When Media Consolidation Is Good

Now here is an industry where consolidation has been a force for good.

In the financial year ending March 2019, the total number of tickets sold by the top three multiplex chains in India — PVR Cinemas, Inox Leisure and Cinepolis — rose 23 percent over the previous year to more than 200 million. For many years now the cinema going habit has been in decline. The box-office growth you read about has come, largely, from raising ticket prices. Going by back-of-the-envelope calculations Indian films sell close to a billion tickets. But in the absence of any proper numbers, the big three multiplex chains offer a robust sample. Then there is the anecdotal evidence. Across India single screens and smaller multiplex chains are reporting a rise of anywhere from 20-40 percent in ticket sales in 2018-19.

This rise then is the biggest indicator that the graph is changing — from declining screens and footfalls to a rising one.

Last year was an exceptionally good one with a slew of hits — Raazi, Sanju, Bharat, Ane Nenu and Rangasthalam, among others. But good films are a cyclical phenomenon. There are three basic reasons why ticket sales have risen and will continue to do so. One, since all theatres have to be goods and service tax or GST compliant, everyone now sells computerized tickets. This has meant more transparency — unaccounted for revenues and tickets are also being counted.

Two, multiplexes have been adding close to 150-odd screens a year. For years the theory was the rate of addition to total screens was way lower than the ones shutting down. And that more screens don’t translate into more revenues or tickets. But they do. China’s jump from 9,000 screens in 2011 to just over 60,000 currently has made it the second largest film market in the world after the US/Canada. In India new screens are now adding up to impact ticket sales.

And three, streaming video apps such as Netflix or Voot are exposing audiences to different cinemas thereby whetting their appetite for more from theatres. Since these three reasons are not cyclical, I reckon the rise will hold.

The bigger point this much awaited rise in footfalls makes, however, is on the benefits of consolidation. It is a much-needed force in so many segments of India’s the Rs 1,67,400 crore media and entertainment business — newspapers, television production and cable. Film exhibition is a great case in point.

At the turn of the millennium India had around 12,000 screens each with a different owner. The release and marketing of a film was a nightmare. In those pre-digital print days you needed 12,000 prints at Rs 60,000 per copy for an all-India release. Nobody could afford that. The top films released with 400-700 prints. Ticketing was opaque so you really didn’t know how many people actually saw the film. Most producers, yes there were individual producers then, sold films for a minimum guarantee or MG. They might have got something over and above the MG if the film was a huge success, but for most average films there was no hope of getting revenue overflows. This fragmented, opaque retail side of the business brought in more than 80 percent of the measly (and unprofitable) Rs 2,500 crore in revenues that the world’s largest film-making country made.

When multiplexes came in with a cleaner, better experience, it forced single screens to either refurbish or to become part of a chain. It also brought transparency bringing money back into the business to finance better films. Almost 18 years after the first multiplex opened the industry has grown over seven times, returns are better across films and more importantly there is phenomenal variety.

The Rs 3,119 crore PVR, the privately-held Cinepolis and the Rs 1,692 crore Inox account for three-fourth of the 2,500 multiplex screens in India. These 2,500 screens, out of a total of 9,000, bring in, on an average, half of the total box office revenues of Rs 10,000 crore. The box office, incidentally, brings in roughly two-thirds of the Rs 17,500 crore the Indian film industry made in 2018.

It may seem like they have a disproportionately large share of the box office. But moving from the fragmented, broken model and bringing in scale, process and transparency wouldn’t have been possible without consolidation. If it was then the remaining 6,500 screens should have brought in a bigger share of revenues.―Business Standard