Reasons I dislike the theatre business model
Crappy film but tickets at a 50% discount. You going?
Now, don't get me wrong, I absolutely love going to watch a film in a theatre. I think there is something rather magical about it. Also, who can resist the temptation of buying overpriced popcorn?
But if we peel back the curtain and take a closer look, I'm not particularly fond of a few aspects of the theatre business model.
1.No control on demand:
Picture this. You are a cinema owner, and you have done everything in your power to create a fantastic movie watching experience. The seats are the most comfortable in the world, and the popcorn is the most delicious in the world.
You even cut ticket prices significantly. But here is the catch. You have no control over the quality of the films themselves.
If the producers make a dud, people simply will not show up. Low occupancy translates to lower than expected revenue and, in turn, little to no profit.
2. The rise of OTT:
Now, I am not saying that OTT platforms will completely obliterate traditional theatres, but they have undeniably raised the bar for going out to watch a film.
People become more selective about the kind of movie they choose to see in a theatre. It needs to feel like a true theatre experience. You are more inclined to go for a Nolan film or an IMAX screening. You may even skip a wonderful romantic comedy if you know it is not meant to be a big screen experience.
OTT platforms also make more economic sense. Even if you are paying for Hotstar, Netflix, Amazon Prime, and other services, the cost often feels justified. The average ticket price for PVR Inox is close to Rs 200, and that amount gets you just one film.
3. The enigma of seasonal content:
Audience preferences are notoriously difficult to predict. No matter how much data or analysis you bring to the table, there is always a significant element of uncertainty.
As a theatre owner, you meticulously assess various factors such as budget, actors, music, and historical success rates when deciding which films to screen. You crunch the numbers, analyze past trends, and consider market indicators, leaving no stone unturned in your pursuit of informed decisions. However, despite thorough calculations and strategic planning, there is always the possibility that things may not unfold as expected. It could be the film itself, audience reception, timing, a global pandemic, or some other external factor.
Just look at the change in the language mix for films in India, in the past 3 years. Who was predicting this back in 2019? Bollywood certainly wasn’t.
4. Not exactly asset-light:
Owning or renting prime real estate for theatre locations is a substantial financial commitment. Cinemas require spacious facilities, comfortable seating, high quality projection equipment, and state of the art sound systems, all of which come with significant costs.
For a company like PVR Inox, adding a new screen can cost Rs 2.5 crore or more. Assuming you add five screens at a new multiplex, the investment would be around Rs 12.5 crore.
5. Battling online shoppers:
Shopping malls and cinemas used to go hand in hand, right? You could spend the day shopping and then catch a movie to unwind.
But with the rise of online shopping, people now have the luxury of staying in and having everything delivered to their doorstep.
Again, not saying the mall industry is not growing. Of course, it is. But it’s just another aspect to consider!
To be clear, I am not here to offer investment advice. In fact, I firmly believe that any business can make sense at the right price. Furthermore, multiplexes are bound to grow in the country.
However, when it comes to business models, I personally feel there are better fish to fry.
If you made it this far, consider voting, on which film you think will be more successful. Thank you for reading!