Economic implications
Kempsey Cinema

The Macleay’s base population and the high start-up costs of developing a dedicated cinema complex don’t make the construction of a 4-screen commercial cinema complex in Kempsey viable, as a 100% privately funded business. This is why Kempsey does not currently have a cinema.

When Council investigated what was required to attract a cinema business to the Kempsey Central Business District two essential elements were identified to make the project viable:

  1. An experienced cinema operator with a proven track record and expertise in running cinema businesses in regional areas' and
  2. A landlord willing to partner with the cinema operator by investing in developing a suitable site for the cinema to operate from.

Through its business networks, an Expression of Interest process and negotiations, Council found two suitable potential partners who were willing to work together and who were both motivated to bring a commercial cinema complex to Kempsey. These partners and their interest in working with Council, are summarised below:

  • Gowing Bros – this company is motivated to invest in bringing a cinema to Kempsey to secure the future of its shopping centre by bringing more shoppers into the Centre, thereby securing the future of existing businesses leasing shops in the Centre. Gowings will be investing upwards of $2m in the project.
  • Majestic Cinemas – this company is motivated to invest in bringing a cinema to Kempsey due the economies of scale as they currently operating cinemas within the region and because of a recognised business opportunity. Majestic will be responsible for the internal cinema fit-out valued at upwards of $150k. Majestic will lease the cinema and manage its operations.

The willingness of Council, Gowing Bros and Majestic Cinemas to work together resulted in Council making a successful application for a $2m grant from the Federal Government’s National Stronger Regions Fund. Council has also resolved to provide a $2m loan to the project in order to match the Federal funding, to enable the $6.15m up-front construction costs to be met.

Council’s $2m loan will be provided to Gowings to enable the company to provide a rental concession to Majestic Cinemas. Majestic Cinemas will be paid an annual management fee, with a share of the profits above that to be used to repay the $2m loan back to Council over a proposed 10-year lease period.

The Kempsey community’s strong level of support for a cinema as evidenced through the community survey, suggest the cinema operations will make repayment of the loan viable. The ability of the cinema business to repay the loan will depend on the level of support the cinema receives from locals and visitors. Council’s market research of cinema industry attendance numbers, combined with the Macleay’s high tourist visitation rates (550,000 visitors per year) indicate this is possible.

If the community doesn’t support the cinema then Council risks of not having the loan of $2 million repaid.

Council’s view is that supporting a cinema development is no different than Council supporting a swimming pool, sports fields or any other facility that is valued and desired by the community. Historic revenues generated from a number of Council (community) owned assets, including Kempsey Regional Saleyards and Kempsey Airport, do not currently cover their operating costs, however Council continues to maintain these assets because of the ongoing benefits they provide not just to particular industry segments, but to the broader community through social and economic flow-ons.

This funding model means that as a Public Private Partnership, Council is currently working closely with the Office of Local Government to apply the highest level of scrutiny around the processes and relationships required to bring a commercial cinema complex to the Kempsey CBD.

As part of this process, Council seeks to inform the community in as much detail as possible without jeopardising the commercial negotiations currently in an advanced stage, about the financial model and associated risks that are typically part of any commercial venture.

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