The Odeon Videotheque Network in Budapest

The subject of this profile is formally a business company, Odeon Co Ltd. Indeed, in its operations and obligations (including taxation) it must behave like one. However, it represents of the characteristics of a not-for-profit cultural undertaing as well, having set some ideals which should have been abandoned long ago, if the only purpose was maximalisation of return after the invested capital.

Presentation

An increasing number of foreign visitors discover the attraction of Budapest, in addition to the usual offer for tourists. One can fit in an irregular experience of movie, by way of rest, into one's programme. Why is it an irregular one? Well, because such products of film art can be viewed by anyone in a comfortable environment in English, or even in French, as the case may be, which do not fall under the category of the commercial movies of the Hollywood film industry.

It can be done because in the few years following the change of the political system (1989), the administration of Budapest deemed it important and necessary to create such a network of cinemas which would primarily mediate the values of European culture, but would not forget about the representative pieces of overseas independent film either. The network was called Art-cinema network, which contains 11 institutions in the various, busy parts of the city. From an organisational point of view it may be of some interest, that the 11 movies of the network are run by different agencies. Fot our topic the four art cinemas, run by the Budapest Film Co. Ltd., namely the Mûvész, Puskin, Szindbád and Tabán, are of significance.

Surprising as it is, this network is able to compete with the series of multiplexes, also in respect of the standard of services.

The Art-cinema network tries to offer the experience of movie which was known by European culture before the evolution of consumer society. Thus a network, serving the tastes of certain strata, has emerged, which successfully caters for the taste of a well-defined audience. The experience, however, is limited to the capital.

Along the pattern and principle of this network of cinemas the Odeon network of videotheques was set up.

The Odeon story

The first Odeon videotheque was opened in December 1993 in Budapest, next to Duna cinema, in the heart of the city.

It was at that time that the owner, the Budapest Film Co Ltd (from now on: BF Co Ltd) reconstructed and renewed the cinema, and it was also at that time that the management of the film distributor and cinema operating company realised that there was also a need for the video editions of the films distributed. Up to that moment BF Co Ltd was not dealing with video editions and it had no right to do so as the company, set up in 1989, at first had to be consolidated in the area of film distribution. In four years BF Co Ltd already possessed a significant quantity of video rights, together with the movie rights hitherto purchased. What was left was only to further circulate these rights.

It is worth stressing, that this videotheque was not set up in the hope of rich returns, but out of the conviction that Budapest needed such a network of viedotheques as well, which serves the survival and protection of universal and national film culture, just as it is done by the network of Art-cinemas.

Later on, with the strengthening of BF Co Ltd, further rentals could be opened, and not only in its own Art-cinemas: in Tabán cinema in 1994-95, in the Corvin Film Palace in 1997 and in Puskin cinema in 1998.

All the four videotheques have a different character and atmosphere. The central one, which was the first in the capital, is unique in the face of others in that it opened not inside Duna cinema, but as a separate servicing unit next to the movie. This shop is considered as the topmost of all not only by its area (about 90 sq m), but also in its offer and in the number of its members, i.e. registered customers. Though the central videotheque has no café, the visitor can rummage the stock of cassettes and the piles of cultural periodicals comfortably seated on cane chairs. The remaining 3 videotheques constitute organic parts of cinemas, with various services (such as café, book shop), but the majority of those services are run by other organisations. Though the atmosphere of the four Odeons differs from one another, there is one feature common in all: they represent a quiet, peaceful corner in the noisy sweep of a metropolis.

 

Odeon videotheques	Size (m2)	Membership	Number of films (by kind)
Central	90	12 000	6 000
Corvin	45	3 700	4 000
Puskin	60	1 000	2 000
Tabán	25	2 000	4 500
Total	220	18 700	16 500

Members: The permanent circle of customers of the videotheque network consists of people, who, in addition to paying the hiring charge, also pay an annual membership fee.
Kind: The number of films by various titles; there may be several copies of certain films.

During the past six years attempts were made to develop the network in the countryside but with catastrophic results.

Some enthusiastic but amateurish videotheque owners applied for the distribution of Odeon's films as well, but their enterprising spirit abated after the experiences of a couple of months, and eventually they have almost totally disappeared from among the clientele of the network. It turned out that even such university cities, like Miskolc (of 180 thousand inhabitants), Szeged (167 thousand) and Pécs (163 thousand) would not be able to support a single Odeon videotheque. It had to be accepted that there are no 15 film fans in the short run, who would make up for the price of a cassette of a Fassbinder, or Fellini film (HUF 2700/piece = € 10/piece). The owners are of the view that if the publisher and the videotheque had to be operated under market conditions, in all probability the result would be disastrous. The micro environment, offered by the BF Co Ltd to Odeon in Budapest, is necessary to survival.

 

Ownership structure

The Odeon network of videotheques, Odeon Co Ltd, is owned by the BF Co Ltd and two private individuals.

As far as its economic form is concerned, it is a limited liability company, or limited corporation (like GmbH in Germany), which was set up in 1993, with a minimum equity, that is HUF 1 million (€ 3921) as stipulated by law.

However, the organisational structure of Odeon is a rather complex one, as described below:

The Budapest Film Inc (a company limited by shares, from now on BF Inc) was set up in 1989, thanks to the cultural lobby of the capital city, with the aim of supplying Budapest with high quality films through the network of Art cinemas. BF Inc has no legal obligation similar, for instance, to that of the centrally financed Hungarian Television, in other words, it is not obliged to perform public service functions. The fact that company management keeps in view public service interests, was, and continues to depend exclusively on the decision of the owners of the BF Inc.

The company limited by shares has set up several firms, this is how the Budapest Film Co Ltd (BF Co Ltd) was set up and engaged in film distribution and the running of cinemas. This company owns eight cinemas, of which four belong to the above mentioned network of Art movies. The second profile of BF Co Ltd is to purchase film, video and television rights for the company limited by shares. Thus the Odeon video publishing company organisationally belongs to BF Co Ltd. The BF Co Ltd primarily undertakes the distribution of European art films, and would purchase commercial films which can fit into its image only in the second place. Thus Odeon publishes such films as videos which are owned by BF Co Ltd, or were purchased only by them for some reason or another. BF Co Ltd has two affiliates as well, 30% of Cinema Star, its task being the distribution of Hungarian films which claim the interest of a larger public. The other affiliate is Kinowelt Hungary, which was set up in January 2000, a joint undertaking of BF Co Ltd and Kinowelt GmbH, expressly for the distribution of commercial films.

By and large BF Co Ltd is considered to be a profit-making company, but the film distribution branch produces losses on an annual level. Luckily this loss is compensated by the decent profit made by the running of the cinemas.

BF Inc has two more companies, one is Cine-Reál Co Ltd, with a profile of the sale of existing property and of advertisement, while the other company, the Uni-Multiplex Co Ltd undertakes the building of new cinemas.

Organisational structure:

Budapest Film Inc

Uni-Multiplex Co Ltd	Budapest Film Co Ltd	Cine-Reál Co Ltd
Building of new cinemas	Film distribution Running of cinemas	Utilisation and sale of existing property Advertisement

Odeon Video Co Ltd	Cinema Star	Kinowelt Hungary
60% BF Co Ltd 20% L. Ajkay 20% P. Bogdán	30% BF Co Ltd 70% Europa 2000	BF Co Ltd Kinowelt GmbH
Publication and lending of videos	Distribution of popular Hungarian films	Distribution of commercial films

 

Financing

Survey of the Hngarian video market

In the early 90s the Hungarian video market was in a more favourable position in many respects than it is nowadays, as it was at the beginning of the decade that video recorders began to spread in the majority of households. In addition, in those days the media market was still homogenous as there was no law on the media: no commercial television channels could be set up. Whereas the turnover of the Hungarian market for video has been decreasing during the past few years. Therefore it is not surprising that a keen competition ensued among the video publishers for the consumer. As a corollary, the competitors stubbornly keep back any information about themselves. The Budapest Observatory made efforts to provide a complete profile of Odeon, however, the company felt that they might become too vulnerable in the fierce competition if too many data are disclosed.

All in all, perhaps some important regularities could be revealed. For instance, it is a significant phenomenon of the last third of the 90s, among others, that despite the successful campaigns for winning over television viewers, more than half of the HUF 2.5-3 thousand million (cca € 1-1.2 million) income derived from the sale of cassettes to the population.

According to video publishers the legal video market has been badly harmed by the launching of commercial television channels in 1997, accompanied by the renewed growth of the black market. According to data collected by the Department of Art of the Ministry of National Cultural Heritage, last year the 19 publishers published the video version of altogether 738 films, but the turnover of the black market may be responsible for as much as 70% of the total income of HUF 2-3 thousand million. According to the data of the European Book of Video, the total turnover in Hungary was somewhat less than shown by the domestic figures, and was only HUF 2 thousand million (€ 750 thousand) last year, which is a fall of 13%, if compared to the previous year. On the other hand, the sale of cassettes to the population has been changing favourably since 1994. The value of the cassettes purchased by the population was almost at par with the value of films purchased by videotheques, that is the sum of HUF 1.5 thousand million (€ 590 thousand). Though last year the speed of growth was halted, this year growth is estimated to be around 30%. The reason of sale to the population representing more than half of the total sales is that the lending market has been at the bottom bedrock for years. On the other hand, the drastic growth of sales to the population can also be explained by the fact, that such chains of department stores have appeared in Hungary which have created possibilities of resale. With rapid growth we have almost reached the proportions of the European market, according to which sale to the population represents 58%. Yet the Hungarian situation cannot be compared to the Western one, as in Hungary only 5 out of 10 households have a video recorder, whereas in Western Europe 9 out of 10 possess one. The number of recorders limits the number of saleable cassettes. In addition, it should also be remembered, that the average price of HUF 2400 (€ 9.4) of a video cassette lags behind the price of CDs, whereas the price of the two would be more or less the same in the West.

The chairman of the Association of Hungarian Video Publishers stresses that the enormous offer of films in the wake of the commercial television channels, launched in 1997, caused about 30% drop in the turnover of video lending. The lending market has not been able to overcome this setback ever since: the number of cassettes sold to videotheques did not grow significantly even between 1995 and 1997, only by 17%, and it has been continuously decreasing ever since.

According to the unanimous opinion of video publishers the structure of the network of videotheques is also not adequate and black market practices, trying to mitigate the loss of turnover have again become excessively widespread. The videotheques try to keep their prices low, thus hoping to remain in the business. They purchase less films and acquire a significant part of their income by often lending illegal copies. Purchasers of cassettes would prefer animation films and are primarily interested in the Disney-productions.

This is the video market situation and these are the challenges Odeon also has to face. In 1993 a much more favourable market environment made it possible to set up the only video publisher and videotheque of Budapest, distributing art films, by the efforts of the municipality and of two private individuals. Péter Bogdán and Lajos Ajkay contributed to the setting up of Odeon by HUF 200 thousand each (€ 784), which sum, in those days represented a significant financial effort. The aim of the video publisher was to survive with the image represented by it in market competition. From a distance of six years it can be safely stated that it has succeeded with its aim. Though there was not much profit, the minimum goal of a zero balance has so far been achieved as Odeon never had losses which could not be compensated in the following year.

This result was also influenced by the fact that the videotheques did not only distribute author's films, as it was originally envisaged, but undertook the distribution of popular pieces as well. And why should it not do so as it was expedient to purchase video and television rights as well, in addition to movie rights if the films still fitted into the profile of Budapest Film. It is commonly known that the most secure investment in the case of purchasing films is considered to obtain all the three different rights by the same distributor. Thus, if a film is a failure in the cinema, the losses can be overcome by the utilisation of the two other rights. As it was mentioned earlier, BF Inc, 60% of which is owned by the capital city, has no such legally prescribed duty like the centrally financed Hungarian Television has, being obliged to perform a public service function. In this case it was the owners of the BF Inc to undertake an apparently public service image but meanwhile, as it is an economic organisation, they have to keep in view the requirements of the market.

Consequently the Odeon network, as an active economic organisation, has to report annually on the costs of operation, thus in this respect it has to make a financial statement to BF Inc, and to the municipality. It was repeatedly raised by the majority owner, that is by the capital city of Budapest, that Odeon Co Ltd, engaged in video publishing, may be wound up, but subsequently the cultural value of the institution has always gained the upper hand against economic considerations, thus it survives as one of the last strongholds of quality.

Though the video rental and publishing dominates only over 1-2% of the Hungarian video market, its activities are significant. Odeon is the only institution where a private individual can make his choice out of the masterpieces of film art. Unfortunately the network can only offer films, the rights of which it could purchase. Viewing entire oeuvres is not possible, as some pieces of an oeuvre may be owned by some other distributors. This deficiency is attempted to be counterbalanced by the organisation of a film club in a small cinema of BF Co Ltd for viewing of films not available in the videotheque, and selected by the vote of members.

The managers of Odeon strive to meet all demands, as they say they are extremely proud of all their clients. In their view what is most important is that everybody may find the film suited to his or her taste. This is only possible if about 60% of the stock of the lending service is made up of films of great demand. Thirty per cent of the films are art films, and the remaining 10% belongs to an in-between category. This one contains films which are neither purely authors' films, nor commercial ones. In the offer of an average videotheque 90% of the stock consists of films for mass consumption and the remaining 10% is shared by such in-between and art films.

Operational model: "Drowning by Numbers"

Odeon Video Publisher Co Ltd adds 30-40 new films annually to its stock. The major part of their films is purchased from the BF Co Ltd, because BF tries to acquire rights in a package, understandably, as rights purchased in a package cost less than buying them one by one. Usually the price of a film is between $ 2500 to 5000, the price containing the video rights as well. The upper limit may be as much as $ 50,000, though such a ware can be afforded by BF Co Ltd only in quite exceptional cases. Annually 8-900 copies are published of commercial films thus purchased, and 100-120 copies of art films. Some years ago they were still able to sell about 2000-2500 copies of commercial films, and 300-400 copies of art films. The difference between the two kinds of copies is so high because it has always been a loss-incurring business to sell art films.

In the case of publishing 1-200 films a return of cost could be achieved by the sale of 300-400 copies. According to the owners there is a loss of about HUF 300 thousand for each art film and only about 25% of the production cost of video copies can be recovered. Therefore nowadays the publication of the so-called 'arty-farty' films is financed by income from the popular commercial films. It is an unwritten rule that the cost of publication cannot go beyond 35-40% of the net return from the sales of the film!

Production cost of one copy calculated in HUF and in euro (€):

 

	HUF thousand	€
Purchase of rights	1 380	5 411
Purchase of muster from abroad	200	784
Cost of film-related publicity materials	10 - 14	39 - 55
Laboratory cost	3 - 400	1 176 - 1 568
Total	1 890 - 1 994	7 412 - 7 820

Structure of Odeon expenses in 1995 and 1999:

Type of expense	1995	1999
1. Purchase of video rights and production cost of copies	48.3%	46.4%
2. Wages and contributions	38.7%	39.6%
3. Overhead (rental of shops, water, electricity, telephone, gas)	11.2%	13.1%
4. Publicity	1.8%	0.9%
Total:	100%	100%

 

 

A few years ago the situation was much more promising, when the Ministry of Culture announced a competition for schools to purchase video films. The Ministry of Culture asked for a 'list of recommended films' from each publisher, of which it compiled the series of films for which applications were invited. The purchases by schools meant a serious income for Odeon for four years, but today this kind of state acquisition by the state has ceased to function and there is nothing similar in its place.

The fund for films, created by the European Union, Media-1, supporting the publication of art films, proved to be effective in 1994-1995. Unfortunately, the country could not join Media-2, because the Union did not admit Hungary into its fold, thus Odeon again lost a significant possibility of application. Actually Media-1 supported the publication of an author's film by about E 500-1000, which actually covered the losses. All in all, this support was to the tune of HUF 8 million (€ 31 thousand), in other words, it sponsored 20 films in 1994-1995. On the international level there the fund called Eurimage, with its headquarters in Strasbourg, is supposed to assist film distribution in the case of countries not belonging to the European Union. But no segment of this fund is accessible for video distribution, therefore Odeon cannot consider it. In Hungary it is the National Cultural Fund, which sometimes announces competitions, but these are occasional chances and represent annually maximum HUF 2-3 million (cca € 8 000 - 12 000) of support. Today the policy of Odeon is that it attempts to catch and utilise every tender which comes into its sight.

The main kind of help from the mother company takes the form of the premises being granted to Odeon at a lower price than the market one, in cinemas run by BF Co Ltd; but unfortunately the exact figures cannot be published as required by the owners. In the heart of Budapest, at present the rental fee of a shop is about HUF 200-300 thousand / m2 / year (cca € 800 - 1200). Naturally the fact that BF Co Ltd purchases the majority of video rights (80%) in a package, also means a great help, next they are purchased by the video publisher by a separate contract.

The price of these rights depends on the payment of a so-called 'minimum guarantee' + 30% of the net income. This is the sum to be paid to the original owner of rights.

Actually economic co-operation between the Odeon and BF Co Ltd is regulated by two contracts: one is about overhead and the rented premises, and the other one is about the purchase of the video rights of films. The first one obliges Odeon to pay all the overhead costs, and the sale and purchase of the video rights of films is also done at a market price. It is only the contract on the utilisation of rented premises which makes allowances against the actual market price (see above).

In the economic activities of Odeon the publication of videos and the lending of films are entirely separated: actually it is the lending fees paid by the almost 19 000 members of the videotheque which cover the cost of overhead, salaries, the rented premises, and the purchase of new films. The enterprise has to be self-supporting under such conditions, so far successfully. Hitherto the greatest loss of Odeon has been HUF 5 million, which was successfully compensated next year, this is why the managers of the business have been able to persuade the board of directors, otherwise deeply imbued with cultural values, about the annual balance sheets and about the necessity of plans.

Changes of the income of Odeon by types of activities:

Type of activity:	1995	1999
1. Video publication	59.1%	48.3%
2. Film lending	29.7%	45.7%
3. Running of café	0%
4. Application(s)	10.7%	5.4%
5. Other	0.5%	0.6%
Total:	100%	100%

Prices of Odeon video lending in the year 2000:

	HUF	€
Prices of cassettes for borrowers (art films - commerce ones)	2700-4500	10,6 - 17,6
Annual membership fee (student - adult)	1000-1700	3,9 - 6,7
Borrowing with deposit (cassette/occasion)	2000+250 / 24h	7,8 + 1,0 / 24 hours
Borrowing fee for one occasion with membership/piece/24h	190	0,75

Though circumstances have always obliged the managers of Odeon manoeuvre for survival, they have always had and continue to have plans, and as a result an Odeon café was established in Puskin cinema, which favourably influences the salesr of the videotheque as well. Financially the two enterprises have nothing to do with each other, the café is a separate economic unit, the rent of the premise, as contrasted to the rent of the videotheques, is adjusted to the market prices. Yet it is worth operating, because it produces some profit. Attempts are made at other services as well, like the sale of cultural periodicals, or the sale of tickets in the cultural sphere, yet in its experimental phase. Income deriving from these activities is infinitesimal, but their presence is all the more important.

Films are not only offered for sale to videotheques and private individuals, but also to companies for representative purposes. This service requires some additional editing, logo and best wishes of the company giving the cassette as a gift, which then can be presented in a decorative box. Not many business companies have used this opportunity so far, and they had no chance to do so, as the idea emerged only a couple of months ago. The ideal value of Odeon also contains the element of trying to give an opportunity and venue to a number of other cultural events. There are, among others, monthly exhibitions of artists in the Puskin cinema; here such artists who win the appreciation of the owners can show their works free of charge. In addition, there was a festival called 'Last Drop' organised last year for the first time when art schools, actors, singers, painters and fashion designers could meet and review one another's products. Further on, each year a competition is regularly held on the occasion of the gala when the Academy prices are distributed, and watched live by the competitors. In theory the event is an open one, anybody can join, but usually it is the team members, attached to one another by experience, who participate in it each year.

Operational structure "... a team is always needed"

An autonomous team is running the Odeon videotheque network, their relations are more of friendship and partnership than a hierarchical one resembling a feudal model. Presumably this is one of the reasons why, when entering any of the videotheques, the visitor is welcomed by a pleasant atmosphere. Each member of the team of 18 works full time, of them it is the two private owners, who are responsible for every business of Odeon. Three people are in charge of video publication and publicity activities, with the finances and all the administration of the network; 12 people serve the customers during the opening hours of the videotheques. One person of the 12 also deals with the acquisition of films and the work of the network is assisted also by a driver.

The wages of the employees lag behind the monthly income of gross 70 - 80 000 forints (€ 275 - 315), considered as medium salary in Hungary. Yet everybody works with pleasure in the Odeon. There is no salary for the thirteenth month either, but the owners try to supplement the low wages by other perquisites (lunch ticket, a certain number of free cinema tickets for movies operated by BF Inc). Many people have additional activities thus guaranteeing their livelihood.

The managers expect the employees to know the films in the stock of the videotheques so that they may be able to make recommendations to every interested client. Moreover, they have to be informed about the current news and behind-the-scene secrets of the film world as well. For this purpose they regularly view films and read professional papers, clearly not only out of duty in their job.

A bit of Odeon's future

In the coming two years Budapest Film is planning to increase the number of the already existing multiplex cinemas. The new complex is being built next to the Mammut shopping centre in Buda, where films will be projected in keeping with the profile of BF Inc. This is going to be the first multiplex of Europe where not only commercial films but art films will also be on the programme. An Odeon videotheque will also be located next to the movie rooms. The owners do not plan the development of further shops and of the network, as Odeon is unable to acquire a bigger piece of the video market. Even the opportunity of opening a new shop on the Buda side emerged only because there is only one videotheque in that part of the capital, and that too is not in one of the busiest parts, therefore the inhabitants of Buda have to come to the Pest side if they want to have some entertainment.

Hopefully the collection of 1% of the personal income tax would serve the further strengthening of the business from the year 2000 onwards. In Hungary every non-profit organisation may ask for 1% of the personal income tax of the taxpayers once a year. On that occasion the organisations, entitled to get that 1%, request the taxpayer by advertisements to give support. Earlier Odeon, as a Ltd company was not entitled to avail itself of that form of support. In 1998 Budapest Film transferred the Szindbád Foundation to Odeon so that the network may not have to set up a similar institution which could start collecting the 1% contributions only three years later (as stipulated by law).