Slowdown In Tinseltown

with the multiplex owners

The general elections, the IPL and the ongoing strike by film producers and distributors over the sharing of multiplex profits are all set to make this summer an arid affair for movie buffs. The release of at least 10 films, with over Rs 200 crore riding on them, has been postponed indefinitely. Among them are YashRaj production’s New York and Sajid Nadiadwala’s Kambhakt Ishq, originally slated to hit the theatres on 1 and 29 May, respectively. The lone big film to buck the trend — Nagesh Kukunoor’s Tasveer 8X10 — has been a resounding flop, and the only other releases in recent days — Pal Pal Dil Ke Saath and Ek Se Bure Do — are small-budget films that have gone unnoticed. The stalemate, which began on 4 April, is likely to continue till the end of the IPL cricket season, closer to end-May and June, when new releases are being planned.

In the weeks to come, things may worsen as multiplex operators pour in maintenance costs of Rs 60-65 lakh a month for a 5-6 screen facility with paltry box office collections. Operators such as Shravan Shroff, director of Fame Cinemas, and Atul Goel, managing director of Essel Group’s Fun Cinemas, claim a 25-30 per cent occupancy, but looking at the actual footfalls, even that seems to be an exaggeration.

Indeed, Fun Cinemas has reported collections of just Rs 5 crore compared to Rs 13 crore in a normal month last year. A few multiplex chains have begun selectively shutting a few screens to save running costs.

Some see the dry spell as a ‘seasonal’ problem and the ongoing producers-exhibitors face-off as a dispute that will be resolved in the near future. “Ultimately, the various stakeholders will sit down and settle the issues,” says Amit Khanna, president of the Film Producers Guild and chairman of Reliance’s Big Entertainment. However, industry consensus sees the malaise as more deep-rooted.

Falling Revenues
To start with, multiplexes had hoped to fill their seats with cricket buffs watching the IPL live on the big screen, but negotiations for a live feed with rights holders Multi Screen Media and the World Sports Group seem to have failed. The industry is also suffering from a domino effect caused by other verticals. For instance, satellite rights, which earlier delivered an average 10 per cent of a movie’s revenue, have dried up, with entertainment channels such as NDTV Imagine cutting costs and buying fewer new movies.

Bleak Picture: Last week’s
lone big release Tasveer
8X10 too failed to pull the
crowds

A less visible issue is that of high ticket prices — touching Rs 300 per entry — which is turning slowdown-struck consumers away.

“We built multiplexes as a rapidly growing business and a new level of entertainment,” says Manmohan Shetty, a multiplex pioneer and chairman of Walk Water Productions. “What we did not realise was the high cost of maintenance. In the process, single-screen theatres have been wiped out, taking away the Rs 50-60 ticket option, forcing many to turn to pirated content.”

On the revenue side, the expected takings from overseas distribution and music rights have not materialised. “Subhash Ghai once spoke of overseas collections and music rights covering the cost of the movie,” points out Shetty. “Now, there are no such collections.”

The Ficci-KPMG survey of the entertainment industry, valued at Rs 10,900 crore in 2008, agrees with Shetty’s forecast. “The growth rate of the industry may remain flat in the next year owing to less number of releases, lesser occupancy rates and lesser realisations from ancillary revenue streams,” says the report.

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“We were expecting a de-growth of 1-2 per cent due to IPL and other factors, but we may now need to revise that to 5 per cent,” says Rajesh Jain, KPMG’s head of entertainment practice. “If we factor in the normal 10 per cent growth that would have otherwise happened, this means a slowdown of nearly 15 per cent.”

Fewer Releases
Beyond May, a major problem the industry will be facing is that of high-cost projects, such as Astavinayak Productions’ Rs 90-crore Akshay Kumar-Sanjay Dutt-starrer Blue, one of the most expensive films on the floor, which has been caught in the cusp of the downturn. Many of these films are over 50 per cent complete, and can neither be aborted nor shelved. Also, funds for marketing — estimated at nearly 50 per cent of the cost of a movie — have dried up.

“The past two years have seen a boom in projects fuelled by equity funding, which pushed up costs,” points out Hiren Gada, director of Shemaroo, a leader in home video business. “Now, both the equity and debt tap is closed, leaving a lot of high-cost content caught in the pipeline.”

Blank Screen


The downturn coupled with producers-multiplex owners face-off has left Bollywood bleeding




Big titles Yash Raj Films’ New York, Sajid Nadiadwala’s Kambhakt Ishq and Mukesh Bhatt’s Jashn put on hold.
Multiplex occupancies down to 25 per cent; Fun Cinemas reporting revenues of just Rs 5 crore a month against a normal Rs 13 crore flow.
Reliance Big Pictures, Mirchi Movies and other producers who had announced a pipeline of films have aborted plans.
Actors’ fees being renegotiated; agreements based on profitsharing are being restructured.
Revenues from television satellite rights have petered out.

“The fact is that a lot of films will get completed this year, but not released,” says Smita Jha, entertainment analyst with PricewaterhouseCoopers. But more significantly, very few new projects are being announced. PwC’s Jha says that the last quarter saw no new PE funding coming in, and hardly any renewals. Film funds announced last year, which included Vispaar Religare and Cinema Venture, were expected to pump in an additional Rs 1,000 crore, but they failed to take off, she says.

The cash crunch has everybody reworking targets. Reliance’s Big Pictures announced 69 film projects in a 12-18 month window at the Cannes Film Festival last year. A few of them, including Love Story 2050 and Rock On, were released but targets have been seriously scaled down. Similarly, Times Group’s Mirchi Movies, which had spoken of 5-6 productions, has aborted plans. The broad industry consensus is that Bollywood will ultimately release 170-180 films instead of the normal 230-240 films, a 20 to 25 per cent cutback.

As a result, business plans are being redefined and costs have been scaled down sharply. For instance, Akshay Kumar and Hrithik Roshan’s Rs 20-crore deals are being renegotiated. Business models popularised by Shah rukh Khan and Aamir Khan, where the upfront fee is small and returns through a share of revenue or profit, are being re-explored. “The cost structure had ballooned to unrealistic proportions,” says Gada of this new trend. “This shakeout will bring them down to more viable levels. And then maybe the focus will shift to film content, rather than viewing each movie as just another project.”

gurbir dot singh at abp dot in

(Businessworld Issue Dated 21-27 April 2009)

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