In an attempt to evaluate the long-term effects of Covid-19 on cinema operators, the law firm Sorainen, by the request of the Lithuanian Film Centre, has conducted an economic analysis of the situation.
Pandemic emptied cinemas: will they survive?
© DELFI / Domantas Pipas

Due to the global Covid-19 pandemic cinema operators in Lithuania are encountering serious challenges – all of the cinemas were closed on 16th March, and therefore realistically they had no alternative financial activities to engage in, and thus their business had stopped. As the quarantine conditions have become more lenient a few attempts to organise alternative film screenings did not replace the usual activities or the economic model of the sector. Furthermore, local cinema operators are also dependent on the global market changes during the economic crisis – film premieres called off in the USA and Europe, are greatly influencing the planning of cinemas’ activities in the foreseeable future, the Lithuanian Film Centre writes.

“Cinema operation business – is probably the only field of the creative industries, that has presented exhaustive analyses. Since 2014 Lithuanian Film Centre has presented weekly reports on film screenings, summarised them at the end of the year, and therefore we have a good basis for analysis and for evaluation of trends as well as forecasting,” stated the director of the Lithuanian Film Centre, Rolandas Kvietkauskas.

Interest in film was increasing annually, in 2019 cinemas sold 4.1 million tickets to 383 films and collected 22.495 million euros. In 2020 an increase of 5% was anticipated in cinema operation business, however, the quarantine has drastically changed those expectations. Based on the data provided by the 5 major cinema operators in Lithuania, who take up 95% of the market share in the country, just in the period since the quarantine was introduced the market has experienced the losses of around 1 million euros, even after deducting the compensations received.

Upon evaluating the situation, analysis suggests, that based on the data provided by cinema operators, during the year 2020 the market will experience the losses greater than 8 million euros, from ticket sales alone, while losses from other sales (drinks, snacks, etc) should reach approximately another 4 million euros. The total loss of income could reach around 12 million euros in the year 2020 alone.

As in the case of other services, it is forecast, that the financial insecurity, the fear of the virus, will influence the audiences’ return to the cinemas as well. Losses will also be affected by seasonal influences – in summer cinemas are always emptier, and during the most active part of the year only very few premieres are anticipated this year.

With reduced income, the additional safety requirements and their implementation will become an even bigger financial burden to the cinemas – acquisition of the health safety equipment, maintenance of all the spaces, and provision of staff with safety equipment.

Even though during this difficult time the range of help on offer is quite broad, much of it cannot be used by the cinema operators, because, for example, postponement of tax payments or tax subsidies are only helpful to those, who have been able to continue their businesses in alternative ways at least partially since the introduction of the quarantine.

The researchers have highlighted that upon consideration of the specifics of cinema sector, there is a reduced VAT rate being implemented for cinema tickets in the EU. The reduced VAT rate is implemented in Croatia (5%), Ireland (13.5%), Germany (7%), Finland (10%), Poland (8%), and Slovenia (8.5%). While in Norway, as a method to counter the economic crisis, the already reduced VAT rate for ticket sales of 12% has been reduced further to 6%. According to Lithuanian cinema operators, it could be one of the most effective salvaging mechanisms in our market. By reducing the present-day standard tariff of 21% to 5 or 9% and limiting its implementation to 2-3 years, cinemas could reach the same level, that was prior to the introduction of the quarantine.

It was stressed that the reduced VAT rate for cinema tickets could not only aid in the recovery of the whole sector but could become one of the economic factors, in the future, for the greater shareholders of the market to invest into the development of cinemas in the regions, thus expanding the accessibility of cinemas.

“We hope, that the research will contribute toward a better understanding of this area of the creative market and will help find the best solutions for countering the crisis. The recovery of cinemas is decidedly important to film culture, because in most recent years, the shortage of cinemas became particularly apparent, especially in the regions. Additionally, plans regarding expansion of cinemas, can only be renewed if the long-term economic solutions will become apparent” – claimed the director of the Lithuanian Film Centre, Rolandas Kvietkauskas.

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