2. 1
TABLE OF CONTENT
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EXECUTIVE SUMMARY 3
FDI VENTURE OBJECTIVES 4
RATIONALE OF THE LUGAR FDI VENTURE 4
THE LUGAR BUSINESS MODEL 5
AGREEMENTS AS PER FEBRUARY 12, 2015 7
ANNEXES 9
1. THE BHUTAN FILM INDUSTRY 10
2. LUGAR HISTORY 12
3. LUGAR DESIGNS 14
4. GOVERNMENT LETTERS ON RENOVATION, SCREENINGS AND TAXES 18
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3. EXECUTIVE SUMMARY
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2011 bhutan +partners the Netherlands drafted a report on the Bhutan Film Industry, written by Mr. Ad
Weststrate, film industrialist and Mr Henk de Jong, director bhutan+partners.
Recommendations (among others) were to create a state of the art cinema centre in Thimphu for the
screening of national and international quality films and to serve as a lab for upcoming Bhutanese film
makers, scriptwriters, technicians.
After a search for partners to build a new centre or to upgrade an existing cinema in Thimphu, two investors
from the Netherlands (Mr. Ad Weststrate, Cine City Group) and Belgium (Mr. Joost Bert, Kinepolis Group)
commissioned Mr Henk de Jong to investigate possibilities for the reopening of Lugar Theatre, the oldest
cinema in Bhutan, located in the heart of Thimphu city.
The document includes feasibility of reopening and profitable exploitation of Lugar for a period of at least 7
years during which national and international quality films will be screened and workshops and film festivals
will be organised.
Results as of now:
1. The owners of the Lugar are positive about a joint venture for the theatre for a period of tentative five
years
2. City corporation cleared renovation of the Lugar (see attachment)
3. BICMA, following the City Cooperation findings, will issue a screening license after renovation and
“fitness” clearing
4. A Foreign Direct Investment (FDI) application is being drafted and will be submitted to the Ministry of
Economic Affairs before February 20, 2015
5. The finance ministry exempted import taxes on materials and 30% entertainment tax for 2015
6. Cost calculations based on a revised renovation plan will require an investment of 25 million Nu, 350.000
Euros (attached)
7. The foreign investors intend to act as venture philanthropists and use their return on investment to further
develop and promote the Bhutan film industry
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The high entertainment taxes on foreign movies (30%) from 2016, the cost for lease of films ( 50- 60%) and
the the restriction of screening foreign movies in Bhutan cinemas to 20%(National Film Policy, 2014) affect the
viability of the Lugar venture in such a way that sustainability is at severe risk.
Talks with the government of Bhutan are expected to lead to solutions for the most urgent issues which are
screening of foreign movies and entertainment tax
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FDI VENTURE OBJECTIVES
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Goals
1. Enhanced Bhutan Film Industry through interaction of Bhutanese film makers with quality national and
international film productions, the organisation of an annual Bhutan International Film festival and 3 - 5
annual workshops/congresses, starting August 2015.
2. Establishment of a viable state of the art Multi Purpose Hall in Thimphu City as per October 2015
3. Create a sophisticated historic square in Thimphu City surrounding one of its oldest and remarkable
buildings to commemorate the diamond anniversary of His Majesty the Fourth King of Bhutan, opening
October 2015
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RATIONALE OF THE LUGAR FDI VENTURE
State of the Bhutan film Industry 2014
Main issues at this moment are the minimal revenues, cash flow and therefore limited investments in the
productions, theatres, innovation, education and international exposure.
The insufficient cash flow is mainly caused by a small audience: 15% of the Bhutanese visit a cinema 1 – 3 times
per year. 85% (particularly those with higher income) watch films on TV, DVD and screens abroad. For a country,
a ticket sale of 0.4 per inhabitant/year like in Bhutan is unusual compared to 2 tickets per person/year in the
Netherlands, 4.6 in US, 3.6 Korea, India 2,7. Annual global growth of attendance is 6%. China is the top grower of
36% revenues in 2012 (IP14-2013 cinema survey).
The film production in Bhutan decreased from 30 in 2012 to 13 in 2013 and 16 in 2014. Producers fear losses on
their investments, averaged at Nu.2 Million. Production costs by four filmmakers in 2012/2014 of 7 Million and
above, resulted in huge losses.
The revenues of Thimphu based cinema operators are minimal due to the system of renting out the hall to a film
producer for 5.000 Nu per evening. The net revenues are insufficient to invest in maintaining or upgrading the
cinemas.
The 3 Thimphu theatres with 700 seats over capacitate the demand, reason for some film producers to out rule
competition by renting the two Cine City halls at the same time, close one, and screen in the other.
The production of over 200 films since year 2000, an increased welfare and entertainment budget of a doubled
Thimphu population since 2000, 4 screens in Thimphu and protective regulations (assignment of screening of
movies by Bhutan Film Association to national producers, 30% tax on the screening of foreign movies and
limitation on foreign movies) has not lead to higher attendance, nor increased revenues for the filmmakers.
The increased entertainment budget of the Thimphu population that doubled over the past 15 years, is currently
used in restaurants, bars, karaoke bars, drayangs, home cinemas and holidays abroad. Comfort, socialising and
entertainment are key words for people to decide where their entertainment budget is spent and the Thimphu
movie halls are far behind competition offering, in general, modest quality films, often with copy/paste dialogues
and takes from India, Nepal, Korea, poor audio/visuals in a vicinity of low comfort and hospitality.
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The trend is that a few film directors will increasingly produce better and more expensive films, possibly in
collaboration with international producers and distributors for international screenings in cinema halls that
offer the best quality of comfort and audio/visual equipment. The share of local, low budget/low quality films
in the present Bhutan cinema halls will further shrink, unable to reach new audiences.
The conclusion is that the present number of seats in three movie halls is sufficient to cater for the screening
of local films. However as of today 85% of the population in Thimphu, tourists and visitors, will remain
untapped and out of reach for the existing cinema halls.
A good number of the untapped groups can be reached by offering good quality films, comfort and state of the
art audio/visuals. An increase of another 30% of the Thimphu population paying three tickets per year could
cater for an extra annual 90.000 tickets or 7.500 per month.
The renewed Lugar
The rationale to create a state of the art hall in Thimphu is to reach out to untapped audiences for film shows
and other events in a comfortable and safe environment that includes excellent quality films from all corners
of the world.
The renewed Lugar will be an inspirational and educational place for film makers to create movies, attractive
for international film festivals and international producers/distributors.
The Lugar will be equipped with modern techniques in sound, projection, lighting, ventilation, insulation and
heating to get out the best of any film that is shown in the theatre. The centre will screen several movies per
day and be the host to congresses, workshops and film festivals, managed by well-trained,trained staff, in
conjunction with foreign investors.
Part of the net profit and the return of the foreign investment will serve the Bhutan film industry by organising
masterclasses, conferences and exchange visits among national and international film makers .
The Lugar and its surroundings have the potential to re-create an atmosphere bringing back some of the old
glory of Thimphu in the 70's, were people strolled around, chatted in open spaces while enjoying cinema as it
was meant to be: accessible, adventurous, joyful and comfortable.
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THE LUGAR BUSINESS MODEL
General
1. reach out to the potential audience that does not spend entertainment budget in cinemas and to create a
film minded culture by offering first class films with state of the art projection, sound, comfort, safety and
hospitality
2. create an new audience of 30% of the Thimphu based inhabitants that visit the Lugar 3 times annually,
plus 10 - 15.000 short term visitors to attend one film in the Lugar by 2020.
3. screen two films per weekday during 4 days and three films during weekend days adding up to 700
shows per annum.
4. screen each film maximum 14 days in one or two daily shows (if blockbuster), max 50 films per year
5. realize average occupancy of 25% of the available 380 seats per show in year 1 to 35% in year 2019.
(63.000 to 90.000 tickets per annum).
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In addition the Lugar square will be developed into an attractive public space with terraces and a small
pavilion inviting people to enjoy first class food, drinks, cultural events and see the best films in town.
6. !
The initial investments for renovation of the Lugar, levelling the square and equipping the hall with seats,
projection, sound, screen will add up to 25 million Nu (350.000 euros)
Lugar Theatre will employ 15 - 20 fixed staff plus staff hired for events.
The Lugar business plan envisages full operation from 2016 and profits from 2018.
Year 1 and 2 will be more or less break even with little profit in the years thereafter. The company will remain
fragile in the first 7 years with limited budget to absorb unexpected expenses and maintenance costs.
Risk factors
1. the national film policy restriction of showing maximum 20% international films (par. 6 Strategies)
compared to 80% Bhutanese films limits the film screening to 20 films per year: 16 national films
(production 2014) plus 4 international films which is 40% of the annual Lugar screening capacity.
2. entertainment tax of 30% levied on international films will lead to a loss on the screening of foreign
movies as envisaged at the introduction of the tax.
3. ticket price too high for the targeted audience
Risk management
1. Lugar proposes to screen all Bhutanese movies produced per annum that responds to the Lugar profile
and adds value to the Bhutanese culture.
2. The international movies are qualitative productions that fit into the Bhutanese culture and the general
concepts of mutual respect and decency
3. One day per month Art house/talent day to screen non commercial shorts/docs/animations at a
reduced entry fee
4. The Lugar proposes an entertainment tax on ticket sales of maximum 15% out of which 5% will be
assigned to develop the Bhutan film industry. In addition Lugar will assign 5% of its revenues on tickets
to the development of the Bhutan film industry
5. The foreign investor will discuss with the future Film Commission which part of his share in the Lugar
company can be contributed to the development of the Bhutan Film Industry
6. The Lugar partners are in consultation with the Thimphu based cinema hall operators to discuss
different models of cooperation in order to maintain the screens and to raise revenues for the
necessary investments in the halls.
7. The screening capacity of the Lugar of 50 films per year will be used for the screening of new
Bhutanese productions for maximum 14 days, after which the films continue screening in other halls.
With an average of 15 national productions per annum, the remaining capacity needs to be used for
screening of international productions ( till such a time when quality Bhutanese film makes up the 50
films per year).
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Cost Calculations and detailed business plan are attached.
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AGREEMENTS AS PER FEBRUARY 12, 2015
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General
1. The owner of Lugar and the investors from the Netherlands/Belgium agree on the general goals of the
Lugar project as written in the assessment objectives chapter.
2. The expected financial investment by the foreign party is estimated at 350.000 Euros. Additionally the
foreign party will provide screening rights for international movies (at a revenue based contract), expertise
and networks.
3. The Lugar owner will bring in the land, the premises, networks and management of the venture during the
operational period, which will commence after opening of the theatre in October 2015 and, initially, last till
December, 31, 2022.
4. The shares are being calculated based on the investments, value of the properties and the projected
inputs and revenues during the operational period.
5. Design and development of the Lugar square will be brought under a different company.
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FDI
1. A detailed and approved business plan directs the targets, investments, exploitation and expected
financial outcomes for the Lugar management and the investing parties
2. Budgets calculations are being finalised before February 20, 2015
3. A Foreign Direct Investment (FDI) agreement is being drafted and will submitted to the Ministry of
Economic Affairs/RGoB before February 20, 2015. The FDI stipulates the goals, rights, obligations,
exploitation, division of profits between the two parties.
4. The negotiations on the Lugar project, including a detailed renovation plan, design, costing, FDI
application, business plan, approval to screen foreign movies and exemption/reduction on taxes will
continue till February 25, 2015 after which the final decision on a go or no-go will be taken, latest by
February 28, 2015.
5. In case of an agreement the renovation works will start from March, 1st 2015 and finalised latest by mid
September 2015
6. Re-opening is scheduled before Mid October, 2015
Rights
1. The screening rights for foreign movies will remain with the foreign investors to be leased out on a
revenue base to the Lugar company and Thimphu based, cinema owners at City Cinema and Trowa. This
group of four preferred partners will acquire the rights at the same conditions, yet to be negotiated.
2. Acquiring the rights from for foreign movies to be screened in Bhutan and approval for screening foreign
movies in Bhutanese theatres are, together with a profitable exploitation of the Lugar, considered as
crucial for a final agreement to this project.
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Management
1. Management of the renovation, including planning and budgets will be executed by Mr. Basant Chettri
and his company
2. Management of the Lugar exploitation after reopening will be executed by the Lugar Company. The
manager will receive adequate training in cinema business, including practicals, logistics, planning,
budgeting, marketing in the Netherlands in the course of 2015.
Financials
1. The estimated costs for renovation reach go up till 350K Euros and will be provided by the foreign
investors as a capital investment to be earned back up to 250 K Euros during the project period at a no-
interest base.
2. Government agreement on screening foreign movies is crucial for a profitable exploitation of the Lugar.
Tax exemption on import of materials and equipment to start the venture has been granted. Entertainment
tax has been exempted for 2015. Negotiations on entertainment tax and screening of foreign movies will
continue, the results of which will define the final decisions with regards to the joint venture.
Construction
1. Inspection by the Thromde (county) of Thimphu, indicated obvious and necessary reparations and
replacements of e.g. the ceiling, flooring, doors, to acquire the “fitness” license the Lugar). Construction
plans will abide to the renovation approval by City corporation.
2. The front square of the Lugar theatre will be converted into an open and convenient place for the public to
stroll and relax. For this matter the square will be beautified with seatings, trees and lights. The
development and exploitation of the square will be brought under a different company
3. Construction materials and equipments/facilities , including sound, projection, chairs, climate control,
ventilation, sanitation will be of excellent quality
4. The Lugar podium will disappear allowing space for a large screen.
5. A good number toilets will be installed to cater for the maximum of 390 visitors at a time.
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1. THE BHUTAN FILM INDUSTRY1
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Since 1990 Bhutan filmmakers so far has produced over 250 films, excluding documentaries and TV
series. About 200 people make a some kind of living in the industry, mainly through “commercial” films,
screened in the Bhutan cinemas. The (commercial) films serve a small part of the domestic market
segment; less than 15% of the Bhutanese regularly visit a cinema . The commercial producers, due to2
lack of expertise and low budgets, seem unable to attract an audience that care for top productions and
to enter the international markets.
The budget for a film vary from 20.000 - 30.000 US$ which in general can cover the expenditures.
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Bhutan is gaining international interest and popularity because of its brand (exclusive, authentic, GNH),
location/sceneries, stories and talented actors. Several documentaries and series made by foreign
producers, sometimes in collaboration with local filmmakers/crew, received enthusiastic reviews abroad
and have won international awards. Since 2010 a growing number of non-commercial shorts and
documentaries, made by Bhutanese, successfully enter international film festivals.
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In general it is concluded that Bhutan has a good potential to develop its film industry. Apart from
training and infrastructure, an overarching effort is required to develop a conducive environment and
culture that allows the industry to benefit from its potentials. Starting point is that the film sector is
considered as an industry to which market principles apply.
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From: Bhutan Film Industry report 2011, bhutan+partners1
Source: media impact report 20082
B4 G Expenditure Video * Gender Crosstabulation
47 35 82
7.5% 6.2% 6.9%
28 40 68
4.5% 7.1% 5.7%
9 14 23
1.4% 2.5% 1.9%
3 3 6
.5% .5% .5%
1 0 1
.2% .0% .1%
537 474 1011
85.9% 83.7% 84.9%
625 566 1191
100.0% 100.0% 100.0%
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
1 Less than Nu. 100
2 Nu.101-300
3 Nu.301-600
4 Nu.601-1000
6 More than Nu. 2000
7 Don't use
Expenditure
Video
Total
Female Male
Gender
Total
B4 G Expenditure Films * Gender Crosstabulation
61 53 114
9.8% 9.4% 9.6%
143 90 233
22.9% 15.9% 19.6%
44 31 75
7.0% 5.5% 6.3%
8 8 16
1.3% 1.4% 1.3%
1 1 2
.2% .2% .2%
2 2 4
.3% .4% .3%
366 381 747
58.6% 67.3% 62.7%
625 566 1191
100.0% 100.0% 100.0%
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
Count
% within Gender
1 Less than Nu. 100
2 Nu.101-300
3 Nu.301-600
4 Nu.601-1000
5 Nu.1001-2000
6 More than Nu. 2000
7 Don't use
Expenditure
Films
Total
Female Male
Gender
Total
Page 3
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Recommendations that derived from the Bhutan Film Industry Report, 2011 :3
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Formulate outlines for innovating and
strengthening Bhutan’s film industry
Done through the endorsement of the National Film
Policy, 2014
Foster the establishment of a Bhutan
National Film Institute
To be realised under the national Film Policy, 2014
Establish a Bhutan Film Fund for training
talented film professionals and supporting
innovative and potentially successful
productions
A Film Development Fund is to be created under the
National Film Policy, 2014
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Done: bhutan+partners registered the Bhutan Film
Trust in the Netherlands February 2015
(www.bhutanfilmtrust.org)
Create a Bhutan Cine Centre To be realised in 2015 by local and international
investors in collaboration with bhutan+partners
Bhutan Film Industry report, 2011, bhutan+partners3
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2. LUGAR HISTORY
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Construction of one of the very first cinema’s in Bhutan, Lugar theatre, started in the very heart of Thimphu
centre in 1969 copied from an Indian cinema hall on instigation of the the Royal Government of Bhutan.
Thimphu at that time counted 20.000 inhabitants, mostly engaged in Government institutions or small shops
located at Norzim Lam. The cinema opened in 1970 to screen Indian (Bollywood) 35 MM films on two
Westrax 14a projectors.
The films drew a large and enthusiastic public queuing up at multiple
shows per day for the most favourite blockbusters such as Seeta
aur Geeta (1972) and Sholay (1975) and enjoying the Hindi spoken
films in comfortable chairs from the main hall(620 seats), a large
balcony (200 seats) and two VIP boxes
The Lugar initially belonged to the Royal Grandmother who passed
over the cinema in 1978 to Ashi Pema Lhadon Wangchuck who
manages the theatre till date through her daughter Ashi Kezang C. Wangchuck..
Films were delivered till 2009 by an Indian distributor from Siliguri through the Motion Pictures Association of
India, located in Calcutta.
With the absence of TV and hardly any DVD player in the country the cinema appeared to be a good
business till 2000; the ticket prices in the only cinema in town were moderate, providing the Thimphu
inhabitants with a good outing and sweet memories.
After introduction of cable TV and DVD players in the late 90’s Lugar became history for many Bhutanese
who, from then, watched Hindi movies and series from their houses, shops or restaurants.
Almost simultaneously with the introduction of the TV, the Bhutan film industry evolved after Ugyen Wangdi
produced a highly popular tragic romantic film: Gasa Lamai Singye and Galem,1989.
13. !
During the first decade of 2000, 152 films were produced in Bhutan,
creating a demand for additional cinemas. While 2011 and 2012 were
marked as the most productive years in the Bhutan Film Industry with 30
films per year, the number of cinemas rose from one in 2005 to 25 in
2011.
The increased number of Bhutanese films, the availability of Hindi
movies on TV, DVD and internet and the taxes levied on import and
entertainment by international movies led to a lesser demand for
Bollywood films shown in Lugar, that finally closed its hall for foreign
movies by 2009. The Westrax projectors then became idle; new films at
DV, later HDV digital quality were screened from digital projectors.
From 2009 - 2012 the Lugar management rented out the cinema to Bhutanese film producers at a rate
between 3.000 Nu (50$) for matinee screenings till 8.000 (130$) for evening shows. Screening lots were
allocated to film producers through the Motion Pictures Association of Bhutan (MPAB). The Lugar
management since then only managed the hall. Major investments and renovations in the Lugar theatre were
not entertained since the opening in 1970: the original cinema chairs were replaced in 1995 by simple
wooden banks in the main hall and plastic chairs on the balcony. The ventilators were replaced by fans that
produced less noise, but also appeared to be less effective.
Meanwhile the city of Thimphu expanded from 20.000 inhabitants in 1970 to 100.000 in 2010 generating high
pressure on available land to be developed into shopping and housing complexes. The Lugar and its
surroundings became subject of land development plans from 2004. Since then areas encircling the cinema
were sold and turned into shopping complexes. Lugar and its front square were also designed to become
shopping areas.
Although he cinema initially drew more visitors after introduction of Bhutanese films, the conditions in the hall
led to such a torrent of complaints that the Bhutan InfoComm Authority (BICMA) could no longer extend the
Lugar screening license resulting in closure of the historic cinema in December 2012.
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3. LUGAR DESIGNS
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Lugar is situated at a square in the old heart of Thimphu, that has become a prime commercial area over the
past years. The square itself has been downsized due to construction of shopping malls, leaving the centre
with ample space for a park, or a site for concerts, performances etc. The designs below show the Lugar and
the front square in the re-development plan. Spaces in red belong to Lugar owner.
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