Why there is a need to relook at the current structure of the movie exhibition business
Currently, multiplex operators and film producers operate on the basis of a revenue share.
The film industry’s effort to get back on its feet seems to have hit a dead-end with multiplex operators at loggerheads with film production companies, as both of them try to negotiate the terms and condition of the current structure of the business. “Together we need to find a way to support the industry and work our way through existing guidelines. Given the present scenario, the box office may not generate the same revenue it used to however that should not stop us from releasing our films — even if it means taking a 70% haircut from the theatrical release. However, together we should find a way where we are allowed to recover that money,” Shariq Patel, CEO, Zee Studios, said. The firm plans to release its film Suraj Pe Mangal Bhari on November 13.
As part of Unlock 5 guidelines the government had allowed cinema theatres to function, however, states like Maharashtra are yet to allow screening of movies. At the time, the centre had stated that cinemas, theatres and multiplexes will have to operate “with up to 50% seating capacity”. On October 31, Amarinder Singh led Punjab government issued a new set of guidelines — thereby allowing cinema theatres to open from November 1.
Currently, multiplex operators and film producers operate on the basis of a revenue share. For instance, in the first week, the production company walks away with 52% of the collection, while a cinema theatre gets the remaining 48%. In the second week, the film production company’s share declines to 45%, as theatres get 55% of the share. Film production firms’ revenue continues to decline as weeks pass by depending on how many weeks a film continues to run at the theatre. Besides, film production companies pay a fixed cost of 20,000 under virtual print fee (VPF). For instance, if a film runs at a theatre for four weeks, film production companies pay a total of Rs 80,000 to a multiplex operator. VPF is a cost charged by multiplex operators for the equipment used to screen movies — the cost was first levied by UFO Moviez – which runs a cinema distribution network — for eight years. However, with multiplex operators now sourcing their own equipment to screen movies – they continue to levy the cost. “ It is important to bring the audience back to theatres and it can only happen by releasing films. For example, Disney and Akshay Kumar should also be looking at releasing the film Laxmii in theatres as against just releasing it on Hotstar. If not on the multiplex, they can definitely release it on single screens across the country. After all, the production company Disney has sold the telecast right its cistern concern Hotstar,” trade analyst Komal Nahta, said. Nahta in an open letter to Akshay Kumar, has urged the actor to release the film in single-screen theatres.
According to industry estimates, the cost of building a regular screen in a multiplex ranges between Rs 1.5-2 crore in metros and Rs 1.1 crore in smaller markets. This cost increases to anywhere between Rs 4-5 crore in case of screens backed by technology such as 4D, IMAX, among others. Add to that, the rental paid by multiplex operators — another reason behind theatre owners eyeing the old deal. “Content production and content exhibition are the most significant aspects of the film industry, and most importantly, both have been working phenomenally well in tandem, ensuring great health for the industry. Undoubtedly, the entire industry has hugely suffered due to the impact of Covid, but we believe that the Covid aberration shouldn’t alter the already prevalent and proven processes and structures,” Alok Tandon, CEO, INOX Leisure Ltd, noted.
The other issue is shortening of the window between theatrical release and video OTT platforms. As per the current standard followed by industry – a film should be first released in theatres. This should be followed by an eight-week gap before a satellite release that is, on TV, and then followed by a release on an OTT platform. With Covid, however, the rules of the game have changed with film production companies now releasing movies on OTT platforms first. While this may not allow them to earn a huge profit, film production companies have been able to recover losses. “There is a chance that some in the industry will go back to the old ways of functioning, wherein there wasn’t any fixed formula followed when it came to revenue share for theatrical releases. So film producers who may opt for a theatrical release first will now look at earning higher margins at the box-office as opposed to those who may look at a simultaneous release or releasing a film within two weeks of theatrical release,” Jehil Thakkar, partner at Deloitte, said. In 2013, Star India (now part of The Walt Disney Company India) had signed deals worth Rs 800 crore with actors Salman Khan and Ajay Devgn for exclusive satellite rights to all upcoming releases until 2017.