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 look a little closer at the theatre business model, and a few things start to bother me.
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 most comfortable seats in the world. The most delicious popcorn 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 means lower revenue, which means little to no profit. You have built a beautiful shop, and someone else decides whether anything worth buying is on the shelves this week.
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 have become selective about what they will see in a theatre. It needs to feel like a true theatre experience. You go for the Nolan film, the IMAX screening. You may happily skip a wonderful romantic comedy, because you know it was never meant for the big screen and will land on your sofa soon enough.
OTT also makes more economic sense. Even paying for Hotstar, Netflix, Amazon Prime and the rest, the cost feels justified. The average PVR Inox ticket is close to Rs 200, and that gets you exactly 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, a significant element of uncertainty remains.
As a theatre owner, you weigh budgets, star casts, music, historical hit rates. You can do all of that homework and still be wrong, because the thing that decides your quarter might be the film itself, the audience’s mood, the timing, or a global pandemic.
Just look at the change in the language mix for films in India over the past three years. Who was predicting that back in 2019? Bollywood certainly wasn’t.
4. Not exactly asset-light:
Owning or renting prime real estate for theatre locations is a substantial commitment. Cinemas need spacious facilities, comfortable seating, high-quality projection, and serious sound systems, none of which come cheap.
For a company like PVR Inox, adding a new screen can cost Rs 2.5 crore or more. Add five screens at a new multiplex, and you have committed around Rs 12.5 crore before selling a single ticket.
5. Battling online shoppers:
Shopping malls and cinemas used to go hand in hand. You spent the day shopping, then caught a movie to unwind.
But online shopping has given people the luxury of staying in and having everything delivered to their doorstep. Fewer trips to the mall means fewer people walking past the box office. To be fair, the mall industry is still growing. This is just one more thing to keep an eye on.
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.
But 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!