Analysis: The case for more cinema halls in India is stronger than ever

In these times of a COVID-19 pandemic-induced lockdown, when all of India’s cinema theatres are shut for the foreseeable future and many small and not-so-small theatre owners are studying the insolvency and bankruptcy code (IBC), praying all the while that they won’t need it, it may seem counter-intuitive to be talking about how and why we need to add massively to our screen count.

But now is when it needs to be spoken about. Because, in this crisis there may be an opportunity to fix a decades-long issue that needs to be dealt with, to fix India’s cinema industry.

India’s theatres, before the lockdown, were operating at 30% occupancy. In simple retail terms, it meant that only 30% of the shop is occupied by customers. In light of this, someone asking for a doubling of the screen count would be met with a stern question: If they can’t even fill the screens they have now, why add more?

So, let me explain why. But first let us get in a couple of facts.

Fact #1: Grossly under-screened market

While India is the world’s largest cinema producer at 1,800+ films annually, but the country is one of the world’s most under-screened markets and things have only got worse over the past decade.

As if this weren't bad enough, India’s screen count has actually gone down in the past decade, from 10,635 screens in 2009 to 9,527 at the end of last year.

Almost all this reduction has come in the traditional single-screen cinema halls, down from 9,700 in 2009 to 6,300 last year. Meanwhile, in the same period, multiplex screens have gone from 925 to 3,200, causing a net reduction in screens of approximately 1,100.

There is also massive regional disparity. South India, with 25% of the country's population, has 47% of India’s screens. The five South Indian states average 14 screens per million while the rest of the country is at a measly five.

Also, In the same period, the number of films being produced in India has gone up from 1,275 to 1,800.

Fact #2: Screen-box office connection

There is a clear link between number of screens and size of box-office collections, as the following comparison of trendsd with our northern neighbour China would show.

In 2013, China had 18,195 screens as against India’s 9,951. That same year, the size of the Chinese box office was US $3.4 billion as against India’s US $1.4 billion. Just six years later, China had 66,028 screens as against India’s 9,527. And the size of China’s domestic box office stood at a whopping US $9.2bn as against India’s US $1.6 billion.

So, while India’s domestic box office has barely grown in dollar terms over the past six years, China's has grown by a multiple of nearly three.

A reason why the size of India’s box office has not dropped in dollar terms despite the rupee weakening over the past six years is that average ticket prices have gone up, with more expensive multiplex tickets replacing cheaper single-screen tickets.

Fact #3: Poor releases for films

Many films are unable to get optimal theatrical releases in India. Many films don’t even get theatrical distribution, on account of the lack of screens or the inability to get enough screens to recover the monies that need to be invested into advertising and publicity.

Even if we assume that only about 50% of all the films produced in the country are theatrically released, that comes to about 1,000 films a year, or about 19 a week. Add to that approximately five international releases every week.

Now, do we really believe that a total of 9,527 screens is enough to handle about 25 films a week? Especially when they are released in over 15 languages? Clearly not!

So, what problems do these distorted screens-per-million-population and screens-per-film ratios cause?

1.    The first weekend: No place for WOMP

This meagre screen density and the inappropriate screens-to-films ratio puts a lot of pressure on the first weekend and first week collections as films are likely to be replaced by newer films within a week or two. This leads to higher marketing costs. In many cases, for smaller films, the marketing cost ranges from 50–100% of the production cost. This means all the resources of a producer or distributor are not used to make high-quality content but in battling for the viewer's mindspace. Further, this leaves no scope for word-of-mouth publicity (WOMP) to kick in, leaving niche filmmakers in the lurch as their audiences almost never get to watch these films in theatres.

2.    The negative ‘value’ cycle

This situation also puts extra pressure on ticket rates as the revenue recoupment window for a film is just one or two weeks. Increasing ticket rates have put the industry into a negative loop with declining footfalls.

Also, a lot of the multiplex revenue comes from the sale of food and beverages (F&B), which is dependent on footfalls. Lower footfalls means they have to increase rates to ridiculous levels. Today a multiplex sells samosas for Rs80, the smallest popcorn they have is for Rs180 and a chai for Rs120. These markups are more than what a fine dining restaurant would charge. This ensures that film watching becomes even more expensive and hence prohibitive.

High ticket and F&B rates mean fewer people can afford to watch films, which means the industry needs to recover the same amount from fewer people, which results in ticket rates being raised even more, which causes still fewer people to go for movies in the theatre, and so on, significantly distorting the ratio of value to volume.

The benefits of a higher screen count are many:

1.    More employment opportunities

India’s employment ratio at a movie hall ranges from seven to 10 people per screen. An increase of 10,000 screens would mean up to a lakh of additional people finding employment and all the indirect benefits that generates.

2.    More films will be released in theatres and stay longer

If we get to a stage where films no longer need to battle for screens and can be assured of longer runs, it would help them cut back on the first weekend pressure. Producers of small and medium films would be able to put in more resources into the content and production which they would otherwise have had to spend on marketing.

3.    Lower ticket prices lead to more footfalls, lower taxes, higher collections

When rates drop, whether it is taxes or ticket prices, the collection goes up. The lower the ticket rates, the higher the footfalls. The higher the footfalls, the more money theatres make on tickets and F&B, which in turn allows them to reduce rates further, leading to a further increase in footfalls, and so on.

Further, higher the box-office collections, higher the GST (goods and services tax) collections, leading to a greater possibility of a reduction in GST rates, leading to a reduction in ticket prices, leading to additional footfalls, and so on. Now that’s a virtuous cycle, if ever there was one.

4.    Less incentive for piracy

With low ticket rates and cinemas providing the much-needed captive community viewing experience to audiences, there would be a lower incentive for piracy.

Now that I have mentioned all these good things, let’s also talk about what is needed to get this going.

1.    Unified licence

One of the biggest problems in India is the absolute deluge of licences and permissions needed to start a cinema, from all levels of government and multiple agencies. This can take, depending on the ethics and efficiency levels of the officers you engage with in each of these agencies, between three and six months.

The solution here is to put out a set of guidelines and make cinemas themselves responsible for compliance with prohibitively high punitive financial measures if violations are discovered.

2.    Cheap land or mixed-use infrastructure

Just like for any other public facility, land should be made available at a low or subsidized cost. Long-term leases with revenue-share-based payment will allow multiplex owners to focus on their main business instead of trying to play the real-estate-valuation game.

Further, governments at the state and municipal levels should be able to enter into PPP (public-private partnership) projects with developers which would allow them to commercially exploit the airspace above public utility spaces like bus depots, railway stations, fire depots, government schools, etc. For instance, a developer should be able to build a multi-storey building on top of a bus depot and create infrastructure to be used for entertainment. If there is no cost of land nor any rental, then the developer in turn can charge a lower rent to the multiplex operator who can then charge a lower ticket rate to the customer.

Given the massive land banks across the country currently in use for railway stations, bus depots, etc, this would free up much-needed real estate at a cheaper rate.

3.    Tax holidays

As has been done in the past, cinemas set up in designated development zones should be eligible to avail of tax holidays for a certain number of years, making the projects more lucrative for both FDI (foreign direct investment) and private investment to flow into the exhibition business.

4.    S&E licence

Cinemas should be treated as the retail arm of the film industry and brought under the Shops and Establishment Act with respect to division and sub-division of the same. Today, if a single-screen theatre is to be subdivided into a multiplex, the entire licensing process needs to be started afresh, as if it were a new project. This leads to much longer waiting periods and increased licensing and ‘liaisoning’ costs.

If we are able to undertake some or all of these solutions, we should then see the much spoken about ‘animal spirits’ of the Indian film industry unleashed and witness massive growth in the size of our domestic box office, tax collections, and number of films being released. Indian cinema would then stand a chance of reaching the lofty levels that it has the potential to reach!

Chaitanya Chinchlikar is chief technology officer and vice-president at Whistling Woods International.