Armed with a Masters in Business Administration from Melbourne Business School, Shringar Cinemas managing director Shravan Shroff joined his family business in 1997. Under his supervision the Fame chain of multiplexes took birth.
Since then the multiplex scenario in the country has seen a rapid change. Chains like Cinemax, Fun Republic, PVR, Pyramid Saimira, Adlabs etc have mushroomed all over the country. At a time like this, Shringar’s Fame Cinemas is also on an expansion spree.
In a no holds barred interview with Businessofcinema.com’s Hetal Adesara, Shroff speaks on a varied number of issues concerning the film exhibition distribution business as well as Shringar’s way forward in a highly competitive and aggressive market.
What were the highpoints for Shringar in the year gone by? The company posted a profit of Rs 3.64 crores for the quarter ended December 2006 as against a loss in the corresponding period last year. What has contributed to the revenues?
We have posted profits for three successive quarters and every quarter it has been better and better. So it’s been a good year overall for us especially the last three quarters. The last financial year, we ended up with a loss but that was due to the fact that not many of our new properties had opened.
It’s a part of our growth strategy wherein we had built a corporate team to a level, which can take multiple sites and once all those sites start opening up, a portion of our corporate cost will keep going down and thereby we will be working on a higher base.
Our performance was much better in the last quarter. In fact we did much better than some of our competitors and that was heartening to know. I believe that as we keep going ahead in Q4 and the coming financial year, and as we keep opening new sites; the numbers will become better and better. Our biggest problem thus far as a company has been that we built the corporate base by having a small number of properties. But properties take time to deliver so as new properties keep coming, the portion of property cost keeps getting amortized over a larger property base.
A couple of the highlights of the company were that we opened quite a few new properties in Kolkatta, Pune, Aurangabad, Dadar (Mumbai). We also took over the existing Thakur Cinema in Kandivali. Right now there are five – six properties, which are currently fitting out and will open Q1 of the next fiscal. They are in Pune, South City (Kolkata), two properties in Bangalore, Dahisar and Kadivali in Mumbai and also one property in Chandigarh.
The challenge is going to be in implementing all these properties at the same time.
What are the multiple streams in the multiplex business besides ticket revenues? Can you give us a breakdown of the revenue contribution from each of these?
Seventy per cent is the revenue from ticket sales and the rest 30 per cent is from other avenues like ad sales and F&B (food & beverage). Our constant endeavor is to get that 70 per cent down to 65 per cent such that we get more and more revenues on F&B and ad sales. This will help us reduce the amount of involvement on ticket sales.
But isn’t ticket sales the primary revenue driver?
That’s right, tickets are the main revenue driver but what also tends to happen is that the margin on tickets is lower than that on F&B. The margin on F&B is 65 per cent, whereas that on ticket is much lesser. The objective is two fold. First is to increase the pie from 100 to 120 and of that then to further increase the percentage more on non-ticket sales.
In an area where is too much competition, the ticket sales tend to go down but if your non-ticket sales are higher then the total revenue doesn’t collapse. That’s the important thing about keeping the non-ticket sales on a higher number.
How is the online and mobile ticket booking business doing? Have you implemented it across all your properties?
The mobile is still slow but the online is much larger. We track our numbers on the basis of box office and non-box office. Across the company, I would say about 15 per cent of our tickets are sold on non-box office ticketing platform. If I were to look at Bombay city, then the number would go up to about 20 per cent from non-box office platform. Other markets like Aurangabad would be in the region of about 10 per cent as it depends on where people are more technologically savvy.
We believe that when we open up our Bangalore property, the sales from non box office ticketing revenues would be 30 per cent. Our endeavour is to push non-box office sales as compared to box office sales.
We have just revamped our company website and have made the entire booking process much easier.
Why do think mobile ticket booking hasn’t picked up as yet?
Everyone has a mobile today. But the fact is that booking ticket on a mobile is a painful process. Based on customer feedback that we’ve had, wherever one needs to send multiple SMSes, it becomes difficult. That’s because there are so many options such as place, day, time, movie name etc.. hence making a phone call becomes much easier than booking via SMS.
With acquisition costs going up and increase in competition, not much activity has been seen on Shringar Films’ distribution front. Can you throw some light on how the business is doing and the movies that you will be distributing this year?
We just did Eklavya and before that we did Traffic Signal. It’s absolutely correct that acquisition costs have gone up and when that happens, the ability to make money goes down until and unless you have a really big movie.
Our strategy is very simple; being in this business it is important for us to make money. We don’t want to do distribution just for the sake of making noise. As and when we find opportunities wherein we can do good movies that provide us with the opportunity to make money and further our exhibition business, we will do that. However, if we find that it isn’t a viable proposition for us and we’re losing money then we won’t do it.
We have lost market share in the distribution business as compared to what we had two – three years back but that’s fine. It doesn’t make a difference because many a times astute business is doing no business at all.
If someone out-prices their products and someone else buys it, at least we have the facility to enable them to screen their products and hence we can make money from there.
What are the movies that you are going to be distributing this year?
Right now we don’t have any movies that we will be distributing this year. After Eklavya we haven’t bought any other movie. At present we are taking baby steps in that business.
What turnover is the exhibition business targeting for the year ahead?
We expect to close this current fiscal at about Rs 100 crores (Rs 1 billion) as a company. In the next fiscal we expect to grow our topline of Rs 100 crores in the region of about 80 per cent or so.
Out of this, a very small portion is going to come out of distribution. Out of Rs 180 crores, I would attribute about 10 per cent of that to the distribution business, whereas the bulk of the revenues will come out of the exhibition business.
With mushrooming of multiplexes, what are the steps being taken by Shringar to capitalize on its first mover advantage? Any revamp in the pipeline for Fame Adlabs in particular?
Our Fame Adlabs property is a generation one property. It was started in 2001-2002 and then very recently another property – Cinemax came up and is a much newer property. That’s part of the game.
The way we look at our business is that there will be some properties which will be slightly better than us and vice versa. In Kolkata, we are just planning to open our property called South City. There the generation one property is INOX in Forum. Clearly what we have done there is what Cinemax has done in Versova (Mumbai) – try to peg the property at least four – five steps ahead of the competitors. INOX in Kolkata is now renovating their two screens to fight the competition, which is exactly what we did when Cinemax came up.
As long as we don’t go to the bottom of the heap, we’re ok. Clearly Cinemax is a better property in Mumbai so it will do better than us. However, when it comes to comparing ourselves with Fun Republic, we are clearly ahead of them.
Another thing to be kept in mind is that Cinemax’s operating cost on the newer property is much higher than ours. At the end of the day, one does business for two reasons – for topline and bottomline – so if their operating cost is going to be higher than mine that somewhere the difference is going to be felt.
What is the investment being pumped in for the new properties that are in the pipeline?
On an average we spend between Rs 8 – 10 crores (Rs 80 – 100 million) per property. Then we further speck the property into Grade A, B or C. So in South City our current spend on a six-screen is Rs 13.5 crores (Rs 135 million). Whereas in Aurangabad, which is a Grade C property, our spend is about Rs 4.5 crores (Rs 45 million).
Can you throw some light on Shringar’s digital drive? The initiative in the space came only with Salaam-e-Ishq… why the delay?
We haven’t done what everybody else is doing on the digital drive. We haven’t done electronic cinema (that the rest are doing); we’ve done digital cinema. They are two different aspects. In both digital and electronic cinema, one can watch the movie without the physical print but the difference is in the quality.
In Malad InOrbit, we have put the actual three chip projector, which is no where else available in India. That projector has cost us about Rs 45 – 50 lakhs (Rs 4 – 5 million) as compared to an analog projector that costs Rs 15 lakhs (Rs 1.5 million). We believe that people need to move up to the next level of exhibition. It has been late for us because of the sheer cost.
Going forward are you’ll installing more digital projectors?
We’ve tried to do the Malad property as a test-bed. We would be installing a projector at Andheri and also in South City (Kolkata).
Are you looking at raising captial anytime soon?
No not at present because we just did our convertible bond issue out of Singapore last year out of which we raised Rs 100 crores (Rs 1 billion). We don’t see the need for any further capital for the next few years at least. We have ample money sitting in our books right now and plus we have our new properties starting this year.
What are your views on the entertainment tax that is being levied by the government? After the exemption of five years, will multiplexes still be a profitable business?
Various states have different entertainment tax laws. In Maharashtra it has been exempted for five years but in states like Karnataka, Delhi, Haryana and Gujarat there is no exemption. This needs to be looked upon in two stages. One is you create infrastructure by giving entertainment tax sops thereby you spur infrastructure creation into the sector, which is what the state of Maharashtra has done. Once that is done, then you drop the level of taxation such that the infrastructure can be sustained. I believe that the right method is what Maharashtra has adopted.
A fair rate would be about 20 – 25 per cent or so on the net admission price. Maybe it can be started with about 35 per cent and then be dropped by two or three per cent every year to finally stand at about five to 10 per cent.
If you look at Singapore, there is no entertainment tax and the US has some two or three per cent. First you pay entertainment tax, then income tax on the income that you are generating, then when you are distributing your profits you pay dividend distribution tax. So how many times should one pay tax?
What about occupancy rates in theatres? What do the recent numbers say?
The markets, which have too many multiplexes in a sustained area like Versova (Mumbai), we have seen a drop in the occupancy between about 30 – 35 per cent. If you look at markets like Bangalore, where there is a paucity of screens, PVR will have about 70 per cent occupancy, whereas INOX will have about 60 per cent. When we open our property there, we would like to maintain the same numbers as them.
So where there is more supply of theatres, the occupancy will drop and where there is less supply of theatres, the occupancy will rise.
Multiplexes changed the rules of the movie business. Going forward what are the changes that you foresee and what are the things that can make it a better business proposition?
Multiplexes have clearly changed the rules of the entertainment business. The economy is on a growth so people are spending more money on seeing a movie in a better environment. These are the positives of the multiplex space.
The negative is that too many people are into it at the same time, thereby killing the margins. Now can anything be done to stop that? I don’t think so because it is a free enterprise and may the best one win the game.
The challenge is that there are too many multiplexes in certain pockets and also what tends to happen is that there is a constant fight between multiplexes and producers all the time. Is that fair? I don’t think that’s unfair because a producer always wants more money and multiplexes want to pay less money. It’s capitalism and fights will always be there. So it is tough and of course I would like it to be easier.
All said and done, the government has set the right measures to create infrastructure and has also set a level playing field for all of us. It is our job to fight with each other and be the number one, two or three in the race.