197.

PROFILE ON THEATRE AND CINEMA

SERVICE
 197-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 197-3

II. SERVICE DESCRIPTION & APPLICATION 197-3

III. MARKET STUDY AND SERVICE CAPACITY 197-4

A. MARKET STUDY 197-4
B. CAPACITY & SERVICE PROGRAMME 197-7

IV. MATERIALS AND INPUTS 197-8

A. RAW MATERIALS 197-8
B. UTILITIES 197-9

V. TECHNOLOGY & ENGINEERING 197-10

A. TECHNOLOGY 197-10
B. ENGINEERING 197-10

VI. MANPOWER & TRAINING REQUIREMENT 197-15

A. MANPOWER REQUIREMENT 197-15
B. TRAINING REQUIREMENT 197-16

VII. FINANCIAL ANLYSIS 197-17

A. TOTAL INITIAL INVESTMENT COST 197-17
B. OPERATION COST 197-18
C. FINANCIAL EVALUATION 197-19
D. ECONOMIC BENEFITS 197-21

I. SUMMARY

This profile envisages the establishment of a cinema/ theater house with a sitting capacity
of 1,500 persons.

The market study shows that in Addis Ababa currently an additional 7 theater/ cinemas
are required. Moreover, to satisfy the demand for theatre/ cinema hall one additional hall
has to be built every two years.
.
 197-3

The total investment requirement is estimated at Birr 14.02 million, out of which Birr 2.2
million is required for equipment. The house will create employment opportunities for 24
persons.

The project is financially viable with an internal rate of return (IRR) of 27.14 % and a
net present value (NPV) of Birr 11.07 million discounted at 8.5 %.

II. SERVICE DESCRIPTION & APPLICATION

Cinema is a series of images that are projected onto a screen to create the illusion of

motion. Cinema is one of the most popular forms of entertainment, enabling people to
immerse themselves in an imaginary world for a short period of time. But it can also
teach people about history, science, human behavior, and many other subjects. Some
films combine entertainment with instruction, to make the learning process more
enjoyable. In all its forms, cinema is an art as well as a business, and those who make
motion pictures take great pride in their creations

Theatre is one of the oldest and most popular forms of entertainment, in which actors

perform live for an audience on a stage or in another space designated for the
performance.

In addition, the Cinema / Theater House can also serve as a meeting place for work
shops, seminars and other public gatherings.

III. MARKET STUDY AND SERVICE CAPACITY

A. MARKET STUDY

1. Supply and Demand

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Quantitative data on the number of existing cinema/ theatre houses (other than those
owned by the public ), capacity of halls, films screened and theater presented, number of
audiences in each cinema halls, the facilities existing in each halls, specific locations and
the like could not be found. The available data obtained from CSA publication deals only
with those administered by the public. In the absence of any other source, the data
obtained from CSA is presented in Table 3.1.

Table 3.1
NUMBER OF THEATRE/CINEMA HALLS,FILMS SCREENED,
AND NUMBER OF AUDIENCES (2006)

Owner Theatre/Cinema Films Number Of

Halls Screened Audiences
A.A City Administration 3 97 115,302
Cinema Houses Adm. Enterprise 3 172 1,502,285
Ethiopian National Theatre 1 49 10,069
Total 7 318 1,627,656

Source:- CSA, Statistical Abstract of Ethiopia.

As can be seen from the above Table as of the year 2006 there were 7 public owned
theatre/ cinema halls in Addis Ababa. During the same year the seven theatre/ cinema
halls in Addis Ababa has screened 318 films attracting 1,627,656 audiences.

Recently, three private theatre/ cinema halls has started operation in Addis Ababa, which
include Edamoll multi plax cinema hall with three cinema halls, Alem Cinema and
Sebestapol cinema.

Accordingly, the total number of theatre/cinema halls in the city is 10. However,
discussion made with relevant experts reveals the fact that social service facilities such as
cinema/theater houses are concentrated in the center of the city. Contrary to this, the
 197-5

facilities are lacking in the new expansion areas. In order to have a normal growth,
facilities should be well distributed all over the city. This on the one hand would help in
balancing the development of the city and meet the needs of the deprived areas on the
other hand.

Moreover, according to the same experts in order to efficiently serve one theatre/ cinema
hall is required for 200,000 persons. Accordingly, considering the present population size
of 3.4 million the city needs 17 theatre/cinema halls. Therefore, the present supply
demand gap is estimated at 7 theatre/cinema halls

2. Projected Demand

Assuming that the total population of the city grows at an average growth rate of 2.9%
and one theatre/ cinema hall serves for 200,000 persons the annual population increment
in the city and the theatre/ cinema halls required are shown in Table 3.2.

Table 3.2

PROJECTED POPULATION OF ADDIS ABABA AND NUMBER OF THEATRE/

CINEMA HALLS REQUIRED

Annual Number of Theatre/

Projected Increment Cinema Hall
Year Population of Population Required
2009 3,498,600 98,600
2010 3,600,059 101,459 1
2011 3,704,461 104,402
2012 3,811,890 107,429 1
 197-6

2013 3,922,435 110,545

2014 4,036,186 113,751 1
2015 4,153,235 117,049
2016 4,273,679 120,444 1
2017 4,397,616 123,937
2018 4,525,147 127,531 1
2019 4,656,376 131,229
2020 4,791,411 135,035 1

Accordingly, as can be seen from Table 3.2 to satisfy the demand for theatre/ cinema hall
one additional hall have to be built every two years.

3. Pricing and Distribution

Current price of cinema per person in Addis Ababa varies from Birr 3 to Birr 15
according to the location and the facilities of the enterprises. For this project Birr 7 per
person is recommended. With regard to theater the price varies from enterprise to
enterprise as well as the type of the theater to be presented. An average price of Birr 20
per person is recommended for the envisaged project.

B. CAPACITY AND SERVICE PROGRAMME

1. Capacity

Based on the outcome of the forecasted demand of cinema/ theater house, the envisaged
hall will have a capacity of 1,500 seats. The hall will provide both cinema (week days)
and theater (especially on week ends and holidays). Assuming that the hall will be used
three times for cinema during week days and one times during week ends (in the
morning) the total amount of cinema to be shown per annum is 884 making the total
persons entering to the cinema show 1,326,000 per annum at full capacity operation.
Assuming theatre will be shown in the hall in the week ends and holidays, the total
annual theatre show is 104 making the total persons entered for the theatre show 156,000
 197-7

per annum at full capacity operation. The hall will serve for two shift of 8 hours, each,
per day including weekends.

2. Service Programme

The proposed service program is given in Table 3.3. The service starts with 50% of its
full capacity and progressively grows to 75%, 90% and 100% in the second third and
fourth year and then after respectively.

Table 3.3

SERVICE PROGRAMME

Sr. Description years

1 2 3 4-10
No.
1 Cinema(no. of 1,326,000
persons) 663000 994500 1193400
2 Theater(no. of 156,000
persons) 78000 117000 140400
Capacity 50 75 90 100
utilizations (%)
 197-8

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The main material required for the provision of cinema and theater services are film
cassettes, cleaning consumables and costumes and make up for the theatre performers.
Rental cost of film cassettes and other materials required for the cinema and theatre show
are given on Table 4.1.

Table 4.1
COST OF RENT FOR FILM CASSETTE AND CINEMA / THEATER HALL

Sr. Description Unit requirement Annual Total

No. reqt. cost(Birr)
1. Cinema 500Birr/film/day 884 films 442,000
2 Theatre 10,000Birr/theatre/ 104 1,040,000
show
3 Ticket - 15,000 150,000
4. Janitor Ls Ls 100,000
consumables
Total 1,732,000
 197-9

B. UTILITIES

The major utilities requires by the hall are electricity, fuel oil and water. The estimated
annual requirement at full capacity and the corresponding cost is given in Table 4.2.

Table 4.2
ANNUAL UTILITIES REQUIREMENT AND ESTIMATED COST

Sr. Description Unit of Qty. Unit price Cost ('000

No. Meas. (Birr) Birr)
1 Electricity kWh 40,000 0.4736 18.944
2 Fuel oil (stand by lt 10,000 5.60 56.0
diesel generator)
3 Water m3 50,000 3.25 162.5
Total 237.444

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Service Process

Cinema and theater services are rendered to audiences at a specified time. The type and
time of show is posted on the main display board and audiences will come to the hall and
get the service at the specified time.

During the show and break time, both toilet and refreshment services are given to
customers in need.

There can be 15 to 20 minutes of gap between successive shows for entrance ticket
selling and cleaning and ventilating of hall. Entry and exit doors are separately arranged
in order to handle the flow of audiences in a convenient way.
 197-10

The service does not have any adverse impact on environment.

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment required for provision of cinema / theater services is
given in Table 5.1.

Table 5.1
MACHINERY, EQUIPMENT& TOOLS REQUIREMENT

Sr. Description UOM Qty Cost (‘000 Birr)

No. F.C L.C. Total
1 Film projector machine & its set 1 150 - 150
accessories
2 Adjustable film screen (supply and pcs 1 50 - 50
installation)
3 Decorative light system (supply & lot 1 80 80
installation) -
4 Public addressing system of lot 1 20 100
auditoria type (supply & 80
installation)
5 Fixed sofa with adjustable backrest seat 1500 1575 1575
and seat (supply and installation) -
6 Fire detection and protection system lot 1 40 40
(supply & installation) -
7 Electric driven stage curtain (supply pair 1 20 - 20
and installation)
8 Security check equipment lot 1 10 - 10
 197-11

9 Stand by diesel generator (11 KVA) set 1 - 110

with canopy attachment and control 110
system (supply and installation)
10 cafeteria facilities set 1 - 50 50
11 CD player pcs 1 - 6 6
12 Carpentry tool box set 1 - 3 3
13 Electrician tool box set 1 - 4 4
14 Retractable aluminum ladder (5 mt.) pcs 1 - 2 2
Grand Total 420 1780 2,200

2. Land, Building and Civil Works

The cinema / theater house requires a total plot of land of 2,000 m2 area out of which
1,500 m2 area is the indoor built -up area which is the cinema / theater hall (seat area,
walk ways, reception, administration offices, stage, store, dressing rooms & lockers,
toilet and bath rooms, projection room, ticket room). The indoor civil work also includes
balconies, sound proof wall finishing, window curtain and AC system.

The remaining 500 m2 area is the out door built -up area which includes the public toilet
(80m2), cafeteria (100 m2), generator house (20m2), parking lot and walk ways (260m2)
& fast food shops(40m2).

Assuming an indoor construction rate of Birr 2300 per m 2 for the Cinema hall and Birr
1000 per m2 for the outdoor building and civil works, the total cost of construction is
estimated Birr 4,508,000 and Birr 1,340,000, respectively.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
 197-12

however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city governments depending on the level of development.

In Addis Ababa the city’s Land Administration And Development Authority is directly
responsible in dealing with matters concerning land. Accordingly, the initial land lease
rate in Addis Ababa set by the Authority based on the location of land is as shown in
Table 5.1.

Table 5.1
INITIAL LAND LEASE RATE IN ADDIS ABABA

Sr. Land Initial Price in

No Location of the land Grade m2
1 Central Business zones 1 1167.3
    2 1062.9
    3 916.2
    4 751.5
    5 619.2
Places That are Under
2 Transit 1 716.4
    2 647.1
    3 559.8
    4 472.5
    5 384.3
3 Expansion Zones 1 245.7
    2 207
    3 150.3
    4 132.3

Source; Addis Ababa City Land Administration Authority

 197-13

As can be seen from Table 5.2 the initial land lease rate ranges from Birr 1,167.3 to
132.3 per m2 .

Currently, most of the theater and cinemas in Addis Ababa are located on the central
business zones of the city. Therefore, places under transit and expansion zones are
recommended as the best locations for the project. Accordingly, the average of the
highest land lease rates in places under transit and expansion zones which is Birr 481.05
m2 is adopted.

The Federal Legislation on the Lease Holding of Urban Land legislation has also set the
maximum on lease period and the payment of lease prices ( See Table 5.2 and Table
5.3.)

Table 5.2
LEASE PERIOD

Lease Period
Type of Service ( Years)
Residential area 99
Industry 80

Education, cultural research health, sport,

NGO and religious 99
Trade 70
Urban Agriculture 15
Other service 70

Table 5.3
LEASE PAYMENT PERIOD
 197-14

Period of Payment
Sr. According to the Grade of
No. Service Type Towns
Private residential are obtained
1 through tender or negotiation 50 - 60 years
2 Trade 40 - 50 years
3 Industry 40 - 50 years
4 Real estate 40 years
5 Urban Agriculture 8 - 10 years
6 Trade and social service 40 - 50 years
7 Others 40 years

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%. For those that pay the entire amount of the lease will receive 0.5% discount from
the total lease value and those that pay in installments will be charged interest based on
the prevailing interest rate of banks. Moreover, based on the type of investment, two to
seven years grace period shall also be provided. The lease price is payable after the grace
period annually.

Regarding, the terms and conditions of land lease the Addis Ababa City Government
have adopted Article 6 of the Federal Legislation with very minimal changes. Therefore,
for the purpose of this project profile since the project is engaged in social service , 99
years lease period, 50 years lease payment completion period, 5% down payment and
seven years grace period is used.

Accordingly, the land lease cost of the project, at rate of Birr 481.05 per m 2 for 99 years
of holding is estimated at Birr 95.25 million. Assuming 5% of the total cost ( Birr 4.76 )
will be paid in advance as down payment and the remaining Birr 90.49 million will be
paid in equal installments with in 50 years, the annual lease payment is estimated at Birr
1,809,710.

VI. MANPOWER AND TRAINING REQUIREMENT

 197-15

A. MANPOWER REQUIREMENT

The total manpower requirement, including skilled and unskilled labour is 24 person and
corresponding total labour cost, including fringe benefits, is estimate at Birr 347,250
Table 6.1 show the list of manpower required and the estimated annual labour costs.
 197-16

Table 6.1

MANPOWER REQUIREMENT & LABROUR COST

Sr. Job Position Req. Salary (Birr)

No. No. Monthly Annual
1. General manager 1 5,000 60,000
2. Secretary 1 1,000 12,000
3. Head, finance & administration 1 3,500 42,000
4. Sin. electrician 1 1,500 18,000
5. Finicial clerk 1 650 7,800
6. Electrician 1 1,000 12,000
7. Technician 1 1,000 12,000
8. Driver 1 600 7,200
9. Cashers 2 1,400 16,800
10. Cleaners 6 2,400 28,800
11. Store keeper 1 600 7,200
12. Guard 4 2,000 24,000
13. Labourer 2 700 8,400
14. Film project operator 2 1,800 21,600
Total 24 277,800
Workers benefit (25% of BS) - 69,450
Grand total 24 347,250

B. TRAINING REQUIREMENT

Film operators, electricians and technician need to get local tailor made training and
attachment training at similar centers. The cost of training is estimated at Birr 20,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the cinema/ theater project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
 197-17

Bank interest 8.5%

Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
14.02 million of which 13% is required in foreign currency. The major breakdown of the
total initial investment cost is shown in Table 7.1.

Table 7.1
INITIAL INVESTMENT COST

Sr. Cost Items Local Foreign Total

Cost Cost Cost
No.
1 Land lease value 4,762.4 - 4,762.40
0
2 Building and Civil Work 5,848.0 - 5,848.00
0
 197-18

3 Plant Machinery and Equipment

420 1,780 2,200.00
4 Office Furniture and Equipment 100.00 - 100.00
5 Vehicle 450.00 - 450.00
6 Pre-production Expenditure* 456.3 - 456.34
4
7 Working Capital 205.2 - 205.26
6
  Total Investment cost 12,242.00 1,780.0 14,022.00

* N.B Pre-production expenditure includes interest during construction ( Birr 336.34

thousand ), training ( Birr 20 thousand) and Birr 100 thousand costs of
registration, licensing and formation of the company including legal fees,
commissioning expenses, etc.

B. OPERATING COST

The annual operating cost at full capacity operation is estimated at Birr 3.01 million
(see Table 7.2). The major components of the operation cost are material and input,
depreciation and cost of finance which account for 57.40 %, 9.98% and 9.59%
respectively. The remaining 23.03 % is the share of utility, labour direct, repair and
maintenance, labour over head and administration cost.

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Material and Inputs
1,732.00 57.40
Utilities 237.44 7.87
Maintenance and repair
110.0 3.65
 197-19

Labour direct 166.7 5.52

Labour overheads
69.5 2.30
Administration Costs 111.1 3.68
Land lease cost - -
Total Operating Costs 2,426.7 80.43
Depreciation 301.3 9.98
Cost of Finance 289.2 9.59
Total Production Cost
3,017.19 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 376.95 thousand to
Birr 4.08 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 32.39 million.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yard
stick for evaluating the financial position of a firm. It is also an indicator for the strength
and weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.

2. Break-even Analysis
 197-20

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point of the project including cost of finance when it starts to operate at full
capacity ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 21 %
Sales – Variable Cost

3. Payback Period

The pay back period, also called pay – off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
project’s initial investment will be fully recovered within 4 years.

4. Internal Rate of Return and Net Present Value

The IRR of the project which is the discounted rate at which the present value of cash
inflows is equal to the present value of cash outflows or in other worlds the discount rate
for what the present value of the net receipts from project is equal to the present value of
the investment is computed to be 15.06%.

Net present value ( NPV) which is defined as the value obtained by discounting, at a
constant interest rate and separately for each year, the difference of all annual cash
outflows and inflows accruing through out the life of the project, this differences is
discounted to the point at which the implementation of the project is supposed to start, the
NPV obtained for the years of the project life are than added to obtain the NPV.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 11.07 million..

D. ECONOMIC BENEFITS
 197-21

The project can create employment for 24 persons. In addition to supply of the domestic
needs, the project will generate Birr 7.30 million, per annum in terms of tax revenue.