Film Distribution and Exhibition (Hansard, 20 November 1987)

§ Mr. Roger Gale (Thanet, North)

I am grateful for the opportunity of raising briefly a matter that is of considerable local concern and national interest. This debate stems from the closure of the only picture house in Herne Bay in my constituency — the former Odeon cinema, which later became the Cannon cinema when that company took over the Odeon chain. The Cannon company has hit some financial difficulties and found it necessary to realise its assets. It is an undoubted fact that in recent years attendances at the cinema in Herne Bay have been falling. That is partly due to the lack of reinvestment in modern facilites of the kind that most modern cinemagoers want to enjoy as part of an evening out. The development value of the site in Herne Bay is probably about a quarter of a million pounds, and the annual profits from showing films were — I hazard a guess—no more than £10,000 a year, which is not good return on such an investment.

I do not quarrel with Cannon Cinemas' right to exercise its commercial judgment and close a cinema if it believes that it cannot make the cinema pay. However, it is a pity that the company has had so little regard for audiences —especially young audiences—in Herne Bay.

Just along the coast from Herne Bay is the small seaside town of Westgate-on-Sea, which has the Carlton cinema. It is an independent cinema run by a young entrepreneur who this year has won the independent cinema of the year award. He has made that cinema pay and he satisfies his audiences, as a result of his and his partner's hard work, and of a considerable investment of his own time and money in providing facilities that he believes his audiences want. Clearly he is right, because the audiences go to see the films that he is allowed to show. Having been to the trades disputes council of the Cinema Exhibitors Association he has won for himself the inalienable right to show one in three new films simultaneously with those being shown in Margate—he still cannot show anything before Margate — and he has to show the other two films after Margate.

That practice dates back to the historical alignment of the major movie-making companies with the two major cinema chains—the old ABC and Rank cinemas. As a result of that alignment, the exhibition agreements of most films—and certainly all popular films—contain what is known as a borrowing clause. The clause gives large town exhibitors the right to show a film for up to four weeks before it can be shown in an adjacent small town. That militates heavily against the independent operator, such as my friend in Westgate-on-Sea.

It is relevant to Herne Bay and other towns like it because there is an audience in Herne Bay that wants to go to the cinema and would be prepared to pay for seats so to do, and people such as my friend would be more than willing to run an independent cinema if they could get the films. Because of the barring clause, they cannot do that. As I have said I respect the commercial judgment of Cannon Cinemas. However, if Cannon has the right to close a cinema, then no one should have the right to prevent another operator from coming in and showing the latest films.

1382 Many of the kids of my constituents go to school in Canterbury, where Cannon has a single-screen cinema in which it shows the latest films. Those young people meet their friends in class and, of course, they discuss the latest films. It is not surprising that my young constituents want to be able to compare like with like and to discuss the same films with their friends. For them to be able to do that, they now have to travel to Canterbury and on top of the £2 cinema seat they have to pay £2 for a return bus ticket from Herne Bay to Canterbury. This sort of thing takes place in small towns all over Britain: young people are effectively having the cost of their cinema tickets doubled. Many people say that most films are on video anyway, but as I have said in the past people cannot kiss and cuddle in the back row of a video. There is a social element to cinemagoing that not only the young enjoy.

At present, the single screen in Canterbury blocks one film from a potential exhibitor in Herne Bay. However, Cannon has said that it intends to put four screens into its cinema in Canterbury. The extrapolation of that is that Cannon will be able to block not one but four films.

Cannon and Rank have not thought this through. Where do we go next? Next we will have American multi-cinemas, Maybox and National Amusements installing what are called multiplex screens — 10 screens in one cinema. The buying power of these companies is colossal. At the moment their percentage of exhibition in the United Kingdom is small, but in America it is huge and the big film companies owe them tremendous allegiance. Therefore, those companies will call the tune.

It will not be long before Messrs Ranks and Messrs Cannon, with their four-screen cinemas, find themselves hollering the same cry that the independents are hollering now, and screaming foul. That is because the 10-screen cinemas will be showing films before the four-screen cinemas and Cannon and Rank will find themselves at this huge disadvantage. It will not be long before the good citizens of Canterbury, who are used to having everything first, will find that when AMC or Maybox choose to open 10 screens in Maidstone they will suddenly have to travel from Canterbury to Maidstone to see the films first.

What can we do about this? In fairness to the Cannon management, it telephoned my office and said it did not believe that there was a way forward without the publication of an Office of Fair Trading report. The Monopolies and Mergers Commission has made certain recommendations and they have been published. On the strength of those recommendations, the Office of Fair Trading has made certain other proposals in the form of a report that is lying with the Department of Trade and Industry. My message to my hon. Friend and to the House is quite simple. Please can that report now see the light of day before it is too late and before too many more cinemas close?

§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. John Butcher)

I thank my hon. Friend the Member for Thanet, North (Mr. Gale) and congratulate him on the timelessness of the debate. He has defended with vigour the interests of his constituents and has raised a major policy issue which I shall address.

I can well understand that the closure of Cannon's cinema in Herne Bay in my hon. Friend's constituency is a sensitive matter as it may affect the leisure opportunities for all sections of the community. Many, though not all, 1383 will be able to go by car or use the public transport links to travel the eight miles or so to view the films that they want to see either at Cannon's twin-screen cinema in neighbouring Canterbury, at the independently run cinema in Margate or at that other excellently run independent cinema—the Carlton at Westgate-on-sea.

Indeed, I add my congratulations to those that my hon. Friend has offered to Mr. Vickers and all his staff at Westgate. To win the industry's "Cinema of the Year" award, as they have done this year for their successful marketing of their films and general high standards, is an achievement to be proud of. Their success will, I hope, attract even more people to attend the Carlton and thus encourage distributors to allow Mr. Vickers earlier access to prints of the films that he wishes to show there.

But primarily the closure—and opening—of cinemas must be a matter for the industry's commercial judgment. I understand that there is interest in reopening the Herne Bay cinema as an independent operation. I wish those discussions good fortune. Other small independent operations at attractive seaside resorts like Herne Bay have proved viable in recent years — I think particularly of Aldeburgh and Cromer—but it is important to identify and exploit the right market niche.

We are at the beginning of an era of considerable change in cinema going patterns. The last couple of years have seen a most welcome increase in the number of people attending cinemas. Making cinemas more attractive places for the public to go is—as the Carlton at Westgate has clearly demonstrated—one of the important steps in maintaining and further promoting the increase in the number of cinema admissions. However, the trend needs to gather considerably more strength before the industry can return to the halcyon days of 200 million-plus admissions a year. Such levels would mean profits for film makers, distributors and exhibitors, and hence more films.

I hope particularly to see more films that families can enjoy together. Although the number of films available for family viewing has changed little in recent years as a percentage of films released, I hope to see more frequent use of the practice of booking family films for matinees with different films run in the evening. I believe that that would increase cinema admissions to the benefit of the distributors, exhibitors and the public alike.

A second major trend that I perceive is people's willingness to travel to obtain the leisure facilities that they wish to enjoy, whether to the amusement park in Margate, which those of the generation of my hon. Friend and myself still know as "Dreamland", to concerts or the theatre in Margate or Canterbury or, increasingly, to a cinema.

I note that the new multiscreen cinemas are beginning to open throughout the United Kingdom. I welcome that trend, because it increases competition in a restricted market. Those cinemas lay considerable emphasis on good parking facilities for their patrons— a trend which my hon. Friend identified as one that affects competition. Their size inevitably requires them to draw audiences from a larger geographical area than has previously been the practice. As has long been the case in the United States, people are proving ready to travel greater distances than was traditional in the past. I know, for example, that many 1384 cinemagoers routinely drive 25 miles or more each way to see films at the attractive multiplex cinema in Milton Keynes.

While I accept that there is some loss of convenience to local residents with the closure of the cinema in Herne Bay, and even if the re-opening of the cinema there ultimately proves commercially non-viable, the continuing existence of attractive cinemas nearby in Margate, Westgate and Canterbury, all easily accessible by car or public transport, still allows Herne Bay residents to see the films they want to see.

The debate also provides me with a timely opportunity to describe our progress in considering the follow-up to the Monopolies and Mergers Commission report on the supply of films, which was completed by the Commission in 1983. I recognise the concerns which have been expressed by my hon. Friend, arising from the long period for which a definitive Government statement on follow-up to that report has been awaited. I hope that my account of the report's findings and recommendations, and of our subsequent consideration of those conclusions will help to reassure my hon. Friend and those in the film industry, who have a quite understandable interest in the outcome, that the length of time that we and the Director General of Fair Trading have taken to reach the decision has been determined by our concern to reach a solution that more effectively ensures a competitive environment in the distribution and exhibition sectors of the film industry in the foreseeable future.

The MMC's report on the supply of films resulted from a monopoly reference made by the Director General of Fair Trading in December 1980. The MMC found that a complex monopoly situation existed between the major exhibitors, Thorn EMI—now Cannon—and Rank, and the two major distributors, Columbia-EMI-Warner and United International Pictures, which adopted the practice of barring. Barring is a system of exclusivity whereby the order in which cinemas get access to films is pre-determined.

The Commission took the view that this system of deciding exclusivity produced results that were determined largely by EMI and Rank, and did not achieve sufficient competition during the full period in which films were released. Taking into account factors such as the restriction of competition caused by the alignments, on which the places of EMI and Rank in the system of barring partly depend, the Commission concluded that the present system of barring operated against the public interest. It felt that other arrangements should be made to determine exclusivity.

The Commission made two recommendations designed to increase competition in the distribution of films to exhibitors. The first was that the current system of barring should be ended, and that distributors and exhibitors should in future conduct their business in such a way that provisions for exclusivity could be negotiated for each film hire agreement on a case-by-case basis.

The Commission's second recommendation was designed to improve access of exhibitors, other than EMI and Rank, to popular films. It specified that a cinema should be allowed to exhibit a popular film—that is, a film for which 60 or more prints are, or have become, available in Great Britain—for more than four weeks only if, at the end of that period, it had been made available on normal terms to all other cinemas in effective competition with that cinema.

1385 The publication of the MMC's report in 1983 occurred in a period of very rapid downturn in cinema admissions and receipts. During the consultation period following publication of the report, it was agreed that a pilot scheme should be set up on the effects of the MMC's two main recommendations on barring and on delays in the release of popular films.

In January 1985 it was announced that the director general was being asked to proceed with arrangements for the experiment. After further discussions between officials and representatives of the distributors and exhibitors, my right hon. Friend the then Secretary of State for Trade and Industry asked the Director General of Fair Trading to seek from all the exhibitors and distributors concerned the undertakings that were necessary to conduct the experimental scheme.

The scheme was approved in two cities, Glasgow and Manchester, with Liverpool and Birmingham as control areas. It included all cinemas within a 14-mile radius of each of the four city centres. Questionnaires were completed by exhibitors and distributors, both in relation to the control areas of Birmingham and Liverpool, and to Manchester and Glasgow, where the experiment was actually conducted. The trial scheme ran for 52 weeks from 31 May 1985 to 29 May 1986.

The Director General of Fair Trading submitted his report on the results and these were provided to the then Under-Secretary of State for Corporate and Consumer Affairs on 16 March this year.

The period of the experiment coincided with an unexpected general upturn in cinema audiences. The OFT therefore thought it necessary, near the end of the experiment, to ask certain additional questions of the participants and to analyse the replies for inclusion in its report. I hope that my hon. Friend will bear with me while I present the somewhat lengthy explanation of the background. He has rightly voiced anxiety about the delay.

Since the end of the experiment, we, together with the OFT, have been considering what action should be taken in the light both of the results of the films experiment and of developments in the industry since the MMC's report published in 1983. We have considered carefully the whole gamut of possibilities ranging from taking no action, as there are some signs that the industry has become a little more competitive over the past four years, through to the possibility of divestment, which a somewhat stronger economic climate in the industry might have justified. I stress that our objective remains the maximisation of competition within the film industry, consistent with maintaining healthy film distribution and exhibition sectors in the United Kingdom.

1386 Consideration of these matters has been complex, but I and my hon. Friend the Under-Secretary of State propose to consult the industry shortly on the basis of the report of the Director General of Fair Trading on the experiment. I will, of course, ensure that copies of that report are then immediately placed in the Vote Office and the Library of the House.

It would be difficult to do justice to the experiment's results by attempting to summarise them in a few sentences. They have, however, contributed significantly to our understanding of competitive conditions in the industry. While they do not point conclusively in the direction of any particular course of action, they suggest that following the MMC's recommendations on barring and on the early release of popular films will pave the way for more competitive and flexible arrangements in the industry.

My hon. Friend the Under-Secretary and I are therefore minded, on the basis of the report's conclusions to make an order tinder the Fair Trading Act 1973. First, that might make unlawful any existing or future long-term arrangement between a distributor and a cinema operator to bar other local cinemas from showing the same film concurrently. Secondly, it might place a limit of four weeks on the length of time for which "first run- cinemas may exhibit a popular film, without making it available to competitors.

As I said earlier, we propose, before the end of this month, to begin a short and intensive period of consultation lasting until the end of January 1988 to seek the views of all those with an interest. As a result of the representations we receive, my hon. Friend the Under-Secretary and I will then finalise our views on the action that we intend to take.

I hope that what I have said will demonstrate the Government's concern to secure a more competitive environment in the film distribution and exhibition sectors. I hope too, that it will assist independent cinemas to compete more effectively with the major chains of exhibitors. I and my hon. Friend the Under-Secretary will look forward to hearing my hon. Friend's views and those of other hon. Members on the action that we are minded to take on the basis of the Monopolies and Mergers Commission report.

I hope that in the light of what I have said. my hon. Friend the Member for Thanet, North will feel that he has elicited a statement which will be of some significance to the industry and, in particular, to that vigorous entrepreneur whose interests he has defended so well.