Russia is set to become the sixth highest grossing cinema market in Europe with five years, according to a new research report.

Dodona Research's Cinemagoing Russia says that by 2007, box office is forecast to rise to US$400 million in response to the much-awaited modernisation of the Russian cinema sector.

"With a population of over 140 million, Russia represents one of the few untapped opportunities remaining for the cinema industry. The country is on the verge of a multiplex building boom, which will see the number of modern screens almost triple from the current level of 400," says Dodona.

The report identifies just five existing multiplexes - that is cinemas with five or more screens - all of which are located in Moscow. However, since 1998 the number of modern screens has risen from 17 to 250 in 2002 as numerous cinemas have been refurbished with new seating, sound and projection equipment and are considered to be modernised.

Box office revenues captured by the US studios have doubled each year since 1999, rising to US$84 million in 2002. In comparison the domestic industry is small, accounting for just 6% of the market, although the government is introducing measures to try and alter this.

The report's findings include a detailed look at the cinema sector in Moscow and St Petersburg where the most modernisation has taken place to date. A growing middle class with more disposable income is fuelling a race to build shopping malls and entertainment facilities across both cities. In addition to concession stands, cafes and bars, luxury VIP screens or areas are common features in modern Russian cinemas and can command ticket prices of up to US$11.00 compared to an average ticket price across the country of US$2.60.

However, despite the buoyant mood of Russian exhibitors who have seen box office soar again during 2003, the fledgling Russian market is not without its problems.

"The main issues for foreign entrants have been corruption and bureaucracy," says report author Katharine Wright, "but there are other difficulties such as complex leasing procedures, a different management style, and the fact that the regional governments all operate differently from each other."

It is due to such factors that only one foreign exhibitor has entered the Russian market so far. American exhibitor, National Amusements, through its joint venture with Paul Heth, opened its first multiplex in Moscow this month.

However, there are a number of Russian companies beginning to establish modern cinema circuits both in Moscow and other major cities. Some of these, such as Cinema Park, Luxor and Paradise Productions, are vertically-integrated with interests in distribution, as well as exhibition. Others such as InvestKinoProject and EPOS have attracted investment from Russian banks.

Other companies, national and foreign, are known to be exploring the market with a view to entry in the near future. "The Moscow market has shown exhibitors there is a demand for new cinemas." says Wright. "While the opportunities in other major cities may not be as large, they are certainly there for the taking."