West Australian Newspapers and Publishing and Broadcasting have offloaded Hoyts Cinemas to Pacific Equity Partners, losing $100m in the process.

Much as it might be in denial, cinema is a troubled sector, facing stiff competition from DVDs and illegally downloaded movies.

Television was going to kill cinema. “Why should people pay money to see a bad film when they can stay home for free and see bad television for nothing.” However, cinemas maintained their magic, offering a big screen, and the surround sound experience. But as technology has become better and cheaper, many western suburbs plasma screen fitted lounge rooms offer all that, coupled with a familiar chair and the freedom to fart or pause the film if needed.

Increasingly, many only go to a cinema for a blockbuster. “What we want is a story that starts with an earthquake and works its way up to a climax”. Cinemas became highly reliant on the arrival of biggies like Shrek and the Lord of The Rings trilogy, but as that output slowed, so did financial performance. When the movie experience loses its novelty, the offer becomes a commodity.

Some cinemas seem to be doing well. They offer a different or better experience involving bars, cafés, luxury seating or other add ons. The really big contributor to the Hoyts problem is the inward looking habits of the cinema sector when hiring management.

Most managers working in companies like Hoyts (along with Village and Greater Union, I suspect) have a career path that began selling chock tops and popcorn, moved up to ticket ripping and on through to management. Few have degrees. The industry tends to appoint from within, supported by a bit of poaching from the opposition.

As a recruiter, I know that candidates with a tertiary education are likely to have developed skills and habits that allow them to look beyond their own experience when making judgements. A tertiary education also develops an ability to synthesise, to see how seemingly separate information A and B can mean conclusion G. Broader work experience enhances the ability to innovate.

Training involving little more than ice creams and popcorn does not prepare anyone for the circumstances in which the industry finds itself. Hoyts has a woeful ability to innovate. The solution to any downturn is to do what was done last year, and bump up the candy bar prices and cut costs.

About five years ago, Hoyts seemed keen to move forward, and appointed a few talented outsiders. “We’re overpaying him but he’s worth it.” My company Orex was involved in some of this recruitment. Yet, although the leadership changed at the top, others with a long history in the industry effectively subverted the move to more talented and outward looking staff. The newcomers were thwarted, the gene pool was not diversified, and Hoyts reverted to its former ways.

The future of the industry? “…a definite maybe.”

All quotes from Sam Goldwyn.

Rob Lake publishes Brandish – a newsletter about retail intelligence.