Palace revolution: V.J. Maury and team celebrate ten years in Central Europe
With 20 sites and 170 screens, 13 of which are already equipped with digital 3D, Palace Cinemas (Central Europe) B.V. is “the leading multiplex cinema operator” in the Czech Republic, Slovakia and Hungary, states circuit co-founder and chief executive officer, V.J Maury.
Since its founding ten years ago, “our company has refined its business model and pursued an aggressive expansion strategy through a combination of targeted acquisitions and strong organic growth. Palace Cinemas is well-positioned to take advantage of the attractive cinema dynamics in Central and Eastern Europe over the next decade and to profit from the digital transition occurring in the exhibition industry worldwide.”
With three more sites to open in the Czech Republic and one in Slovakia over the next two years, it should come as no surprise that Maury believes “the cinema business will continue to be really good for us. We are pleased with 2009 so far, experiencing the best February admissions ever as we anticipate a strong summer.” Country market shares for box office and attendance in 2008 were 31.1% and 24.8% across the Czech Republic; 47.0% and 34.2% in Slovakia; and 54.4% in countrywide sales and 49.6% of cinema visits in Hungary. Looking ahead, “we could see a year with improved performances as we make our way through the worldwide economic malaise.”
Maury and Arthur Goldblatt founded the company in 1999, and in March 2002 opened the first Palace Cinema at MOMPark in Budapest, Hungary. The state-of-the art nine-plex was financed through investment funds managed by Palace’s majority owner, ARGUS Capital Group Limited. Since then, the private-equity firm has invested some €400 million in 13 companies across the Central and Eastern Europe region. “We are very pleased that our long-term partnership with Palace has resulted in the creation of the leading cinema exhibition company in our Central European markets,” attests George Collins, a partner with ARGUS. “We continue to be excited about the opportunities for future growth and expansion.”
Adds Maury, “While ARGUS remains a constant supporter, the biggest change between then and now has been our transformation from a new entrant entrepreneur to a mature leader in a relatively short period of time.” At Palace Cinemas, he explains, “I have always tried to run the company with a limited corporate team designed to have too much to do rather than too little. We placed our CFO David Jelinek in Prague so that we would have upper management presence in both markets. Believe me, he does much more than your typical chief financial officer, playing a key role in negotiating many of the deals for future sites. We also have a great team for IT in Greg Bridle and Mark Waldman, terrific country managers David Horacek in the Czech Republic, Andrea Baisova in Slovakia and Andrea Lovasz in Hungary. Palace would not be possible without all of them.”
Although there have been many milestones shared over the past ten years, Palace is very much grounded in the present. After all, Maury and his team have just come off the market-leading deployment of a dozen 3D systems powered by Barco projectors and with XDC servers—all installed by Germany’s Film-Ton-Technik Rüttgers (FTT). The 11 3D systems featuring Masterimage technology are located in Prague (3), Brno (2), Bratislava (2) and Budapest (4), Maury details, while Palace West End in Budapest, Hungary, will add a second RealD set-up. “It is a revolutionary technology that will radically change the business,” he advised local media at the March launches for Monsters vs. Aliens.
Maury tells FJI, “Palace Cinemas was the first to introduce digital projection to its markets on two screens in 2002. Our experience as an early adopter of digital has given us invaluable experience and we certainly have kept ahead of the curve. We are trying to make a deal and, although we are in advanced stages in the process, I won’t be able to make any announcements before Cinema Expo.” He adds, “3D is very interesting… We believe this will improve our bottom line. I have the feeling the incremental price difference will last for only a few years as the technology becomes more common.” Within a few years, Maury actually foresees “projectors simply having 3D options within the unit rather than requiring an add-on system.”
Also on the technological side, Palace has launched a web-purchasing interface called eticket, powered by the proprietary management software End2End (E2E). “It is doing nicely,” Maury says, despite the fact that “credit card usage in Central Europe remains low…but is growing. We also launched our Palace Movie Card across the region, which provides a discount on most tickets.” With some 60,000 in circulation since having been introduced in late 2008, Maury intends “to build this into something more. We also launched additional services across the region on all websites, for example, featuring trailers and future films, a blog and even a mobile version of the site. We estimate 80% of our customers get their info from the Web. That’s a really big part of the biz.”
Maury expects Palace Cinemas to utilize its proprietary E2E software in an equally major way during the completion of the digital rollout. Already in use for the entire circuit to power the box office, scheduling, CID (customer information display) screens, concessions and websites, “the upgrade is expected to better manage content in a digital environment,” he anticipates. “This applies to movies, trailers, advertising as well as one-off alternative content, specialty films and events. We will manage their input, exhibition and follow-on analysis in real time.” Last but not least, “this will also integrate better the ad sales arm, Palacemedia, and the distribution side, Palace Pictures, into the system overall.”
Palacemedia was launched in 2005 in the Czech Republic and Slovakia and expanded to Hungary in 2008. “This internal on- and off-screen sales group is essential for maximizing our ever-important ad sales revenue streams,” notes Maury. “We can better service a potential client directly, offering special deals and initiatives. We found that third parties could never really represent our interests, especially if carried as part of a portfolio of other cinemas or other advertising outlets. We are the best at representing ourselves.”
In November 2005, Palace Pictures began distributing films in Slovakia and the Czech Republic. At the end of last year, the division cemented this exclusive relationship with Berlin, Germany-based Eastern European Acquisition Pool GmbH for another three years. The independent licensing agreement has brought the likes of The Reader, JCVD and the porno-making couple Zack & Miri into the two countries. And Palace is currently broadening its relationship with other distributors. Maury regards the company’s “strategic move” into both cinema advertising and film distribution as “vertically related businesses that will maximize revenues and build experience as they become increasingly important in a digital-cinema environment. For these reasons, we will be expanding distribution into Hungary in 2009.”
As the virtual and digital worlds continue to grow, the bricks-and-mortar parts of Maury’s Palaces are still setting the foundation. “Last year’s reopening of eight screens at Polus Shopping Center in Bratislava turned out really well,” Maury enthuses. “The Slovak market is clearly going places… That’s why we signed a deal to open at the Ballymore Eurovea site some time during the first half of 2010. In the Czech Republic, we closed deals with Multi Development Corporation for sites in Usti nad Labem, Liberec and Ostrava, the country’s third largest city.”
Although “these are becoming fewer and fewer as debt dries up, Palace continues to look at proposals for new cinema sites,” he assures. “The days of aggressive retail real-estate expansion in our markets are over. This is actually good for us because future retail investment will be more selective.”
Moving forward, moviegoing will be a choice selection too, Maury believes. “In another ten years,” he predicts, “the cinema will still be a place where people will come to experience entertainment together. That is what we do, and do very well. All data coming from the U.S. shows that the next generation of young people spends as much time or more per week going to the movies as before, which cannot be said of other media entertainment options. We see the same in our markets. The digital change occurring today may result in an entirely new business model, with perhaps fewer screens being able to show more. It certainly is an interesting time to be in the business.”
Corporate Management Team
V.J Maury, CEO and founding partner
David Jelinek, CFO
David Horacek, Country manager, Czech Republic
Andrea Baisova, Country manager, Slovakia
Andrea Lovasz, Country manager, Hungary
Arthur Goldblatt, Founding partner
Central Europe Market Overview
Exhibition markets in the Czech Republic, Slovakia and Hungary continue to show positive trends as cinema-going frequency increases for a wider audience and as their economies reach Western European levels. Box office and admissions market growth driven significantly by new cinema builds is largely over, as the market continues to mature with only one to two openings per year…
In the Czech Republic, the total market and Palace have experienced solid performances since 2006. This is partially fueled by a vibrant local production community, resulting in some 30% of all film releases. For example, the number-one movie in 2008 was Bathory, a Czech and Slovak production. Palace has improved the total market share of its four sites in Prague and two in Brno slightly in spite of not opening any new sites since 2002.
The Slovakia market witnessed a slight box-office fall in 2007 of 5.8% and then rose 28.6% in 2008 as new sites were opened and general economic conditions improved. Palace acquired, refurbished and reopened a site in April 2008, which helped secure the company’s dominant position and drove admissions in Slovakia to over one million for the first time.
In Hungary, Palace has nine sites in Budapest and three in secondary cities. In spite of some challenging economic times and two new competitive site entries into Budapest since 2007, Palace has maintained a steady market share and performance through aggressive average ticket price increases and other marketing initiatives.
(Source: Company Information, data provided by Dodona Research)