MultiplexandSingleScreenCinemas Multiplex and Single Screen Cinemas India

March2009

ExecutiveSummary
EstimatedtobeworthINR80bnin2008andINR108bnin2012 KeySegments:SingleanddoublescreencinemasandMultiplexcinemas Multiplexsegmentisgrowingwhilesinglescreensegmentisdeclining SouthernIndianstatestogetheraccountfor59%ofthenumberoftheatresinIndia Drivers:
Supplyside:GrowthinFilmIndustry,improvingsupplyofrealestateandfavourabletaxexemptions Demandside: Favourabledemographics,risingincomelevelsandwillingnessofpeopletospendonrecreation

Market

Drivers& Challenges

Challenges:Uncertaintyoverentertainmenttax,slowdownineconomy,alternateentertainment avenues,developmentdelaysandpiracy Characteristics Seasonality Reducingshelflifeofmovies Lowscreendensity Increasingaverageticketprices Trends Producersbypassingdistributors Shifttodigitalcinema Alternatecontentinmultiplexes Retailpartnerships Newformatinsinglescreentheatre

Characteristics &Trends

Competition p

Singlescreensegment:Highlyfragmentedandunorganized Multiplexsegment:Dominatedbyfiveorganizedplayers MajorplayersinMultiplexsegment:PVR,Cinemax,Inox,AdlabsandFame Major players in Multiplex segment: PVR, Cinemax, Inox, Adlabs and Fame Fiercecompetitioninmultiplexsegment
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Cinemaexhibitioncomprisesofsinglescreenandmultiplex theatres,withthelattergrowingrapidly
Overview
KeySegments Singleanddoublescreencinemas Multiplexcinemas,i.e.threescreensormore Multiplexesaccountfor: 1%ofthetotalnumberofcinemahalls y 6%oftotalcinemascreensinthecountry SouthIndianstatestogetheraccountfor59%ofthe numberoftheatresinIndia

Marketsize&growth
INR bn
150 100 62 50 0

+10% +8% +14%

80 108

2006

2008

2012

Theatredistribution
Others 24% UttarPradesh 8% AndhraPradesh 21%

GrowthofMultiplexes
Screens
1,500 1,000

+20% +35%
747 410

+14%

1,254

19% 9% 10% Kerala

9%
Maharashtra

TamilNadu

500 0

Karnataka

2006

2008

2012 4

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MarketOverview Business Model BusinessModel Drivers&Challenges Trends&Characteristics Trends & Characteristics Competition KeyDevelopments

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Operatingmodelsfollowedbymultiplexoperators
Model
Ownership

Description
Operatorpurchasesland;constructsandfitsoutthe multiplex,andmanagesoperations

FixedRental Fixed Rental

Multiplexoperatorinvestsonlyinthefitoutsand managesoperationspayingrentforthepremises i i f h i

Lease

FixedRental +Variable V i bl

AvariationoftheFixedRentalModel,lowerrentis paid,whichiscompensatedbysharingrevenues paid, which is compensated by sharing revenues withthepropertyowner

Leased Retrofits

Operatorleasesanexistingtheater,refurbishesit andconvertsitintoamultiplex

Theatre Management

Developeroutsourcesoperationsormanagementto amultiplexoperatorforafixedperiodoftimeand a multiplex operator for a fixed period of time and paysafixedfeetotheoperator

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TicketandF&Bsalescontributetobulkofrevenues
PrimaryRevenue
TicketSales F&BSales AdvertisingRevenue 50% 25% 8%

PrimaryCosts
DistributorsShare F&BCost EntertainmentTax 25% 15% 25%

Exhibitor
SecondaryRevenue
ParkingCharges ManagementFee ConvenienceFee 15% 1% 1%

SecondaryCosts
Rent/RevShare Overheads PersonnelCost 10% 15% 10%

Ticket
50%

Advertising Others 25% F&B 15% 8% Parking

2%

Distributor F&B
25%

Taxes 25%

Rent
10%

Others 25%

15%

Notes: 1. ManagementfeeapplicableonlyunderTheatreManagementModelwhereinthetheatreoperatorchargesthedeveloperusuallyapercentageofturnover 2. ConveniencefeeischargedtocustomersforbookingticketsthroughchannelssuchasInternet,mobileetc. g g g , 3. Rent/RevenueShareisapplicableonlyinleasemodelsandincludesfixedrentalsand/orrevenueshare

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MarketOverview Business Model BusinessModel Drivers&Challenges Characteristics&Trends Characteristics & Trends Competition KeyDevelopments

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Drivers
Favorable Demographics RisingIncomelevels Willingnessofpeople tospendonrecreation

DemandSide

Drivers

SupplySide
Growthin FilmIndustry Improvingsupplyof RealEstate

TaxExemptions

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Growingfilmindustryisthekeydriverforgeneratingmore footfallsforfilmexhibitionindustry
GrowingFilmIndustry
IndianFilmIndustry
EstimatedtobeworthINR96bnin2007 Growthrate13%p.a Largestintheworldintermsof numberoffilmsreleased numberofticketssold No. of films
1,200 800 400 0 300 750

Domesticfilmreleases
+14%
934 1,020 1,016 1,146

100% FDI now permitted in film industry 100%FDInowpermittedinfilmindustry Hollywoodfilmsareincreasinglyfindingacceptance inIndia

1997

2003

2004

2005

2006

2007

Hollywoodfilmsgainingpopularity
80 60

Investmentsinfilmproduction
RelianceBigEnt ZeeEntStudios Eros PyramidSaimira UTV WarnerBrothers Saregama PVRPictures MirchiMovies INRbn
12 10 5 3 2 2 1 1 50

Boxofficerevenue(INRmn) 77 Numberoffilms
55

40 20 0 18

25

2005

2006

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Improvingsupplyofqualityrealestateandentertainmenttax exemptionshavehelpedingrowthofmultiplexes
Improvingrealestatesupply
Presenceofmultiplexinmallsisprevailing conceptincities Increasedsupplyoforganizedretailmall spacehasbenefitedthemultiplexindustry

Increasingorganizedretailspace
mnsq.ft
100 80 60 40 20 0 2 7 17 33 54 88

2002

2003

2004

2005

2006

2007

Entertainmenttaxexemptions
Manystategovernmentspoliciesoffer entertainmenttaxholidaysandbenefitsto multiplexes Thishasencouraged: This has encouraged:
Growthofnewmultiplexcinemas Conversionofexistingsinglescreentheatresto multiplexes

Entertainmenttaxbenefits
State
Rajasthan Mumbai Maharashtra (ex.Mumbai) MP Kolkata Punjab UP

Year1

Year2
100% 100% 100%

Year3
90%

Year4
80% 75% 75% 75%

Year5
70% 75% 75% 50% NA

100%

100% 100% 100%

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IncreaseindisposableincomehasempoweredtheyoungIndian consumertospendonentertainment
Demographics&consumerspending
Indiahasoneoftheworldsyoungest populations:
Medianageof24years Twothirdpopulationisunder35yearsofage UrbanIndiaaccountsfor~30%ofthissegment

Averagehouseholddisposableincome
INR
120,000 80,000 56,470 40,000 0 69,249

+4%
93,542 77,785

113,744

Growing income levels and more households Growingincomelevelsandmorehouseholds inmiddleclassisincreasingaggregate disposableincome Overthenext20years,urbanIndiansare expectedtospendmoreonrecreation expected to spend more on recreation includingentertainment Moviesaccountforabigpartof entertainmentinIndia Thiswillbenefitmultiplexesastheytargetthe young,middleclassandhighincomegroups residinginurbanareas

1985

1990

1995

2000

2005

Annualspendingonrecreation
276 16% 119 26% 74% 2015 2025 Rural Urban 84%

50 36% 64% 2005

Note:Recreationincludesconsumerelectronicssporting Note: Recreation includes consumer electronics sporting goods,electricaldevicesandentertainment

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Challenges

Slowdownin economy y

Uncertaintyover Uncertainty over entertainment tax

Alternative Alternative modesof entertainment

Challenges g

Piracy

Development delays

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Growthofmultiplexesislikelytobeaffectedbyeconomic slowdownandwithdrawalofentertainmenttaxbenefits
Uncertaintyoverentertainmenttax
EntertainmenttaxinIndiaisamongthehighestintheworldandvariesfromstatetostate Uncertaintyloomsovertheviabilityofmultiplexesafterthetaxfreewindowexpires Introductionofentertainmenttaxeswilllikelybepassedontotheconsumertherebyraising ticketprices,whichalreadyhighcomparedtohistoricalpricesatsinglescreencinemas

Slowdownineconomy
Thegrowthoffilmexhibitionindustrydependsonprosperityinthecountryleadingtohigher discretionaryconsumerspendonentertainment Filmexhibitionindustryislikelytorecordadropinoccupancylevelsonaccountofslowdown y intheIndianeconomy Afewmultiplexeshaveresortedtopricereductionsof1240%inMarch2009inorderto reversethedropinoccupancylevels

Alternativeentertainmentavenues
Filmswitnesssignificantdropinoccupancyduringsportingeventsandfestivals Tocombatdropinoccupancymultiplexesare:
Beginningtoscreenmajorsporteventssuchascricketmatches Offeringdiscountsandpromotionalschemesduringthetimeofsuchevents g p g

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Filmpiracyanddevelopmentdelaysimpedetheindustry
Piracy
InIndia,typically70%oftheatricalrevenuesiscollectedoverthreemonthsduringwhichtime piracycatchesupandvirtuallynullifiesanyfurthertheatrerevenuepotential Unlikethewest,whereonlinepiracyisahugefactor,inIndia,physicalpiracythroughvideo rentalshopsandillegalDVDsaccountsforasignificantsourceofpiracy

Developmentdelays Development delays

Settingupamultiplexrequiresmultipleclearancesandlicensesfromdifferentauthoritiesin additiontodifferingpoliciesacrossstates Delaysinprocessingofclearancesandlicensingisachallengeformultiplexoperators Inthecurrenteconomiccondition,delaysinmalldevelopmentisamajorconcernformultiplex operatorssinceithassloweddownexpansionplansofmostleadingplayersinthisindustry

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MarketOverview Business Model BusinessModel Drivers&Challenges Characteristics&Trends Characteristics & Trends Competition KeyDevelopments

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Industryischaracterizedbyseasonalityandreducingshelflifeof movies
Seasonalityoffilmexhibitionsector
Filmsreleasesaresloweddownduringschool andcollegeexaminations MajorityofthefilmsarereleasedintheMay toSeptemberperiod ThereforeQ1andQ2arethemostprofitable quartersforfilmexhibitionaspertheIndian quarters for film exhibition as per the Indian fiscalyearstarting1st April

Quarterlybreakupofrevenues(%)
Q1 27% Q2 28% Q3 Q4 20%

25%

Periodofmaximumreleasesandsales Period of maximum releases and sales

Reducingshelflifeofmovies
Shelflifeofmovieshasreduceddramatically fromafewmonthsearliertomerely2weeks Byscreeningmultipleshows,multiplexeshelp maximizecollectionsinthefirsttwoweeks maximize collections in the first two weeks Inaddition,schedulesaremodifiedtoincrease screeningsforpopularmovies Further,producersarereleasingDVDswithin twothreemonthsoftheatricalrelease

Weeklysplitofticketsales(%)
Week1 2008 2007 2006 53% 58% 55% Week2 Week3 Week4 25% 24% 22%
10% 12% 9% 9% 10% 13%

Maximumsalesin2weekwindow

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Lowscreendensityandrisingaverageticketpricesareindicators forlongtermgrowthpotentialinthiscinemaobsessednation
Lowscreendensity
TheIndianfilmindustryrealizesabout85%of itsrevenuesfromboxofficecollectionsas comparedwith27%forUSfilmindustry Thoughthenumberofadmissionsisthe highestintheworld,numberofscreens availableforIndianpopulation,isrelatively p p , y lowascomparedwithothercountries

Screenspermillionpopulation
UK Belgium Germany Spain Italy Ireland Denmark France US India
30 43 45 46 52 53 61 77 117 12

Increasingaverageticketprices
Lowaverageticketprices(ATP)becauseofpresence oflargenumberofsinglescreencinemaswhereas multiplexeschargecomparativelyhigherpricefor tickets IncreaseinATPwithconversionofsinglescreen cinemasintomultiplexesandconstructionofnew multiplexes Multiplexesareadepttomaximizingrevenuesby efficientscreeningofmovies efficient screening of movies

Averageticketprices
INR
60 50 40 30 20 10 0 39 41 45

+6%
47 51 53

54

2001

2002

2003

2004

2005

2006

2007 18

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KeyTrends
Producersbypassingdistributors
Some large producers are now dealing directly with major multiplex companies like PVR Cinemas and BIG Cinemas for distribution deals The trend, h h d however, is l limited since d d distributors are still crucial f a majority of urban and rural cinemas b ll l for f b d l including both multiplex and single screen cinemas

ShifttoDigitalCinema
Digitalizationoffilmexhibitionindustryenablesproducerstoreleasetheirfilmssimultaneouslyacrossthe nationincludingsmallercities Thishelpsproducersexpandtheirreachtosmallercitieswhichtraditionallyexperiencedelayedreleaseof films India is witnessing faster growth of Digital Cinema Initiative (DCI) in its multiplex sector than almost any IndiaiswitnessingfastergrowthofDigitalCinemaInitiative(DCI)initsmultiplexsectorthanalmostany othercountryintheworldtoday

Trends

Alternatecontentinmultiplexes
Inordertomakeupforshortfallincontent,multiplexesareswitchingtoalternativecontentsuchas: Worldcinema ScreeningpastOscarwinningfilmsaspartofamoviefestival Sportevents Regional films Regionalfilms

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KeyTrends
Retailpartnerships
Multiplexcompaniesareenteringintosynergisticretailpartnershipswithestablishedretailchains Inox'shaspartneredCocaCola,McDonald's,Pantaloons,Shoppers'Stop,BPLandSeagram PVRhasstartedretailingStarbucksproductsatitsthreemultiplexesinMumbaiandDelhiandplansto extendthearrangementacrossmajormetrosinthefuture

Trends
Newformatinsinglescreentheatre
AnewformathasemergedinsinglescreentheatretheminidigitalsinglescreentheatresuchasBroadway atNaviMumbaisGhansoliarea These theatres have small screens and a capacity of 75100 people Thesetheatreshavesmallscreensandacapacityof75 100people Withtwonewmoviesrunning,thechancesoflosingmoneyonthetheatresisminimized BPCLisplanningtorollouttwopilotprojectsatitspetrolpumpsinthisformat

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Privateequityinvestmentshavetakenplaceintheindustrybut arelargelyfocusedonmultiplexsegment
PrivateEquityfirm
DaewooSecurities(Europe)

Dealdescription
InvestmentofINR600mninChennaibasedGVfilms.GVfilmsplansto buildan integratedcommercialcomplexcalledGVstudiocityacross23tierIIcitiesinTamilNadu, thestudiocitywillincludemultiplexwithminimum4screens,a60roomhoteland the studio city will include multiplex with minimum 4 screens a 60 room hotel and shoppingmallofinternationalstandards InvestmentofINR50bninPyramidSaimiraTheatreLtd TheatrechaincompanyPyramidSaimiraTheatreLimited(PSTL)isplanningtolauncha privateequityfundtoinvestinfilms.Thefundplansto raiseINR2.50bninitially DEShawisinvestingcloseINR2.4bninGeminiIndustriesandImaging.Withthisequity infusion,GeminigroupplanstosetupmultiplexesinTamilNaduandAndhraPradesh

CitigroupVentureCapital International PyramidSaimiraTheatre Limited DEShaw

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MarketOverview Business Model BusinessModel Drivers&Challenges Characteristics&Trends Characteristics & Trends Competition KeyDevelopments

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Singlescreensegmentisunorganizedwhilemultiplexsegmentis highlyorganizedanddominatedbyfiveplayers
Competition
Singlescreensegmentishighlyfragmented withfewowningmorethanonemoviehall Fiveplayersdominatethemultiplexindustry Boxofficerevenuebreakupinmultiplexes:
50%fromHollywoodmovies Over 33% from local Hindi language movies Over33%fromlocalHindilanguagemovies

Numberofscreensmultiplexes
200 150 108 100 50 0 26 25 74 27

Number of Cinemas Number of Screens

94 67

175

54 15

Occupancylevels
Multiplexes:3545% Singlescreencinemas:1525%

PVR

Cinemax

Inox

Adlabs

Fame

Fiercecompetitioninmultiplexsegmentdue toattractiveeconomicsandgrowthpotential
Leadingplayershavemajorexpansionplans Manynewplayersareplanningtoenterthis industry

FootfallsandOccupancyratio Footfalls and Occupancy ratio

Occupancy mn
20 15 10 6 5 0 6

Footfalls (mn) 18 35% 40%

%
45 13 50 40 30 20 10 0

30%

PVR

Cinemax

Inox

Fame 23

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MarketOverview Business Model BusinessModel Drivers&Challenges Characteristics&Trends Characteristics & Trends Competition KeyDevelopments

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KeyDevelopments
Date
3Mar2009 13Feb09 2Jan09 16 Feb09 17Oct08 24June08

Development
PVRandMajorCineplexGroupofThailandenteredintojointventureintheratioof51:49tobringtheglobalfashion bowlingbrand'BluO'toIndia. AdlabsFilmsplanstoinvestaboutINR1bntoconvert300ofitsexisting425moviescreensintodigitalformatinthenext 1824months. BigCinemas,themultiplexchainoftheRelianceAnilDhirubhaiAmbaniGroup(ADAG),expectstoaddaround50 properties,140screensinthenext15months,upfrom75propertiesand189screensatpresent Followingaspateofrequestsfromcinematheatreownersinthecountry,theIndianPremierLeaguehasdecidedtofloat g tenderstoselltheserightsforthe2009IPLseason MultiplexchainInoxLeisureannouncedinvestmentsofoverINR4.5bninthenextcoupleofyearstoputupadditional 206screensacrossthecountry Network18isplanningtoenterintomovietheatrebusiness.ItisplanningtoopenitsfirsttheatreinNewDelhiandlater planstohaveanationwidepresence..Network18isalreadyintofilmproduction,acquisition,syndication,marketingand distributionbusinesssince2006thruStudio18 di t ib ti b i i 2006 th St di 18

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