The group’s local filmed entertainment businesses comprise cinema exhibition, film distribution and home entertainment. Ster-Kinekor Pictures and Ster-Kinekor Home Entertainment both secure rights to distribute film content through exclusive and non-exclusive agreements with international film producers, whilst Ster-Kinekor Theatres exhibits the films through its various cinema sites across the country. By ensuring a steady supply of world-class entertainment, these businesses command formidable market share and during the year under review, contributed 37% of the group’s EBITDA (2001: 26%).

On the international front, the group’s cinema interests are in Ster Century Europe (40,6% shareholding) and Ster Century Middle East (50% shareholding). These investments produced equity accounted losses of R81 million (2001: R60 million), a material proportion of which was attributable to the devaluation of the Rand.

DIVISIONAL PERFORMANCE
Ster-Kinekor Pictures
Ster-Kinekor Pictures distributes films nationally to cinema exhibitors on behalf of a number of film studios, including Columbia, Disney and a number of independent film producers.

Ster-Kinekor Theatres
Over the last three years, Ster-Kinekor Theatres has made enormous progress in implementing its turnaround strategies and in re-establishing itself as a growth medium. Following its decision to close 20% of its circuit, coupled with a more cautious approach by other cinema operators to develop new multiplexes, the local industry is now in a far healthier state. The growth in domestic cinema admissions during the year mirrored trends in the US and the UK, which were up by 6% and 5% respectively. With its 60% market share, Ster-Kinekor Theatres increased attendances to 15,8 million during the year (2001: 14,7 million) achieved through good content and world-class loyalty initiatives such as the Movie Club and Vitality programme. The customer attendances per screen, following the closure of 20% of the capacity and the growth in attendances, improved by 17,4% to 46 500, compared to an industry average growth rate of 7,9% over the same period. Ster-Kinekor Theatre’s foremost strategy is to grow its attendances, which are well below the peak attendances of 19,5million achieved in 1998. Customer retention through the loyalty programmes and growth of the existing small base of black customers are key focus areas. Maintaining and building the newly launched and highly successful Indian cinema circuit, ‘Bollywood’, is also a focus. A cautious expansion into the rest of Africa on a low risk basis, through management contracts, is also being pursued with the first site in a pre-eminent shopping mall in Lusaka already secured.

Ster-Kinekor Home Enter tainment
Ster-Kinekor Home Entertainment holds joint market leadership in video and DVD distribution. It represents the major Hollywood studios, Columbia Tri-Star, Dreamworks and Universal Pictures and a number of independent producers and is the sole supplier of these studios’ products to video rental stores and major retail chains. In the distribution of interactive games, Ster-Kinekor Home Entertainment is the outright market leader, through its exclusive representation in South Africa of Sony PlayStation.

Cinema Club
In 2002, Ster-Kinekor Home Entertainment experienced excellent trading mainly due to increased sales of Sony PlayStation products as well as good growth in the retail DVD and video markets. The growth in the DVD market was largely due to increased awareness of the product and good content. Retail sales also benefited from the successful launch of the Cinema Club, through which older, high quality video titles are sold at very affordable prices. However, margins came under pressure due to turnover growth in PlayStation 2 and Cinema Club. Going forward, Ster-Kinekor Home Entertainment intends to capitalise on the competitive advantage developed over the last three years by further penetrating into the black market and other niche markets. It will also investigate the possibility of establishing a presence in other African countries.

Ster Century Europe
Following the recent disposals by Ster Century Europe of 135 of its 228 screens, it now operates 93 screens in eight multiplexes in Ireland, UK, Spain and Slovakia (the latter having been sold pending regulatory approval). Although overall attendance trends in the retained sites were well up on the previous year, they were below projections due to the delayed opening of certain cinema sites and audience levels falling short of expectations. Ongoing operational improvement programmes are being effected with the intention of optimising the sale of the remaining territories, which will be pursued in the 2003 calender year.

Ster Century Middle East
Ster Century Middle East operates 26 screens from four multiplexes in Abu Dhabi, Sharjah and Jordan. Initial trading has been disappointing and a detailed revitalisation plan to increase attendances as well as reduce costs has been put in place. In addition, the company has successfully renegotiated a number of its leases to improve profitability prior to considering a disposal of the business. The last and final site (seven screens) was successfully opened in Dubai in October 2002.

Ferdi Gazendam
Chief Executive Officer – Filmed Entertainment