This season’s honoring of Volker Riech as Exhibitor of the Year may prove to be the first in a series. Though the Ufa/Riech Group has been Germany’s largest exhibition conglom for some time and currently holds 465 screens in 132 hardtops, the company will practically own exhibition in Germany if it can realize Riech’s ambitious inner-city multiplex plans, which call for an amazing 116 screens in 12 new multiplexes over the next four years.
The four-year investment calls for DM400 million ($286 million), DM160 million ($114.3 million) of which already have been spent, largely on the three plexes in Chemnitz, Hamburg and Stuttgart that are under construction.
“It’s no secret that multiplexes have been a big theme in Germany over the past five or six years,” Riech says. “We have also approached the subject and we have noticed that the capacity utilization is bigger in the inner cities than in the countryside. In some cities, there is talk of multiplexes with over 3,000 seats; in Berlin, we’re talking about 5,000 seats.”
The Ufa/Riech CEO thinks not only in terms of bigscreens and the newest technical standards, he recognizes the increasing importance of a multiplex’s peripheral attractions, especially in town. “More and more, gastronomy is important,” Riech says. “And we have to offer more than just fast food. And in our new projects – especially the Dresden Ufa-Palast – we are designing our lobbies based on marketplace principles so people can meet and mingle; see and be seen.”
The secret of Ufa/Riech’s success lies in its history. Ufa was Germany’s most powerful film production, distribution and exhibition outfit in the ’20s through the end of World War II. It was then cut into pieces during the allied occupation. Ufa’s theater arm barely kept its head above water until 1972, when Riech’s father, Heinz Riech, bought the company’s stock and built up an empire of now-expensive cinema sites.
“Our strategy today is based on what was laid down earlier,” Volker Riech says. “In the ’60s and ’70s there was a painful commercial decline in the cinemas in Germany. It was the achievement of my father that he reacted in time and built ‘cinema centers,’ which took the cinemas he already had, divided vided the space into smaller rooms and installed more but smaller screens in the same space. The idea was similar to the multiplex idea but it was implosion instead of explosion.”
When the Berlin Wall fell in November 1989, Heinz Riech received the opportunity to buy up major cinemas in the eastern cities by promising to take smaller, unprofitable cinemas in the hinterland as well.
After the senior Riech died in 1992, at the beginning of the multiplex wave, Volker Riech took over and began applying his father’s “cinema center” idea to new and old real estate in the big cities. While others still adhered to the U.S. wisdom of keeping multiplexes out of the cities, Riech recognized Germany as a basically urban country and concentrated his multiplex strategy on the towns.
“Construction costs in the cities are 15% to 20% higher per seat than out ‘in the green,'” Riech says.
However, the past experience of his competitors has shown that inner-city multiplexes will work – if you are willing to wait 10 to 20 years to get returns on your investment. Capacity utilization in out-of-town plexes is well under 30%, while in inner-city plexes it is well over that mark.
“We are one of the few who pursue this strategy so consistently,” Riech says. “Flebbe comes close, but our projects are right in the middle of town.”
Riech’s expansion strategy includes more than just additional screens and buildings – he recently began flexing his muscle in the direction of the major distribs. “The current average rental fees that we pay are 47%,” he says. “That is very simply too high. The distributor has half interest in every ticket. Sure, they provide good films, but it’s no longer the film alone that lures admissions.”
Riech is thinking loudly about negotiating lower rental fees for cinemas burdened with new investments. “We exhibitors and distributors are business partners,” he says. “As market leaders, Ufa/Riech would like to remind our partners that we are investing 400 million marks ($286 million) in attracting viewers to their films. Such high rental fees are inhibiting to investments. That’s no basis for an industry to enter a new century on.”