Karnataka caps movie ticket prices at Rs 200: How do cinemas make money? How will cap affect revenue?

Here’s a breakdown of how multiplexes make money, why the cap was introduced, and what its impact will likely be.

Not the first cap

Siddaramaiah’s policy aims to broadly standardise ticket pricing amidst rising complaints against multiplex giants for charging exorbitant ticket prices. It also seeks to boost theatre audiences by making the movie-going experience more affordable.

As such, the decision has been welcomed by representatives of the Kannada film industry, who anticipate a higher footfall in theatres as a result.

Kannada Producers’ Council President Umesh Bankar said, “Capping the ticket prices to Rs 200 will definitely increase the footfall to the theatres and benefit the Kannada film industry. While big star films have thrived with high ticket prices, smaller films often run for just two to three weeks, before fading out. It is the experimental filmmakers and producers who are driving the industry. Therefore, Rs 200 cap will benefit such filmmakers a lot.”

Notably, this is not the first time Siddaramaiah has announced such a cap. In 2017, during his previous tenure as CM, he introduced a similar Rs 200 cap on ticket prices, although the enforcement of the policy faced various challenges. The cap was lifted after multiplex owners approached the Karnataka High Court to contest the government’s decision, amidst concerns regarding potential revenue loss.

Now, Siddaramaiah has re-introduced the policy in response to requests made by the Kannada film industry. However, the government is yet to draft a framework for its implementation.

How multiplexes make money

Multiplexes have multiple revenue channels, as well as models for making money.

TICKET SALES: Box office collections are split between multiplexes and film producers, although the specific split varies from movie to movie, and from week to week.

For instance, when a film is released, ticket revenue may be evenly split. If it does well, the producer may get a bonus (say 2.5%) meaning that the revenue split will become 52.5% (producer) and 47.5% (cinema). Conversely, if it fares poorly, the cinema might get a discount and thus keep more of the revenue.

In general, producers get a greater share of the revenue in the first few weeks of a film’s release, whereas theatres make more money (as a percentage share of revenue) later on. If a movie is still running, theatres might keep as much as 70% of the revenue.

Various models of revenue sharing are available, and the specifics of how much a movie theatre makes on ticket sales depends on the agreement between the theatre and the producer.

F&B SALES: Cinemas keep 100% of the revenue generated through food and beverages sales, and as such, this has been the revenue driver for big multiplexes in recent years.

For instance, in FY23, PVR Cinemas, the country’s largest multiplex operator, earned Rs 1,145 crore from the sale of F&B in its multiplexes, while revenue from ticket sales was Rs 1,878 crore. “…[G]enerating a healthy F&B revenue stream… is now an appetising non-core diversification for companies across various non-food sectors, including airlines, cinemas and theme park operators,” a report in The Indian Express in 2023 noted.

Selling overpriced popcorn and soda, products with very high profit margins, to movie-goers who have no other option to buy these in the cinema, is thus a key part of cinemas’ strategy to make money.

ADVERTISEMENTS: This is the final revenue channel for cinemas. Brands pay premium rates for in-theatre advertising due to cinemas being able to give them captive audiences. According to some estimates, these can make up to 15% of a multiplex’s total earnings.

Impact of Rs 200 cap

Multiplexes in metros like Mumbai, Delhi and Bengaluru charge premium rates — anywhere between Rs 300 and Rs1000, or even more — for blockbuster movies, especially on weekends. A Rs 200 cap on ticket prices would impact the unit economics of the movie business: both production houses and theatres will make less money per ticket than before.

Some multiplex professionals believe that big-budget movies which primarily rely on strong box office earnings will find it difficult to recover production costs with capped ticket prices. They also caution of a potential shift to shorter theatrical windows, meaning a film will likely be available on OTT platforms earlier than at present.

It is unclear how a Rs 200 cap would work when it comes to premium cinema experiences. At the moment, multiplexes invest in luxury seating and special technology (IMAX, 4DX, etc.) to justify their premium prices. The Karnataka government has not specified how a cap would work, if at all, in these cases.

While Kamal Gianchandani, CEO of PVR-INOX and president of the Multiplex Association of India, declined to comment to The Indian Express on Karnataka’s capping policy, he had said last year that cinema pricing is dynamic, based on several factors. “Cinema pricing is dynamic, fluctuating based on factors like location, seat type, and format… If lowering prices maximised revenue, exhibitors would naturally adjust them,” the association said.