business plan - movies and more - hamid bouchikhi

Movies and More

A business plan for an independent cinema in Bucharest

Table of contents Executive Summary.. 1. Products & Services ...................................................................................................................... 1

1.1 The concept .............................................................................................................................. 1 1.2 Products & services description ............................................................................................... 1

1.2.1 The core business .............................................................................................................. 1 1.2.2 Additional services (expected) .......................................................................................... 2 1.2.3 Special services (augmented) ............................................................................................ 2 1.2.4 Unique services (unexpected) ........................................................................................... 3

1.3 Future services ......................................................................................................................... 4 2. Company Summary ...................................................................................................................... 4

2.1 Vision ....................................................................................................................................... 4 2.2 Start up Summary ..................................................................................................................... 4 2.3 Partnership with the French Institute (Institut Franais) .......................................................... 5

3. Industry Analysis .......................................................................................................................... 6 3.1 Industry Overview & Analysis................................................................................................. 6

3.1.1 Local Box Office ............................................................................................................... 6 3.1.2 International Box Office ................................................................................................... 7 3.1.3 The Romanian film economy .......................................................................................... 7

3.2 Industry Participants ............................................................................................................... 8 3.2.1 Exhibition .......................................................................................................................... 9 3.2.2 Distribution .................................................................................................................... 11 3.2.3 Production ...................................................................................................................... 11

3.3 The forces that shape our market ......................................................................................... 11 4. Market Analysis .......................................................................................................................... 12

4.1 Analysis of the Romanian market for cinemagoers ............................................................ 12 4.1.1 Introduction ..................................................................................................................... 12 4.1.2 Economy ......................................................................................................................... 13 4.1.3 Population ....................................................................................................................... 15 4.1.4 Cultural activities .......................................................................................................... 15

4.2 Market Segmentation ............................................................................................................ 16 4.3 Target market ........................................................................................................................ 17 4.4 Target customer needs............................................................................................................ 18 4.5 Summary of the Romanian market for cinemagoers .......................................................... 19

5. Marketing strategy and implementation .................................................................................... 20 5.1 Marketing strategy ................................................................................................................ 20 5.2 Description of the marketing mix of our concept ............................................................... 21

5.2.1 Product ............................................................................................................................ 21 5.2.2 Place ................................................................................................................................ 21

5.2.3 Price ................................................................................................................................ 22 5.2.4 Promotion ........................................................................................................................ 23 5.2.5 People .............................................................................................................................. 24 5.2.6 Process ............................................................................................................................ 24 5.2.7 Physical Evidence ........................................................................................................... 25

5.3. Sales forecasts ....................................................................................................................... 25 6. Operations Plan ........................................................................................................................... 26

6.1 Location and building ............................................................................................................ 26 6.2 Equipment .............................................................................................................................. 27 6.3 Operations .............................................................................................................................. 27 6.4 Personnel ................................................................................................................................ 29 6.5 Suppliers ................................................................................................................................ 29 6.6 Credit policies ....................................................................................................................... 30

7. Management team ....................................................................................................................... 30 7.1 Type of company and ownership ........................................................................................... 30 7.2 Internal management and compensation ................................................................................ 31 7.3 External management ............................................................................................................. 32

8. Financial Plan .............................................................................................................................. 32 8.1 Basis of Financial planning .................................................................................................... 32

8.1.1 Outsourcing agreement ................................................................................................... 33 8.1.2 General Assumptions ...................................................................................................... 33

8.2 Projected Income and Expenditure Statement ....................................................................... 34 8.2.1 Projected Sales Income ................................................................................................... 35 8.2.2 Projected Expenditure ................................................................................................... 36

8.3 Projected Capital Expenditure ............................................................................................. 37 8.4 Projected Cash Flow ............................................................................................................. 37 8.5 Summary Balance Sheet ....................................................................................................... 38 8.6 Ratios ..................................................................................................................................... 39 8.7 Break-even and sensitivity analysis ..................................................................................... 39

Table of figures figure 1: Preference to services .......................................................................................................... 1 figure 2: Comparison of Romanian and other C.-S.E.E. film industries ........................................... 8 figure 3: Porters five forces model for cinema exhibitors in Romania ........................................... 12 figure 4: How often do you go to Cinema (All / Bucharest) ............................................................ 16 figure 5: Relationship between employment status and cinema visits ............................................. 17 figure 6: Positioning of Movies and More ....................................................................................... 17 figure 7: Genre preference of people from Bucharest (Survey) ....................................................... 18 figure 8: Main reason to go to cinema ............................................................................................. 19 figure 9: The French Institute ........................................................................................................... 21 figure 10: Comparison of the cinemas chosen by Romania Libera ................................................. 22 figure 11: Price study (based on the survey) .................................................................................... 23 figure 12: Responsibilities of Movies and More Managers ............................................................. 32 figure 13: Movies and More Income and Expenditure Account for financial years 2009 to 2013 . 34 figure 14: Movies and More Cash Flow Statements for financial years 2009 to 2013 .................... 37 figure 15: Movies and More Balance Sheet Statement as at 31/12 2009 up to 31/12/2013 ............ 38

Movies and More Executive Summary

Executive Summary Movies and More is a new cinema complex aiming to become the top independent cinema in Bucharest, Romania. Our goal is to create a dynamic niche business with cultural aura, in an emerging economy with many unexploited opportunities, drawing on the competitive skills of the management team. We will launch an innovative cinema complex dedicated to the independent cinema where everyone can watch the best of the independent films worldwide, get some tasty food and drinks, buy books or DVDs related to arthousea cinema, and relax in a warm and casual atmosphere. We want our customers to have fun and come back during their leisure time. We will create the perfect mix of film selection, atmosphere, and service in order to reach our goal of obtaining best value in entertainment experience.

One of the challenges is to build on an existing brand: Elvira Popescu is an old monoscreen in the Romanian capital, well known for its quality programming of independent and arthouse films. The current management team at Elvira Popescu is highly interested in Movies and Mores new business proposition and has offered us a partnership deal based on an outsourcing model. We aim to interest especially the young professionals and students of Bucharest. Being in the city centre, the cinema complex will benefit from the activity of the bars and restaurants in the streets nearby. On one of Bucharests main streets, the location is frequented by young professionals and students.

The cozy cafeteria and the specialized DVD bookstore will also appeal to an exclusive population of film lovers in Bucharest who do not currently have such a complete offering. Movies and More's trump is its attention to these customers in Bucharest. Our product offering is based on a need, which is currently unfulfilled in Bucharest. Our market and industry research helped us to determine where the unmet need is. This strategy is unrealistic for large cinemas showing commercial films also named multiplexes. But it is ideal for Movies and More since Bucharest has a large active and young population, which is not currently being addressed by the local market. Movies and Mores competitive advantage is creating a special independent cinema that fills a need specifically in Bucharest in contrast to opening a new multiplex in a mall which would typically appeal to a mass audience.

a http://en.wikipedia.org/wiki/Arthouse_cinema An (arthouse) film is typically a serious, non commercial, independently made film or a foreign language film that may have these qualities, but may have been made by a major company in its home territory and achieved popular success. It may thus be aimed at a niche audience, rather than a mass audience, or the use of subtitles in foreign language films may inevitably limit audience appeal. () Since art films have small initial investment costs, they only need to appeal to a small portion of the mainstream viewing audiences to become financially viable.

Movies and More Executive Summary

Once opened, Movies and More will have a highly motivated and skilled management team to guide its success. Movies and More's four owners, TK, ND, SB and DRA, each have more than 10 years of management experience. TK is VP International Sales for StudioCanal, one of the most well known companies operating in the independent cinema business, where she works since 1999. For the past 9 years DRA has been working in the audiovisual sector, at the BBC in London, as a specialist in financial and commercial strategy and more recently business outsourcing. SB disposes in total of almost 20 years professional experience. Since 1999 he works as a Department Manager in the IT division of DZ BANK. ND is IT team leader and he has been working for an insurance company for the last six years. He is part of the e-marketing task force of his firm.

Mission: Successful independent cinemas are based on a precise understanding of the core customers. Our mission is to create a new environment that satisfies the demanding taste of our core customers and goes beyond their expectations. In order to achieve this goal, we must constantly listen to our customers' entertainment needs and continuously improve our service proposition.

Objectives: Create an independent cinema complex, which aims to exceed customers' expectations. Develop an alternative to the traditional offer from the multiplexes and the old equipped

monoscreens.

Capitalize on an excellent location opportunity (central, well known). Launch the new venue with a highly publicized grand opening event in 2009. Maintain tight control of costs, operations, and cash flows through diligent management

and automated computer control. Break-even in the first year of plan implementation, exceed 300,000 in annual sales by the

third year and remain cash positive for the duration of the plan.

Keys to Success: The keys to success in achieving our goals are:

Programming quality (the best of independent and arthouse films). Provide exceptional service that ensures loyalty of our core customers. Innovative entertainment experience and product quality. Managing our internal finances and cash flow to enable upward capital growth. Strict control of all costs, at all times, without exception.

Movies and More Part 1: Products & Services

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1. Products & Services

1.1 The concept Movies and More will provide Bucharest with an alternative cinema experience. The main concept in our product & services offer is to create an innovative cinema complex including refurbished cinema hall showing independent films, cozy cafeteria and specialized DVD bookstore. All these services will exist in a unique place, the Elvira Popescu cinema within the French Institute location and we will build our package offer on the cinemas existing brand, which is already appreciated by the local cinemagoers for showing different movies. A similar offering does not exist today in Bucharest. Indeed as we will see in chapter 3 (Industry Analysis), the current film offering in Bucharest is based on commercial products (mainly American blockbusters). In addition, there are currently no cinemas in Bucharest that offer cafeterias and specialized DVD bookstores on their premises. Also, the sound and projection equipment in the grand majority of monoscreens cinemas is poor. In showing how our product and services offer is differentiating, we assess how our package offer will fill the gap that exists today on this market.

In the summer of 2008 we undertook a market survey on www.cinemagia.ro.

This was designed to test the appetite of the market in Bucharest with

regards to cinema and other related cultural activities. The survey elicited circa 1,300 responses. The main

products & services outlined in this chapter arise from the analysis of this

survey (see fig. 1).

figure 1: Preference to services

1.2 Products & services description

1.2.1 The core business The film offering: Movies and More will show a variety of movies that are not available through the mainstream offering. We locate our offering in the context of the independent production sector: these will be low or medium budget films with an artistic vision, as opposed to big budget films (more than $15million) made for commercial purposes and widely released worldwide (e.g. blockbusters strategy). We will thus mix local films by young talented directors with independent


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directors from different nationalities (including Latin, Asian, European and even North American), usually internationally acclaimed in prestigious film festivals, and sometimes also referred as "art-house" niche as they traditionally have a very limited audience. Our offering will be very diverse, with an average of 8 films per week and a complete new offer per month (see Annex 1.1). We will also show trailers of upcoming films and various advertisements before each film. Our ticket pricing strategy will reflect the diversity of the program. This is further discussed in chapter 5 (marketing strategy and implementation).

1.2.2 Additional services (expected) a) Good quality sound and image: Following the proposed refurbishment, films will be exhibited in excellent sound and image quality (DTS 5.1 or equivalent) enhancing the movie experience and exceeding customers expectations since they are currently used to see independent films in extremely poor conditions. As evidenced by the competition analysis (see Annex 3.1) this is not the case for the grand majority of cinemas in Bucharest and not currently the case for Elvira Popescu.

b) Snacks and Drinks: Today, Elvira Popescu cinema does not sell snacks or drinks for consumption during movie performances. We intend to change this situation and we will be proposing snacks, popcorn, drinks and other refreshments.

1.2.3 Special services (augmented) a) Booking and choosing of seats: Customers will be able to choose and book their seats online. This will be done via Movies and Mores own website as well as via other aggregator websites, such as www.cinemagia.ro. The higher ticket price will reflect this augmented service. Few competitors also provide this type of service but it is usually linked to a commercial programming (multiplexes policy). b) Website: Movies and More will have its own website with an original design. This will be the virtual business card and portfolio of the company as well as its online home. Our main objective in this area is to become a reference site for the independent movie industry in Bucharest/Romania. The content will include the cinema schedule, latest news about the films shown, trailers, film music clips, and making of clips. The website will also have a VIP membership area where moviegoers will go to create virtual communities (discussion forums and blogs) and discuss, for example, the latest edgy directors discovered at Movies and More. Some multiplexes also provide this type of service but their blogs are dedicated to the latest blockbuster released, like the Harry Potter community. c) The Cafeteria: Cafeterias (or coffee shops) are a relatively new feature on the Romanian market. Major coffee shop chains, such as Starbucks or Costa have only recently entered the


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Bucharest market (April 2007) and are already proving a major success. The Movies and More Caf will be a place where cinemagoers will be able to meet and share impressions on films theyre about to see or have just seen in the cinema. The place will offer a typical French food experience, selling coffee and croissants for matinees and hot baguettes and croque-monsieurs or other sandwiches after 1pm. It will also sell a full range of espresso based coffee products: espresso, macchiato, cappuccino, latte, etc. The menu will be customized to relate to the current programming (see Annex 1.2 for an example menu). d) A specialized arthouse and DVD bookstore: The specialized arthouse book/DVD shop will be a very small new store providing high-level choice and expertise to its customer base. The store will offer a variety of books and magazines, DVDs and reference materials all related to the film industry. The offer will include, but will not be limited to, biographies of film directors and actors, DVDs of prestigious film directors, etc. As this type of stock is typically slow moving, we will not anticipate holding large stocks of books or DVDs. Instead Movies and More will offer a special catalogue ordering service where titles will be available for consultation. Together with the cinema and cafeteria the DVD/bookstore constitutes a unique offer on the market. This will be a real differentiator for Elvira Popescu.

1.2.4 Unique services (unexpected) We will create unique services to ensure the customers loyalty since in Bucharest such services

do not exist today. This will reinforce our communication strategy about the new complex. a) Loyalty (membership) card: Movies and More will also offer a membership card scheme, where customers will be part of a VIP club who will have access to a selective offering (invitations to red carpet events, film premieres, first choice for seats, ticket prices discounts, etc.) Of course the loyalty card will be subject to an additional fee so that people buying this service would indeed feel special and not treated as a common customer. b) Red-carpet events: Movies and More will also organize red carpet premiere events. These will contribute to maintaining the buzz around our offering and enhancing the places reputation. Celebrities, actors, critics will be our best allies. We expect to organize up to 4 events per year. Temporary decorations will also be organized for red-carpet events / film festivals, Christmas, etc. c) Film debates, Film Festivals: One of the main ideas behind the new cinema experience for Movies and More is to offer our target audience much more than just a film. This can be the opportunity to meet with young Romanian directors who agreed to be the cultural sponsors of our cinema (such as Cristian Mungiu director of 4 Months, 3 Weeks, 2 Days). We will organize special events with influent critics to debate about cinemas actuality (e.g. film festival prize controversies). We will improve and enhance the existing festival culture inherent to the Elvira

Movies and More Part 2: Company Summary

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Popescu cinema, in launching new festival themes with the support of the young talented filmmakers who will attract a new audience crowd.

1.3 Future services In the future Movies and More will consider other services such as: courses about how to watch, understand and analyze movies (film critic courses), as well as letting-out the cinema hall and cafeteria, bookstore for special screenings (e.g. some VIP members anniversary) and events (e.g. private company seminar). Another service, which we know will be strongly supported by young famous directors like Cristian Mungiu or Cristi Puiu, is to dedicate some space within the site to set-up a film archive. There are currently no film archives in Bucharest. The directors will be able to store their film reels and so become even more involved in Movies and Mores activities.

2. Company Summary Movies and More, as the name suggests, will be a real home for film lovers. In todays market, and with the massive availability of cable TV and the internet, a cinema has to offer more than an alternative programming. The cinema must provide top quality screen equipment, extra activities, snacks & drinks and good food in a cozy cafeteria. The cinema must be special and take advantage of its location. We must communicate with Movies and More godfathers - famous film directors such as Cristian Mungiu, Cristi Puiu or Corneliu Porumboiu, and ensure we regularly launch special events that are fun, innovative and maintain a dynamic interest to the place. We must support this with excellent programming, which continues to attract our core customers. Movies

and More will propose a variety of the best of independent cinema worldwide, targeted to appeal to a high budget audience with an emphasis on VIP club membership.

2.1 Vision With this concept, Movies and More intends to fill in the current gap between the lack of modern equipped cinemas showing independent films on one hand, and on the other hand the young Romanian directors, who recently won recognition abroad in prestigious International Film Festivals but who do not have access to their own local audience due to the catastrophic situation in the cinema exhibition sector. The founders of Movies and More are highly motivated to overcome both challenges and capitalize on a real business opportunity.

2.2 Start up Summary Movies and Mores four members intend to found a small limited liability company (Societate cu Raspundere Limitata" also known as SRL). The ownership of Movies and More will be uniformly

Movies and More Part 2: Company Summary

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distributed: each founder brings 6,500 share capital into the company and therefore owns 25% of it. The reason for this comparatively little investment in cash is that Movies and More does not take over major fixed assets and only needs a short-term loan to start its business. Further information regarding the legal type of company can be found in chapter 7 (Management Team).

2.3 Partnership with the French Institute (Institut Franais) Ever since 1979, Elvira Popescu cinema is an integrated part of the French Institute, which aims to promote the French culture abroad. The cinema gets an annual subsidy from European Union if a

minimum of 20,000 spectators attend per year. In 2007 only half of this target was reached0 partly

due to the state of the equipment, which is outdated, the lack of a targeted marketing campaign and a general passive attitude from the current management team. Nevertheless Elvira Popescu is still much appreciated by Bucharests film lovers thanks to the quality of the programming. Our aim is to reveal the true potential of this cinema and re-launch Elvira Popescu as a brand in July 2009 for its 30th anniversary. We will work in partnership with the French Institute who offers an

outsourcing contract to Movies and More. Although newcomers in the market, we are convinced that our business plan is strong enough to enable us to become leaders in the independent exhibition sector in the short to medium term (3 to 5 years plan). Movies and More will assume the responsibility of managing the entire cinema business and conduct its operations on behalf of the French Institute. The main elements of the business model are as follows:

The French Institute places the cinema building at Movies and Mores disposal for a rental fee including a nominal rent for the place plus a premium for the equipment. Movies and More is responsible for all business related to sales and payments and generally managing the operations of the cinema. Our proposed model will significantly improve the financial situation of the cinema, as we will break-even and we will achieve a positive cash balance from the first year of operation (to date Elvira Popescu has been operating at a loss).

As customary for rentals, all renovation, new furniture and equipment costs will be paid by and all the assets will still be owned by the French Institute.

Movies and More doesnt need any start capital and will run the cinema autonomously. Movies and More will further on act under the name of French Institute and pursue its aims

and business strategy. This will be secured by a 10 years contract, which contains a mutual right for cancellation at the end of each year (first termination possible after three years).

0 We can note some flexibility from the European Union since the French Institute got a subsidy for its cinema in 2007 despite the poor admission

results (a grant of 10,800).

Movies and More Part 3: Industry Analysis

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3. Industry Analysis

3.1 Industry Overview & Analysis Romanias film industry underwent a dramatic decrease of admissions over the past 15 years, a trend that was not followed by its Eastern European neighbors. Why have the Romanians deserted their cinema halls? The reasons for this particularity can be found back into the communist regime. A lack of cultural policy with measures to support the cinema industry on one hand, and the continuous degradation of the state owned cinema halls on the other hand, have discouraged the audience to go and see films. Today the majority of the old cinema halls have closed down and the habit to go to the cinema has declined. Romanian would rather watch films on television, and the youngest ones are watching films downloaded on the Internet.

3.1.1 Local Box Office The total Romanian net box office for 2007 was 9.7 million, with an increase of 40% since 1995. Actually the net number of admissions steadily decreased over the years but this trend was compensated by the price tickets increase. Nevertheless Romania is underperforming compared to its neighbors1. On the same period, the box office revenues in all the other E.E. countries tripled or quadrupled, benefiting from a constant number of admissions and also from price tickets increase. a) Admissions: The total cinema admissions reached 2.9 million in 20072, meaning a dramatic fall since the end of the communist era. From a total of 17 million admissions in 1995 (2nd best rank in Eastern Europe, after Poland!), this number continuously fell after 2000. This was unlike its E.E. neighbours, which all maintained or improved their annual admissions3. Recently, the admission number of 2.7 million in 2006 indicates an increase of 4% on one year4. This slight improvement might indicate the start of an upward trend. b) Film releases and box office revenues: 430 films (each released for a week or more) were released in Romania in 2007, compared to 359 in 2006. They generated 9.7 million in box office revenues, up 13% on the same period (8.6 million in 2006). The average ticket price increased of 269% from 2002 to 2006. In 2007, ticket price was equivalent to 3.3 (RON 11.74)5. With a population of 21.6 million, Romania is the 2nd biggest country in E.E., however the ratio of 0.1 admissions per inhabitant, makes it the one with the lowest number of admissions in the whole region6.

c) Film releases per country of origin: The strong majority of films released in Romania are of American origin. For instance, in 2006, out of a total of 2.7 million admissions, 88% were

1 MEDIA 06

2 Focus 08

3 MEDIA 06

4 National Cinema Centre Yearbook 2007



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American films, 7% are European, 4.3% Romanian and 0.6% from other regions. Hence American films, mainly Hollywood blockbusters, lead the box office7. Nevertheless, American films lead the box-office worldwide and this evidence just shows signs of the cultures globalization. The same blockbusters were number one in most other countries. Similarly to other countries, in Romania there is a need for a different type of cinema, with people developing an interest in watching artistic films. Indeed, 2007 shows signs of a growing diversity with European films increasing their market share over American ones. On a total of 2.9 million admissions, 84.1% are American films; 10.1% are European films; 4.8% are Romanian films and 1% from other origins8.

3.1.2 International Box Office Romanian films, as well as other E.E. films, have a very confidential audience on the international stage.9 Some well-known old generation directors like Nae Caranfil or Lucian Pintilie used to have their films selected in international film festivals in the 90s but they never had access to actual international releases. The situation has changed only 3 - 4 years ago, with the recognition of young directors like Cristi Puiu, Cristian Mungiu or Catalin Mitulescu, by the international press following their prizes won in prestigious film festivals like Cannes. This group of young filmmakers was called Nouvelle Vague in reference to the French authors who emerged from the 1960s. As a boomerang effect, Romanians became curious to discover the Romanian films praised outside their own country. This explains the large box-office success of Cristian Mungius film, and also the relative fame of other young directors whose films had smaller press coverage than the Palme dOr winner.10

3.1.3 The Romanian film economy This economy sector is not yet mature, as it has been under state control for decades. Due to a lack of research (and transparency) in the film industry, there is no information allowing us to calculate the total turnover of the film, TV and video sectors in Romania. Both state-owned and private companies do not disclose their income and therefore we can only assume that television, distribution and exhibition account for the largest part in the total turnover. We can explain the fragility of the film economy through the impact of the communist era in the

1990s. a) A state owned heritage: The communist regime nationalized all the cinema halls. These state owned cinemas however have neither been maintained nor renovated during the communist era, so most of them were left in such poor conditions (no heat, old equipment and

6 MEDIA 06



9 EDI Nielsen

10 Romanian young directors and international recognition


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furniture) that people just lost interest in watching films at the cinema. Today, the state still owns the majority of the cinemas (90%) but it has still not given any subsidies to renovate the halls. Moreover, RADEF, the state company managing the cinemas, has been involved in many financial scandals. RADEF recently sold old cinema locations for almost nothing despite the high real estate prices, and has been publicly accused of accepting huge bribes for such transactions. b) A film economy without regulation: With Ceausescus fall, the failing communist system left the economy in a fragile state. The 1990s were years of high inflation and collapse of average salary. The buying power was so low that people could just not afford to go to the cinema, especially considering the constant ticket price increase. Another disruptive factor was the massive increase in the number of TV and Pay TV channels. Therefore the television reign also contributed to the dramatic fall of cinema attendance: 50% drop in admissions from 1995 to 1997 with a further 50% drop in admissions from 1997 to 1999!11 At the same time, there were no political measures or quotas to protect the local film industry from the invasion of the powerful American film industry. Hence the American film studios could easily open local subsidies for a massive distribution of their big budget movies (blockbusters). Both a curiosity for American films after communist times and high levels of advertisement for such films developed the trend for people watching mainly blockbusters. c) Romanian film industry compared other Eastern European film industries:

figure 2: Comparison of Romanian and other C.-S.E.E. film industries

3.2 Industry Participants The cinema value chain12 runs as follows:

For the purpose of our analysis we will start with an overview of the participants of the last

element of the chain, the exhibition, and go backwards to the production. By doing this, we

11 MEDIA 06

12 Film cycle definitions (Wikipedia)


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will have a clear picture of the current industry players and analyze our potential situation versus our competitors.

3.2.1 Exhibition The exhibition sector is very small and concentrated. Half of the profits are in the hands of the 2 big multiplex owners in Bucharest, and the third winner is the state company RADEF (owning 41 cinemas in Romania). The other exhibitors survive each with 1% or 2% of the total revenues. This implies business opportunities for newcomers, especially for the entrepreneurs who will not try to compete with the multiplex owners specialized in mainstream programming. For a detailed competitors analysis, see Annex 3.1. a) Romanian screens: The number of screens in Romania fell from 434 in 1995 to 117 in 200713. These 117 screens correspond to 72 active cinemas in 200714. It is a gigantic drop as most other E.E. countries had only a small decrease in their number of screens since 1995. Poland even increased its number of screens but it is true that this country also fared better the new context of free market. Actually Romania was the E.E. country facing the worst loss of screens,

due to lack of political action to prevent many permanent closures and to certain extent, due to some large sales scandals. b) Screen location: The number of screens per 1000 km2 is 0.5 in Romania (against 3 in Poland and 5 in Hungary), so it is the lowest in all E.E.15. The majority of the screens (77 out of 117) are concentrated in the capital16, Bucharest, while many big cities have no cinema at all. Hence business opportunities do exist in the exhibition sector in Romania, since 3 cities Bucharest/Cluj/Timisoara made 80% of the total gross box office in 2005, while representing only 12% of the whole population.17

c) Multiplexes: Among the 72 active cinemas, there are 11 cinemas with more than one hall, divided as follows: 4 multiscreens (2 to 3 halls) and 7 multiplexes (4 to 11 halls).18 The remaining 61 active cinemas are traditional old monoscreens, meaning one hall only. In Bucharest, there are 3 multiplexes, 2 main ones with 10 and 11 halls and one with 4 halls. All multiplexes and most multiscreens were built recently inside big modern city malls, attracting a passive audience whose main activity is shopping. The fourth multiplex in Bucharest, called The Light opened in October 2008. The modern digital equipment exists only in some multiplexes (The Light, Movieplex) but there is no data to evaluate the % of actual screens equipped.

13 MEDIA 06


15 MEDIA 06


17 MEDIA 06



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d) Programming: From 2003 to 2006, 60% of the films programmed were American, 20% European, and 20% Romanian. But in 2007 only 50% of the films were American since the programming of European grew to 35%, versus 7% for Romanian.19 The multiplexes want to attract a mainstream audience therefore they show commercial films (mostly American ones), as this programming is the most profitable in terms of admissions. They sometimes program other films (one or two European films per week in the Bucharest multiplexes). Even the monoscreens show mostly mainstream American films, with some alternative programming of European or Romanian films. A few monoscreens are part of an

E.U. label called Europa cinemas or EURIMAGES, which impose a full quota of European programming20. These cinemas receive E.U. subsidies to support such programming, as part as the E.U. policy to promote the European culture. There are only 14 art cinemas in 2007.21

e) Exhibitors: The exhibitors are the cinema owners. As we have seen, the exhibition sector is small and very concentrated in Romania, considering its population size (21.6 million) and compared to bigger sectors in other E.E. territories. In 2005, 3 major exhibitors (RADEF, Hollywood Multiplex and Movieplex) own 67% of the cinema halls; make 80% of the total admissions and 82% of gross box office.22 They still are the leaders of the exhibition sector today. This means that most of the profits are shared between the state company RADEF, and the 2 big multiplexes in Bucharest.

f) Exhibitors revenues: Hollywood Multiplex, Movieplex and RADEF are the top 3 exhibitors with respectively 40%, 24% and 21% market share. But while the 2 multiplexes owners achieve a great performance of 64% of the countrys admissions over their 27 screens, RADEF clearly underperforms as it runs 41 cinemas (43 screens) for 21% share.23 RADEF achieves one third of the multiplexes score with more screens! The remaining 27 cinemas contribute to 15% of admissions, each doing a very poor score. Even the most popular cinema in Bucharest, Studio, hardly reaches a tiny 2% share. RADEFs poor performance reflects the states disinterest to maintain a profitable source of revenues from the cinemas. Furthermore, owning so many cinema halls in the capital represents a

golden opportunity for real estate speculation. One can wonder if RADEF keep achieving low financial results on purpose, in order to close most of the halls as if they were definitely non-profitable, and sell the locations to benefit from the high real estate prices in Bucharest.


20 EURIMAGES (Media)


22 MEDIA 06



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3.2.2 Distribution The distribution sector is quite small as it is concentrated around 10 companies. Half of the distributors are closely working with American studios. As they release all the blockbusters they get most of the sectors revenues. The other half releases European and independent films, and therefore has more modest revenues. a) Distributors in 2007: Globcom Media, Intercomfilm Romania, New Films, Ro Image, Odeon Cineplex are partners of the main US studios. They release the films produced by these studios and do not release other type of films. On the opposite, Independenta Films, MediaPro, Prooptiki, Transilvania and Voodoo Films work on a different offer. They release mainly European films (including Romanian), and a few films from other continents. They can also release independent American films. This constitutes a counter-offer for the local audience.24 The major distribution companies mentioned above were almost the same from 2002 to 2006. However, Transilvania, MediaPro and Voodoo are recent companies, of 2 or 3 years old. They reflect the new generation of distributors, interested in the independent niche market. Transilvania and Voodoo took risks to create their companies in a difficult competitive environment and are not yet profitable. MediaPro is an exception, as part of a big audiovisual group including TV stations, cinema halls (Hollywood Multiplex, CinemaPro) and even the biggest film studio in Romania (Buftea). b) Box office: It is not a surprise to see that distributors who have an exclusive deal with some US studios usually get the biggest market share (60% in 2003 to 50% in 2006). But there is equilibrium in 2007 as the independent distributors proposed a wider offer and achieved the same share as the US studios distributors (45%).25

3.2.3 Production The production sector in Romania functions like a craft industry. Most of the players survive with the public funding money to produce their films. The young directors developed the habit to produce their own films with a minimum budget in order to be efficient and keep the control on their work. As this sector is not mature at all, there is scarce data about the income sources and the general revenues of the production companies.26

3.3 The forces that shape our market The bargaining power of independent distributors, producers, and directors in Romania is very low because they strongly need an audience for their movies. On the customers side, bargaining power




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is also low because the market is much segmented. Nevertheless we cannot neglect the ticket price customers pay currently.

Should we fear the entrance of new competitors? Indeed, the market raises the interests of some other players like the Light, a British exhibitor group. However the price of real estate and the price of equipment make it more difficult for a brand new player to enter the market. The second high entrance barrier is the very low average ticket price in Bucharest (RON 11 / less than 4 compared with 9 on average in Paris) which makes it more difficult to get a positive return on investment in the short-term. RADEF, the state owned company, plans to sell many of their cinemas beginning of 2009. The current state of these cinemas, and their configuration (most of them are monoscreens with no possibility to add some new facilities like a cafeteria) for a new exhibitor well placed in the centre of Bucharest will result in a clear competitive advantage. The main threat for our independent cinema located in the centre of Bucharest is in the number of substitutes! Cinema is clearly not the first idea of Romanians when they plan to go out, they rather go to the restaurant or even to theatres or pubs.

figure 3: Porters five forces model for cinema exhibitors in Romania

Thus the industry environment, although far from mature, has many unexploited opportunities for entrepreneurs. It is definitely an opportunity for the Movies and More project as our aim is to create a niche business in what we believe will be a very dynamic industry in the mid term.

4. Market Analysis

4.1 Analysis of the Romanian market for cinemagoers 4.1.1 Introduction Romania is the twelfth largest country in Europe. The population of Romania is the 2nd largest in

the CEE region after Poland and adds up to 21.6 million people. The capital Bucharest is the sixth largest city in the EU and has 1.9 million inhabitants. Romanias form of government is a

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parliamentary republic and its currency is the Leu also named RON. Romania joined the European Union on 1st of January 2007. This chapter contains the analysis of the current market situation in Romania focusing on

Bucharest. We will show that the economic situation offers many opportunities for investments

and that the conditions for a new independent cinema to flourish are met.

4.1.2 Economy Like many other countries in Eastern Europe, Romania has been struggling to turn its command economy into a market economy since 1990. Major reasons for this are the lack of hard currency, the inability to secure external funds due to the countrys high budget deficits and the slow pace in overcoming the old economic and financial structures as well as with the bureaucratic culture inherent in many ex-communist institutions.

In the recent parliamentary election on Nov 30, 2008, none of the parties obtained a clear majority. Presently, the coalition talks take place and thus in general it is difficult to give near- or medium-term future prospects with regard to Romanias economy (for a short overview of the political situation see Annex 4.1). a) GDP: Romania uses to have a positive evolution of money supply in general determined by a policy of opposing the excessive RON appreciation. However, the high increase of credit volume, which is one of the highest in the EU, and the small base of deposits of the Romanian banks result in the need for the domestic credit institutions to refund especially abroad. Although the budget deficit is likely to increase further in 2008, it should not exceed the Maastricht limit of 3% of the GDP. The reasons for higher new indebtedness are the increase in expenditures for infrastructure, welfare programmes as well as rises of administrative employees wages. Nevertheless, the economy in Romania was growing highly above average. After reaching +5.7% in 2007 (EU-27 average +2.9%), real GDP increased to +8.8% in the first half of 200827. This performance significantly exceeded expectations and has mainly been driven by a record surge in private consumption and gross fixed capital formation, following high real wage growth, and a boom in domestic credit and sustained FDI inflows28. Because of the crisis on the global capital markets Romanias real GDP is however predicted to moderate in the second half of 2008 and in 2009, though still remain robust in the medium term. Major sectors in this development are construction (+32%) as well as services (+7.5%), which among others contains the cinema business. Together both hold a share of 58.5% of real GDP. On the other hand, although the GDP per inhabitant grew by c80% (EU-27 average +23%) from

27 National Institute of Statistics, http://www.insse.ro/files/statistici

28 European Commission / eurostat, http://ec.europa.eu/economy_finance


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2000 to 2006, the absolute number for GDP per inhabitant of 8,800 in Romania is the 2nd lowest of the EU and represents only 37.6% of the average purchasing power of EU-27. From this it can be inferred that there is still a high potential for further growth. The average purchasing power of the inhabitants of Bucharest is much higher as they earn approximately one third more than the average of the Romanians and approximately twice as much as the average of the people living in the rural regions of Romania.

b) Inflation and currency (exchange rates): In June 2008 year-on-year inflation amounted to 8.61% and is expected to stay on this level for the rest of 200829. Due to this and the turbulences in the international capital markets the real exchange rate has deteriorated. In answer to the high inflation ratio as well as the weak domestic currency RON, the Romanian National Bank increased key interest rates several times, which are since August 1st, 2008 on 10.25%. In the recent months the EUR/RON exchange rate was notably volatile, e.g. showing an average exchange rate of 1 3.8 RON (average 2007: 1 = 3.34 RON) mid Nov 2008. Under the assumption that due to the current crisis the volatility would remain on this level or that the RON would further decrease, in general, both, customers and investors would become more cautious and risk averse. In addition, such an economic situation might yield to a higher uncertainty regarding the generated profit as well as to an increased likelihood of profit repatriation. In addition, firms and households, which have borrowed in euros whilst their income is denominated in RON might face larger balance sheet risks. On the other hand Romania's domestic consumption grew by a robust 10% in 2007 due to a real estate boom and household purchases the latter remains especially one of the main drivers for Romanias growth. c) Employment: Romanias unemployment ratio is below the EU average. It has been at 5.9% in June 2008 (6.4% in 2007), but is expected to increase marginally in the next period30. In Bucharest city unemployment ratio is even below 3% and adversely has lead to a lack of labor force, so that, correlated with the opportunities offered by the capital - urban life level, as well as the capitals attractiveness - the employed population has a higher level of education and specialization. From all 962,000 people employed in the region Bucharest / Ilfov in year 2006, the age group from 25 to 44 years, on the one hand is the biggest one (572,000 or rather 59.5% of all employees) and on the other hand disposes of the highest ratio of employed people. Altogether, the positive migration towards Bucharest (an average of 5,000 new residents per year since 2001) and the very low unemployment ratio can be regarded as positive indicators in terms of Movies and More (further details regarding the whole economy section are shown in Annex 4.2)

29 National Bank of Romania

30 Eurostat and http://www.Economagic.com


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4.1.3 Population a) Demographic structure: Romanias population has been continuously decreasing over the past 30 years. However, due to the trend that rural, peripheral regions are disproportionate loosing people and that agglomerations are the profiteers of this demographic development, hence the population of Bucharest is generally stable. In 2005 approx. 771,000 of Bucharests inhabitants were between 20 and 44 years old31. b) Education: In comparison with other European countries the educational level of the Romanians is quite weak. With only 13.3% of the 25 39 years old people (EU-27: 27.5%) and 10.4% of the 40 64 years old people (EU-27: 19.8%) having a high level of education, in this segment Romania has even the lowest educational level in Europe. However the group of people having a medium level of education is comparably big (12% to 18.5% above EU-27 average)32. Nonetheless, in Bucharest 30.2% from all people employed have a tertiary education (university degree) and 42.4% have a high school or post high school degree. Further information and statistics are provided in Annex 4.3.

4.1.4 Cultural activities Overall, only a small part of the population use cultural facilities, which are usually urban and with costs, especially in the case of the performing arts. The only activities in this category practiced by more than half of the population (EU-27) are visiting historical monuments and going to the cinema33.

The EU-27 citizens went more than 900 million times to the cinema in the year 2006. The French (3.0) and Spanish (2.8) belonged to the category of the most frequent cinemagoers. The least frequent cinemagoers were the Bulgarians (0.3) and Romanians (0.1)34; one of the reasons for this is that Romania has the lowest density of cinemas per inhabitant in whole EU-27 (see Chapter 3 Industry Analysis). Of all social groups, managers and other white collars most go to the cinemas35. The use of cultural facilities tends to increase in line with financial and, particularly, socio-cultural resources. People at managerial level have the highest rates for visiting museums or

historical monuments and for attending theatre and ballet, while students are the most numerous users for cinema, libraries and concerts36. Passing midlife often leads to less use of cultural facilities and more time being spent on home-based leisure activities, such as reading and television.

31 Statistical Yearbook 2006

32 Cultural Statistics, European Pocketbook 2006


34 Eurostat press announcement from Oct, 29, 2007




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In 2007 in Romania 75% of the population had watched or listened to a cultural program on TV or radio at least in the last 12 months and more than half (58%) had read at least one book. Book reading, especially frequent reading, is more common among women and people with a high level of education. In other fields there are only little differences regarding preferred leisure activities between male and female. Visiting historical monuments (40%), going to the cinema (22%) and going to a concert (28%) are slightly preferred by males, visiting a public library (22%), going to theatre (20%) and going to ballets, dance performances and operas (8%) are slightly preferred by females37. For further figures and charts see Annex 4.4.

4.2 Market Segmentation As there is scarce market data on the film exhibition business in Romania, we have created a customized survey on this matter. We have run the survey during the summer 2008 to get more information about the proper location to settle the cinema in Romania, some hints to help finalizing the concept and some data from which we can draw a pricing policy. The survey was hosted by www.cinemagia.ro which is the most popular website dedicated to cinema in Romania. 80% of the answers were from www.cinemagia.ro the other 20% came from www.concurzi.com a

website which maintains an updated list of online contests. Approximately 1,600 people completed the survey (almost 1,950 people participated) more than 40% are living in Bucharest and the close suburbs. In this part we will mainly focus on subdividing the market into multiple segments; the physiognomy of our target market will be discussed in the chapter 4.3. Chapter 4.4 will extract from the survey information to precise our target market. For detailed information about the survey see Annex 4.5.

figure 4: How often do you go to Cinema (All / Bucharest)

37 European Cultural Values, Report Publication September 2007 Eurobarometer Special 278

The figure on the left side shows that people who go to the cinema live mainly in

Bucharest. Indeed the orange and blue arcs are bigger in the inner circle than in the outer one, if 45% of the respondents to our survey state that they go more than once per month

in cinema, this rate grows to 66% if we take into consideration the answers of the city inhabitants. Bucharest seems to be the perfect place for our cinema, even if the

competition is tougher there than in the

countryside.


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Age, income and profession can help to segment the overall market. Indeed, the results of the survey reveal that the people between 18 and 31 years old are more eager to go to cinema. On the same idea it may seem common sense but the survey had confirmed that the more people earn the more they take advantage of leisure activities and go to the cinema. Nonetheless the low income segment of the population cannot be neglected, they are also cinemagoers!

The chart presented in figure 5 is probably the most surprising of all we have shown so

far. Employed people go to cinema but students and unemployed people seem close to them. The proportion of retired looks high but this data is less representative as few seniors answered our survey.

figure 5: Relationship between employment status and cinema visits

4.3 Target market There are many ways to position a new cinema business in Romania. According to the survey and the data we have got so far, most audiences are interested in seeing mainstream movies. Children and unemployed people are the biggest part of this market segment, but intellectuals and students also like to go and watch these mainstream movies. Nonetheless a growing audience is getting interested in viewing some independent and arthouse movies.

figure 6: Positioning of Movies and More


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If we summarize the competition and our positioning through two axes, one representing the kind of movies from blockbuster to arthouse passing by independent movies and the other axe representing the price of the ticket, we can see that we target an unserved market. It is a clear opportunity for growth. We may ask why people would like to see an independent film for the price of a blockbuster or why people would like to see an independent film for a much higher price in our cinema that in state-owned cinema. The segment we target is very demanding: people would rather pay a high price than going in a bad quality cinema and their wish to see some good independent is unfulfilled for the moment.

Moreover, even if we target a small segment of the whole market, we aim to attract the cinema

addicts. According to our survey people who like independent films go 20% more in a cinema (66% of the answers of Bucharest inhabitants say that they are going to cinema more than once per month. The people who say are interested in independent movies go in cinema at 77%). Finally, we define our target market as people who live in Bucharest and who are either students or highly educated people between the ages of 25 and 44 years old. According to our survey 40% of this target group is interested in independent movies. At the end we aim to have a target market size of 278,760 people (40% of students: 248,40038 + highly educated people: 448,587).

4.4 Target customer needs We will give an overview of our target customer needs by using information from the survey. In doing so, we mainly focus on two types of needs. 1. The programming: what kind of movies does our target want to see? 2. The services: This aspect was already tackled in chapter 1 (Products & Services).

This picture makes clear that our target segment wishes a

very diverse offering. Even classic or old movies retain some attention, because these kinds of movies cannot be easily found and downloaded on the Internet. Nevertheless comedy is the favorite genre.

We may separate two different types of needs of cinema.

figure 7: Genre preference of people from Bucharest (Survey)

38 see http://www.promptmedia.ro/stiri/1-stiri/4096-bucuresti-administratia-capitalei-are-mari-probleme-din-cauza-informatiilor-demografice-si-economice-false for the full text


07.11.2011 - 19 -

A kind of cultural one: people want to see movies of their favorite

directors or actors and want to see movies they have heard of. Secondly, as leisure: people want to see movies

to relax or to spend good time with their friends. From these results, we can infer that we need to help the buzz spreading on some movies and we should focus on independent film but not confidential ones!

Spend good time w ith friends

Spend good time w ith relatives

See last movies of a director/actor See a f ilm I heard of

Relax

0

50

100

figure 8: Main reason to go to cinema

According to the survey, our target market expects both common and uncommon services. For example, if enabling people to buy snacks or proposing some parking facilities nearby may seem obvious, for Bucharest people it is even more important to attend some special events or to book their ticket online or to choose their seats. Perhaps, the true need behind choosing their seat may be the currently poor state of the cinema halls which does not allow them to watch movies in good conditions except from a few well placed seats (see chapter 1, Products & Services: figure 1).

4.5 Summary of the Romanian market for cinemagoers Summing up, the environment of Romania and in particular of Bucharest disposes of a good potential for a cinema focusing on independent or arthouse films. Bucharests backlog demand and potential as an CEE metropolis, its outstanding economic and labor market situation compared to the rest of Romania as well as its demographic and educational structure and cultural behavior of inhabitants (especially in the age group from 25 to 44 years) are promising. At the beginning of 2005 a uniform fix tax rate of 16% for all income that is subject to taxes has been launched, whereby Romania belongs to the few European tax paradises. Moreover, in the course of the preparations for joining the EU, the legal bases were brought closer to the standards demanded by the EU so that there are hardly any difficulties with the certainty of law or on the right enforceability. Finally, the process for both, setting up a business or for FDIs in Romania is quite uncomplicated. A PEST analysis for Romania can be found at Annex 4.6.

Movies and More: Part 5: Marketing strategy and implementation

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5. Marketing strategy and implementation This section will describe the marketing strategy of our company and how it will be implemented. As a result of this strategy, we will present the sales forecasts we are expecting.

5.1 Marketing strategy As demonstrated in the Industry Analysis and Market Analysis chapters (chapters 3 and 4), the main threat to any cinema business is the large amount of substitutes for a cinema including restaurants, concerts, television, download of movies at home. Cinema is clearly not the Romanians' first idea when they plan to go out! Thanks to our strategy, our product will become so attractive that it will not be so easy for a customer to switch to a substitute. After giving an overall idea of our position in the cinema exhibition market we will focus on the main features that will make our cinema unique in Bucharest (see chapter 5.2). The table below summarizes the opportunities and threats of the Romanian exhibition market and together with our strengths and weaknesses.

Strengths Weaknesses Niche market (diverse programming).

Elvira Popescu is the 2nd preferred cinema by Bucharest inhabitants. (source: Romania Libera - see Annex 5)

New package offer (cafeteria, DVD/bookstore).

Support from young local directors.

Marketing aware business.

Management team composition.

Location in central Bucharest (many restaurants and pubs in the surroundings).

One or two screens strategy.

Challenge of re-branding old cinema with cheap tickets into new cinema with expensive tickets.

Partial refurbishment due to partial funding (poor sound and lack of digital equipment).

Local cinema industry does not have wide media coverage in Romania.

Lack of experience of management team in cinema exhibition business.

Relatively quiet residential street. Not a high street (shopping street) but there are many restaurants nearby.

Opportunities Threats No high quality independent cinema in the centre of Bucharest.

A growing population that selects quality over price.

Create a population of film buffs (cinephiles).

Experience of successful western Europe independent cinema concept (e.g. MK2 in France).

Sleeping interest for movies in Romania.

High inflation, low purchase power.

Many cinemas have very low price tickets.

Movies download through Internet is common practice.

New foreign entrants like The Light.

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From insiders such as exhibitors like Studio, we know that special events allure lots of Bucharest inhabitants. Thus, to be successful, we have to transform every screening into a special event! This part will describe the overall marketing strategy, which will attract people to our cinema and get them to accept to spend a higher price than in the other cinemas. This project does not aim to propose just a new cinema hall, even if it is the core of the product. With the quality of the programming, and the various creative activities we propose around the cinema (as described in chapter 1, Products & Services), we clearly follow a product differentiation strategy. At the same time, with the kind of programming and the price strategy described in the section 5.2.3, we focus on a small segment within the whole market of cinemagoers (as seen in chapter 4.3, Target Market). We can compare our strategy to the one of Movieplex, a high price and high quality strategy that aims to attract the wealthiest people in Bucharest. Our target is similar regarding income but the lifestyle of our customers will differ because they would prefer seeing independent movies to commercial ones.

5.2 Description of the marketing mix of our concept 5.2.1 Product The product and services package have already been described in chapter 1.

5.2.2 Place Our entertainment complex will be ideally situated in the centre of Bucharest so that it will be very convenient to visit. The cinema Elvira Popescu has been ranked ten out of ten when it comes to location and ease of access by the newspaper Romania Libera. There are plenty of restaurants nearby and notably one called Brasserie... proposing French food.

figure 9: The French Institute

The site by itself with its beautiful architecture from the 1930s is a vestige of a magnificent past when Bucharest was an important cultural centre in Eastern Europe. Therefore Elvira Popescu

cinema has its own cultural heritage and it is not just another multiplex in a mall. Our desire is to build on this sophisticated touch and to turn the place into a trendy spot. The decoration will light the big walls and the indirect but clear lights will give a warm and cozy ambiance to the place. For

Movies and More Part 5: Marketing strategy and implementation

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example to counterbalance the heavy effect of the stones, some wenge-tinted wood may be used. An architect is currently studying the place with the objective to propose some solutions to make the place warmer and welcoming. The design will be consistent from the entrance, to the cinema halls, the cafeteria and the DVD/bookstore. The consistency will not purely rely on design artefacts. The overall location will be dedicated to cinema, for example some flat screens showing trailers of the movies will be incrusted in the walls of the DVD/bookstore. One page of the cafeteria menu will change every week to reflect the current programming (for an example see Annex 1.2). As a second step we may propose in the DVD/bookstore to see some movie trailers after reading the barcodes. These are just some of the ideas that will be implemented to create a real synergy between the cinema, the cafeteria and the bookstore and making all three special.

5.2.3 Price We have defined our price policy based on three different sources: the price strategy of our competitors, the result of the survey on

www.cinemagia.ro, and some interviews with major local industry players (distributors and exhibitors).

figure 10: Comparison of the cinemas chosen by Romania Libera

Before setting our price list, we made an analysis of the current price of a ticket. And we found out a very wide range of prices for the cinemas in the city of Bucharest. Ticket

prices varied from 3.5 RON to 35 RON from one cinema to another - a 10 times factor! We studied this large difference and found a correlation between the tickets prices from one cinema to another. We found a huge correlation between the price of a ticket and the mix of equipment used, the location, and the state of the cinema. The more recent the

cinema, the higher the price. The older the equipment, the lower the price. For DTS cinemas in Bucharest, the regular pricing is

from 10 to 25 RON (see competitors sheet in Annex 3.1).

From our survey, we know that the customers interested in high quality cinema would not hesitate to pay 13 or even 16 RON. They would prefer a higher price for a full offer (bundle) including tickets, soda and popcorn in one show to a multiple screenings ticket or a low-priced morning performance. We created a very straightforward price structure to reflect the need of our target customer.

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07.11.2011 - 23 -

figure 11: Price study (based on the survey) Price structure

Normal Price Price for students Half price for the second person from Monday to Friday before 7pm

Price for groups of scholars

12 RON 10 RON 5 RON per scholar Card for 5 admissions Card for 12 admissions Yearly membership Premiere & Festival 50 RON 100 RON 30 RON Fixed per events

5.2.4 Promotion Movies and More will have a limited budget for promotion activities. Our plan is not to buy advertisement space in traditional media like TV, newspapers or radio. Instead, the media will cover our creative events, as they will be perceived as unusual in Bucharest. This way we will benefit from the recognition of the media and associated free promotion. We will use different channels to create a buzz promoting our new cinema complex. The first channel will be the local industry players. There are no cinemas today in Bucharest, which regularly invite young Romanian directors to present their new films during a premiere event. Our strategy will be to help these directors promote their work and arrange the best launch for their new films. We will invite them to hold exclusive premieres of their films in our cinema, so they feel at home at Movies and More! In return they will act as famous godfathers for our cinema and attract a new crowd to the place (film students, film critics, intellectuals). The creation of an archive dedicated to the storage of their films could also be a way to gain their loyalty. This could be easily implemented for little cost as there is some unused space within the French Institute building. We believe the buzz created and spread by the cinema people will arouse the interest of white collars, or wealthy young adults who will be pleased to experience a new distraction in town. These white collars will feel special when they come to our cinema thanks to some feel-good factors such as club membership, best seats reserved during film premieres, invitations to cocktails launching art exhibitions... As these customers will be satisfied with our package offer, they will spread a positive word of mouth about our cinema.


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Another promotion partner will be www.cinemagia.ro, the most popular website dedicated to cinema in the country. We will associate www.cinemagia.ro to some special events like special

theme nights (short films night, or genre film night such as sci-fi movies or thriller night) and link our activities to their website. We will also use other local players for extra promotion (e.g. restaurant and pub owners). Finally we will build collaboration with some schools as we offer special group prices for scholars or students.

5.2.5 People Recruiting the right staff and training them appropriately is essential to create customers satisfaction. A cinema that aims to obtain such form of competitive advantage must select the right people. The behavior of our personnel must be consistent and their outfit must make them be recognizable among the customers. They will not be wearing a uniform but they will share a common dressing code (e.g. red scarf in the winter and red cap in the summer). The detailed management and service policy is described in chapter 6 (Operations Plan).

5.2.6 Process Process refers to the system used to assist the cinema in delivering the services (showing films, selling drinks & snacks, selling DVDs and books). Imagine you walk into our cinema and you want to see an arthouse European movie, and you have the choice between lets say an Italian and a French film. What was the process that allowed you to get this choice? Cinemas that sell tickets with a different price range according to your status (single, couple) or age (student, retired) require an efficient process to identify such categories. An efficient service, which identifies the best offer for any customer, will foster customer loyalty and enhance the cinemas reputation. The sale of a ticket will follow mainly four channels. The first and most obvious one is the sale through a standard cashier. The customer can buy tickets for the forthcoming performances. The second way to buy tickets will be to book them online or even buy them online. The advantage of the second over the first one is that it is a definitive booking as opposed to a temporary one. Indeed the customer will have to buy the ticket 30 minutes before the beginning of the performance. On our website the booking or buying may be done thanks to the membership card or the multiple performances card and we will propose some other micro-payment possibilities as soon as they become available in Romania. The booking may be done through our website or through some website partners. Notably we are really eager to be the first cinema to allow the visitors of www.cinemagia.ro to book directly on this website. For the people who make the choice to book online, we want the process to be as quick as possible, so they would be able to get their ticket from a terminal. Another channel would be through a network of partners; for example we would like to bundle a ticket with a menu offer in some restaurant nearby (such as La Brasserie).


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5.2.7 Physical Evidence The services are delivered in a cinema complex with a cinema hall, a coffee shop and a DVD/bookstore. If you walk into our coffee shop your expectations are of a clean, friendly and stylish environment. In our cinema, as you pay an expensive ticket you expect comfortable seats and large room for your feet! As proof of purchase, you receive a ticket. The picture of the movie you have selected will be on the ticket. As described in the price and process sections, the customer may choose to buy a card for multiple screenings. These cards will not be personal and will be made on paper with an RFID tag. The membership card will be made of hard plastic and include the member's photo. As proof of participation in any of our trendy events, we will propose a renewed version of the classic visitor's book. Numeric photos of those taking part in such events will be taken with their approvals, then stored and eventually appear on flat screens during upcoming weeks. We expect that this kind of artifact will increase the word of mouth making people eager and proud to attend our special events and return with friends to show them their pictures as evidence that they were there before!

5.3. Sales forecasts We expect our strategy to have a real impact on our sales. In 2007, only 10,400 people went to the

Elvira Popescu cinema hall. This number includes 6,400 people who attended special events or festivals. This is equivalent to the cinema being full 44 times but empty otherwise. In the same time period CinemaPro sold 81,160 tickets for 541 seats (equivalent 150 times full) and Studio sold 76,541 tickets for 380 seats (or 201 times full). However, when compared to the other cinemas, Elvira Popescu had far less performances, which means an average utilization rate of 5.2% vs. an average utilization rate of 8.9% for CinemaPro and 12.9% for Studio. We expect the first year to increase the number of the sales mainly by increasing the number of performances and the diversity of the offering (average of 16 screenings per week in 2008, average of 30 screenings per week after the re-launch of the cinema). For the next years, thanks to the strategy described in the previous pages, we expect at least a similar performance to that of CinemaPro or Studio. For us, the most conservative scenario for the first year would be to increase the utilization rate to 6.4% in combination with a little less than doubling the number of performances (without taking into account groups of scholars) followed by a further increase of the utilization rate to 9.6% in year two. In the third year we forecast an utilization ratio as good as Studios, the current leader of our peer group (12.9%). We expect that only a small part of our customers on average every one

Movies and More: Part 6: Operations Plan

07.11.2011 - 26 -

of 25 - will buy DVDs or books in our store. The ratio is a little higher for the number of meals served as we expect that some people will only come to the cafeteria.

First year Second year Third year Number of tickets sold 239 x 52 x 30 x 6.4 /

100 = 23,861 239 x 52 x 30 x 9.6 / 100 = 35,793

239 x 52 x 30 x 12.9 / 100 = 48,096

Sales of snacks and beverages

One third of the sales of tickets

Number of Membership cards sold

400 700 1000

Number of DVDs or books sold

23,861 x 5 % = 1,193

35,793 x 5 % = 1,790

48,096 x 5 % = 2,405

Number of meals served 23,861 x 10 % = 2,386

35,793 x 10 % = 3,579

48,096 x 10% = 4,809

6. Operations Plan

6.1 Location and building As we have seen, the cinema complex will grow from an existing cinema the Elvira Popescu,

located in the centre of Bucharest, Bulevardul Dacia 77. In addition to the perfect fit between our concept and the site, the location is also easily accessible both by car or public transport. Since Elvira Popescu is an old monoscreen cinema in quite poor condition (not unlike most state owned Bucharest cinemas), the French Institute had already approved and planned the cinemas refurbishment with the development of an entrance hall including some security measures (80,550) as well as the replacement of the 239 seats (70,000) (see part 1 in table below). According to our expansion plan, to provide a unique entertainment experience and to supplement the current cinema service with a DVD/bookstore and a cafeteria, the former construction plan as described above has been modified to renew the cinema hall (i.e. renovation of walls and screen) comprising the technical equipment upgrade and the allocation of space for the two new businesses (see part 2 in the table below). The table below shows the measures related to the accommodation of the new enterprise, detailed plans from the location are listed in Annex 6.1.

Cinema DVD/Bookstore Cafeteria Place - 1 Hall with 239 seats

- Located in a building next to French Institute

- 1 show and sales room

- In main building

- 1 dining room with 40 seats

- In main building

Size 161.49 m2 52.87 m2 59,52 m2

Movies and More Part 6: Operations Plan

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Cinema DVD/Bookstore Cafeteria Specific or additional requirements for the

building which derive from the different businesses

- Air con / ventilation - Restrooms

- Emergency protection

- Room to store books, DVDs etc.

- Restrooms

- 1 kitchen to prepare

food - 1 store room for food

and tableware

Construction cost part 1 (approved) part 2 (renewal of hall)

150,550 15,000

- / - 1,500

- / - 3,500

Basic supply / month 683 50 250

The overall construction costs (part 1 and the additional part 2) adds up to 170,550; whilst running costs amount to 983 per month.

6.2 Equipment Likewise the cinema hall also the cinema equipment is antiquated and has to be substituted for modern equipment. Major elements are a new projection and sound system as well as a new lighting in the cinema hall. Besides, for the DVD/bookstore and the cafeteria new equipment and furniture has to be procured. A complete list of all components is presented in Annex 6.2. Due to the fact, that the industry for cinema equipment in particular is a very specialized one and that the selected components usually will be perfectly attuned to the conditions of the cinema hall, for some components we had to make assumptions, approximations or comparisons to determine the respective costs. In total they sum up to

105,500 for the cinema

business plan - movies and more - hamid bouchikhi

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