Screen Density - Key to Unlocking the Hidden Box Office Potential December 2018 - Creative First
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Screen Density – Key to Unlocking the Hidden Box Office Potential December 2018
Screen Density | Key to Unlocking the Hidden Box Office Potential
Contents
Foreword Producers Guild of India 4
Foreword Deloitte 5
Executive Summary 6
The Indian Film Industry Paradox 8
Exhibition Sector: Key Challenges 16
Development of China’s film exhibition industry –
a remarkable growth story 26
Socio-economic impact of promoting
growth in screen density in India 32
Recommendations 38
Annexures 46
Acknowledgments 66
03
Screen Density | Key to Unlocking the Hidden Box Office Potential
Foreword
Producers Guild of
India
India is one of the fastest growing Our endeavor is to help the film industry
economies in the world with a young and create an ecosystem of growth and
highly aspirational population. As Indians inclusion. The film production houses
move up the economic development should be able to justify the investments
curve, the time spent on leisure activities in content development through
is expected to further increase. While increased outreach of their films, the
there are various forms of recreational exhibitors should be able to provide
activities, in India, cinema is considered quality infrastructure and the audiences
to be one of the most favoured forms of should have access to a world class film
such activity. viewing experience.
Despite producing the largest number We hope that this initiative will get the
of films across languages and having ball rolling towards reforms which will
an unrestricted access to international enable the industry to reach its full
content, Indian film industry’s net potential.
economic contribution remains dismal.
Much of the opportunity is lost due to Kulmeet Makkar
our inability to provide the audiences Chief Executive Officer
access to good quality entertainment Producers Guild of India
infrastructure.
04
Screen Density | Key to Unlocking the Hidden Box Office Potential
Foreword
At the outset we would like to thank the significance in current context. The
industry bodies, Producers Guild of India industry needs to change gears and move
and CreativeFirst for taking up the issue fast to meet the audience’s demand of
of screen density in India and bringing to better film viewing experience.
light an important aspect of film industry
which has thus far been ignored. This report highlights the key challenges
faced by the industry and suggests
We live in a dynamic world where, thanks possible solutions which can help the
to technology improvements, our way of industry get back on track.
life is getting fast disrupted. Technology
has become an integral part of a society’s Jehil Thakker
existence. In such vibrant times, the Partner
film exhibition industry is still subjected Deloitte India
to archaic rules which have little or no
05
Screen Density | Key to Unlocking the Hidden Box Office Potential Executive Summary 06
Screen Density | Key to Unlocking the Hidden Box Office Potential
It is a known fact that India is a film Box office collections are an important This report highlights the need for
consuming nation and Indians are source of revenue for the film producers
• Improving the ease of doing business
fanatical about films to the extent that as it contributes ~74% of the overall
through regulatory reforms
some even worship their favourite revenue and hence the profitability of
actors as demi-gods. One of India’s best a film depends on the performance of • Enhancing fiscal incentives to maintain
known global brands is Bollywood (Hindi the films at the box office2. The current sustainability
Film industry) which enables India to infrastructure is unable to accommodate
• Development focus for
exercise significant soft power in the a theatrical release for all films produced
underpenetrated areas
global arena. However despite producing in a year. Additionally, most films which
the largest number of films year after do get a limited theatrical release struggle • Adoption of lean and innovative
year the country is nowhere near the to recover their cost. It is estimated that business models
highest grossing territories in the world. in 2016 more than 60% of the films could – Encouraging Public Private
In fact, US is six times that of India, not recover their cost of production. Partnership models
despite producing 62% fewer films and a – Advertising based revenue models for
population which is one third the size of media dark regions
India. China too is three times larger than The industry needs a model which – Promotion of franchise-based models
India in terms of box office collections. offers a better viewing experience to the for rapid infrastructure development
audience while allowing the exhibitor to – Development of compact and
While there is no dearth of demand for charge a higher ticket price and achieve a affordable theatres (Miniplexes) in tier
films in India, the inherent challenges better inventory utilization. Such a model II/III cities
being faced by the industry are stifling its then needs to be replicated fast across
• Scaling up anti-piracy initiatives
growth and restricting it from reaching its the existing and new screens to address
true potential. With 6 screens per million the major issue of below-par box office • Enabling industry with flexible ticket
population, India is by far one of the most performance of the Indian film industry. pricing models
under screened nations in the world.
• Adoption of box office measurement
Of the approximate 8,500 screens in This report is a joint initiative, among
systems
India, more than 70% are single screens Producers Guild of India, CreativeFirst
showing films at an average ticket price and Deloitte, to unearth the root causes • Investments in technology across the
of ~USD1. Poor theatre infrastructure of the weak performance of Indian Film value chain
and lack of latest technology restricts Industry, assess the market potential
these players’ ability to charge higher and identify possible implementable
ticket prices and hence the multiplexes solutions. The industry and government
which hold less than 30% of screen will have to work together towards the
inventory contribute more than 50% to larger cause of achieving Indian film
the industry’s revenues.1 industry’s true market potential.
1
Source: PVR Investor Presentation, June 2017, Deloitte India analysis
2
Indywood – The Indian Film Industry, 2016
07
Screen Density | Key to Unlocking the Hidden Box Office Potential The Indian Film Industry Paradox 08
Screen Density | Key to Unlocking the Hidden Box Office Potential
“We need to target at Overview CAGR between 2017 and 2020 reaching
Indian film industry is the largest in USD 1.9bn to USD 2.0 bn (INR 125 - INR
least 50,000 high-yield the world in terms of films produced; 130 bn).10 On the other hand, China’s
screens in India to unlock it produces close to 2,000 films every box office collections are expected
year in over 40 languages.3 In 2017, to grow at 20.6% CAGR to reach USD
the full potential of the India produced 1,986 4 movies drawing 15.07 billion by 2020, exceeding the box
Indian market. Currently, more than a billion footfalls across close office collections from US and Canada
to 8,500 screens5. In the same period, by 21.5%. Considering historic growth
an Indian distributor can Chinese exhibition sector attracted 1.37 trends over the past five years, growth in
access ~5,000 screens billion footfalls across 41,179 screens, US and Canada’s box office collections is
putting India in the second position with predicted to remain almost flat, reaching
for a mainstream Hindi respect to number of footfalls.6 USD 12.4 billion by 2020.11
movie implying that each
In spite of having second highest footfalls Our next-door neighbour, China, has
screen caters to 260,000 and highest number of movies produced, demonstrated the potential of the film
citizens. In comparison, Indian movie industry makes only a industry through its accelerated growth
fraction of revenues compared to US & over the last eight years. From 2010 to
a Chinese distributor Canada and Chinese markets. In 2017, 2017, China’s box office collection grew
can access ~45,000 Indian film industry’s gross box office at 21.5% CAGR reaching USD 8.6 billion in
realization stood at USD 1.76 billion while 2017.12
screens for a mainstream US and Canada recorded a gross box
Mandarin release office realization of USD 11.4 billion, six Box office collections are a function of the
times that of India, despite producing 62% number of movies produced for theatrical
implying each screen fewer movies (718 films)7. Comparatively, screening, number of screens in the
caters to 30,000 citizens. China released 391 movies in 2016 which country, occupancy rate and ticket prices.
grossed USD 6.6 billion at box office.8 In Considering India’s leadership position in
We need the government 2017, China recorded a growth of 30.3% terms of films produced and distributed
to come forward with in its box office collections closing at USD annually, India’s ability to replicate
8.6 billion.9 China’s growth story will depend upon
rebates, exemptions its ability to improve screen penetration
and easier licensing In terms of future growth, India's box and enhance the quality of screens to
office revenue is predicted to grow at 6% command a premium pricing.
norms so improve the
pace of building cinema Global comparison of ATP in INR, adjusted at PPP
infrastructure.” 189
167
Rohan Malhotra
Vice President - Distribution,
Yash Raj Films 88
USA China India
Source: Deloitte India analysis
3
CBFC - Films certified between April 2016 and March 2017
4
CBFC - Films certified between April 2016 and March 2017
5
Directorate of Advertising & Visual Publicity (DAVP)
6
Hollywood reporter - China Box-Office Growth
7
Motion Picture Association, India office-Theatrical-Market-Statistics-2016; Deloitte India analysis
8
Box-office mojo
9
http://variety.com/2017/film/asia/china-box-office-expands-by-2-billion-in-2017-1202650515/
10
Deloitte India analysis
11
Deloitte India analysis
12
Ent-group; Motion Picture Association, India office-Theatrical-Market-Statistics-2016, http://variety.com/2017/film/asia/china-box-office-expands-by-2-billion-
in-2017-1202650515/
09
Screen Density | Key to Unlocking the Hidden Box Office Potential
With respect to the screen density, India Figure: Comparison of global screen density13
comes in at the last position as compared Screen density (number of screens per million of population)
to US, Canada and China with 6 screens
125
per million of population. Comparatively,
China has 30 screens per million of
population while US has 125 screens.
82
India has witnessed a sluggish growth 61 57
in screens over the past few years
due to rapid pace of decline in single 30
screen cinemas. India needs to focus on 26
initiatives for empowering the exhibition 6
sector to increase the number and share
of quality screens across the country; USA Spain UK Germany China Japan India
such initiatives will play a critical role in
Source: PVR Investor presentation, Deloitte India analysis
growing box office collections to revive an
otherwise struggling industry.
The Average Ticket Price (ATP) in India
Year wise total number of screens in India
in 2016 was close to USD 1.4 (INR 88),
comparatively, the ATPs in US and
China, in 2016, were USD 8.6 and USD 12,000
10,383 10,346 10,035
5.5 respectively. When adjusted for 9,951 9,632
10,000
Number of screens
purchasing power parity between the US 8,134 8,471
8,225
Dollar, Indian Rupee, and Chinese Yuan, 8,000
the equivalent ATPs in US and China,
INR 167 and INR 189 respectively, were 6,000
approximately two times the ATP in India.
Lower ATP in India is primarily driven 4,000
by the difference in ticket prices across
2,000
multiplexes and single screen theatres
and structure of the exhibition sector. 0
The ticket prices in India across leading 2010 2011 2012 2013 2014 2015 2016 2017
multiplexes chains, PVR and INOX, were
Year
INR 196 and INR 178 respectively in 2016,
which is comparable to the adjusted Source: Inox investor presentation, November 2017
ticket prices in US and China. However,
the ticket prices in single screens were
as low as INR 15 in some cases while the
ATPs across all single screen theatres was
approximately INR 60.14 This difference in
ticket prices across multiplex and single
screen theatres is further intensified
by the mix of seating capacity. In 2016,
the mix of seating capacity across single
screen and multiplexes stood at 88%:12%
in favour of single screens with only slight
variation in occupancy levels.15
13
Source: PVR Investor Presentation, June 2017 Deloitte India analysis
14
Industry discussions conducted by Deloitte India
15
Deloitte India analysis
10Screen Density | Key to Unlocking the Hidden Box Office Potential
History of Film Exhibition in India The 1918 Cinematograph Act instituted and soon into the tier 2 and 3 cities. The
India is one of the largest and the most censorship and the licensing policy largest multiplex in India is Mayajaal in
culturally diverse countries in the world for film theatres. This was followed Chennai, which has 16 screens21.
and so is its cinema. In different regions by municipal and police rules in 1920
of India – Maharashtra, Andhra Pradesh, ordering that films should be shown only Current State of Film Exhibition Sector
Karnataka, Punjab and other parts of in built up premises and emphasized the in India
India, local theatre groups flourished due need for greater financial accountability The film exhibition industry in India
to the growing demand for entertainment by the distributors. In 1923, the Bombay is mainly comprised of single screen,
by the public. In Punjab, the Punjab Land Entertainment Duty Act came into effect, and multiplexes. Most single screen
Alienation Act, 1900 was passed that levying high tax on utilising public places properties in India are more than 50
curtailed investments in agricultural such as exhibitions for cinema.19 The years old and run by the second or
land, which led to large scale investment high taxation practices introduced in the third generation entrepreneurs. These
in the entertainment business. These early 20th century continue even today properties were built in the pre-digital
investments were in the form of with the latest GST implementation era when the analogue cinematography
theatre buildings, first used for stage bringing the exhibition sector under equipment and the physical reels posed
performances and later for films.16 the highest GST slab of 28% for tickets exorbitant costs, upwards of INR 50,000.
priced above INR 100 - a situation in These together with the distribution
In the early years, film exhibition sector some single screens and most of the costs necessitated a huge audience in
constituted of travelling tent theatres multi screen cinema halls. For tickets order to be profitable per show. The
using the Edison and after 1907, the priced below INR 100, and for temporary result was that, theatres (single screens)
Pathé projection systems. From 1910, transfer of copyrights for exhibition or for were built with huge capacities – 500 to
the cinema theatres began to be built broadcasting, the applicable GST rates 1,000 seats per screen.22 Such properties
while famous theatre palaces in major are set at 18%. Though GST has benefited also required huge catchment area to
cities got converted into ‘bioscope’ exhibitors in a few states, where under drive footfalls to such a huge capacity
projection houses.17 the earlier indirect taxation structure theatre. However, with the advent of
of service and entertainment tax, the digital cinema, the print costs reduced
Madan theatres was one of the pioneers effective tax rates were as high as 45%, to almost one fifth making it profitable
of the film distribution and theatrical it has also had an adverse impact on to have smaller theatres23. As a result,
business in India. They converted their regional cinema and states with lower most of the theatres that have come up
theatres into projection houses, and entertainment taxes. in the last decade are small (up to 250
acquired other theatres, until it had seats per screen) theatres. The reduced
around 126 theatres throughout India and Till 1980s single screens ruled the distribution costs, growing supply of
earned half of the box office revenues18. exhibition industry with audience content and appetite of the Indian
They mostly catered to Anglicized elite thronging to watch movies. It was only consumer have also allowed them to have
and imported movies from British before during mid-80s that the culture of more than one screen per property.
the First World War. They also entertained multiplexes arrived in India and changed
British troops during the war. the dynamics of the cinema industry In calendar year ending 2016, India had
completely20. People slowly started approximately 2,500 screens across
In the pre-independence era, movies shifting to swanky movie halls with multiplexes and 6,000 single screens.
were primarily screened as touring amazing infrastructure and amenities; In terms of seating inventory, the 6,000
talkies, drive-ins in open grounds in these multiplexes simultaneously ran screens accounted for 88% share of
towns/villages, panchayats and other movies across multiple screens and thus seating capacity while remaining 12%
places of consumption which drew offered more choice for consumers. was contributed by screens across
large crowds of Indians. There was The earliest multiplexes were individual multiplexes.24
apprehension of large gatherings and this properties. Multiplex chains like INOX
led to an imposition of multiple Leisure, PVR Cinemas, Cinepolis India
restrictions on the exhibition sector and Big Cinemas gradually entered the
through Sovereign Acts. market between 1990s to early 2000s
16
Indian Cinema – Origins to Independence
17
Indian Cinema – Origins to Independence
18
https://madantheatres.com/about/
19
Indian Cinema – Origins to Independence
20
Indian Cinema – Origins to Independence
21
http://www.mayajaal.com/about-us
22
Industry discussions conducted by Deloitte India
23
Industry Discussions
24
Deloitte India Analysis
11Screen Density | Key to Unlocking the Hidden Box Office Potential
Split of screens in India (Number of screens in May 2017)
12%
Cinepolis
13% 33%
Carnival Others
71% 29%
Single Multiplex
screens screens
19%
INOX
23%
PVR
Total number of screens = ~ 8,500
Source: Company websites (as of May 2017)
Single screen segment in India is • Limited capability of single screens to
fragmented and controlled by multiple monetize ancillary revenue streams
small players. The multiplex segment is such as F&B and advertising
largely corporatized, 67% of the multiplex
• Pressure on margins resulting
screens are controlled by PVR, INOX,
from poor box office collections,
Carnival Cinemas and Cinepolis.25
minuscule share of ancillary revenues,
unsustainable revenue share
In spite of a 13% CAGR in number of
agreements with distributors, high
screens across multiplexes over the last
taxes and fixed operating costs
5 years, the overall screen count in India
declined by 3% due to closing down of
For the multiplex industry, inability
single screen theatres26.
to organically grow screens at a fast
pace due to lengthy regulatory process
Since 2009, every year, approximately 5 to
drove the players to add screens
10% single screens have shut down due
inorganically. Hence, of the 1,665 screens
to issues such as: 27
controlled by PVR, INOX, Carnival and
• Limited content availability from Cinepolis in 2016, close to 41% have
distributors due to concerns regarding been acquired inorganically.29 Carnival
transparency of box office collections, cinemas made the biggest acquisition
technology employed for projection, (in terms of number of screens) of 290
piracy and geo location strategy for screens from Big Cinemas, Broadway
specific content and Giltz over 2014 and 2015; 79% of
screens owned by Carnival have been
• Inability of single screens to compete
acquired inorganically. PVR acquired
with multiplexes in terms of viewing
167 screens from Cinemax and DT and
experience leading to decline in
INOX 133 screens from Fame Cinemas
occupancy
and Satyam.30
25
Deloitte India Analysis
26
Industry discussions, analyst reports, company reports
27
Indywood – The Indian Film Industry, 2016
28
http://www.business-standard.com/article/companies/coming-soon-multiplex-boom-across-india-115021101507_1.html
29
Deloitte India analysis
30
http://www.business-standard.com/article/companies/coming-soon-multiplex-boom-across-india-115021101507_1.html
12Screen Density | Key to Unlocking the Hidden Box Office Potential
Acquirer Target Year Number of Screens Acquired
“Over the years, Indian
PVR DT 2016 32 audiences have become
Carnival Glitz 2015 30 increasingly appreciative
Carnival Broadway 2014 10 and acceptive of content
Inox Satyam (Delhi) 2014 38 across languages,
Cinepolis Fun Cinemas 2014 83 cultures and genres. We
Carnival Big Cinemas 2014 250 have witnessed with
PVR Cinemax 2012 135 our releases like Marvel
Inox Fame Cinemas 2011 95 Studios Black Panther,
Source: Business Standard28, Deloitte India Analysis Thor: Ragnarok, Avengers:
Age of Ultron and Disney’s
In 2016, all the multiplexes together the content supply. India has a growing
The Jungle Book that
added only approximately 250 new middle class spread across metros, tier
screens across India31. Following the I and tier II cities with young population audiences across cities
consolidation wave in the industry that is willing to spend on leisure
and small towns have
now only a few targets are available for activities. The supply of content is robust
the large players. Going forward, the with regional industries thriving and equally enjoyed these
multiplex screens are expected to grow Hollywood supplying content in dubbed
global blockbusters. This
organically at a similar pace adding languages. Digitization is enabling faster
approximately 100 to 250 screens per distribution of films and also elevating means, there is a huge
year.32 With a potential to consume the overall cinema watching experience.
demand for such world-
content across approximately 7,500 to While all constituents are in place, lack
10,000 multiplex screens nationally, of availability of quality infrastructure class stories in tier 2 and
growth of 100 to 200 screens per year (screens) is likely to lead to a missed
tier 3 cities. To add, the
seems to be highly inadequate to exploit opportunity for India.
the complete potential of this industry; screen density per capita
at this pace, the industry will require Increasing disposable incomes and
is low and there is huge
more than 30 years to build consumption rising middle class:
capacity that is required today. India has a significant portion of its potential and opportunity
population within the working age group
for growth. We are
The missed opportunity - Cinema (15 to 59 years) and there is a growing
consumption potential in India number of graduates waiting to join working with industry
There is a huge market opportunity the Indian workforce. According to the
players to find ways to
both from the demand perspective and Brookings Institution, India is expected
improve screen count
India's share of global middle class consumption (PPP) and increased support for
20%
digital content in smaller
17%
markets, where Motion
15%
Picture Association, India
10%
9% office titles don’t get to hit
5% some theatres today.”
5%
Bikram Duggal,
0% Executive Director and Head,
2015 2020 2030
Studio Entertainment, Disney India
Source: Brookings Institute
31
Industry Discussions
32
Industry discussions conducted by Deloitte India
13Screen Density | Key to Unlocking the Hidden Box Office Potential
to contribute ~35-38% of the next global to be capitalised fast to increase the Availability of Hollywood and dubbed
middle class, between 2015 and 2022.33 overall pie for the Indian film industry. content: India is becoming an area
Growth in disposable income and rising of focus for Hollywood producers; to
middle class is likely to drive discretionary Rise of Regional Content: Opportunity this end, Hollywood movies are being
spending on leisure and entertainment for growth from tier 2 and tier 3 cities released in India either on the same day
thereby offering a huge potential for is further amplified by availability of as their worldwide release or earlier.
growth of Indian film Industry. regional content. About 50% of box ‘Jungle Book’ and ‘Inferno’ released in
office collections today are contributed India a week and two weeks before their
Focus on tier 2 and tier 3 cities: With by regional films35. Moreover, on an US releases respectively. Dubbing of
the penetration of mobile and digital average, producing a regional movie Hollywood movies in regional languages
media, the audiences in tier 2 and 3 cities costs 73% less than producing a Hindi has also improved the availability of
are maturing in terms of their media movie, thus attracting investments from consumable content in tier 2 and tier 3
consumption habits and becoming large studios and producers.36 Large cities; the number of foreign films dubbed
more familiar with what the content national producers such as Reliance in Indian languages has doubled over the
film industry has to offer. However, the Entertainment, Eros, Disney, Viacom past 5 years38. Films are primarily being
current penetration of multiplex screens 18, Fox Star Studios and independent dubbed in Hindi, Tamil and Telugu. In
in tier 2 and tier 3 cities stands at only producers like Emmay Entertainment, 2016, ‘Jungle Book’ made 58% of its more
8 screens per city – 88% lower than the Akshay Kumar and Grazing Goat than INR 2,000 mn box office collection
screen density in the tier 1 cities which Productions plan to spend 20% of their from dubbed versions.39
stands at 66 screens per city. 34 There annual budget on regional cinema.37
exists a market opportunity which needs Digitization: UFO Moviez and Real Image
have facilitated the digitization of movies
Split of regional movies released during 2016 enabling wider distribution and reach;
it has also helped in curbing the piracy
of content and offering confidence to
3% 3% producers on monetization potential.
4% The lower printing costs as compared
22%
to conventional printing has enabled
6%
producers to scale up the number of
screens for release by as much as 5
6%
times in the same budget.40 Digitization
has improved penetration of content in
9% smaller cities and towns and has enabled
18%
simultaneous release of movies across
theatres. Given that 60% of box office
collections are realized in the first week
11% of release41, simultaneous release across
18% theatres plays an important role in
boosting box office collections. Reduction
in cost of physical transportation
Hindi Telugu Tamil Kannada Malyalam and printing, lower running costs
and convenience have led to better
Bengali Marathi Bhojpuri Gujarati Punjabi profitability economics for exhibition
industry.
Source: Moviebuff
33
Brookings Institute – The unprecedented expansion of global middle class
34
Deloitte India analysis
35
Indywood – The Indian Film Industry, 2016
36
Deloitte India analysis
37
Indywood – The Indian Film Industry, 2016
38
Indywood – The Indian Film Industry, 2016
39
Deloitte India analysis
40
Industry discussions conducted by Deloitte India
41
INdywood – The Indian Film Industry, 2016
14Screen Density | Key to Unlocking the Hidden Box Office Potential
Indonesia – recognising its market potential
Indonesia, with only 1,117 screens to serve a potential audience of more than 255 million people, is one of the least penetrated
cinema markets in the world.42 The country has a growing middle class which is expected to account for nearly half the population
by 2030, up from 19% in 2012.43 Since 2011, the Indonesian government has been moving towards a free-market policy around
the film industry. In 2016, it removed film projection, production and distribution from its list of businesses with foreign
investment caps. This has resulted in significant foreign investments into the country and also associated increase in performance
of existing chains. For example,
• CGV cinemas reported a massive 150% increase in its footfalls between 2012 and 2016.43
• Singaporean sovereign wealth fund GIC entered into a strategic partnership with Nusantara Sejahtera Raya (NSR), Indonesian
cinema operator for USD 260mn43 and
• South Korean exhibition giant CJ-CGV increased its stake in CGV-Blitz from 14.75% to 40.25% for USD30 mn.44
The Indonesian film industry expects that favourable government environment is expected to allow the market to add 500-600
new screen additions every year for next 10 years and reach a base of 5000-6000 screens.45
42
Opening Indonesia's Film Industry to Foreign Investment, 26 May 2016 - https://www.indonesia-investments.com/news/todays-headlines/opening-indonesia-
s-film-industry-to-foreign-investment/item6859?
43
Indonesia's CT launches cinema blitz to boost retail chain, Nikkei Report, 19 January 2017
44
http://variety.com/2016/biz/asia/cj-cgv-increases-stake-in-indonesia-blitz-1201746944/
45
http://variety.com/2016/film/global/indonesia-film-business-rebounds-1201725645/
15Screen Density | Key to Unlocking the Hidden Box Office Potential Exhibition Sector: Key Challenges 16
Screen Density | Key to Unlocking the Hidden Box Office Potential
“The top multiplex chains With a contribution of 72% to the direction, with the formation of
Indian film industry, domestic box Telangana Intellectual Property Crime
at most points in time office collections play a critical role in Unit (TIPCU) and Maharashtra's Digital
have around 50 screens accelerating the growth of the Indian Crime Unit (DCU) to deal with on-line
cinema.46 In spite of producing more piracy, more stringent measures and
fitted out and staff hired, movies than any other market across the implementation practices need to be
waiting for some approval globe, domestic box office collections in adopted
India have seen a muted growth due to:
to be granted; approvals Improving screen density by promoting
• Limited accessibility to screens:
are held up at two levels Screen density varies widely across
the growth of multiplexes is need of
the hour for the industry to address
– approval for malls, India – with as many as 20 screens
challenges associated with poor
per million of population in some of
and then approval for a the states in south and as low as 1.5
accessibility, lower than average ATPs and
sub optimal customer experience.
multiplex within the mall ” screens per million in the northeastern
states 47
Current situation of Screen Density in
Devang Sampat • Structure of the exhibition sector: India
Director, Strategic Initiatives, Cinepolis Traditionally, India’s exhibition sector Screen density is defined as the number
has been largely driven by single screen of screens available in the country per
theatres. However, with increased million of population. Screens (across
spending power, consumers are theatres) provide a primary platform
spoilt for choice and demand a better for producers, directors, actors and the
experience, making it difficult for single entire film fraternity to exhibit their work
screens to compete. There is a need for to audiences across the globe. Screen
increasing screen density through the density plays a pivotal role in shaping
growth of multiplexes that are able to the economics of the exhibition sector
meet the demands of today’s consumer and film industry in general by defining
collections from one of the biggest
• Lower Average Ticket Prices (ATP):
revenue streams – box office. Some of the
ATP across multiplexes, are comparable
benefits of improving screen density are
to the global ATP (USA and China
cited below:
for example) when adjusted for the
purchasing power parity. However, the • Higher accessibility: Easier accessibility
higher mix of single screens, selling of theatres improves the convenience
tickets at much lower prices, drives of enjoying a cinema experience thus
the average ATP in India much below incentivizing people to watch movies on
the global average. Addressing the big screens
structural rift between single screens
• Establishments of screens help in
and multiplexes will help the industry
improving socio-economic status by
address the issues of ATP. Comparable
enabling local businesses to thrive
occupancies (for a much smaller seat
from increased footfalls in the area;
inventory) at multiplexes for higher
moreover, it also benefits the real
ticket prices as compared to single
estate sector by increasing the demand
screens is a testimony of consumer
willingness to pay for better experience. • Increasing the penetration and density
Capping on ticket prices, adopted by of screens helps in promoting cultural
some states, is another deterrent and social messages amongst a wider
inhibiting the growth of ATPs audience base. In pre-independence
era, local cinema was used as a tool to
• Rampant Piracy: Availability of the
promote the message of independence
film content via illegal platforms is
amongst the youth, making cinema a
one of the key reasons for lower
key target for widespread regulation by
occupancy rates. While Government
the English.
has started taking steps in the right
46
Deloitte India Analysis
47
Census 2011, DAVP
17Screen Density | Key to Unlocking the Hidden Box Office Potential
State-wise screen density across India (2016)
Screen density Screen density
Categorization range (screens/mn
population)
High >10
Moderate 6
Low >4 andScreen Density | Key to Unlocking the Hidden Box Office Potential
In spite of the many benefits associated Screen density varies widely across It is evident from the graph that there
with a higher screen density, at six India – with as many as 20 screens per is a stark difference in screen density
screens per million of population, India million of population in some of the within metro cities as well. Mumbai has a
has one of the lowest screen densities states in south and as low as 1.5 screens screen density of ~21 screens per million
in the world. To add to this, India’s per million in the northeast states.49 whereas the screen density is New Delhi
screen count has reduced from 10,345 Exhibition industry has flourished in the is only 7.80 screens per million.
in 2011 to approximately 8500 in 2016 south due to the support extended by
aid-growth of 3% over a period of five the government for development of the Impact of Low Screen Density
years. Reduction in screens can be mainly film industry. Gujarat also enjoys one of Low penetration of screens prevent
attributed to the shutting down of single the highest screen densities due to ease the producers and distributors from
screen theaters across India; 5 to 10% of of setting up screens from a regulatory monetizing a movie to its full potential.
the single screens have shut down every process perspective. The remaining With nearly 2,000 movies produced in
year over the past five years, reducing states offer much scope for increasing India annually, there are more than 30
the count from 9,300 in 2010 to 6000 the number of theatres. movies releasing every weekend; these
in 2016.48 While the single screens have movies are vying for 8,500 screens across
closed down due to competitive forces The current screen density in India across the country leading to an average of
and profitability related issues, number 25 prime cities, as of 2016, is shown in the only 250 screens available per movie.51
of screens across multiplexes have not chart below. However, since these movies are across
grown to fill the void. different languages, the number of
Screen density across 25 prime cities50
35.0
30.2
29.9
27.7
30.0
26.4
25.0
21.0
20.6
Screen Density
19.2
18.8
18.4
17.9
20.0
17.1
15.9
15.5
13.1
12.3
12.5
15.0
12.0
10.8
10.8
10.5
10.0
7.8
6.3
6.2
5.2
4.3
5.0
0%
Bhopal
Ghaziabad
Pune
Nagpur
Ludhiana
Agra
Kolkata
New Delhi
Coimbatore
Ahmedabad
Bengaluru
Visakhapatnam
Nasik
Jaipur
Hyderabad
Mumbai
Surat
Vijayawada
Lucknow
Madurai
Vadodara
Indore
Kanpur
Chennai
Patna
Source: Industry Discussions
48
Deloitte India analysis
49
Deloitte India analysis
50
Industry Discussions
51
Deloitte India analysis
19Screen Density | Key to Unlocking the Hidden Box Office Potential
screens available for movies varies. There movies such as Dangal, domestically vs • The authorities approving the licensing
is a further pressure on the screens when in foreign countries, the results throw up of theatres are: a District Magistrate;
more than one popular movie sees a the glaring problem of lack of screens in or a Sub-divisional Magistrate; or a
simultaneous release, limiting its ability the country. Commissioner of Police
to realize full potential on the opening
• The Cinematograph Regulations of
weekend. Smaller independent movies Factors limiting the growth of screen
various states mandate three key
and regional movies are most affected density in India
regulatory requirements in setting up a
as they lack the negotiating power for Complex regulatory framework, multiple
theatre business in India:
distribution and resources for marketing. taxation, decentralized and highly
– location clearance,
‘Bahubali-2’, one of the leading movies complex operating environment are
– construction clearance and
of 2017, saw one of the widest releases some of the key challenges hampering
– business license
- across 6,500 screens. ‘Sultan’ was the growth of screen density in India.
released in 4,350 screens52. ‘Dangal’ –
one of the leading movies of 2016 - was Regulatory Framework Governing the • Each of these clearances require the
released across 4,250 screens and is Exhibition applicant to make an application to the
estimated to be viewed by less than 2.5% The exhibition industry in India is regulatory body. The application has to
of the Indian population in theatres; regulated by The Cinematograph Act, be supported with various No Objection
comparatively, yesteryear blockbusters 1952 at the national level. Center makes Certificates (NOC) and certificates
such as Mughal-e-Azam (1960) and Sholay provision only for the cinemas which which the applicant has to procure by
(1975) were viewed by 5%-6% of Indian are directly under its administration independently approaching various
population, then, in theaters.53 This and directs the State Government to government departments.
indicates the opportunity for increase have similar legislation for regulation
in collections for blockbusters, provided of cinemas in the State. Thus, each
Annexure-I and Annexure-II provides
there are enough number of screens and of the states have introduced a Bill
deeper insights from comparison of
competitive running time. independently to introduce a licensing
regulation and associated rules across
system for the film theatres. Most of
states in India.
With international movies making these bills have been introduced in the
in-roads in India and regional movies 1950’s and are more than six decades old.
Almost all the workflows related to
travelling beyond the linguistic The provisions of these bills across states
approval are managed offline in most of
boundaries, the competition for screens are almost similar.
the states and require the applicants to
is becoming fiercer and the running time
visit the concerning department in person
in theatres is becoming shorter. When Key points pertaining to licensing are as
to submit the relevant documents in hard
one compares the performance of Indian follows:
copy to make the application.
Comparison of Dangal's performance between India and China
Dangal
Country of release India China
Year of release 2016 2017
Lifetime domestic box office collection (USD mn) 76 152
Number of screens across which the movie was screened 4,250 9,000
Running time in theatres (in weeks) 24 5
Opening weekend collection (USD mn) 30 15
ATP (USD) 2 4
Source: Deloitte analysis
52
http://www.livemint.com/Consumer/gAvNZlAeMzMtFERBT9RtaM/Salman-Khans-Sultan-soars-at-box-office-with-Rs3654-cror.html
53
Deloitte India Analysis
20Screen Density | Key to Unlocking the Hidden Box Office Potential
Key regulatory processes involved in setting up a new theatre in India
Location clearance Construction clearance Business License
Key requirements for • Detailed plan • Location clearance • Occupation certificate
application
• Ownership documents • Approved plans of • NOC from: Electrical
construction Inspector, Health Officer,
• NOC for detailed plans and parking layout
Fire department, Traffic
from: • NOC from the Chief Fire
Police, Public Works
Municipal building and property department, officer
department, telephone
local corporation, Fire Department, Public
exchange/ internet
works department, Collector
service provider
Approval process • Invite objections from local citizens • Review the application • Submit proposal to the
and papers submitted government for sanction
• Enquiries by the local police station
• Provide NOC • Issue license after the
• Traffic department approval
receipt of permission
• Government approval
Key regulatory Ownership; Proximity to public institutions such Possession of valid Architectural
requirements for as schools, hospitals and government offices ownership documents and specifications for
approval NOCs entrances, exits, seating,
ventilation, lighting
Approximate time for 6months 2months 6months
approval
Source: http://thanepolice.gov.in/faq.php
The regulatory requirements, multiplicity • Long gestation period • Absence of provisions for evolving
of departments and lack of streamlining The regulatory clearances for opening trends
leads to many complications for the a new cinema theatre on an average The cinema regulation acts enacted by
exhibition players. The key concerns takes three to six months. However, the states are nearly six decades old
faced by the exhibition players incude: there have been several instances and require a revisit in order for it to be
where fully constructed and ready to made contemporary, in order to make
• Multiple regulatory authorities
operate facilities have had to wait for the process of setting up new screens
There is a dependency on at least six
more than 2 years post construction in in tune with the current times and also
different government departments
order to get the business license54. make it an effective tool to counter
to get the location NOC. Each of these
It is essential to take cognizance of the modern challenges such as piracy.
departments have to be approached in
significant opportunity costs that are
person to solicit the required approval. • Inability to track the status of
borne by a cinema entrepreneur as
Similar is the case for the construction application
they await a cinema business license
clearance and the business license. The states which still conduct the
to open doors to the public. Moreover,
An exhibitor is required to contact process offline makes it difficult
most of the cinema owners also appoint
people across the 5 key departments for applicants to track the status of
the required staff and take electrical
and approving authorities many times their application. The absence of
connection in anticipation of obtaining
and secure over 15 to 20 approvals to transparency in application status
the license. Thus, the long gestation
obtain a business licenses. Process of stands as a demotivating factor and
period also leads to massive losses as
approaching multiple departments impacts investor sentiment.
many theatres, fully constructed and
and coordinating across multiple
ready to function, await the business • Regulations pertaining to single
touchpoints makes the entire process
license to start operations. screens
very time consuming and inefficient,
Regulations related to single screens
thus discouraging new investments in
are seen to be adversely impacting
this industry.
54
http://www.thehindu.com/news/cities/chennai/pvr-cinemas-application-for-licence-pending-for-over-2-years/article7914236.ece
21Screen Density | Key to Unlocking the Hidden Box Office Potential
the business for the owners. On one As a result, quite a few theatres have required to be paid on all other services,
hand, in a bid to prevent the theatres been lying defunct. It is essential including temporary transfer of copyright
from closing down, certain states such to review the regulations for single for exhibition of cinematographic films
as Maharashtra have introduced exit screens and facilitate monetization of other than for exhibition in theatres.
regulations restricting single screen these properties. The levy and collection of entertainment
properties from redeveloping into tax was under the purview of the state
commercial properties. To redevelop a Taxation governments as provided under Article
cinema theatre a capacity of 1,000 seats, Prior to 1st July 2017, the film exhibition 246 of the Indian Constitution. For the
it is mandatory for exhibitors to build a sector was levied with both Central as exhibition sector, this tax was applicable
smaller cinema theatre of 330 seats at well as State levies. Levies from centre on the value of the gross ticket sale
the same place prior to re-development. include service tax and customs duty and the tax rate varied from state
while the state taxes include VAT and to state. The table below shows the
On the other hand, the single screen entertainment tax on different sources entertainment tax rate across states in
theatres fail to qualify the infrastructure of income. The base service tax was India. Combination of taxes increased the
requirements for multiplexes such as fixed at 14% which had two types of effective tax liability of an exhibitor to
parking space. Hence it is difficult to cess on top of it, the Swach Bharat Cess more than 100% in some states.
convert most of these single screen (SBC) at 0.5% and Krishi Kalyan Cess
theatres into multiplexes. Renewal of at 0.5%, bringing the effective service In addition to the limited exemption
licenses for single screen theatres is tax rate to 15%.55 While service tax was under service tax as mentioned
also challenging as they are expected exempt on exhibition of movies and above, the state governments, at their
to comply with the requirements for temporary transfer of copyright by discretion could provide exemptions for
modern theatre properties. distributor to exhibitor for exhibition of entertainment tax. This exemption varied
cinematographic films in theatres, it was from state to state and was focused
Table. Entertainment tax in India (prior to July 1, 2017)
SN State Entertainment Tax
1 Andhra Pradesh 20% (15% for Telugu Films)
2 Assam, Himachal Pradesh, Jammu & Kashmir, Punjab and Uttaranchal Nil
3 Bihar 50%
4 Delhi 20%
5 Gujarat 20%
6 Haryana 30%
7 Jharkhand 110% (Nil for Jharkhand films)
8 Karnataka 30% (Nil for Kannada films)
9 Kerala 30%
10 Madhya Pradesh 20%
11 Maharashtra 45% (Nil for marathi films)
12 Orissa 25%
13 Rajasthan 30% (Nil for Rajasthani films)
14 Tamil Nadu 15% (Nil for Tamil films)
15 Uttar Pradesh 30% to 40%
16 West Bengal 30% (2% for Begali films)
Source: http://www.filmtvguildindia.org/
55
Industry discussions conducted by Deloitte India
22Screen Density | Key to Unlocking the Hidden Box Office Potential
on promoting exhibition of regional With the GST implementation from July relevant to the sector are now liable to
cinemas. For example: Tamil Nadu 1, 2017, the central and state taxes are GST at 18%.
government provided a 100% exemption subsumed into one tax which is levied
on entertainment tax for films which had in two tax slabs: 28% for tickets priced Illustrative comparison of pre-GST and
Tamil names. above INR 100 and 18% for tickets post-GST liability for a Hindi language
priced up to INR 100.56 Most of the other movie, which enjoys no exemption
services and various goods that are across states is shown below:
Detail Units Maharashtra Tamil Nadu Assam
Pre-GST Post-GST Pre-GST Post-GST Pre-GST Post-GST
Ticket price INR 200 200 200 200 200 200
Entertainment tax rate % 45% - 15% - - -
GST % - 28% - 28% - 28%
LBT % - - - 20%* - -
Tax liability % 45% 28% 15% 48% - 28%
Total tax liability INR 90 56 30 96 56
Source: Deloitte India analysis *Considering a non-Tamil movie; for Tamil movies, LBT is 8%
The GST regime provides the exhibition housekeeping etc. was not fully available off would enable the industry to reduce
industry with the benefit of obtaining for set off against output liability. their costs in the form of lesser tax
input credit, previously not available. For Similarly, tax paid on purchase of goods liability.
example, previously, tax paid on rent, was also not available to an exhibitor.
common area maintenance, security, Compared to the earlier regime, this set
Country-wise Comparison57
Country Standard VAT/ GST VAT/GST on theatre admissions
Austria 20% 10%
Belgium 21% 6%
Finland 24% 10%
France 20% 10%
Germany 19% 7%
Netherlands 21% 6%
Sweden 25% 6%
India 5%, 12%,18%, 28% 18% or 28%
Source: Vatlive.com
56
http://www.business-standard.com/article/economy-policy/gst-impact-entertainment-tax-tweaking-by-states-results-in-disparity-117070401028_1.html
57
https://www.vatlive.com/vat-rates/international-vat-and-gst-rates/
23Screen Density | Key to Unlocking the Hidden Box Office Potential While GST is expected to provide some players; since the implementation When compared to the global respite to exhibition centers in high taxed of GST, a system to incentivize new counterparts, the tax levels for cinema states such as Maharashtra, centers in theatres under construction is yet to are on the higher side. Given the growth states such as Assam which had zero be formulated.58 Many of the state phase of the industry and the price entertainment tax are expected to feel governments previously allowed tax sensitive audience, high taxes pose a the pinch. Also, regional cinemas are exemption for new properties; this serious challenge to the growth of the expected to be hit the worst. Prior to GST, practice is abolished under the new industry. regional cinemas were incentivized by tax regime. the states by having to pay either zero While GST was set to subsume taxes or subsidized taxes. For example, in Single screen properties, which are entertainment tax, states retained the Maharashtra which was one of the states already operating at wafer thin margins option to levy local body tax over and with high tax rate, Marathi movies were due to high operating costs and dwindling above GST in order to cover for the loss in made tax-free. The tax subsidy has played footfalls, are expected to be impacted revenue. For example, state of Tamil Nadu a key role in the growth of the Marathi significantly by the new tax regime in has empowered its local bodies to collect movie industry in the recent past. Thus, states. The multiplexes on the other hand 8% tax on movies in Tamil language, and the new tax regime is expected to hurt are expected to become costlier for most 20% tax for movies in other languages. the regional cinema. Also, in the pre-GST of the consumers (especially those in This tax is levied over and above the GST era, state governments would offer the states charging lower entertainment rates of 18% (For tickets up to INR 100) & entertainment tax concessions to cinema tax previously). This may affect the 28% (for tickets priced above INR 100)59. exhibitors for first few years of operation occupancy levels as the Indian audience is Such taxes recreate the challenges that in order to enable them to remain viable extremely price sensitive. industry faced in the pre-GST era. and competitive against established 58 CIT vs. Chaphalkar Brothers Pune (Supreme Court) 59 http://www.business-standard.com/article/economy-policy/tamil-nadu-govt-reduces-local-body-entertainment-tax-to-8- ahead-of-diwali-117101300829_1.html 24
Screen Density | Key to Unlocking the Hidden Box Office Potential
Piracy of newly-released movies found online. • Ineffective counter technologies:
Availability of film content illicitly while Superior and portable video recording Sophisticated technologies like the
the movie is still in the theatres has been devices enable easy recording and clean watermarking of prints, which allow
dampening the box-office collections digital copy of a movie with perfect producers or rights holders to monitor
and has become a grave concern for audio that can be quickly distributed the usage and movement of each print
the entire industry. Technological online. across the globe, have failed to provide
advancements are allowing easy protection due to the clandestine
• Digitization: The film industry has
dissemination of pirated content while recording of pirated versions which are
increasingly adopted digitization of
lack of government initiatives to curb mostly done in low-light setting of a
film prints to cut the cost of recording,
piracy has been leading to massive losses cinema theatre, or from the projector
storing and copying of films for
for the industry. The Indian film industry room.
distribution. Digitization has increased
is estimated to incur losses of around INR
the risks involved in leaking and piracy • Improving mobile and internet
180 bn ($2.7 billion) and over 60,000 jobs
manifold. penetration: Increasing internet
every year because of piracy.60
penetration, smartphone penetration
• Pre-release piracy leak: Distributors
and cheaper data rates have improved
Some of the key trends which have led to are opting for a simultaneous global
the accessibility of pirated content.
a growth of piracy are: screening, which requires the dispatch
of prints some 10-12 days in advance,
• Increased proliferation of illicit
leading to pre-release leakage of prints.
cam-recording: Illicit camcording is the
primary source of unauthorized copies
60
https://www.thequint.com/entertainment/2016/08/22/indian-films-are-losing-dollar27-billion-to-piracy-every-year
25Screen Density | Key to Unlocking the Hidden Box Office Potential Development of China’s film exhibition industry – a remarkable growth story 26
Screen Density | Key to Unlocking the Hidden Box Office Potential
“India has 8,500 screens Overview from USD 2.20 bn in 2010 to USD 6.60
As on December 2016, Chinese film bn in 2016. Today, China accounts for
and China has 45,000. industry was ranked second in the approximately 17% of the global box-
India will catch up on world in terms of box office collections; office market share61. In the same period,
however, this was not the case six years the market leader in terms of box office
the screen density and ago. Over the last six years, Chinese collections, US and Canada, have grown
has a market place to film industry has seen a significant rise by 8%.
in box-office collections, growing 200%
accommodate growth for
all players" Growth of chinese box-office collections
Kailash B Gupta
Chief Financial Officer, INOX
8 6.70 6.60
5.10
Revenue (USD bn)
6
2.90 3.70
4 2.20 2.40
2
0
2010 2011 2012 2013 2014 2015 2016
Source: Ent-group; Motion Picture Association, India office
The Chinese film industry contributed more than 70065 domestic films, with
nearly USD 9 bn to China’s Gross approximately 58%66 of these movies
Domestic Product (GDP) in 2014 finding their way to theatrical screening.
considering direct and indirect Collections from imported films are
contribution in the form of purchases, mainly driven by Hollywood movies which
wages and taxes in the industry62. At the are highly popular among the Chinese.
current pace of box-office growth, China’s In spite of the Chinese government
box office collections are predicted to policy limiting the number of foreign
reach USD 15.07 bn by 2020; this growth film imports to 34 releases a year, a
in the box office collections will benefit all staggering 41% of box office collections
the players across the value chain while come from imported films. Preference for
contributing more than USD 20 bn to the Hollywood movies is better understood
GDP.63 when we look at China’s contribution to
top five grossing Hollywood movies of
China’s exhibition sector screens a H1 2017. The revenue contribution from
mix of domestic and imported films China for these movies stood at 17%,
with approximately 55%64 of box office comparatively, US domestic markets
collections being contributed by domestic contributed 35%67.
films. On an average, China produces
61
Motion Picture Association, India office-Theatrical-Market-Statistics-2016
62
Oxford economics – The economic contribution of the film and television industries in China, 2015
63
Deloitte estimate
64
Ent-group
65
Ent-group
66
Ent-group
67
Media reports, news articles
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