Hotstar joined Netflix in the game of digital first movies with “Chappad Phad Ke” which will be released later this month. Reliance had also announced a direct to consumer movie experience in their AGM earlier this year. This marks the beginning of digital first cinema in India that could have far reaching effects into how movies are created, distributed, and consumed in the country. Which begs the question.
Is Netflix killing movie theaters? While Netflix and Hotstar are making moves with digital first cinema, multiplexes will continue to be critical for big-budget movies, action flicks, the movie watching experience and distributor financials and hence will continue to thrive.
In today’s piece we look at understand the Indian movie theater landscape, discuss consolidation trends in both theaters and producers, and conclude by understanding how the digital game is shaping up.
How fast are Indian cinema/movie theaters growing?
FY19 was one of the finest years for Indian cinema with the highest box office collections driven by increased penetration of multiplexes in Tier 2 and Tier 3 cities, increased viewership for Hollywood movies, multiple 100cr+ films (13) and strong regional markets growing in the south. The footfall at three of India’s top multiplexes (Inox, PVR, and Cinepolis) increased to an all time high of 19.1cr, up from 16.3cr the previous year.
India currently has ~9600 screens of which ~2950 are run by multiplexes. At six screens per million people, India is still severely underpenetrated in terms of screen coverage. Multiplexes have been adding ~200+ screens every year for the last few years now, but almost half of this increase is offset by shutting down of single screen theaters, keeping the overall growth in screen count fairly muted. That being said, the increasing occupancy levels in theaters (now nearing 40%) combined by the increased interest of multiplexes in tier 2 markets (PVR targeting these markets via PVR Utsav which is a chain of smaller multiplexes targeting Tier 2 and 3 towns) could signal that we see good screen growth in the years to come.
Consolidation in producers and theaters
The next piece of the puzzle is movie producers. The number of movies made reduced from 288 to 238 this year, and yet movie collections rose. This seems to be a continuation of a trend of production houses having fewer movies on their slate, but investing heavily in them. This trend too, bodes well for multiplexes, since the high budget films require equally high payoffs which India’s theaters are better equipped to provide, atleast for now. Industry consolidation helps too, with PVR acquiring SPI Cinemas and Carnival acquiring E Square, effectively providing a wider reach to studios.
How is India's direct digital cinema market shaping up?
India’s digital direct movies are currently small primarily low budget films, but that is changing fast. With the Jiofication of India the market reach is increasing at one of the fastest rates globally (second only to Indonesia) and by most estimates India is poised to reach 700mm smartphone users by 2023, which comes to around 18cr families. Given a typical “Salman Khan movie” has ~300cr of box office collections, even at a rate of just 99/movie, and 20% of users watching, the digital players break even adjusted for inflation! Whether people would like to watch a Salman Khan movie on a smartphone, and whether the big Khans would want to release their movies on one are of course very much debatable.
The way the digital direct game will most likely play out will be an increased competition for content starting with the low budget content, and moving upward as platforms build larger customer bases, starting a virtuous circle. Globally a studio will make anywhere between 40-60% of box office collections depending on the clout it has vs the distributor. This will be in all likelihood pushed to the higher end given the increased demand for their content. The production houses do need to be careful in squeezing the multiplexes though, because as the digital players grow larger their clout vs studios increases impacting long run margins. A delicate balance indeed.
That being said there will, in all likelihood, always be a market for Sharukh, Salman, and Rajni blockbusters that people will pay to watch in theaters. And Marvel, DC, and other animated and action flicks will continue to maintain the allure of the big screen. The multiplex will survive, but in a world with a billion screens, it will have to up its game big time. Seating comfort, sound quality, screen quality and size, food variety, price and localization, and ease of booking are all factors that multiplexes will try to work on, to maintain its position as an experience not merely a location for content consumption.
The good bit? You as a customer will be at the receiving end of all the effort!
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About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.