Cinema industry in MENA region set to enjoy explosive 74% growth

Although accounting for a mere 1% of the world’s digital cinema screens, the Middle East and North Africa (MENA) region represents one of the world’s fastest-growing areas for the medium, with local exhibitors dominating the scene.

With a screen base that had already expanded by more than 60% to 1,900 from 2015 to 2019, MENA will grow at an even more formidable rate in the next four years, increasing its screen base by another 1,400 units, up an astounding 74%, according to Omdia.

All told, box office receipts in MENA during 2019 ranged between $550 million and $600 million, and a twofold increase is projected to occur from 2019 to 2023, thanks to the booming cinema industry in Saudi Arabia, the principal growth driver of digital cinema screens in MENA. Within two to three years, it is estimated that Saudi Arabia will replace the United Arab Emirates (UAE), currently with 45% share of market, as the region’s biggest player.

The industry is also strengthened by the MENA region’s high level of competition and by the lofty standards set by Saudi operators in their technology, services, and food-and-beverage offerings.

Local exhibitors dominate

The MENA cinema exhibition sector is highly concentrated. As of the second quarter of 2019, the top five groups in the region operated 48% of the area’s screens. Local conglomerates dominate given the cultural and administrative challenges alike faced by foreign companies.

Even so, the market is largely fragmented, with the biggest share of market at 21% held by Vox Cinema, an operator with headquarters in the United Arab Emirates (UAE). Vox has doubled its screen base in just two-and-a-half years since the start of 2017, bolstering its presence from three to eight territories within the same period.

In second place is Novo Cinemas, also based in the UAE, and present in four territories.

Other strong regional exhibitors in the area, all operating out of the Middle East, include Bahrain Cinema Company, Lebanese Grand Cinemas, Cinemacity, Kuwait National Cinema Company, Star Cinemas, and Reel Cinemas.

In the North Africa region, the top exhibitor is a foreign entity, Megarama, which ranks as the 11th largest exhibitor in MENA overall.

Born digital

The cinema industry in MENA has experienced its highest growth in digital form, which means the cost of digital projectors is factored into the business plans of operators, with the equipment fully funded from the outset. Utilizing this business model instead of a financing mechanism known as Virtual Print-Free (VPF), the MENA cinema industry has flourished in the last five years.

Designed by the film industry, VPF was intended to help film exhibitors cover the cost of digital projection equipment as they converted from 35mm systems. In the VPF scheme, film distributors pay a subsidy in the form of a fee for every booking of a movie, offset by the savings in film prints. Given the need to install a second generation of digital projectors, film distributors argue the VPF scheme was a one-off solution for the transition to digital, now completed, while theater owners, for their part, say they face another round of capital investment.  For the MENA region, the absence of a VPF scheme leaves exhibitors in a better position to enter the next digital phase and achieve growth.  

The cinema industry in MENA is also helped by a high uptake of premium film formats from local operators.

Saudi Arabia: a key growth driver

Between 2018 and 2019, the Saudi Arabian cinema market is estimated to have contributed more than $70 million to the region’s total box office. The kingdom opened its doors to commercial films in December 2017, which has meant the introduction of 32 million people to a medium from which they had been excluded until then.

The Saudi market will continue to play a starring role in the region’s future growth. Of the 1,400 new screens expected in MENA between 2019 and 2023, some 1,200 screens will be from Saudi Arabia.

But despite a local populace keen to experience the cinematic experience, the territory will face its share of challenges to growth and expansion.

The biggest obstacle in the Saudi market is the lack of available real estate. While modern multiplexes are often at the core of shopping malls and large public areas of entertainment, commercial real estate in Saudi Arabia has never needed to contend with issues of demand relating to the movies, as the kingdom remained a closed market in the last 35 years. Meanwhile, the spaces available today pose architectural and technical challenges to the construction of cinema houses.

Other factors inhibiting growth of the Saudi market include the lack of qualified contractors to build movie houses, and the need for cinema staff to be trained and become conversant in both the medium and the art form.

Cinema Industry Report – MENA - 2020 is part of both the Cinema Intelligence Service and Cinema Intelligence Service – Premium. It is offered in the Media & Advertising research category, under the Cinema research service. Contact us for more details on the report or if you wish to become a subscriber.

By Pablo Carrera Principal Research Analyst – Cinema, IHS Markit