Creating value and jobs in the eureka state!

Creative industries provide the key to strengthening Britain’s economic competitiveness and generating hundreds of thousands of new jobs. This was the message from Rupert Gavin, CEO of Odeon-UCI cinemas in an address to a well-supported meeting of the Keynes Society last night.

In a world where super-fast bandwidth has become commoditised, content is the resource that has genuine and lasting value in today’s entertainment and information industries. Live music events or a visit to the theatre or cinema lie at the right of the content value curve (shown below) and Britain’s cultural and creative businesses are well placed to reap the rewards from an increasing market demand for a communal or group experience in front of a big screen or at a mega summer rock festival.

In 2007 for the first time, sales of live music tickets exceeded that of recorded music revenues and this process can only gather pace in the years ahead. The cinema industry has also been enjoying a renaissance despite the competition from DVD rentals and the ability to download and view film releases online. Britain’s creative and cultural industries now contribute more than £3 billion a year to our balance of payments – and one fifth of the Oscars awarded since 1990 have ended up on the mantelpieces of British talent! For this competitive advantage to be sustained we must invest more in human capital and in promoting the quality of ideas and inventiveness upon which all creative industries ultimately depend.

Rupert Gavin handed a wide range of questions from the floor.

Why is popcorn so expensive at the movies? Odeon has experimented with this and finds that no matter what the price is, the volume of popcorn sold remains the same! Given this very low price elasticity of demand, it makes little sense for cinemas to do anything other than charge a high price and reap the rewards of a near 100% mark-up (or more!). He argued that profits from sales of popcorn help to provide an effective cross-subsidy on the price of cinema tickets and that Odeon’s policy was not to bar people from bringing in their own food and drink – with one exception – curry!

Why don’t cinemas engage in more dynamic pricing – charging more for the blockbusting films and reducing ticket prices for less popular releases? The answer is mainly one of vanity! Film distributors are less likely to distribute to cinema chains that try this – cutting the price would be a recognition that the film is somehow inferior to other new releases!

Mr Gavin was deeply enthusiastic about the potential for digital cinema, partly because it transforms the advertising model for cinema chains but also because it allows them to control their costs – at one fully digitised cinema, the entire output of the building is controlled by a projectionist working from his own home!

Other questions covered the issue of film piracy (is Putin financing the Red Army by encouraging millions of pirated DVD’s to be produced out of Russia?), the importance of business management structures in generating innovation among employees and also the likely impact of the recession and credit crunch on the entertainment industry.

On this final point Rupert Gavin was pretty confident. Things that people enjoy and which don’t take too big a chunk out of the monthly budget tend to do well in a recession! Cinema visits are up, so too are sales in mid-market restaurants and volumes for chocolate!

The next meeting of the Keynes Society is on Thursday 13th November when the speaker will be Brian McBride, CEO of Amazon UK.