Written by RA10 from a question-by-question analysis of the AQA 7132 papers 2020-2025 and the v2.0 specification. This is not an official AQA paper and does not contain real exam questions.
Northlight Cinemas plc is the UK's third-largest cinema chain, with 96 cinemas and 4 800 employees, most of them part-time and aged under 25. Northlight's cinemas are mainly in shopping centres and retail parks. Its Chief Executive, Priya Nair, joined in 2023 from a hotel group.
Cinema audiences have not returned to the levels seen before 2020 (Appendix C). Many households now subscribe to two or more streaming services, and new films arrive on streaming platforms just weeks after their cinema release. Big blockbusters still fill cinemas, but there are fewer of them, and attendance at other films has fallen. Customers can easily compare prices on their phones and often book with whichever chain is cheapest. Northlight has raised ticket prices each year to cover rising energy and staff costs (Appendix A).
Food and drink now provide 38% of Northlight's revenue and earn a far higher margin than ticket sales, where around half of each ticket's price is paid to the film's distributor. Northlight's loyalty app has 2.1 million users and records what each member watches and buys. Cinema managers receive a bonus based on admissions at their cinema, and some have been criticised for running heavy discounts on weekdays to boost visitor numbers even when it reduces profit.
Front-of-house staff sell tickets and snacks, clean screens between films and deal with customers. Most work evenings and weekends on flexible contracts, which suits students. Pay is close to the National Living Wage, and labour turnover is around 70% a year. Northlight's customer satisfaction scores are below those of its two larger rivals, mainly because of queues at food counters on busy evenings.
Priya has introduced self-service ticket kiosks and app-based food ordering in all cinemas. Customers now order popcorn and drinks from their seats and staff deliver them. She plans to reduce the number of hours worked by front-of-house staff by 30% and to retrain some staff as 'experience hosts'. Some managers worry that the changes will reduce the number of shifts available to students, who make up 60% of the workforce, and that customer service will suffer.
Northlight's research shows that customers will pay much more for a premium experience: reclining seats, laser projection and immersive sound. Priya has proposed converting one screen in each of 40 cinemas into a premium screen. The forecasts are shown in Appendix B. Northlight's investment criteria require a payback period of no more than four years and an average rate of return of at least 10%.
The board is also considering two longer-term strategies (Appendix D). Option 1 - NorthLive: convert 15 of its larger cinemas into multi-purpose venues that show films but also host live comedy, music broadcasts, e-sports tournaments and gaming bars. Option 2 - Northlight Unlimited: launch a monthly subscription that allows members to watch as many films as they like for £17.99 a month, aiming to increase visits by existing and lapsed customers. Priya must present her recommendation to shareholders, who have seen the share price fall by 40% in two years. Priya told the board: 'Cinemas will not disappear, but we cannot just wait for audiences to come back. The cinemas that survive will be the ones that give people a reason to leave the sofa.'
| 2022 | 2023 | 2024 | |
|---|---|---|---|
| Revenue (£m) | 410 | 438 | 445 |
| Operating profit (£m) | 29 | 24 | 18 |
| Admissions (millions) | 31.2 | 32.0 | 30.1 |
| Average ticket price (£) | 8.90 | 9.40 | 9.95 |
Statement of financial position, 31 Dec 2024 (£m): current assets 62; current liabilities 88; non-current liabilities 310; total equity 240.
| Initial cost | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| £36m | £6m | £9m | £10m | £10m | £9m |
Figures are forecast additional net cash flows compared with keeping standard screens. Useful life of equipment: 5 years.
| 2019 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|
| UK cinema admissions (millions) | 176 | 117 | 124 | 121 |
| UK households with 2+ streaming subscriptions (millions) | 6.1 | 11.8 | 12.6 | 13.4 |
| Option 1 NorthLive | Option 2 Northlight Unlimited | |
|---|---|---|
| Investment | £45m (15 sites) | £4m (app and systems) |
| Forecast extra annual operating profit | £7.5m from Year 3 | £3m to £9m depending on visit frequency |
| Main risk | Northlight has no experience of live events | Heavy users may visit often while paying less per visit |
| Evidence | Two rival venues report 80% occupancy at e-sports events | A rival's scheme has 400 000 members |
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