The UK's cinema industry remains on track to deliver 200 million cinema-goers - and £1bn at the box office - by 2008, according to a new report from analysts Dodona Research.

The report put last year's drop of 8.5 million admissions down to the exceptional product line-up of the previous year rather than any underlying weakness in the market, stating that the 167.5 million admissions recorded in 2003 were exactly in line with the trend of 4% annual growth established over the last decade.

In addition, higher ticket prices and growth in revenues from sales of snack items, screen advertising and other sources such as ticket booking fees, meant that total industry revenues last year equalled the £901 million earned in 2002.

Detailed examination of audience and box office trends showed that the fall in attendance was among older, less frequent cinema-goers, as was also the case in the previous downturns of 1995 and 1998.

"It is an irony of the cinema business that the headline figures for the year are almost always determined by the most fickle customers," said report author Karsten-Peter Grummitt, "but the locomotive of the market - the cinema-goers who are delivering growth - is the increasing number of regular attenders."

Combined with a slowdown in the rate of new cinema construction, this audience growth means higher profits across the industry. Just eight new multiplexes were opened in 2003 and the total for 2004 is expected to be even lower.

Dodona points out that investment in new cinemas is highly cyclical - 54 new complexes were opened between 1988 and 1991, for example, compared to only 23 in the four following years - predicting that an upturn in openings from 2006 will support the continuing expansion of the market.

One market which is being neglected lies in smaller towns too small to support the big multiplexes the large circuits prefer to build. With no more than a handful of the UK's independent exhibitors having the financial resources or ambition to take advantage of these opportunities, on current trends cinema-going will become even more concentrated in larger towns and cities. More than 70% of Britain's 3,318 cinema screens are already in multiplexes, with less than 1,000 screens left in traditional, smaller cinemas.