Nigerian cinemas are taking a beating from the rising cost of diesel and the lingering foreign exchange shortage in the country, even as the surge in inflation rate has shrunk the number of cinemagoers.
Akinsemoyin Daniel, a corps member serving in Lagos State, told BusinessDay that he has stopped going to the cinema because of the increase in the price of movie tickets and rising cost of living.
Omolara Feyisola, an entrepreneur who sells perfumes in Lagos, said she spent N9,500 at Film House Cinemas for one movie ticket including popcorn last week. As of 2019, a regular ticket would cost N1,000 while the premium tickets, which often come with 3D glasses, cost around N4,000.
BusinessDay reported last month that cinemas are among the worst hit by rising inflation in Nigeria as movie ticket prices had increased. Inflation rose to 19.64 percent in July, the highest the country has seen in almost 17 years.
As new films are released, experts are worried that rising ticket prices may drive many people away from cinemas. Many Nigerians are battling a sharp drop in their purchasing power. The World Bank projects that the number of Nigerians living below the poverty line will reach over 95 million before the end of 2022. This could mean more people prioritising basic necessities over entertainment.
In addition, the average cost of diesel at N744 per litre as of July 2022 contributes to the pressure cinema operators are facing, according to BusinessDay findings.
Since February this year, the cost of diesel has risen by over 150 percent, due to the jump in global crude oil prices, foreign exchange scarcity in Nigeria, and the country’s inability to refine crude oil internally. As of December 2021, the average price of diesel was at N289.
In the absence of sufficient electricity supply, most Nigerian cinemas are compelled to use diesel generators to power their operations. In view of the current cost realities of the product, most operators say this is not sustainable.
“The impact of diesel price currently is heart-breaking,” said Victoria Ogar, account manager at Film One Entertainment. “The cinemas are unable to maximise profits lately, basically reducing the hours of operations and opening late.”
Patrick Lee, a member of the executive council of the Cinema Exhibition Association of Nigeria (CEAN), said the problems threatening Nigerian cinemas include inflation, FX, government taxes, and the surging cost of diesel.
“The increase in diesel prices, government taxes and inflation has had a negative impact on our bottom line; we now have shorter operating hours and fewer employees,” he said. “There has been no increase in sales from July to August 2022, as a result of this effect.”
Despite the surge in costs, Lee said no cinema has been closed because of increasing diesel costs.
However, the operators are finding it very difficult and expensive to replace any equipment that is damaged. Some are finding innovative ways to solve some of these problems.
“The FX has created the problem of remittance for Nollywood movies that we have. The amount of money we are remitting to the studios is becoming less. This means that studios are giving us less money for publicity,” he added.
The slow revenue also affects the decisions that some foreign cinema investors make in Africa. Many are diverting their investments to other countries in Africa where they believe the return on investment will be favourable.
Notwithstanding, the Nigerian entertainment market still remains a favourite for many investors due to the size of the population and the growing internet penetration. Where cinemas lag, more money is now going into the video streaming market with the likes of Netflix and Amazon Prime jostling for which brand controls the largest share of the market.
According to Lee, there is a need for the government to ease taxes on cinemas. “Most of the taxes are remitted to state and local censors boards. There is entertainment tax and Value Added Tax (VAT).”
“They should provide us with subsidies to help the taxation that is so high and the VAT that has increased to 7.5 percent,” he added.
Jonathan Yakubu, chief financial officer of Silverbird Group and financial secretary of CEAN, said inflation had weakened purchasing power for customers, making them seek alternatives like streaming platforms.
Yakubu said the FX shortage is threatening operations for both Nigerian cinemas and its customers.
There was some silver lining, especially during the COVID-19 pandemic, with some landlords coming to the aid of operators in the way of granting a 30 percent waiver on rent. Most have returned to full rent payment.
Yakubu also noted that the cost of operation and power is going up, as power firms increased tariffs recently. In May, the Nigerian Electricity Regulatory Commission (NERC) approved the upward review of electricity tariffs. In a document of the commission shared, customers who paid N56.16/kWh in January 2022 will now pay N60.67/kWh. Cinema operators said they have seen a 65 percent increase in the cost of electricity.
“We cannot increase our prices because we want people to come to cinemas. Increasing prices will chase people away,” he said.
With the rise in inflation, the prices of popcorn, drinks, snacks, and food at the cinema have also increased.
“A bag of corn seed which is used to make popcorn was sold at N8,000 last year. Recently, a bag of corn seed has cost about N28,000,” he said.
He urged the government to provide incentives and give tax breaks.