Box office showdown

The main bone of contention between the two is over who will get what percentage of the revenue earned at the box-office once a Hindi or a Hollywood film is released in multiplexes. And this tussle is because of the expiry of a two-year-old agreement between both parties that was signed in June 2009 after a 63-day strike coinciding with the start of the second edition of the Indian Premier League T20 cricket tournament. The agreement was based on the principle ‘equal rights for Friday nights’. This meant there was a 50:50 revenue share between the producers and exhibitors in the first week of anymovie releasing in the multiplexes. From the second week onwards the share of multiplex owners would gradually go up for as long as the film did business in the theatres. But if the first-week collection of any Bollywood film crossed Rs 17.5 crore at the top six multiplex chains (excluding single screens and independent multiplex chains collections),then the terms were as follows: 52.5 per cent in the first week,45 per cent in the second week,37.5 per cent in the third week and 30 per cent from the fourth week onwards till the life of the film. This agreement expired on June 30,2011.

What is the new demand now?

Multiplexes now want a higher share (55:45) in the firstweek and in the subsequent weeks due to better returns,the addition of more screens and a higher average ticket price compared to single screen theatres. But this is unacceptable to the film producers as they take the risk,bear the marketing and promotional expenses and draw footfalls in theatres. Producers still want a 50:50 share in the first week and are willing to stick to the older agreement. One of the proposals on the negotiating table that the multiplex operators want is 54-56 per cent of the revenue for week one for Hindi films and a 53:47 split for Hollywood films. Before June 30,2011,for all releases in India,the exhibitors and producers had a 50:50 sharing for week one,57.5:42.5 in week two,62.5:37.5 in week three and 30:70 thereafter.

How have the business dynamics changed for multiplex operators?

In the last two years,there has been a cumulative addition of over 200 screens between the top-five multiplex operators like PVR,Inox,Big Cinema,Fame and Cinemax,taking the overall screen tally to over 900. The multiplexes give much better returns due to higher average ticket price (Rs 125 -Rs 130) compared to single screen theatres (Rs 25 – Rs 30). Also,the average occupancy in multiplexes (around 30 per cent) is better than single screens (15-20 per cent). But the most worrying part for film producers is the gradual reduction in single screen theatres in the last two years—from 8,500 to less than 700—thereby increasing their dependency on multiplexes. Going forward,most multiplex chains are working on adding at least 100 screens per exhibitor over the next five years. Also in their scheme of things is the acquisition of key single screen theatres across smaller towns. Combining these two,by 2015,the multiplex operators will have an upper hand and a major say in the success of any Bollywood or Hollywood film in thecountry.

Why are single screen theatres on the decline?

There could be several factors at work. The average occupancy rate for a single screen theatre is less because of a larger singular capacity. In a year like 2010,when the market suffered from a lack of quality content,occupancy dropped even further. For a single screen theatre to remain profitable,it needs an occupancy rate of around 40 per cent,assuming the costs of running a theatre remain constant. Single screen theatres also face a high tax regime,paying as much as 45 per cent in entertainment tax in states like Maharashtra. Single screen theatres in Maharashtra went on a one week strike in March 2010 to protest against the high tax. States like Rajasthan and Punjab do not have an entertainment tax on single screen showings. As compared globally,the tax on ticket sales is quite high in India. Multiplexes,on the other hand,enjoy tax exemptions for the first three years,helping them compete well with single screen theatres. So the existing theatres that want to take advantage of exemptions must convert to four or more screens. However,the costs for that are quite high. An estimated Rs 2 crore per screen and around Rs 8 crore in all is required to convert a single screen theatre to a four-screener,for a 1,250- seat multiplex.

What is the state of the business from the producers’ point of view?

The Indian film industry has had two consecutive bad years in 2009 and 2010 and has shown a considerable decline. The industry depends heavily on big films and worthwhile content. With many big films slated to release in the next couple of years,PricewaterhouseCoopers expects this industry to recover and grow at a Compund Annual Growth Rate (CAGR) of 9.3 per cent over the next five years,reaching Rs 13,650 crore in 2015 from the current Rs 8,750 crore (in 2010). However,the growth is subject to the quality of content.

The domestic box office revenue saw a dip of 12.7 per cent in 2010. This was largely due to a lack of engaging content,though the closure of many single screen theatres,smaller release windows and the IPL season did play their part,says the latest PwC report. The overseas collection for Bollywood films has now become crucial for producers as that segment is growing at 15 per cent. In 2010,the overseas business for Hindi films stood at over Rs 770 crore and is expected to grow at a CAGR of 10.5 per cent compared to nine per cent forecast for the entire industry.

What about Hollywood films and their impact on the film industry?

Hollywood releases are increasingly focusing on the Indian market. Though there was no major hit like Avatar in 2009,the industry did manage to do well. The main reason for that was because Hollywood studios provided the Indian film industry with good quality content and filled the void left by Hindi releases. In 2010,about 75 foreign films were released in India,with collections in excess of Rs 400 crore as compared to Rs 300 crore in 2009,the PwC report states. Hollywood content is showing a healthy growth rate in the market. The share of Hollywood content now forms 4.5 per cent of the total film industry revenues as compared to 3.1 per cent in 2009.

Are film producers on the back foot then?<