While multiplexes have been growing at a consistent rate, adding 200 screens every year, single screens have been shutting down at twice that rate. From under 10,000 screens in 2011, there are now less than 9,000 singles in the country, where the multiplex industry has added more than 750 screens.
Total number of screens in India has reduced over the years as single screens are shutting quickly, whereas the growth in multiplex screen space has correspondingly not kept pace. If you compare the growth with Cinépolis, we have grown with a CAGR of 54 per cent over the last five years, which is a remarkable achievement.
As a company, we have been able to establish ourselves across all the regions in the country. The graph shows the distribution of our screens.
Single screen theatres face huge logistics issues. For instance, the issue of parking spaces and other entertainment and leisure activities combined with the outing experience. For a single theatre to capture maximum footfalls, they require blockbusters to pull the audience to the property.
A KPMG report suggests that while the metros and the national capital region contribute 60 per cent of total box office collections in India, they have reached a point of saturation and the next phase of growth is expected to come from Tier II and III cities. As of now, only a fourth of multiplexes are situated in the smaller cities.
The industry was estimated to grow at a much higher rate than the current growth, which holds true for Cinépolis as well. We are largely dependent on the mall developer to provide the right ecosystem and develop the multiplex. We have seen limited opening of malls in the country over the last few years, subsequently resulting in slower opening of multiplexes. Funding for the real estate industry has also been a major issue in the recent past.
Licensing and taxation is another major issue, for the industry. The authority regarding the licensing and taxation is not very clear between the central and the state government in the country. This adds extra bother to the exhibitors in terms of getting the license clearance on time.
We need to work more closely with real estate developers to create the right environment for the growth of the industry. We need to also principally get involved in the planning phase of all the projects. Also, shifting of all cinema licensing and taxation to the central government from the current system would help.
Getting permission to open a multiplex remains one of the biggest challenges for expansion in the exhibition sector. Several spaces are ready in various parts of the country, awaiting licenses to commence operations. We need more than 40 licenses to open a multiplex. Different states have different approval process to get these licenses. It is a major challenge for the industry.
The proprietors of single screen cinemas and multiplexes are trapped in a face-off between the authorities and the state government over the issue of licensing authority of the multiplexes. Attainment of permissions to open a multiplex remains a huge challenge in the sector’s expansion.
Currently, entertainment tax levy on food and beverage revenue is high in the entertainment sector. Lack of uniformity in tax rates across states adds to the tax burden of the exhibition industry. The entertainment tax at present ranges from 30 per cent to an astronomical 70 per cent across different states. With the new GST tax rate, multiple taxes will reduce to a unified tax regime. This will lead to alignment of our businesses across the country and eventually increase revenues.
Certainly, acquisition helps in multiple ways. It helps to expand and reach the territory at a much faster pace than organically, due to slow pace of new real estate players. Advertisers can reach more eyeballs across Tier II and III cities due to mergers and acquisitions, ultimately increasing advertising revenues.
It helps in creating a better value chain for consumers and distributors, helping them connect with each other easily in terms of releasing the content across regions. Another factor is the improved product mix that multiplexes implement after the acquisition. It adds more value to the combined entity than either individual company can produce on its own.
Multiplex companies present a picture of healthy consolidation as they have recorded a significant improvement in their revenues per screen per quarter and operating margins after expanding inorganically over the past three years. EBITA of multiplex player is equivalent to the share of advertising revenue. The merged entities do result in increased revenue and growth for the multiplexes.
It costs Rs.2.5 crore to build a new screen but the cost of acquiring a screen is at least three times higher. It requires more effort to establish the standard process across the acquired screen as we need to change the mindset of the operations team through extensive training programmes. Some players in the industry have to take a large debt to acquire screens, increasing their debt-to-equity ratio.