Up till now, Bollywood has largely been recession proof, a point proven repeatedly ever since the Great Depression of the 1920s. It seems that economic tumult brings out the inherent escapism in all and sundry and movie ticket sales skyrocket during bad times.
The story has turned chilling this time round, at least in India. Big Cinemas has incurred a net loss of Rs 8.77 crore in Q3 FY09, a drastic fall compared to net profit of Rs 2.20 crone in Q3 FY08 (figures are only for the theatre business).
The other leading cinema chain PVR too is breathing heavily. Its net profit has declined by a whopping 68 per cent the latest quarter. Ask the company and they blame it on the one time deferred tax payment made during the time.
But even after adjusting for this amount, their effective net profit has dipped by 23.4 per cent. Now given that these two are the biggest players in the Indian multiplex market, cornering a chunk of the about 700 screens in the country, the drops in profitability speak volumes about the slowdown effect.
But there’s more to these depressing numbers than meets the eye. Pramod Arora, group president, PVR Ltd., is at pains to dismiss the theory that it is the slowdown effect which is spilling red on their balance sheets.
“If you ask whether the slowdown has affected my occupancy, I would say No. Has it affected my ticket prices ? Not really, because my average ticket prices (ATP) remain the same,” he says, clarifying that “Instead it is the fear of terror attacks and the IPL tournament that have hugely impacted my business.”
As per their calculations, PVR’s occupancies have fallen by 4.5 per cent annually due to the terror attacks and 1-1.5 per cent due to the IPL tournament. Besides, the lack of a strong content pipeline in the last quarter has added to the multiplex owners’ woes.
This does not mean that the slowdown has not cast its gloomy spell on the multiplex business. However, the effect is less on the B2C business and has impacted the back-end more. New projects are being delayed, shelved or even defrayed in some cases.
The problem stems from the quagmire that commercial real estate developers find themselves in due to lack of sufficient funds. Malls and other entertainment projects are being delayed for as long as two years. The situation is troublesome for both PVR and Big Cinemas.
Take Big Cinemas, the business model of the Anil Ambani promoted group is based on volumes. Big Cinemas is the largest player in the Indian multiplex segment with around 430 screens across India, Malaysia and US.
The strategy was that they would aggressively expand and have a huge presence over the next few years, later leveraging the network to generate extensive volumes. This cash intensive model is now being derided by experts as a cash non-efficient model (as with every new multiplex their profits went down).
But Anil Ambani & Co. had not anticipated the global economic meltdown. “Controlling cost will be very important in these tough times. Players will have to do away with unnecessary and illogical expansion plans,” says Anand Shah, analyst, Angel Trade.
Be that as it may, optimists are of the view that the slowdown is a blessing in disguise for the industry. When the economy was thriving with a GDP growth rate of over 9 per cent, people entered the multiplex business expecting to cash in on the upturn in the mall culture and the ever expanding consumer spending’s on weekend outings.
Some non-serious players will perhaps now have to backtrack on their ambitions. So is an exciting round of mergers and acquisitions on the cards ? “Yes. The slowdown has clearly separated the boys from the men. The boys are going down under, the men can adopt some of the boys, so that is where you can see some mergers happening later.” quips an exultant Arora.
There are other benefits too. “The cost of acquiring new property, which was unreasonably high a year ago, is available at the right price today,” says Gaurav Sinha, an analyst with a Delhi- based research firm.
Multiplex owners therefore feel that the slowdown has actually brought an equilibrium for them, as they are getting right properties at the right cost now. And by the time these new properties will be completed, the economy, they hope, will be back on track.
Wishful thinking or judicious investment, call it whatever, but there are problems galore in store. Another big challenge that is staring the multiplex industry in its face is the rippling after effect of the over expansion drive in recent years.
Thanks to the lethal combo of ambition and aggression, most multiplex guys have concentrated their expansions in clusters. This has also hit occupancies and profitability. Success is 99 per cent perspiration and 1 per cent inspiration.
Apart from the terror and IPL issues, the multiplexes today are facing revenue sharing problems with the film producers. Last week, after the two Khans, Shah Rukh and Aamir, came together to demand Fair rights for Friday nights, multiplex owners and film producers have failed to resolve their dispute.
The dispute is over the producers demand of a 50 per cent share from ticket sales from day one, irrespective of a how a film performs. So far, they got 48 per cent of the revenue from multiplex ticket sales for the first week, after which their share dipped depending on how a film fared.
Mukesh Bhatt, chairman of the United Forum for Bollywood Producers, says the multiplex owners are being “rigid and stubborn.” There has been no meeting between the two parties even after the entire film fraternity, including the two Khans, showed solidarity on the issue on Tuesday.
PVR’s Arora referred to the revenue-sharing dispute between the two sides as “a small tiff in a marriage.” He, however, refused to quantify the impact of the strike on the multiplex business.