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. Last Updated: 07/27/2016

Small Firm With a $1Bln Reel Dream

For MTInvestkinoproyekt owns the Kinopleks na Leninskom theater on Leninsky Prospekt.
A small Russian company is seeking investors to build a national chain of multiplex cinemas that it says will control 30 percent of a market that will be worth $1 billion in seven or eight years.

Alexander Timofeyev, co-founder of Investkinoproyekt, which owns the Kinopleks na Leninskom at 146 Leninsky Prospekt, said he and his partner Vladimir Murov are planning to build four to six multiplexes a year.

"It's clear that Russia lacks a national chain of movie theaters with a unified style and standards of management," Timofeyev said.

Investkinoproyekt has purchased sites for multiplexes in 15 cities and is now seeking investors to put up the $5 million to $8 million for each building.

Rus bank has agreed to invest $9 million in a 10-screen movie theater in Moscow, near Profsoyuznaya metro station, and two other cinemas are also already under construction.

Investkinoproyekt will take a 25 percent stake in each building in return for contributing the land and know-how, and it will also operate them.

Timofeyev predicted Investkinoproyekt's returns would be between 25 percent and 30 percent per year. The company is talking with French and U.S. investors, but expects Russian firms to be its main backers.

"At some point, investors may want to change to a different operator, but at the moment, we are the only one with a national brand," Timofeyev said.

Timofeyev said sales at the Russian box office totaled $111 million last year and this number could rise to $150 million this year.

In seven or eight years, Moscow could have as many as 40 or 50 multiplexes, and national ticket sales could reach $1 billion, he said.

Investkinoproyekt is targeting cities of more than 500,000 people for multiplexes, although some might get seven-screen instead of 10-screen cinemas, he said.

Cities of a million, the company said, could absorb two multiplexes.

The planned complexes will include more than movie theaters. Food and beverages, child care, slot machines, bowling alleys and other on-site attractions will generate additional revenue.

"Usually, screening films is 70 percent of the business," he said. "Cinema is profitable but not very."

The ticket prices and additional attractions will be different in each city, but Timofeyev said the standard of service would be the same.

Investkinoproyekt is the first Russian entertainment company to get an ISO 9001 quality-management certificate.

Timofeyev said he does not expect much competition from Soviet-era cinemas or movie theaters in shopping centers.

Single-screen cinemas are not likely to prosper unless they are in a very good location, he said.

Movie theaters in shopping centers would not be the first choice for people who want to go out for the evening, he said, with the exception of cinemas with a separate entrance.

According to surveys Investkinoproyekt commissioned COMCON and Qualitel Data Services to conduct in the regions, 82 percent of people don't want to walk past shops to the upper stories of shopping centers.

"In Russia, shopping is not relaxing; it's work," Timofeyev said.

Paul Heth, president of the movie theater chain Rising Star Media, warned of being too upbeat about the cinema market's potential.

Rising Star Media is building Russia's largest movie theater, an 11-screen multiplex in IKEA's Mega Mall in southern Moscow and plans to build six or seven more cinemas in Russia.

Rising Star Media is backed by U.S. cinema operator National Amusements, the parent company of media giant Viacom.

"The days of rapid growth are over," Heth said, adding that if Investkinoproyekt is right in that movie theaters' ticket sales could grow to $1 billion per year, then Russia would be the third- or fourth-highest grossing market after the United States, Japan and Britain.

He questioned whether returns of 25 percent to 30 percent were sustainable on a long-term basis.

Heth, an American, was a partner in the development of the Americom movie theater (now the American House of Cinema) in the Radisson Slavyanskaya Hotel in 1994, the Dome Cinema in the Renaissance Hotel in 1995 and the Kodak Kinomir cinema in 1996.

"There are no Western investors other then ourselves in cinemas in Russia because there are a lot of obstacles," he said.

Vedomosti newspaper reported that Cinema-Park, a subsidiary of the Interros holding, plans to invest $40 million in multiplex theaters, building six this year in Moscow, Kazan, Krasnoyarsk, Novosibirsk, Rostov-on-Don and Krasnodar.

Narodnoye Kino-Stolitsa, which already operates two multiplexes in Moscow, intends to build five movie theaters in Moscow over the next two years and later to move to the regions, the report said.

Rising Star is taking a cautious approach.

"The next couple of years will be the weathervane of long-term growth opportunities," Heth said. "This is not an easy business. The numbers quoted [by Investkinoproyekt] are great, but one should be careful about making predictions."