Demand for movies in Europe and the effects of multiplex diffusion: a panel approach

After three decades of decreasing admissions, cinema attendance in Europe showed a significant rise during the nineties despite the competition of several audiovisual media. This growth in ticket sales must be compared with the declining share of exhibition in total film revenues. In this period exhibition started to be for movies the first window of a complex multi release strategy that includes home video, various form of pay television and finally free tv. Exhibition is still very important to signal the quality of a movie revealing through the tickets sold the consumer preferences, but its role in overall revenues of film industry has been declining from a share of 50% in 1980 to a share of 15-20% in 2000 at least for Hollywood productions. There are different explanations in literature for this growth ranging from a different approach in film production to a spillover effect due to the rising production costs, till the renovation work and improved condition in movie theatres. In this paper we try to test the role of multiplex. While usually multiplex is analysed in supply side since it can reduce the cost of exhibition through scale economies in several function, we focus on demand side. The positive role of multiplex is related to the risk reduction of the audience and the improved condition of new theatres. The possible negative role is related to the competition of big multiplex chains towards traditional theatres that can be moved out of market thus reducing eventually theatres density and overall supply. We explore the movie demand evolution in Europe with a data set of 15 countries from 1989 to 2003. We estimate with a panel approach a simple demand function of film exhibition with yearly tickets per inhabitant as dependent variable where as expected price coefficient is negative and income coefficient is positive. Multiplex diffusion, indicated as the percentage of multiplex seats over total seats, appears to be moderately positive and is 1% significant. The results are robust to different model specification. As we can see from Table 1, gdp pro-capita is significant with the expected positive sign showing an elasticity of 0. 37, thus movies cannot be identified as a luxury good. Price is significant, with an elasticity of -0. 26. The demand seem to be quite inelastic respect to price and the value is lower than what is found in some other studies conducted at a national level. Multiplex has a positive impact on the demand for cinema, with an elasticity of 0. 07. The coefficient. Is rather small but the effect is net once considered the rise in total supply captured by the variable seatpop that has a strong positive value confirming that competition in exhibition work in geographical limited markets and that the availability of theatres influence positively the demand. The elasticity value of 0. 5 suggest anyway that marginal capacity expansion display diminuishing returns. Contrary to the view of many theatre owners, multiplexes do not simply get market share from traditional theatres but contribute to an overall demand growth due probably to the service innovation they propose. We measured the effect of other demographic factor like the share of young people or the literacy level but we found them not significant and therefore we exclude them from the final equations. In future works we plan to include some measures of substitute consumption like television or DVD.