Market Research India - Multiplex and Single Screen Cinemas Market in India 2009

Multiplex and Single Screen Cinemas ‐
Multiplex and Single Screen Cinemas India
March 2009

Executive Summary

 Estimated to be worth INR 80 bn in 2008 and INR 108 bn in 2012
Market  Key Segments: Single and double‐screen cinemas and Multiplex cinemas
 Multiplex segment is growing while single screen segment is declining
 Southern Indian states together account for 59% of the number of theatres in India
 Drivers:
– Supply side: Growth in Film Industry , improving supply of real estate and favourable tax exemptions
Drivers &
– Demand side: Favourable demographics, rising income levels and willingness of people to spend on recreation
Challenges  Challenges: Uncertainty over entertainment tax, slowdown in economy, alternate entertainment
avenues, development delays and piracy

Characteristics Trends
 Seasonality  Producers bypassing distributors
Characteristics  Reducing shelf life of movies  Shift to digital cinema
& Trends
 Low screen density  Alternate content in multiplexes
 Increasing average ticket prices  Retail partnerships
 New format in single screen theatre
• Single screen segment : Highly fragmented and unorganized
• Multiplex segment : Dominated by five organized players
Competition
p • Major players in Multiplex segment: PVR, Cinemax, Inox, Adlabs and Fame
Major players in Multiplex segment: PVR, Cinemax, Inox, Adlabs and Fame
• Fierce competition in multiplex segment

MULTIPLEX AND SINGLE SCREEN CINEMAS – INDIA.PPT 2

•Market Overview
•Business Model
Business Model
•Drivers & Challenges
•Characteristics & Trends
•Competition
•Key Developments


Cinema exhibition comprises of single‐screen and multiplex
theatres, with the latter growing rapidly
Overview Market size & growth
• Key Segments INR bn
 Single and double‐screen cinemas 150 +10%
+8%
 Multiplex cinemas, i.e. three screens or more +14%
108
100 80
• Multiplexes account for:
62
 1% of the total number of cinema halls
50
 6% of total cinema screens in the country
y
• South Indian states together account for 59% of the 0
number of theatres in India 2006 2008 2012

Theatre distribution Growth of Multiplexes

Others Andhra Pradesh Screens
+20%
24% 21% 1,500 +14%
1,254

1,000 +35%
747
Uttar Pradesh 8% 19%
Tamil Nadu 410
9% 500
Maharashtra 9% 10%
Karnataka Kerala 0
2006 2008 2012


•Market Overview
•Business Model
Business Model
•Trends & Characteristics
•Trends & Characteristics
•Competition
•Key Developments


Operating models followed by multiplex operators

Model Description

Operator purchases land; constructs and fits out the
Ownership multiplex, and manages operations

Multiplex operator invests only in the fit‐outs and
Fixed Rental
Fixed Rental
manages operations paying rent for the premises
i i f h i

A variation of the “Fixed Rental Model”, lower rent is
Fixed Rental
Lease + Variable
V i bl
paid, which is compensated by sharing revenues
paid, which is compensated by sharing revenues
with the property owner

Leased Operator leases an existing theater, refurbishes it
Retrofits and converts it into a multiplex

Developer outsources operations or management to
Theatre
a multiplex operator for a fixed period of time and
a multiplex operator for a fixed period of time and
Management pays a fixed fee to the operator


Ticket and F&B sales contribute to bulk of revenues

Primary Revenue Primary Costs
Ticket Sales 50% Distributor’s Share 25%
F&B Sales 25% F&B Cost 15%
Advertising Revenue 8% Entertainment Tax 25%

Exhibitor
Secondary Revenue Secondary Costs
Parking Charges 15% Rent / Rev Share 10%
Management Fee 1% Overheads 15%
Convenience Fee 1% Personnel Cost 10%

Ticket Advertising Others Distributor F&B Taxes Rent Others

50% 25% 15% 8% 25% 15% 25% 10% 25%
2%
F&B Parking

Notes:
1. Management fee applicable only under Theatre Management Model wherein the theatre operator charges the developer usually a percentage of turnover
2. Convenience fee is charged to customers for booking tickets through channels such as Internet, mobile etc.
g g g ,
3. Rent / Revenue Share is applicable only in lease models and includes fixed rentals and/or revenue share


•Market Overview
•Business Model
Business Model
•Competition
•Key Developments


Drivers

Favorable Willingness of people
Rising Income levels
Demographics to spend on recreation

Demand Side

Drivers

Supply Side

Growth in Improving supply of
Tax Exemptions
Film Industry Real Estate


Growing film industry is the key driver for generating more
footfalls for film exhibition industry
Growing Film Industry Domestic film releases
• Indian Film Industry
 Estimated to be worth INR 96 bn in 2007 No. of films +14%
 Growth rate 13% p.a 1,146
1,200 1,020 1,016
 Largest in the world in terms of 934
– number of films released 750
800
– number of tickets sold
400 300
• 100% FDI now permitted in film industry
100% FDI now permitted in film industry
• Hollywood films are increasingly finding acceptance 0
in India 1997 2003 2004 2005 2006 2007

Hollywood films gaining popularity Investments in film production
Reliance Big Ent INR bn 50
Box office revenue (INR mn)
Zee Ent Studios 12
80 Number of films 77
Eros 10
60 55 Pyramid Saimira 5
UTV 3
40
25 Warner Brothers 2
18
20 Saregama 2
0 PVR Pictures 1
2005 2006 Mirchi Movies 1


Improving supply of quality real estate and entertainment tax
exemptions have helped in growth of multiplexes
Improving real estate supply Increasing organized retail space
•Presence of multiplex in malls is prevailing mn sq. ft
concept in cities 100 88
•Increased supply of organized retail mall 80
space has benefited the multiplex industry 60 54
40 33
20 17
2 7
0
2002 2003 2004 2005 2006 2007

Entertainment tax exemptions Entertainment tax benefits
•Many state governments policies offer State Year 1 Year 2 Year 3 Year 4 Year 5
entertainment tax holidays and benefits to Rajasthan 100% 90% 80% 70%

multiplexes Mumbai 100% 75% 75%
Maharashtra 100% 75% 75%
•This has encouraged:
•This has encouraged: (ex. Mumbai)
 Growth of new multiplex cinemas MP 100% 75% 50%
 Conversion of existing single screen theatres to Kolkata 100% NA
multiplexes Punjab 100%
UP 100%


Increase in disposable income has empowered the young Indian
consumer to spend on entertainment
Demographics & consumer spending Average household disposable income
•India has one of the world’s youngest INR
populations: 120,000 +4% 113,744
 Median age of 24 years 93,542
77,785
 Two‐third population is under 35 years of age 80,000 69,249
56,470
 Urban India accounts for ~30% of this segment
40,000
•Growing income levels and more households
Growing income levels and more households
in middle class is increasing aggregate 0
disposable income 1985 1990 1995 2000 2005
•Over the next 20 years, urban Indians are Annual spending on recreation
expected to spend more on recreation
expected to spend more on recreation
276
including entertainment Rural
16%
•Movies account for a big part of Urban
entertainment in India 119
26% 84%
•This will benefit multiplexes as they target the 50
young, middle class and high income groups 36% 74%
64%
residing in urban areas 2005 2015 2025
Note: Recreation includes consumer electronics sporting
Note: Recreation includes consumer electronics sporting
goods, electrical devices and entertainment


Challenges

Slow down in
economy
y

Uncertainty over
Uncertainty over Alternative
Alternative
entertainment modes of
tax entertainment
Challenges
g

Development
Piracy
delays


Growth of multiplexes is likely to be affected by economic
slowdown and withdrawal of  entertainment tax benefits
Uncertainty over entertainment tax
• Entertainment tax in India is among the highest in the world and varies from state to state
• Uncertainty looms over the viability of multiplexes after the tax free window expires
• Introduction of entertainment taxes will likely be passed on to the consumer thereby raising
ticket prices, which already high compared to historical prices at single screen cinemas

Slow down in economy
• The  growth of film exhibition industry depends on prosperity in the country leading to higher
discretionary consumer spend on entertainment
• Film exhibition industry is likely to record  a drop in occupancy levels on account  of slow down
in the Indian economy y
• A few multiplexes have resorted to price reductions of 12‐40 % in March 2009 in order to
reverse the drop in occupancy levels

Alternative entertainment avenues
• Films witness significant drop in occupancy during sporting events and festivals
• To combat drop in occupancy multiplexes are:
 Beginning to screen major sport events such as cricket matches
 Offering discounts and promotional schemes during the time of such events
g p g


Film piracy and development delays impede the industry

Piracy
• In India, typically 70 % of theatrical revenues is collected over three months during which time
piracy catches up and virtually nullifies any further theatre revenue potential
• Unlike the west, where online piracy is a huge factor, in India, physical piracy through video
rental shops and illegal DVDs accounts for a significant source of piracy

Development delays
Development delays
• Setting up a multiplex requires multiple clearances and licenses from different authorities in
addition to differing policies across states
• Delays in processing of clearances and licensing is a challenge for multiplex operators
• In the current economic condition, delays in mall development is a major concern for multiplex
operators since it has slowed down expansion plans of most leading players in this industry


•Market Overview
•Business Model
Business Model
•Competition
•Key Developments


Industry is characterized by seasonality and reducing shelf life of
movies
Seasonality of film exhibition sector Quarterly break up of revenues (%)
•Films releases are slowed down during school Q1 Q2 Q3 Q4
and college examinations
27% 28% 25% 20%
•Majority of the films are released in the May
to September period
•Therefore Q1 and Q2 are the most profitable
quarters for film exhibition as per the Indian
quarters for film exhibition as per the Indian Period of maximum releases and sales
Period of maximum releases and sales
fiscal year starting 1st April

Reducing shelf life of movies Weekly split of ticket sales (%)
•Shelf life of movies has reduced dramatically Week 1 Week 2 Week 3 Week 4
from a few months earlier to merely 2 weeks
2008 53% 25% 10% 12%
•By screening multiple shows, multiplexes help
maximize collections in the first two weeks
maximize collections in the first two weeks 2007 58% 24% 9% 9%
•In addition, schedules are modified to increase
screenings for popular movies 2006 55% 22% 10% 13%

•Further, producers are releasing DVDs within
two‐three months of theatrical release Maximum sales in 2‐week window


Low screen density and rising average ticket prices are indicators
for long‐term growth potential in this cinema‐obsessed nation
Low screen density Screens per million population
•The Indian film industry realizes about 85 % of UK 30
its revenues from box office collections as Belgium 43
compared with 27% for US film industry Germany 45
Spain 46
•Though the number of admissions is the Italy 52
Ireland 53
highest in the world,number of screens Denmark 61
available for Indian population, is relatively
p p , y France 77
low as compared with other countries US 117
India 12

Increasing average ticket prices Average ticket prices
• Low average ticket prices ( ATP) because of presence INR
of large number of single screen cinemas where as 60
+6%
53 54
multiplexes charge comparatively higher price for 51
50 45 47
tickets 41
39
• Increase in ATP with conversion of single screen 40
cinemas into multiplexes and construction of new 30
multiplexes 20
• Multiplexes are adept to maximizing revenues by 10
efficient screening of movies
efficient screening of movies
0
2001 2002 2003 2004 2005 2006 2007


Key Trends

Producers bypassing distributors

• Some large producers are now dealing directly with major multiplex companies like PVR Cinemas and BIG
Cinemas for distribution deals
• The trend, h
h d however, is llimited since d
d distributors are still crucial f a majority of urban and rural cinemas
b ll l for f b d l
including both – multiplex and single screen cinemas

Shift to Digital Cinema
• Digitalization of film exhibition industry enables producers to release their films simultaneously across the
nation including smaller cities
Trends • This helps producers expand their reach to smaller cities which traditionally experience delayed release of
films
• India is witnessing faster growth of Digital Cinema Initiative (DCI) in its multiplex sector than almost any
India is witnessing faster growth of Digital Cinema Initiative (DCI) in its multiplex sector than almost any
other country in the world today

Alternate content in multiplexes
• In order to make up for shortfall in content , multiplexes are switching to alternative content such as:
 World cinema
 Screening past Oscar winning films as part of a movie festival
 Sport events
 Regional films
Regional films


Key Trends

Retail partnerships

•Multiplex companies are entering into synergistic retail partnerships with established retail chains
•Inox's has partnered Coca‐Cola, McDonald's, Pantaloons, Shoppers' Stop, BPL and Seagram
•PVR has started retailing Starbucks products at its three multiplexes in Mumbai and Delhi and plans to
extend the arrangement across major metros in the future

Trends

New format in single screen theatre
•A new format has emerged in single screen theatre—the mini‐digital single‐screen theatre such as Broadway
at Navi Mumbai’s Ghansoli area
•These theatres have small screens and a capacity of 75‐100 people
These theatres have small screens and a capacity of 75 100 people
•With two new movies running, the chances of losing money on the theatres is minimized
•BPCL is planning to roll out two pilot projects at its petrol pumps in this format


Private equity investments have taken place in the industry but
are largely focused on multiplex segment
Private Equity firm Deal description
Daewoo Securities (Europe) Investment of INR 600 mn in Chennai based GV films. GV films plans to build an
integrated commercial complex called GV studio city across 23 tier‐II cities in Tamil Nadu,
the studio city will include multiplex with minimum 4 screens, a 60‐room hotel and
the studio city will include multiplex with minimum 4 screens a 60 room hotel and
shopping mall of international standards
Citigroup Venture Capital Investment of INR 50 bn in Pyramid Saimira Theatre Ltd
International
Pyramid Saimira Theatre Theatre chain company Pyramid Saimira Theatre Limited (PSTL) is planning to launch a
Limited private equity fund to invest in films. The fund plans to raise INR 2.50 bn initially
DE Shaw DE Shaw is investing close INR 2.4 bn in Gemini Industries and Imaging. With this equity
infusion, Gemini group plans to set up multiplexes in Tamil Nadu and Andhra Pradesh


•Market Overview
•Business Model
Business Model
•Competition
•Key Developments


Single screen segment is unorganized while multiplex segment is
highly organized and dominated by five players
Competition Number of screens multiplexes
•Single screen segment is highly fragmented 200
Number of Cinemas 175
with few owning more than one movie hall Number of Screens
150
•Five players dominate the multiplex industry
108
•Box office revenue breakup in multiplexes: 94
100
74 67
 50% from Hollywood movies 54
50
 Over 33% from local Hindi language movies
Over 33% from local Hindi language movies 26 25 27
15
•Occupancy levels 0
 Multiplexes :35‐45% PVR Cinemax Inox Adlabs Fame
 Single screen cinemas : 15‐25%
Footfalls and Occupancy ratio
Footfalls and Occupancy ratio
•Fierce competition in multiplex segment due
Occupancy
to attractive economics and growth potential mn %
Footfalls (mn)
 Leading players have major expansion plans 20 18 45 50
 Many new players are planning to enter this 35% 40
industry 15 13 30%
40%
30
10
6 6 20
5 10
0 0
PVR Cinemax Inox Fame


•Market Overview
•Business Model
Business Model
•Competition
•Key Developments


Key Developments

Date Development
PVR and Major Cineplex Group of Thailand entered into joint venture in the ratio of 51:49 to bring the global fashion‐
3‐Mar‐2009
bowling brand 'Blu‐O' to India.
Adlabs Films plans to invest about INR 1 bn to convert 300 of its existing 425 movie screens into digital format in the next
13‐Feb‐09
18‐24 months.
Big Cinemas, the multiplex chain of the Reliance Anil Dhirubhai Ambani Group (ADAG), expects to add around 50
2‐Jan‐09
properties, 140 screens in the next 15 months, up from 75 properties and 189 screens at present
Following a spate of requests from cinema theatre owners in the country, the Indian Premier League has decided to float
16‐ Feb ‐09
g
tenders to sell these rights for the 2009 IPL season
Multiplex chain Inox Leisure announced investments of over INR 4.5 bn in the next couple of years to put up additional
17‐Oct‐08
206 screens across the country
Network18 is planning to enter into movie theatre business. It is planning to open its first theatre in New Delhi and later
24‐June‐08 plans to have a nationwide presence.. Network 18 is already into film production, acquisition, syndication, marketing and
distribution business since 2006 thru’ Studio18
di t ib ti b i i 2006 th ’ St di 18


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Market Research India - Multiplex and Single Screen Cinemas Market in India 2009

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Market Research India - Multiplex and Single Screen Cinemas Market in India 2009