Increasing energy prices could cause serious financial problems for cinemas, especially the smaller ones, according to a report by economic analysis portal G7.
Energy has always been a major cost item for cinemas, but after this year’s price increase, heating and electricity bills could take almost all of the revenue. Budapest Film Zrt., which runs Corvin and five of the capital’s arthouse cinemas, spent nearly HUF 47 million on electricity and gas in 2021. The biggest item at the time was electricity, which the company bought for HUF 19.87 per kilowatt hour in 2021. In the current market conditions, such fixed-price contracts are hard to come by and the average exchange price in September was close to HUF 160 per kilowatt hour, just over eight times the amount paid in 2021.
And for gas, the price increase has been even higher over the last two years, so the company would have to pay roughly 10 times more for energy than in 2021. This is a huge problem because energy costs already took 9 % of the company’s total revenue last year, according to the report. This means that barely a tenth of the money spent by visitors is left over after paying gas and electricity bills.
The only reason this is not the case is that, as CEO Tamás Liszka told G7, Budapest Film Zrt. has a contract with the suppliers until the end of the year at a more favorable price. After that, however, at the price level of the last few weeks, energy costs could take away the entire ticket revenue, according to the CEO’s calculations.
Smaller Cinemas in a Tough Spot
The situation of Budapest Film Zrt. is by no means unique, industry experts and operators interviewed by the portal unanimously stated that all cinemas are being hit hard by the fall in energy prices, even if not to the same extent. Dániel Tóth, a cinema technologist and managing director of Data Center Solution Kft., a company with links to a number of market players, who also runs a cinema in Ózd, said that with the price of electricity having risen tenfold, half of their revenue is to pay these bills. This is roughly what the cinema operator would have left over, as the rule of thumb is that 50% of the money collected at the box office goes to the film distributors.
According to Tóth, multiplexes in shopping centers are probably in a better position in that they have tied energy service contracts with the shopping centers that house the cinema, but it is not yet clear what the plazas will pass on to their tenants. In any case, Andrea Buda, public relations and marketing director of the country’s largest chain, I.T. Magyar Cinema Kft., told G7 that it is still unclear how the situation will be handled at the chain of 18 Cinema City movie theaters. From September, they switched to fall opening hours, which means that screenings start between noon and 1 a.m. instead of 10 a.m., but this is not a new practice, they do it every year after school starts.
A Limited Range of Options
In terms of possible measures to tackle the arising problems, industry players say they have a very limited toolbox. Many are wary about opting for a complete closure because it is likely to be very difficult to attract audiences back once the cinema reopens. Even by the summer of 2022, domestic attendance had not returned to pre-COVID levels.
This is partly why a price increase is not a realistic scenario. It is certainly not possible to pass on the increased costs in full, as this would lead to a further drop in attendance, which would mean that cinemas would lose more than they would gain from hiking ticket prices. A price increase in the catering stations may be more acceptable to the public, the report notes, but this could also lead to a decrease in sales.
László Iván, the owner of Szabolcs Cinema Kft., said that on weekdays they expect to be able to screen in only one of their rooms. Of course, this is also a risky way to go, as it could also lead to a drop in attendance.
But for many cinemas, this is unlikely to be enough. Experts say it is quite likely that there will be operators that cannot avoid closure. The energy problem might be alleviated by a significant reduction in energy market prices, which could be a possibility given the market trends in recent weeks, the report concludes.
According to another report by news outlet HVG, three Budapest cinemas: Corvin, Toldi, and Pushkin will not open on Mondays and Tuesdays from November due to the energy costs, however, their cafés will remain open.