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Multiplex and Single Screen Cinemas India Multiplex and Single Screen Cinemas ‐ March 2009
Executive Summary
Market
Estimated to be worth INR 80 bn in 2008 and INR 108 bn in 2012 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:
Drivers & Challenges
Characteristics & Trends
Competition p
– Supply side: Growth in Film Industry , improving supply of real estate and favourable tax exemptions – Demand side: Favourable demographics, rising income levels and willingness of people to spend on recreation
Challenges: Uncertainty over entertainment tax, slowdown in economy, alternate entertainment avenues, development delays and piracy Characteristics Seasonality Reducing shelf life of movies Low screen density Increasing average ticket prices
Trends Producers bypassing distributors Shift to digital cinema Alternate content in multiplexes Retail partnerships New format in single screen theatre
• Single screen segment : Highly fragmented and unorganized • Multiplex segment : Dominated by five organized players 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
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•Market Overview •Business Business Model Model •Drivers & Challenges •Characteristics & Trends •Characteristics & Trends •Competition •Key Developments
MULTIPLEX AND SINGLE SCREEN CINEMAS – INDIA.PPT
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Cinema exhibition comprises of single‐screen and multiplex theatres, with the latter growing rapidly Overview
Market size & growth
• Key Segments Single and double‐screen cinemas Multiplex cinemas, i.e. three screens or more • Multiplexes account for: 1% of the total number of cinema halls 6% of total cinema screens in the countryy • South Indian states together account for 59% of the number of theatres in India
Theatre distribution
+10%
150
+8% +14%
100
Andhra Pradesh
80 62
50 0
2006
21%
Uttar Pradesh 8% Maharashtra
2008
2012
Screens +20%
1,500
19%
Tamil Nadu
500
+14%
1,254
+35%
1,000
9%
108
Growth of Multiplexes
Others 24%
INR bn
747 410
9% 10%
Karnataka
Kerala
0
2006
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2012 4
•Market Overview •Business Business Model Model •Drivers & Challenges •Trends & Characteristics •Trends & Characteristics •Competition •Key Developments
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Operating models followed by multiplex operators Model
Description Operator purchases land; constructs and fits out the multiplex, and manages operations
Ownership
Lease
Fixed Rental Fixed Rental
Multiplex operator invests only in the fit‐outs and manages operations paying rent for the premises i i f h i
Fixed Rental + Variable V i bl
A variation of the “Fixed Rental Model”, lower rent is paid, which is compensated by sharing revenues paid, which is compensated by sharing revenues with the property owner
Leased Retrofits
Theatre Management
Operator leases an existing theater, refurbishes it and converts it into a multiplex
Developer outsources operations or management to a multiplex operator for a fixed period of time and a multiplex operator for a fixed period of time and pays a fixed fee to the operator
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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 50%
Advertising Others 25% F&B
15% 8% Parking
Distributor F&B
Taxes
Rent
Others
15%
25%
10%
25%
25%
2%
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
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•Market Overview •Business Business Model Model •Drivers & Challenges •Characteristics & Trends •Characteristics & Trends •Competition •Key Developments
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Drivers Favorable Demographics
Rising Income levels
Willingness of people to spend on recreation
Demand Side
Drivers
Supply Side Growth in Film Industry
Improving supply of Real Estate
MULTIPLEX AND SINGLE SCREEN CINEMAS – INDIA.PPT
Tax Exemptions
9
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 Growth rate 13% p.a Largest in the world in terms of – number of films released – number of tickets sold
1,200
• Hollywood films are increasingly finding acceptance in India
Hollywood films gaining popularity 80
55
60
40 20
18
25
0
2005
2006
934
400
1,020
1,016
2005
2006
1,146
750
800
• 100% FDI now permitted in film industry 100% FDI now permitted in film industry
Box office revenue (INR mn) 77 Number of films
+14%
No. of films
300
0
1997
2003
2004
2007
Investments in film production Reliance Big Ent Zee Ent Studios Eros Pyramid Saimira UTV Warner Brothers Saregama PVR Pictures Mirchi Movies
MULTIPLEX AND SINGLE SCREEN CINEMAS – INDIA.PPT
INR bn
50
12 10 5 3 2 2 1 1
10
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 concept in cities •Increased supply of organized retail mall space has benefited the multiplex industry
mn sq. ft 100
88
80 54
60 33
40 20
2
7
2002
2003
0
17
2004
2005
Entertainment tax exemptions
Entertainment tax benefits
•Many state governments policies offer entertainment tax holidays and benefits to multiplexes •This has encouraged: •This has encouraged:
State
Growth of new multiplex cinemas Conversion of existing single screen theatres to multiplexes
Rajasthan
Year 1
Year 2
100%
2006
2007
Year 3
Year 4
Year 5
90%
80%
70%
Mumbai
100%
75%
75%
Maharashtra (ex. Mumbai)
100%
75%
75%
MP
100%
75%
50%
Kolkata
100%
NA
Punjab
100%
UP
100%
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Increase in disposable income has empowered the young Indian consumer to spend on entertainment Demographics & consumer spending •India has one of the world’s youngest populations: Median age of 24 years Two‐third population is under 35 years of age Urban India accounts for ~30% of this segment
•Growing Growing income levels and more households income levels and more households in middle class is increasing aggregate disposable income •Over the next 20 years, urban Indians are expected to spend more on recreation expected to spend more on recreation including entertainment •Movies account for a big part of entertainment in India •This will benefit multiplexes as they target the young, middle class and high income groups residing in urban areas
Average household disposable income INR 120,000
113,744
+4% 93,542
80,000 56,470
69,249
77,785
40,000 0
1985
1990
1995
2000
2005
Annual spending on recreation 276 16%
Rural Urban
50 36%
64% 2005
119 26%
84%
74% 2015
2025
Note: Recreation includes consumer electronics sporting Note: Recreation includes consumer electronics sporting goods, electrical devices and entertainment
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Challenges
Slow down in economyy
Uncertainty over Uncertainty over entertainment tax
Alternative Alternative modes of entertainment
Challenges g
Piracy
Development delays
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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 economyy • 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
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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
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•Market Overview •Business Business Model Model •Drivers & Challenges •Characteristics & Trends •Characteristics & Trends •Competition •Key Developments
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Industry is characterized by seasonality and reducing shelf life of movies Seasonality of film exhibition sector •Films releases are slowed down during school and college examinations •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 fiscal year starting 1st April
Reducing shelf life of movies
Quarterly break up of revenues (%) Q1
Q2
Q3
Q4
27%
28%
25%
20%
Period of maximum releases and sales Period of maximum releases and sales
Weekly split of ticket sales (%)
•Shelf life of movies has reduced dramatically from a few months earlier to merely 2 weeks •By screening multiple shows, multiplexes help maximize collections in the first two weeks maximize collections in the first two weeks •In addition, schedules are modified to increase screenings for popular movies •Further, producers are releasing DVDs within two‐three months of theatrical release
Week 1 53%
2008 2007
58%
2006
55%
Week 2 Week 3 Week 4 25% 24% 22%
10% 12% 9% 9% 10% 13%
Maximum sales in 2‐week window
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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 its revenues from box office collections as compared with 27% for US film industry •Though the number of admissions is the highest in the world,number of screens available for Indian population, is relatively p p , y low as compared with other countries
Increasing average ticket prices
UK Belgium Germany Spain Italy Ireland Denmark France US India
30 43 45 46 52 53 61 77 117 12
Average ticket prices
• Low average ticket prices ( ATP) because of presence of large number of single screen cinemas where as multiplexes charge comparatively higher price for tickets • Increase in ATP with conversion of single screen cinemas into multiplexes and construction of new multiplexes • Multiplexes are adept to maximizing revenues by efficient screening of movies efficient screening of movies
INR +6%
60 50 40
39
41
2001
2002
45
47
2003
2004
51
53
54
2005
2006
2007
30 20 10 0
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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 h trend, d however, h is limited l d since distributors d b are stillll cruciall for f a majority off urban b and d rurall cinemas including both – multiplex and single screen cinemas
Shift to Digital Cinema
Trends
• Digitalization of film exhibition industry enables producers to release their films simultaneously across the nation including smaller cities • 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
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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 These theatres have small screens and a capacity of 75 theatres have small screens and a capacity of 75‐100 100 people 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
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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 International
Investment of INR 50 bn in Pyramid Saimira Theatre Ltd
Pyramid Saimira Theatre Limited
Theatre chain company Pyramid Saimira Theatre Limited (PSTL) is planning to launch a 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
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•Market Overview •Business Business Model Model •Drivers & Challenges •Characteristics & Trends •Characteristics & Trends •Competition •Key Developments
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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 with few owning more than one movie hall •Five players dominate the multiplex industry •Box office revenue breakup in multiplexes:
200
50% from Hollywood movies Over 33% from local Hindi language movies Over 33% from local Hindi language movies
•Occupancy levels
Number of Cinemas
175
Number of Screens
150 108
94
100
74
50
26
67 27
25
54 15
0
Multiplexes :35‐45% Single screen cinemas : 15‐25%
PVR
•Fierce competition in multiplex segment due to attractive economics and growth potential Leading players have major expansion plans Many new players are planning to enter this industry
Cinemax
Inox
Adlabs
Fame
Footfalls and Occupancy ratio Footfalls and Occupancy ratio Occupancy mn 20 15
Footfalls (mn) 18 35% 40%
% 45 13
50
30%
40 30
10 6
6
20
5
10
0
0
PVR
MULTIPLEX AND SINGLE SCREEN CINEMAS – INDIA.PPT
Cinemax
Inox
Fame 23
•Market Overview •Business Business Model Model •Drivers & Challenges •Characteristics & Trends •Characteristics & Trends •Competition •Key Developments
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Key Developments Date 3‐Mar‐2009
Development PVR and Major Cineplex Group of Thailand entered into joint venture in the ratio of 51:49 to bring the global fashion‐ bowling brand 'Blu‐O' to India.
13‐Feb‐09
Adlabs Films plans to invest about INR 1 bn to convert 300 of its existing 425 movie screens into digital format in the next 18‐24 months.
2‐Jan‐09
Big Cinemas, the multiplex chain of the Reliance Anil Dhirubhai Ambani Group (ADAG), expects to add around 50 properties, 140 screens in the next 15 months, up from 75 properties and 189 screens at present
16‐ Feb ‐09
Following a spate of requests from cinema theatre owners in the country, the Indian Premier League has decided to float g tenders to sell these rights for the 2009 IPL season
17‐Oct‐08
Multiplex chain Inox Leisure announced investments of over INR 4.5 bn in the next couple of years to put up additional 206 screens across the country
24‐June‐08
Network18 is planning to enter into movie theatre business. It is planning to open its first theatre in New Delhi and later plans to have a nationwide presence.. Network 18 is already into film production, acquisition, syndication, marketing and di t ib ti b i distribution business since 2006 thru’ Studio18 i 2006 th ’ St di 18
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