When Scottish broadcaster STV sold the venerable cinema sales house Pearl & Dean to the owner of the Empire cinema chain last month for £1, there was one question everyone wanted to ask.
"I got all these emails saying, ‘you're not going the change the music are you?'" recalls Kathryn Jacob, Pearl & Dean's chief executive.
The firm's famous pa-pa-pa-pa signature tune stays - as do Jacob and her management team - but the deal marks a watershed for the cinema advertising market.
After selling to Image Limited - a new company formed by Thomas Anderson, the Irish owner of Empire Cinemas - STV has taken itself out of cinema, completing its strategy of shedding non-core assets to concentrate on TV and digital media.
More significantly, the gap has narrowed between the two rival sales houses in the cinema industry. When the deal completes on 1 July, the screen rights for the 146 Empire cinema screens will transfer from Digital Cinema Media to Pearl & Dean, boosting P&D's admissions market share from 34% to 40%.
"This is a good deal and it's good news for the cinema market," says Simon Willis, head of cinema at GroupM. "The sale secures the future of Pearl & Dean, which has some of the best executives in the industry, and the investment from Image will allow P&D to react more quickly to changes in the market."
Emma Hart, associate director at Starcom, says STV has struggled to offload the company for years. "Pearl & Dean was owned by a company that clearly had no interest in cinema whatsoever," she says. "Empire... will drive innovation across the company. At the moment, DCM is the driving force in innovation."
Martin Bowley, managing director of DCM, says the overall health of the market has more influence on the industry than the sale of its players, and believes exhibitors bringing advertising sales in-house is a positive development. "Prior to all this reshuffling [the exhibitors] were all at arm's length from the ad business."
Odeon and Cineworld created DCM in 2008 by forming a joint venture to buy Carlton Screen Advertising from ITV for £500,000, after CSA tried to renegotiate its screen rental contract. Similarly, P&D had an onerous screen-rental contract with cinema chain Vue, the principal reason for its £13m loss last year.
Contractual obligations
STV had tried to sell Pearl & Dean from September 2006, but George Watt, STV's chief financial officer, admits the Vue contract "put buyers off". Watt says: "[The contract] became particularly onerous when the cinema advertising market changed and the downturn hit."
STV has already paid Vue £17.6m for screen rental for this year and, under the terms of the deal, Image will pay STV £9.1m of the minimum income guarantee paid to Vue cinemas for the period from 1 May to 31 December 2010.
While media buyers are pleased by the sale, they say two bigger factors are transforming the market: converting cinemas to digital and 3D viewing.
About one third of cinema screens will have been converted to digital by the end of the year, and 35 3D films are scheduled for release in 2010, including the much-anticipated Harry Potter and the Deathly Hallows in November. Clients that have already experimented with 3D include Honda, Cadbury, Sky, Wrigley and the BBC, which produced a special 3D trailer to promote Dr Who.
As a sign of the times, Kathryn Jacob talked to Media Week from a train, en route to South-west Wales for the opening of Europe's first all-3D cinema, Apollo's six-screen complex in Carmarthen. She enthuses about digital's ability to "remove the curse of the long lead time"; clients will be able to book an ad on Tuesday and run it on Friday, rather than having to wait weeks.
On the potential of 3D, Bowley adds: "Here is a massive canvas where you can bring something to life and that's a big motivation. Advertisers were worried it would cost £100,000 to convert their ads to 3D, but they have been surprised to learn the price is closer to £40,000."
Bowley also points to the buoyancy of the market: admissions soared from 162.9 million in 2008 to 172.9 million in 2009, and ad revenue has followed the same trajectory. DCM's revenue for Q2 2010 is up 50% year on year, while overall cinema advertising spend rose from £171.1m in 2008 to £179.4m last year.
Bowley attributes this to a healthier economy, but is keen to champion the exceptional nature of going to the movies. Last week, he was in Leicester Square for the premiere of The Back Up Plan and noted - although the film was hardly a blockbuster - the massive crowds hoping to catch a glimpse of its star Jennifer Lopez.
"She appeared, and the crowd went bloody bonkers," he says. "There's something about Hollywood that people still love."