June 15, 2020

Understanding The Business Of Multiplex Theatre Companies, Online Streaming & Movie Making – An Investors Guide

It’s been a popular choice of most people to invest in Multiplex Theatre & Entertainment stocks as they think they relatively understand the business drivers of these business entities. Theatrical release is the best way for audiences to express the effort and the creative genius of our film makers and this has been the case for decades not just in India, but this is a global phenomenon.

Theatrical distribution platform has always been the first and the most important distribution platform for the film makers. The ongoing crisis has caused an unfortunate shut down for cinemas. And as we know at this point we do not have complete clarity as to when the lockdowns will be lifted in India. But as rest of the world hopes –  we could get confident that once we get to the other side of the crisis, there would be enough and more pent up demand from the cine goers who have been locked up at homes for the last many weeks and as and when situation settles down a bit, we are likely to see a lot of demand. Now let’s look into understanding the business of theatre.

Fundamentals of Theatre Business:

1> The way how a movie gets projected is certainly bound by many constraints primarily being – Vision of the Financier / producer of the movie. Some producers would wish to quickly encash the movie at the earliest by releasing on (Over The Top) OTT platforms/online streaming platforms like Amazon Prime, Netflix, Hotstar & many more alternative channels. So here the settlement is most often one time. Most producers with relatively deep pockets would always prefer to release on the big theatre screen & see how demand flares up for the movie and accordingly take measures to sell rights on OTT platforms. So in this case, movie is first put to test by generating demand on theatrical platforms & then later gets sold on OTT.  So production funda about every movie is different, just because few may release on OTT – it may not be the same across all horizons.

2> For most companies 50 – 60% of revenues are from Theatrical releases.

3> Maintenance cost is one of the primary working capital needs for Theatres as business. For example –  There are business contractors for every kind of maintenance jobs. Maintenance contracts business ranges from Food vendors, cleaning vendors & many more depending on location of the theatre.

4> Most theatre companies are measured by number of screens that they have. Higher the number of screens, better is the profitability number at most times.

5> One must know that – there is a unique business proposition to movie screens in malls vs independent movie screens. Movie screens in malls are directly proportional to foot falls in that particular mall. While independent movie ones can still be standalone. This is an extremely important point of judgement during Covid times as most screens are based out of multiplexes & are bound by social distancing measures of malls. So opening of malls & hygiene standards of malls is certainly a criteria that drives movie sales.

6> Another major determinant while judging theatrical business is the installed capacity of revenue generation i.e. how many screens do they own.  So ideally – revenue is determined by number of screens multiplied by 4 or 5 shows during the day to arrive at a profitable number. For Example – PVR has 1.8 lakhs seats across 850 screens all across India. So if they were to showcase English movies – on an average they can screen 5 shows in a day per screen, if it were to be Hindi movies, naturally its  lengthier – so they can screen 4 shows a day per screen. So multiply number of theatres into number of shows to arrive a revenue estimate.

Movies in Theatre vs Online Streaming and the different challenges:

1> One must understand that – here are different elements that make a movie popular. Songs get popular when its visually appealing & most often in Bollywood – songs drive cinemas to a great openings. So music sales are entirely dependent on theatres releasing in theatres, as musical ventures are part of overall cost of production of movies. On the other hand low budget production houses choose online streaming as they don’t rely on musical extravaganza of the movie nor would have spent heavily on high cost location based shootings and movie would be backed by strong story line.

2> Cinema is a form of entertainment, that is part of people’s lifestyle. Watching it on the big screen, along with family and friends and a large crowd in that dark house is an unmatched experience. Unlike there are certain movies which are meant for an OTT release, which is backed by strong story line & it has its own limited entertaining factors. Well, considering the fact that cost of watching one movie is almost equally to monthly subscription rates on OTT platform & you can get what you pay.

3>  New Movies which are released on OTT – will compete with old movies already playing OTT. So its a tougher proposition for producers to re-discover the mojo on small screens. And also joy of watching in small screen is short lived & it limits the chances of artiste to become a huge star unless proven wrong by a power house of talent. In case of theatrical releases, most often success of every movie is determined based on how long it runs in theatres unlike in OTT its most often determinant on renewal of monthly subscription rates & acquisition of newer subscribers.

Possible future of theatre business during Covid times:

1> Lockdown has certainly an element of frustration amongst the movie goers & this factor is expected to work to the advantage of the multiplexes when the malls are fully operational along with opening of theatres. So there is larger expectation that demand likely to grow step by step but at a quicker pace.

2> Multiplexes are expected to train staff to keep the cinema halls clean & sanitised. Groups or families will be made to sit together. Adjacent seats may be left empty. It’s assumed that people in groups are staying together at houses either ways, so factors of Covid spread amongst within groups sitting in a theatre is ruled out. So going by this – theatres may be forced to leave 20% overall seats empty.

3> Cost of multiplex theatre experience is small ticket item as the average price per ticket is around 150 rs. So the threat of job losses in the economy or reduced disposal income may not severely impact movie industry.

 

–    Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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