Latin America faces screen jam

Key cities saturated with theaters

In smaller Brazilian cities, a moviegoer could go miles before finding a cinema. In Mexico City, on the other hand, a movie fan might find dozens of screens packed into the same neighborhood.

Latin America may be vastly underscreened, but some sites have more screens than the market can bear. Multiplex builders have been jostling for prime property in key cities, leading to an excess of screens in upscale Argentine and Mexican neighborhoods.

Mexico, the only country in the region with a healthy screen count (3,000-plus), is close to saturation point.

“Perhaps, an additional 150 to 250 screens nationwide max is a possibility, but cinemas need to be developed in areas that are underserved,” says Matthew Heyman, a former partner and co-founder of Mexico City’s largest exhib, Cinemex. “If theaters continue to be constructed in front of each other, I believe Mexican attendance will exhibit little growth, and the balance of power will fully shift to distribution.”

The Cinepolis Alameda, owned by veteran circuit Organizacion Ramirez, is a mere block from Cinemex’s Cinemex Real and three blocks from Cinemex’s Palacio Chino.

Both major chains have been growing at a phenomenal rate. From 1995 until the end of 2003, Ramirez’s Cinepolis circuit averaged 74 new screens a year, while Cinemex averaged 38.

And the growth shows no sign of declining. Cinepolis has announced 12 new complexes to be constructed in the next year or two, with sizes ranging between six and 20 screens.

Ownership at Cinemex has just changed hands once more. Onex Corp. and Oaktree Capital, which acquired Cinemex two years ago, have included Cinemex and other overseas exhib assets in the recent sale of Loews Cineplex Entertainment to a troika of buyout firms. CEO Davila claims it won’t alter Cinemex operations.

The biggest trend in exhibition in Mexico is cinema-led development. While exhibitors are not making direct investments in shopping developments, they have become the linchpin for their construction. Developers approach exhibs, asking them to sign on even before the land is leased or purchased. Without a cinema, the project doesn’t happen. Unsurprisingly, then, the number of mall-based plexes is on the rise.

The leaders in this area, by far, are Cinepolis and Cinemex, which almost without exception no longer construct stand-alone cinemas.

Argentine crowding

In Argentina (1,000-plus screens), the richest areas in the capital of Buenos Aires are crowded, as are the wealthier suburbs.

“Some areas are already saturated in Buenos Aires, but there are places that can still be exploited,” says Gabriel Figueroa, head of the Cinema Devoto project of shopping mall operator, Deno.

On June 17, Deno opened the eight-plex Cinema Devoto in Villa Devoto, a middle-class neighborhood in the capital. It is the first new multiplex since the nation’s relatively recent economic meltdown and one of the first since the country entered a four-year recession in 1998.

Now with the economy on track to grow 5%-7% this year after 8.7% expansion in 2003, exhibs Cinemark, Hoyts Cinemas, Village Cinemas and other foreign exhibitors are plotting development once again.

A big reason is the forecast that ticket sales will hit a record 35 million this year, up from 33.7 million in 2003 and 29 million in 2002. Another reason is that interest rates are dropping and financing is becoming easier to obtain as the banking sector recovers. The 30-day prime rate has dropped to an annual 6.33% in May from as high as 100% in 2002.

Sparse Brazil

Brazil, which reports a startlingly low ratio of one screen per 100,000 inhabitants, also displays a concentration of plexes in tony neighborhoods, but some exhibs are pushing to build in middle- and lower-income areas.

However, the lack of financing has stalled most of these projects. Exhibitors would have to charge lower ticket prices, which means a slower recouping of their investments. Outlandish interest rates make it virtually impossible to borrow from local banks.

The latest player to join exhibs Cinemark, local giant Ribeiro Group, Hoyts GC and UCI is Spanish exhib Cinebox. Cinebox, which plans to open 100 screens by the end of 2006, has seen tremendous response to its new screens in mid- and low-income neighborhoods. Not a single screen existed in Sao Goncalo, a blue-collar town of 1 million inhabitants before Cinebox erected its eight-plex in April.

“We are attracting people who do not have the habit of going to the movies,” says Rosa Maria Vicente, Cinebox’s programming and marketing director. “They come not only to watch the films, but also to eat popcorn and enjoy the bigscreen and comfortable seats. The multiplex is a program in itself.”

Ken Bensinger in Mexico, Charles Newbery in Argentina and Marcelo Cajueiro in Brazil contributed to this report.

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