Back in business

Standing apart from the crowd around the Bollywood actors invited to the reopening of Odeon Cinemas in Delhi, Anil Arjun, CEO of Reliance MediaWorks, felt a tap on his shoulder. It was a couple in their 70s. “It’s a lifetime experience we would never want to miss. The times have changed but our craze for movies hasn’t,” the couple gushed, mentioning that their first date happened to be at the very same Odeon, back in 1965, when they had come for the Shashi Kapoor starrer, Jab Jab Phool Khile.

For Arjun, August 14 this year was a big day: the 70-year-plus Odeon had reopened in a multi-screen avatar. Located in the capital’s Connaught Place area, this heritage property had been in trouble just a few years ago when the multiplex boom quietly took over the cinema business. Then, in 2006, BIG Cinemas of Anil Dhirubhai Ambani Group took over the Odeon’s lease. The makeover took three years and cost Rs 7 crore.

A trend that started a couple of months before that Friday in August, is being played out now: Multiplexes are back in business, recession or not, occupancies are rising and promoters are planning growth again.

A slew of movie releases over the next 7-8 months is expected to recharge multiplexes, which had been bruised in a two-month-long brawl with distributors this year over the share in box-office take. In July, movies such as New York, Kambakkht Ishq and Love Aaj Kal took occupancy to respectable levels (30 per cent). Operators are now optimistic about content coming in from large production houses.

“For a multiplex business to be viable there needs to be continuous flow of good content...the line-up for the rest of the financial year looks strong,” says Anand Shah, Research Analyst (Media), Angel Broking. With the return of Bollywood content, Cinemax India’s Senior Vice-President for Business Strategy, Devang Sampat, reckons occupancy rates could reach a peak of 40 per cent.

“Barring the first quarter of this year, when occupancy rates touched a low of 12-13 per cent, the average for the last 4-5 years has been 30-32 per cent. It is expected to go up this time …,” he says.

So, what are the growth prospects? India has fewer than 13 screens per million of the population, against 117 in the US, 52 in Italy and 30 in the UK. “There is a lot of absorption capacity for exhibition infrastructure and that clearly is an area of thrust for us,” says Arjun.

Almost all the major players are back with their expansion plans, looking at smaller towns and cities for growth. PVR Cinemas, with 108 screens across 26 multiplexes, plans to add 32 screens by March next year. INOX Leisure has 105 screens in 29 multiplexes today, and expects to add 165 screens by December 2011. The investment: Rs 350 crore.

However, industry experts view these projections with caution. “A lot of players who have earlier talked of adding so many screens by so and so date failed to do so,” says Shah, the analyst. “It is very difficult to scale up beyond 50 screens a year.”

Apart from new movie releases, most of the multiplex companies have reported sharp improvements in their bottom line during the second quarter by cutting costs. The biggest overheads for operators are rentals, electricity, staff salaries and marketing. Following the slowdown in consumer spending and a weak movie pipeline last year, many cineplexes renegotiated their rentals.

“Malls and multiplexes complement each other. Being an anchor tenant, multiplexes have better bargaining power than vanilla tenants. We have re-aligned our cost structure by rationalising rentals across several properties,” says Alok Tandon, CEO, INOX Leisure. Agrees Cinemax’s Sampat: “According to the new revenue sharing model, the minimum guarantee (MG) amount has come down from 18-20 per cent last year to 12 per cent.”

Typically, the box office fetches 65 per cent of an exhibitor’s revenues, food and beverages (F&B) 20 per cent, and advertisements 15 per cent. Of the ticket sales, after deducting entertainment tax, the distributor takes away 48 per cent in the first week and less later.

A multiplex makes its money from high-margin areas like advertising and the F&B business. “Currently, the average per head spending on F&B is at around Rs 30 (Rs 20 in non-metros and Rs 40 in metros). With right marketing initiatives, we expect this to go up to Rs 38 in the next six months,” says Sampat.

Arjun says BIG Cinemas is focussing on growing the share of cinema advertising, which has clear advantages for advertisers—they get multiple communication platforms, an engaged audience with a leisure mindset, and local, regional, and national reach. “Cinema advertising is currently at around Rs 80 crore… with the right reach, transparency and measurement we expect it to grow to around Rs 250 crore very soon,” says he.

As the multiplex business gains momentum in metros, operators are also extending their network into the non-metros. “While the mainstream commercial cinema might appear dominated by the Hindi language, Indian states, too, have their own regional cinema, which has a strong local appeal,” says Arjun. “Scale is a dominant factor that can enable the growth of the multiplex industry and consolidation is one of the means to achieve scale,” he adds.

Though traditional movie halls outnumber multplexes vastly, the legacy screens lag on the revenues front. “Multiplex screens constitute less than 10 per cent of the total screens (around 13,000), but account for nearly 40 per cent of the domestic box-office collections,” says Amitabh Vardhan, CEO, PVR Cinemas. That carrot is what is keeping multiplex chains jockeying with one another in the expansion race.