Capital costing

The amount of initial investment capital required for a cinema is hugely variable dependent on where it is located, whether it is a new build or refurbishment, size, quality and nature of services to be provided as well as what is required in terms of compliance with local planning regulations. Conversion can often be more expensive than new build, especially if it is the conversion of an old cinema where the screens have to be reconfigured for modern audiences or its location, squashed between shops and offices in a pedestrian precinct, requires special equipment for the builders to gain access. Trying to ‘rescue’ and bring back into use an old cinema building may be prohibitively expensive. Distributor release patterns and smaller audiences generally mean that several smaller auditoria are required rather than one big one to make the thing work. Multiplex operators in the UK reduced their capital start-up costs in the 1980s and 1990s by building multiple screens, out of town in a low cost shell with a basic minimum standard of fit out and limited ancillary trading areas. More recently, in the face of tighter planning controls on green field sites, and pressures to regenerate urban areas they have moved back onto the high street. With more screens than they can fill, they are also differentiating their offer with upgraded facilities and more diverse programming as exemplified by the range of luxury multiplexes now open in Britain’s major city centres. Multiplexes increasingly represent direct competition to the smaller independent cinema and, like the ‘corner shop’ independents will have to work doubly hard to keep their customers.

Site acquisition and preparation costs vary widely according to particular circumstances. Of the other costs, approximately 75% is accounted for by the construction of the building. The remaining 25% is split into broadly equal amounts for fit out and for professional fees. The effect of VAT should of course be taken into consideration when project cash flows are being planned. The actual cost of creating a new cinema depends on the location and the configuration of the building. For example a four-screen cinema on a town centre site will normally be substantially more expensive to build than a two-screen facility alongside a leisure centre built on a green field or brown field site. As a broad guide, it is possible to build a 2-screen cinema, seating 400 people in total, for as little as £1.5 million but a more typical cost for a good quality new build would be around twice that amount. Digital cinemas will not necessarily be less expensive to build.

Independents are likely to incur higher than average fit out costs because they are often working within the constraints of an existing building, are aiming to provide a high quality experience by, for example, offering bars and restaurants as well as having to buy more sophisticated projection equipment in order to offer the full range of film product available. At the top of the range an independent specialist exhibitor would expect to pay around £2,000 per square metre (ex. VAT). Fit out is therefore likely to cost between £1.5 and £3 million for a 2/3 screen depending on size of venue.