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The Filmi 'Farce'

The business script is a litany of woes, but the glamour is irresistible

Cinema is every Indian’s most sought-after pastime. And, going by the number of Indians current on Earth, one would be justified in assuming the exhibition industry would be awash in cash. But that would be wrong.

While Bollywood badshahs (top actors/directors) rake in the fame and fortune, the cinema wallahs’ story, if you look at the listed companies, is tragic.

Just eye the mess INOX, PVR, Reliance MediaWorks (RMW), Fame, and others are in. They invested huge amounts in realty to set up cinemas/multiplexes and spent more on making the cinegoers experience an out-of-the-world trip. And yet, the ultimate arbiter of these companies’ toplines’ fate are contributions by the hordes at the F&B courts! While almost three-fourths of the revenue comes from tickets, food makes up over 15 per cent and ads come in at 5 per cent.

Competition, both within and outside the industry has ensured sparse returns and what was left unaffected by that has been negatively impacted by cine goers’ waning interest as a number of other entertainment opportunities have risen —  TV, radio, internet, and cellphone apps. 

Terror played a big role in driving audiences away too since the 1980s, while bird and swine flus added to exit options. Now, film occupancy rates as low as 40 per cent are perceived as good.

Also, entertainment tax, interest costs, film distributors share and salaries keeps operating margins down — distributors make up almost a quarter of total cost, while salaries are at 10 per cent. The constant need to raise the number of screens makes for a voracious money appetite and these capex needs drive interest costs up  — a spend of about Rs 55,000-75,000 is needed per seat or Rs 2 crore per screen. Targets are still missed. For instance, Cinemax aimed, in 2007, to raise its screen presence from 38 to 300 by FY10, but its score is still under the century mark. Strikes generated by the tiff between multiplexes and producers in 2009 added to the problem — occupancy levels fell almost into single digits.

Now, despite the industry defeating their biggest problem, the pirates, through increasing usage of digital prints, profits are still scarce. Except that the industry still hogs a giant amount of the country’s attention, courtesy the glamour quotient. TV, which is the biggest competitor, is still a poor cousin in that department.

This has ensured that the promoters support is undented. And therefore, their love for the business is still going strong and is unlikely to flag in the future either. As such, whether it is RMW, INOX, or Cinemax, the stake held by promoters are near, or over, 60 per cent.

But, a potential investor really has to ask himself, ‘Do I want to be a part of this script?’.

All About Showmanship
The business is no mega-buck spinner. But the biggest companies are slugging it out — RMW vs INOX over Fame. For unexplained reasons, Fame spurned RMW’s overtures to sell a majority stake at Rs 80 per share (in Dec., ‘09 CMP was Rs 30). Instead, Fame sold out to INOX for Rs 48. RMW is now buying Fame scrip (it owns 11%) and countering INOX’ open offer (for 20% at Rs 51 per share). RMW is offering Rs 83.40 per share for an additional 52.5% stake in Fame. But, INOX holds a 50.28% stake in Fame and at most RMW’s can rise to 49.72% (enough to give it a board seat). So, unless INOX succumbs, expect fireworks!

This article appeared in the March, 2010 issue of Wealth Insight