Rank Organisation, according to most recent reports, is the front-runner to gain control of MGM after it submitted a bid thought to be close to pounds 200m. The seller is Credit Lyonnais, advised by SG Warburg.
Other interested bidders have included Michael Green's Carlton Communications, Sony Corporation and Electra Capital, which is backing a management buy- in. And Kerry Packer, the Australian media magnate, last week emerged as a late entrant. Richard Branson's Virgin Group appears to be out of the race, after it bid around pounds 150m.
But the appetite for large-scale cinema investment may have waned after disappointing attendance figures. Over the past 10 years, UK cinema audiences have grown rapidly. In 1994, attendances were up another 10 per cent, having risen 10 per cent the previous year.
Figures for the first quarter of this year tell a different story, however. After climbing 11.9 per cent in January on the same period a year ago, audiences fell 22 per cent in February and 33.3 per cent in March. For the first quarter as a whole, they were down 17.5 per cent. The decline continues, with the most recent figure for April, released last week, down 11.5 per cent.
So far this year, cinema attendance is running at an average of 2.14 million admissions a week, from 2.59 million a week in 1994. One possible scapegoat is the National Lottery. John Wilkinson, of the Cinema Exhibitors Association, says that scratch card punters have a similar profile to cinema customers, although he admits the link is unproven. But he is vehement the decline is temporary and more a result of a weak product than any fundamental change in audience taste. "The cinema business has constantly surprised us. No-one expected 1993 and '94 to be such strong years, but they were. Three months is a very limited period, and we are not disheartened by this trend."
Nick Adams, marketing manager for Rank Screen Advertising, is also adamant it is too soon to write off this year. He predicts that the release this summer of potential blockbusters Batman Forever, Judge Dredd and the third Die Hard production will rekindle audience interest. There is also the late autumn release of the new James Bond film.
New investment in smarter cinemas was crucial to the revival. Gone is the evening at the local flea-pit and a packet of popcorn. Now your local Odeon has anything up to eight screens. It will also have bars and other facilities to create a family occasion.
The changing fortune of British cinema over the past 20 years has been dramatic. In 1967, the UK public made 327 million cinema visits; by 1981, that had fallen to 84 million. The number of cinemas fell by more than half. It was the Americans who rode to the rescue in 1985, with the first multiscreen cinema, The Point in Milton Keynes, opened by American Multiplex Cinemas. Since then, 70 more multiplexes have opened, forcing the Odeon and MGM chains to upgrade and refurbish. The multiplex is also one of the key motives behind Rank's move. At a stroke it would become the dominant force, with almost 50 per cent of the market.
At present, MGM owns 120 traditional cinemas, with one or two screens, and 18 multiplexes in the UK and Irish Republic - or 25 per cent of UK box-office receipts. Rank has 300 screens, spread across 73 sites, or 20 per cent of ticket sales. With MGM, it can boost its share of the profitable multiplex sites, while selling less profitable one- and two-screen cinemas.
Rank has waited several years for this opportunity. It is ironic that its long-planned expansion may coincide with the first big decline in cinema audiences. The rise of video, and now the prospect of video-on- demand and CD-ROM, also threaten the cinema's share. Media hype surrounding new ways of delivering entertainment suggests the cinema's revival may be no more than a blip in its long-term decline. A recent Government select committee report reached a similar conclusion. Cinema going was the sixth most popular leisure activity in Britain - first was popping down to the pub.
Rank also has to contend with the Monopolies & Mergers Commission. Last October it produced a lengthy report on film supply in the UK. It found against all six leading exhibitors, saying they were engaged in restrictive practices with the leading film distributors.
Analysts say Rank must first strike a deal with the Office of Fair Trading, if it is to escape the attention of an MMC referral. Rank will not comment on its plans at this stage, but there are suggestions it has lined up a partner, to whom it will off-load surplus cinemas.
Analysts believe Rank has little to lose and much to gain from the acquisition. For a start, there is MGM's head office in London's West End, which would almost certainly be surplus to requirements.
Bruce Jones, a leisure analyst at stockbroker Smith New Court, says any deal for Rank should be earnings enhancing from the start. He notes Rank is also adept at operating within the restrictions of the competition regulations. Its purchase of a bingo chain last year was accomplished through the sale of some of the bingo halls. Likewise, its purchase of Mecca in the 1980s was only achieved by selling off parts of that business.