Currently, India has only seven screens per million people, China stands tall at 23 and is growing at about 4,000-5,000 screens annually. The US, which is the most mature market, is at 123 screens per million people.
India is one of the largest producers of movies, with more than 1,000 films being made annually. However, India is still an under-screened market compared to its counterparts, especially considering the number of films that release every year, including mainstream Hindi cinema as well as regional, Hollywood and speciality cinema. Lately, the market has been driven by content a lot more than it was a few years ago. An upsurge in the popularity of Marathi, Punjabi and even Gujarati films is a clear indicator of the abovementioned phenomena.
The main reason for lack of growth in India is the slow growth of retail infrastructure (especially malls). This is even more apparent in Tier II and Tier III towns. Since the growth rate is slow, the available retail infrastructure becomes very expensive to acquire. The other main reason is a very high entertainment tax structure in our country. The average entertainment tax payout in India for a multiplex operator is about 27 to 28per cent, whereas in China, cinema tickets are taxed at 10 per cent and in the US, it’s 10 to 12 per cent.
Our capital cost structure to develop a multiplex facility and the operating cost structure to run the multiplex and serve our guests tends to be more or less the same (except manpower cost). However, our ability to charge for our services is fairly restricted.
In India, the Average Ticket Price (ATP) is around Rs.87.5 (US$1.25), whereas in China it is US$5.80 and in the US, $8.43 (all figures for CY 2015). In addition, there are artificial restrictions in many states such as restrictions on the number of shows that can be played in a day/screen and the ticket price that can be charged. Moreover, rampant piracy remains our number one challenge and a staggering amount of revenue and jobs are being lost in India due to this. The part where we score over the other countries is the occupancy rate of our admissions.
Fortunately, we have a strong government at the Centre, with a clear mandate from the citizens, and with a decisive leader at the helm. There is a visible change in the government’s approach towards the film business and with GST becoming a reality in FY 2017-18, we hope a lot of entertainment tax and other tax related issues will subside.
We are regularly following up with the central and state governments for strict laws and committed enforcement with respect to piracy. In addition, many multiplex operators are closely looking at remodelling their economics in order to develop a product that can suit the taste and budget of Tier 2 and 3 towns and which can also be developed independent of malls i.e; on a standalone basis. We do believe that all of these factors will contribute to a much faster pace of growth, going forward.
Cinema is a state subject and heavily regulated by the state governments. While the rules and norms are fairly standardised in all states, the challenge is the red tape due to multiplicity of permissions or NOCs that an operator needs to secure to develop and launch a cinema. Many permissions are also required (on an annual basis) to operate the cinema, which means a lot of resources
need to be allocated for this purpose.
Additional restrictions that states impose (or can impose) on a cinema such as the restriction on the number of shows being played and capping the ticket price that can be charged are our other challenges and risks.
We operate both multiplexes as well as single screens as a part of PVR Cinemas’ chain. I must admit that there is a visible change in consumption pattern, where audiences prefer the choice and convenience of a multiplex vis-à-vis a single screen. This is putting pressure on the economic model of single screen theatres and as a result, there has been a consistent decline in the number of single screens over the last 10 years.
There are many single screens that have invested resources, on a continuing basis, in upgrading their cinemas in terms of projection, sound, screen, seats, lobby ambience, F&B offerings etc, along with improving their service standards in terms of customer safety and security, the cinema team’s training, cleanliness, friendliness and knowledge.
For many people, the experience of watching a wholesome entertainer on a giant screen cinema is still unmatchable. All such single screen operators, who have invested in upgrading their facilities and have improved their service standards, are being suitably rewarded by the cinema-going audiences.
As shared earlier, the biggest bottleneck for cinema exhibitors is the slow overall growth of retail infrastructure. The lack of growth is more apparent in Tier 2 and 3 cities. The other challenge is the high rate of power and high property taxes that cinema operators end up paying.
The main advantage of an acquisition or merger is optimisation of central overheads and other related costs.The other advantage to an operator is the size and scale one gains in the process. The size and scale has long-term advantages in terms of enhanced ability to improve product offerings and service standards, with a lesser per unit incremental cost.