When we talk about industries suffering from COVID-19 pandemic, the airline industry and tourism industry hits our minds. We often forget how catastrophic this pandemic has been to the cinema chains. The central government of India announced a lockdown in March. Since then, theatres around the country have been forced to stay shut. According to an estimate, film exhibitors have already lost revenue of around Rs 9,000 crores.
After nearly 7 months of closure, the government of India has given a green light to open the theatres from October 15. This comes during a time when India is reporting more than 60,000 positive cases daily. Even though the central government has given its nod, state governments will take the final decision. Maharashtra, Kerala, Telangana, Tamil Nadu and few other states are yet to allow the cinema halls and multiplexes to reopen.
Not Fully Opened
The cinemas are allowed to open but several guidelines force them to operate within a very limited space. The Ministry of Information and Broadcasting (I&B) released Standard Operating Procedures (SOPs) which the cinema halls and multiplexes are obliged to follow. The most adverse restriction is on the capacity of people to be allowed to enter. All the halls are ordered to run at a capacity of not more than 50%. How will this impact their business? In one of our articles earlier, we explained to you how the Indian airlines realize its profits by getting more passengers on board. Higher the passengers they have in one flight, more profit they can derive due to lower variable cost. You can read the article here.
Similarly, what cinema halls offer is one screen to all the viewers. No matter, if there are 100 attendees or 10 attendees, screen, ACs and projector, will incur the same cost. Thus, the cost will remain on the same level but revenue will fall. It will further decrease the profit which they can realize.
Apart from this, due to the pandemic situation, cinema halls and multiplexes have to ensure that regular sanitizing of auditorium takes place. Every alternate seat will be marked with a tab or floor fluorescent so that no one occupies those seats. Thermal screening at the time of entry and touchless transaction during any time inside the halls will only increase the expenses.
The Fall in Numbers
“Never in our history of 21 long years have cinemas closed down fully. Like any other business, we have gone through ups and downs in terms of revenues but we had never imagined our revenue will read zero.” – Gautam Dutta, CEO of PVR Cinemas.
PVR Cinemas is the largest cinema chain in India. It has 845 screens which offer 182 thousand seats all over the nation. But due to the lockdown, all the cinema halls were shut. This led to zero revenue from its core business, that is income from the sale of movie tickets. Income from Food & Beverages were also a very high margin business for these cinema halls.
People were aware of how PVR’s Q1 FY21 results will look like. But, it hits you only when you really see it. Below is the snapshot of their performance in the quarter hit by COVID-19. EBITDA, EBIT, PBT, PAT and EPS, all the financial metrics were in negatives. As Gautam Dutta said, this was one scenario, they could have never imagined. The only income they were able to derive included interest income, gain on redemption of MF/investments, convenience fee and other non-operating income.
The only good thing to see in their results was the lower expenses. That is understandable, right? Lower electricity and water bills, no rent and lesser payment to maintain common areas helped the company to reduce its expenses by almost 80%.
If you think, only PVR faced these humongous losses then let’s look at INOX. INOX Leisure Limited is one of India’s largest multiplex chains in the country. Here a snapshot of their Q1 FY21 results.
Again, the revenue generated from the sale of movie tickets was zero. This was the impact on all the cinema chains all over the nation from the past 7 months.
Where is the Content?
Cinema halls are allowed to open but what will they show? All the new movies which have released in recent months have been forced to launch on online streaming websites like Hotstar, Netflix and Amazon. The movies which were near to complete their shoot are witnessing delay in film completion. This will further delay their launch dates.
To begin with, cinema chains are planning to bring old classics at cheaper ticket prices. This phase one will be used to attract footfalls by tapping on the emotional quotient of the customers. In remembrance of late actors Rishi Kapoor or Irrfan Khan, people will be invited to watch their older films at a cheaper price.
The management of cinema chains is optimistic that this can trigger the customers to leave their houses and visit halls slowly. They are ready to offer low prices until new content comes on the screens. Once the new movies are launched, prices are expected to go back to pre-covid levels. Big movies of 2020 like Laxmmi Bomb, Sooryavanshi, ’83’ are yet to be launched. Once these movies are ready with a date, people are expected to walk back to the theatres.
Will people come back?
One issue is content, another issue is the desire of customers. Two obstacles in cinema chains’ way to attract customers are 1) Online Streaming Websites 2) Safety concerns.
If the theatre halls are showing old content until new movies are released, why would a person want to leave the comfort of his/her sofa and pay money to watch the same content in the halls? Cinema chains vs digital platforms have always been a topic of debate. But these COVID times have made the latter highly popular.
People have already taken subscriptions of different digital platforms. Going to theatres will only increase their luxury expenses. Indian audiences do like to visit the theatres but digital platforms have given them a lot of benefits. Wide arrays of options of movies/ TV shows to watch is just one of them. Also, they can easily skip a scene and jump ahead or go back and revisit the scene they loved. Theatres don’t offer this facility.
Cinemas survived the era of DVDs. Many speculated that the arrival of DVDs could end the theatre’s existence. But, that didn’t happen. Instead, cinema chains thrived in recent years. What fight these classic cinema halls bring against digital platforms will be seen in the next few months.
Today, people are moving out of their houses only for compulsory purposes. Will they trust the halls and multiplexes to ensure their safety in these vulnerable times? PVR and INOX are targeting to build customer confidence with an ‘Evangelism’ phase. Here, evangelism means to let the people experience its enhanced safety features first-hand. They believe that if they offer security, then the customers who have visited them can go out and talk about all the good measures taken by them.
The Way Forward
The initial 6 weeks will be very challenging for the film exhibitors. The month of November and December might see one or two big movie releases. Before that, it will be interesting to see if the cinema chains can lure back their customers. PVR has already stated that they are opening only 50%-60% of its total screens. They have also kept two teams on standby in every city. In case there is an issue with any of the employees (eg:if anyone gets diagnosed with Covid), the whole team working at that centre will be replaced.
Another issue which the business will face in the third quarter is rent payments. After two-quarters of zero revenue, it is obvious that the companies will have less cash with them. On top of that, they have to pay rent or common area maintenance (CAM) fee after the re-opening.
Multiplex companies are urging the mall owners to grant full rent waiver but that seems unlikely. Running a mall is very costly. A multiplex cinema normally takes more than one-tenth of the total area. If the full rent waiver is granted, malls will find it very difficult to run its fixed cost. Thus, until the business recovers for the cinema chains, a revenue-sharing approach is most suitable for the multiplex. This will help both the parties to bear losses equally rather than one taking the bullet for the other.
Due to the pandemic, small movie theatres in cities would have maybe closed due to lack of funds. It is a sad reality that this will help the big media houses like PVR and Inox get better margins and maybe survive these tough times.
To sum up, the short-term future of cinema chains is looking very bleak. If social distancing norms are not followed, a chance for COVID-19 outbreak will increase. Currently, cinema chains should aim to get used to these protocols. They should hope for better Q3 performance and aim to gather momentum before they step in Q4. Indeed, it is a very difficult time for the sector. It will be interesting to see how they fight this dual battle against COVID-19 and the popularity of the digital platforms.