Karo to open 29 cinemas in Moscow together with ADG group

This will make it the second largest cinema chain in the country.

The Karo chain and the developer ADG group will launch 29 new cinemas in Moscow by the end of 2022. 10 of them are planned to open by the middle of next year, representatives of both companies told Vedomosti. They will appear in neighborhood centers located on the site of old Soviet cinemas, which will be reconstructed by ADG group. These will be multiplexes for a total of 140 screens, each of which is designed for 100-120 seats, representatives of the parties said.

The agreement with ADG group envisages that Karo will become a tenant of the neighborhood centers, Karo president Olga Zinyakova told Vedomosti. Accordingly, she said, the cinema chain itself will invest in their launch. To open such a number of cinemas will require hundreds of millions of rubles, says Zinyakova, but she did not name the exact amount. Chairman of the Board of the Association of Cinema Owners Oleg Berezin estimates investment in the launch of one screen at 20-50 million rubles, depending on the technical equipment and the film equipment used. As such, the total cost for Karo may amount to 2.8-7 billion rubles.

Karo is controlled by a consortium of investors, including businessman Paul Heth, UFG Private Equity and the Russian Direct Investment Fund. It is now the third largest cinema chain in Russia. According to Nevafilm Research as of September 2020, it operates 244 screens, located in 33 cinemas (these statistics take into account the sites currently operating, because of the coronavirus pandemic not all cinemas in Russia have re-opened yet). According to Karo itself, it operates 262 screens.

According to Nevafilm Research, there are 4,335 cinema screens in Russia as of September 2020. At the same time, the largest players (the top 10) accounted for 1,982 screens. The total number of cinemas operating in the country at that time was 1,518.

The leaders of this market are the combined cinema chain of Formula Kino, Cinema Park and Cinema Okko (572 screens), as well as the Premier Hall (330 screens). The launch of new locations with ADG group may take Karo to 2nd place in Russia by the number of screens, says Zinyakova.

Brothers Mikhail and Grigory Pecherskiy's ADG group bought 39 old cinemas from the Moscow government in 2014. Now it is reconstructing them into neighborhood shopping centers under the common brand name "Mesto Vstrechi" (Meeting Place). Investments in these projects are estimated by ADG group itself at 57 billion rubles.

Initially, one of the largest cinema chains in the world – Korea's CJ CGV – was to be in charge of film screening in the 33 centers. For this purpose, the companies created a joint venture – CGV Russia – in 2017. The Korean company as a whole had quite ambitious plans in Russia. It expected to become a major player here, taking at least 40% of the market, Bret Kim, CJ CGV's executive vice president, told Vedomosti in autumn 2017. The Koreans planned to obtain such a share through the acquisition of existing cinema chains as well. However, in two years CGV Russia has opened only two cinemas – in ADG group's Angara and PIK Group shareholder Sergey Gordeev's Salaris shopping centers. In January 2020, CJ CGV and ADG group decided to end the cooperation, Vedomosti sources close to both parties said at the time.

Then they said that the new partner of the developer for the launch of cinemas would be Karo, but the companies themselves have never commented on it. However, in September this year they announced that Karo would manage the Angara and Salaris cinemas instead of CJ CGV.

The commercial success of Karo's new venues, according to Berezin, will depend on several factors. "Firstly, whether the shopping centers themselves can accumulate sufficient traffic. And secondly, whether the cinema chain will be able to offer interesting content and special entertainment programs – lectures, festivals, etc. – to residents of the district," he said. Zinyakova assures that the repertoire of Karo cinemas opened at ADG group venues, will meet the needs of the local audience: depending on the venue, in addition to the latest films, they will present various special projects of the chain, including Karo.Art.

Moscow, according to Berezin, is the leader among Russian regions in terms of film screening. It accounts for 21% of the total box office of the country. On the other hand, how the film distribution market will develop is difficult to predict now: due to the coronavirus pandemic, cinemas have not yet re-opened in all regions and how many of them will survive to re-open is unclear, he says. However, if the market in Moscow will fall, it will be the last, because the capital has a large audience that goes to the cinema, and across different social groups – not only young people, but also, for example, pensioners and schoolchildren, notes Berezin.

Cinema screening continues to be an anchor for any shopping center and the presence of a cinema in a neighborhood shopping center automatically expands its reach and target audience, which ultimately has a positive effect on the turnover of the entire venue, says Anna Nikandrova, partner at Colliers International. By themselves, cinemas are unlikely to become focal points, but there are much greater chances in synergy with additional services and high-quality dining options, says Evgenia Khakberdieva, director of the retail real estate department at Knight Frank. She says that after the pandemic, when restaurants, food courts and cinemas with entertainment centers are gradually re-opening, it is clear how closely they are interconnected – their turnover depends on operating together.