lower prices, and when considering the other operators in the market a likelihood that prices will increase.
  • Typically, a geographic area the size of Aberdeen is capable of sustaining two cinemas, and of Cambridge and Bury St. Edmunds only one, based on the national average. Counting Cineworld’s cinemas as one, there would still be two operators in Aberdeen and Cambridge, and one in Bury St. Edmunds. While competition has lessened, it has only lessened to the national average, when it was above this originally.
  • Following the referral, the OFT published a report in June, where they considered that Cineworld and Picturehouse were operating in different markets. Cineworld is a multiplex, whereas Picturehouses follow an independent or arthouse model. The Competition Commission instead found that these cinemas were in direct competition, yet their deputy chairman Alisdair Smith has admitted since the report was published in an interview on BBC Radio Cambridgeshire that they would expect different buyers for the Cineworld or Picturehouse should they be sold, clearly supporting that the markets are different.
  • The research was based on a single adult ticket price, and the likelihood of customers to switch cinemas if prices were to increase by 5%. The Commission’s own research showed that 58% of Picturehouse customers are members and receive discounts on every ticket of more than 5%. Additionally, market statistics show that around 1 in 8 tickets purchased from Cineworld cinemas nationally are under some form of membership discount. The myCineworld scheme offers a greater discount – 10% – to anyone booking online with no commitment, and again the research did not consider this. Cineworld is the only multiplex operator to run such schemes.

The Commission claim to have considered customer feedback in compiling their final report, but have not addressed any of these concerns, which were addressed to them directly prior to the publication of the final report.

The two chains in question currently have the best record in the industry of offering discounts to their customers nationally, and in a like for like comparison in any areas where they operate they are offering lower prices than their competitors. Any enforced sale will not just impact prices for consumers.

  • The Picturehouse cinemas offer cafe bars where hot meals 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. 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, and are also capable of a wider range of projection – 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.

Any enforced sale of these cinemas will result in higher prices for your constituents, a loss of the ancillary services and a significant reduction in choice. A comparison to any of the current operators in either market shows that each charges the same or higher for tickets with less discounts, offers less choice in their programming and doesn’t support the ancillary services to the same extent. The sale of these to an independent operator without the resources of a chain behind it could see the cinemas quickly fold; the Bury St Edmunds cinema was in trouble prior to the Picturehouse takeover, and Aberdeen’s Picturehouse is being subsidised by the local council after also running into difficulties, and without the resources of an operator such as City Screen they may soon be back in a similar position.

Before the Commission published its final report, the local council in each area proposed to put in place behavioural remedies, where they would put some measure of price controls on the existing cinemas. Two of the councils gave detailed proposals and had run similar controls previously. The Commission dismissed these proposals on the grounds that they would not increase competition – when the sole purpose of increasing competition is to attempt to restrict prices – and that the OFT would have incurred costs in supporting such schemes. Instead, these costs will be passed directly to your constituents in the form of higher ticket prices.

I would urge you to take the appropriate steps to set aside or overturn the findings of the Commission, on the basis that:

  • All of the research showed a clear differentiation in the market between arthouse / independent and multiplex cinemas, which if considered would have negated the findings.
  • The findings were based on a flawed assumption of a single ticket price and incorrectly excluded membership schemes. The surveys on which they based their findings excluded these and are therefore fatally flawed.
  • There is still a level of competition at least at the national average in these areas following the takeover, so there is no requirement to increase competition further in these areas.

Failing that, I would ask that the behavioural remedies proposed by the local councils be re-examined as these appear to be a better option for your constituents than the structural remedies proposed of selling cinemas.

[I enclosed links to my more detailed research and to other material on the situation, and I would be happy to provide further clarification on anything here:


I will be advising those who signed the petition to contact you for your support, and I would expect you all to hear from them in due course, if you haven’t already.

Yours sincerely,

Mark Liversidge]

Cambridgeshire MPs:

Cambridge – Julian Huppert: julianhuppertmp@gmail.com

Huntingdon – Jonathan Djangoly: djanoglyj@parliament.uk

North East Cambridgeshire – Stephen Barclay: stephen.barclay.mp@parliament.uk

North West Cambridgeshire – Shailesh Vara: varas@parliament.uk

South Cambridgeshire – Andrew Lansley: lansleya@parliament.uk

South East Cambridgeshire – James Paice: paicejet@parliament.uk

Suffolk MPs:

West Suffolk – Matthew Hancock: paicejet@parliament.uk

Bury St. Edmunds – David Ruffley: antonia.merrick@parliament.uk

Aberdeen MPs:

Anne Begg: begga@parliament.uk

Malcolm Bruce: milsomr@parliament.uk

Frank Doran: doranf@parliament.uk

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.


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.