Market Insight

Saudi Arabia, a large and wealthy market, opens up to cinema

December 12, 2017

Pablo Carrera Pablo Carrera Principal Research Analyst, Cinema
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Saudi Arabia will allow public cinemas to re-open after it banned them more than 35 years ago. A resolution has just been passed by the Board of the General Commission for Audiovisual Media to grant cinema licenses, with the first ones expected to be issued in March 2018. The ban had been enforced in 1980 in response to a growing Islamic fundamentalism and as part of a tightening of observance of traditional social and religious norms.

The ban had not affected some private cinemas such as those run by Aramco, the state-owned oil company, which continued to operate but only accessible to the company’s employees. IMAX has also been running a cinema in Sultan Bin Abdulaziz Science and Technology Center in Al Khobar although it only shows educational films.

The Saudi government estimates that the lift will bring 300 new cinemas with 2,000 screens by 2030, five times the number of screens currently in neighbouring UAE which generated $208m in box office last years, according to data by IHS Markit. This will work towards the target to lift household spending on entertainment in Saudi Arabia from 2.9% to 6.0% of GDP by 2030.

Following the announcement, US exhibitor AMC Entertainment -owner of Odeon & UCI and Nordic Cinema Group in Europe- revealed a non-binding memorandum of understanding (MoU) with Saudi Arabia’s Public Investment Fund, which now works towards a diversified and sustainable economy. Under the agreement they will explore opportunities to further boost the entertainment sector.

Our analysis

The ban of cinemas should be read in terms of the experience and not the content, as exemplifies the fact that there was a similar ban on the possession of satellite dishes but the government “turned a blind eye” resulting in 95% of Saudi houses having one and accessing content via stellite. Similarly, the online subscription services Netflix and Amazon Prime Video are also present in Saudi Arabia since 2016, giving access to large catalogues of films and TV shows.

In addition to being aware of the content, some Saudis evidence the appetite for large screens by travelling to neighbouring Bahrain and Dubai’s shopping malls to enjoy films in cinemas.

Saudi Arabia has one of the largest GDP (at purchasing power parity) per capita in the Middle East with over 32m inhabitants, a more than suitable population to take up the new entertainment offered by multiplexes.

With this context, on the back of the drop of oil prices Saudi Arabia has started to diversify its economy to veer away from its high reliance on oil-based income and into sectors that offer longer-term prospects. As part of its Vision 2030 strategic plan to achieve this goal it will support entertainment and real estate, in which cinemas fit seamlessly: they are the anchor tenants in shopping malls, which in turn become the centre point of the re-generated areas.

The estimated 2,000 screens would mean a screen density above 62 screens per million inhabitants (based on today’s population), similar to that of the UK and Italy and higher than that of Germany and UAE in 2016 according to IHS Markit data.

It is undoubtedly a sizable opportunity for exhibitors to enter the market as both demand and favourable policies are aligned. Also, because, the knowledge gap in film production and cinema operation created by this 35 year ban will require not only time but also non-local know how to be re-built.

AMC has been fast in taking positions although it has done so with a non-binding agreement and with a state-owned investment fund, a formula AMC has not worked with before. This would represent the first incursion of AMC in the Middle East. Other obvious candidates are Vox Cinemas, which operates over 300 screens across the UAE, Oman, Bahrain, Qatar, Lebanon and Egypt, and Novo Cinemas, present in UAE, Bahrain and Qatar. As a reference, according to IHS data UAE has grown its admissions by 8% CAGR since 2006 and its BO (in local currency) by 15% CAGR in that same period.

Saudi’s film production sector had recently other encouraging signs with the submission of the film “Wadjda” for the Best Foreign Language film at the 86th Academy Awards (the first time the kingdom was submitting a film) and the jury award won by “Barakah Yoqabil Barajah” in the Berlin International Film Festival.

One a more general note that supports the incipient liberalization of the country’s policies, women were permitted to access the national stadium and will be allowed to drive from June 2018.

Geography
Saudi Arabia
Organization
AMC
Research by Market
Media & Advertising
Category
Cinema
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