Lead Story

Lights, camera, digital

High capital costs notwithstanding, single-screen theatres are embracing digital technology

Surat’s Valecha Road is called the subzi mandi of theatres by folks in the film industry. The 3 km-long stretch has 17 licensed ‘video parlours’ with up to 125 seats each, which play movies from CDs. Atul Patel, a film distributor to 60 screens across Gujarat, owns 10 such parlours; he also has a two-screen multiplex coming up in at Kangori in Poladpur, Maharashtra. Patel owned only two video parlours when he first invested in digital equipment in 2007. “It [this growth] wouldn’t have been possible but for digitisation,” agrees the owner of the ‘Modern Movie’ video parlours, whose digitisation service provider is the Chennai-based Real Image Media Technologies. “Screening films first day-first show has done the magic.” 

The success of Surat’s video parlours is playing out at standalone screens as well. The first day Salman Khan’s blockbuster Dabangg 2 showed in Diamond Theatre, in Mumbai’s western suburb of Borivali, a sea of humanity waited to make its way inside. The theatre’s owner, octogenarian Mahmud Khan, has signed up with Mumbai-based UFO Digital Movies and like Patel, Khan says this kind of crowd pull would have been impossible had he not embraced digitisation in 2008 and started showing a film from the first day of its release. 

In the pre-digitisation era, given the high costs of analog prints, most film-makers would release only 150-200 prints across the top cities. It would take several weeks for the used prints to reach smaller towns such as Surat, where demand for the movie would have already died out since pirated prints were easily available. “We would show pirated prints within two days of release to attract crowds,” admits Patel. Distributors and theatre owners in such places struggled to break even if the film was a hit, and their losses were heavy given that the flop rate in the Indian film industry is as high as 80%. Nearly eight years after the first theatres in India turned to digitisation, the technology is proving a win-win proposition for film-makers and theatre owners. 

 The dream merchants

While there are a handful of companies in India that offer digital technology to theatres, the two big players are Real Image and UFO Digital Moviez, both of which started operations in 2005. With 4,000 and 2,900 screens respectively, UFO and Real Image account for the lion’s share of the market. A new entrant is United Media Works (UMW), which uses its own digital distribution technology (Digibutor) to cater to only tier 2 and tier 3 towns. So far, it has three theatres in Gujarat and also shares its technology with six video parlours in Mumbai and Surat. “Our model will be an out-and-out value model, for everything from tickets to F&B,” explains Ashish Bhandari, co-founder and MD, UMW. According to the Ficci-KPMG 2013 report on media and entertainment, close to 77% of theatres in India are now digitised, up from 50% in 2009; total digitisation is likely in the next two years. Digitisation has been a game changer for single-screen theatres, points out Arvind Ranganathan, CEO, Real Image. “Many of our single-screen owners in South India are now offering more content: theatres in Tamil Nadu are now also airing Malayalam and Kannada films.” 

Indeed, digitisation is helping reverse the slide in single-screen theatres. The Film Federation of India reports that single-screen theatres are disappearing — they were down from 13,000 to 10,167 in the last five years. This is largely because of the shortage of prints, which gets diverted to the irresistible lure of swanky multiplexes and large single-screen theatres in big cities, even though they add up to only 15% of the screens available in India. “Digitisation has enabled scores of single-screen theatre owners to resurrect their dying business,” agrees Pankaj Jaysinh, COO, UFO Digital Moviez.

Now showing: profits

Digitisation is a positive-sum game for exhibitors. An analog theatre typically spends about ₹13 lakh on equipment (the projector, mainly). The distributor bears the cost of making the print (₹50,000-60,000 for each print, which can be used ideally for 300-400 screenings) and sending it to various theatres; in return, he gets a share of the ticket sales. The cost of equipment for digital theatres ranges from ₹3 lakh to as much as ₹25 lakh, depending on the projector quality. Again, the distributor bears the cost of making the print (a maximum of ₹ 18,000-20,000 per print), which the technology provider transmits to the theatre — both get a share of ticket sales. In many cases, rather than paying upfront for the equipment, theatre owners pay a share of the cost and then a monthly rental of Rs 15,000-30,000 to the service provider.

Convincing theatre owners to embrace digital technology has been a challenge since although there are no running costs, there is a large initial investment. That’s when film producers decided to step in. “The producers realised that digital screens would not only bring down their print costs by more than half, it would also result in wider screening,” explains Gautam Dutta, CEO, PVR Pictures. “They asked the service providers to offer the equipment at a substantial discount, so that the theatre owners are motivated to make the switch.” 

After he went digital, Patel in Surat hiked his average ticket price from ₹15 to ₹30, which caused a temporary dip in footfalls. “I released the film on the very first day and got a two-day lead while it took my competitors almost two days to screen the pirated version,” he says, adding that very soon, his patrons did not mind the additional cost. Today, Patel gets full-house audiences for his Sunday shows, which he tickets at ₹50 apiece, especially for blockbusters like Dabangg 2 or Son of Sardar. His monthly revenue has gone up nearly three-fold to close to ₹ 3 lakh per screen for moderately successful movies. 

Diamond Theatre’s Khan points to another advantage in going digital — more shows every day as well as variety in programming. “Unlike before, when we had to manually mount the print on the projector for each show, frequently change the carbon sticks to ensure that the lighting on the screen is adequate, today everything gets controlled by UFO from their centralised server,” he points out. Digital prints also have superior resolution over analogous prints. And instead of huge projectors, content is transferred to the theatre via satellite. “This has enabled me to have more number of shows and, apart from the regular Hindi and Marathi films, squeeze in a show each of a Gujarati and Tamil films during weekends.” Khan declines to share financials of his 571-seat theatre, but says he is able to hold out profitably with an average ticket price of ₹72, which sells well against the ₹ 200 charged by multiplexes.

Like Khan, Praful Gandhi owes much to digitisation. The owner of the 41-year-old Sharda Theatre at Dadar in Mumbai would have had to down his shutters but for digitisation. The absence of air-conditioning and a gloomy ambience still keeps Hindi blockbusters away but Sharda has moved up from third-rate Hindi and Marathi films to first-day shows of hit Bhojpuri cinema. “We now manage a decent 50-60% occupancy,” Gandhi says, pointing out that 100% occupancy in a 1,150-seat theatre would be asking for too much.

Similarly, Ratan Jain and Dharmesh Shah, the duo behind Gold Digital Cinema, who earlier produced and distributed films under the Time Audio and Video banner (Khiladi, Vijaypath, Hero), switched to the film exhibition business in 2006 only after the arrival of digitised films. “We would have never ventured into film exhibition had it not been for digital cinema,” says Ratan Jain, director, Gold Digital Cinema. The company launched its first screen in Gwalior in 2006, and since then has grown to 56 screens across the country, most of them old cinemas converted into digital screens in places such as Shillong, Alwar and Bilawal. Jain cites the example of his 100-seat theatre in Bilawal, which clocked revenues to the tune to ₹20 lakh with the release of Rowdy Rathore. “Bilawal has a population of around 500,000 and a film like Rowdy Rathore wouldn’t have been released in a town as small as that, had we been on analog technology,” he explains.

 Box-office bonanza

For film-makers, going digital has had a direct impact on the bottomline. They have been able to widen their reach considerably and at far cheaper rates (since digital prints cost less than a third of what physical prints cost). Then, since the film is transmitted electronically, it is possible to have same-day release across multiple theatres — Dabangg 2, for instance, was released in 3,000 theatres. Given that most films nowadays make at least 60% of their total box office earnings in the first week of release, simultaneous release is a masterstroke at ensuring revenue maximisation since it also reduces losses due to piracy (rampant in smaller towns that were shown delayed releases). With digital cinema, distribution costs are down by two-thirds, agrees Kamal Jain, CFO, Eros Entertainment, elaborating, “Earlier, apart from the print costs, we used to incur expenditure on physically transporting the film to various places, which has been completely eliminated.” 

A recent KPMG study shows that ever since single-screen cinemas started upgrading their facilities, they have become indispensable for the box-office success of most  mass-market films. A film such as Agneepath, for instance, had total collections of ₹120.3 crore, 60% of which came from single-screen connections. Similarly, 58% of Housefull 2’s revenues of ₹112.8 crore came from single screens. According to the report, it’s the same scene with moderate hits like Vicky Donor, which clocked revenues to the tune of ₹38 crore (42% from single-screen cinemas), and Ishaqzaade (₹37.5 crore; almost 53% from single-screen cinemas).    

Dabangg 2 released across 3,000 screens and had earned nearly ₹58 crore by the third day — the film’s production cost was ₹50 crore. “Most films are able to touch the ₹ 100 crore figure only because of digitisation,” says Manmohan Shetty, chairman of Adlabs Entertainment. A pioneer in offering digital technology in India, Shetty sold his digital technology arm, Scrabble, to UFO last year.

Indeed, the approach to film exhibition itself has changed. Rakesh Roshan’s blockbuster, Kkrish, was released with 800 prints in the analog platform (read: huge distribution costs) in 2006. The total cost of making and releasing the film was in the region of ₹41.5 crore and it garnered net revenues of ₹69 crore. In contrast, Rani Mukherjees’s 2012 release Aiyyaa, which had a budget of ₹16 crore, was released in 942 centres (578 digital prints and 142 analog, adding up to a print cost of just over ₹2 crore). Aiyyaa was declared a flop after it fetched just ₹7 crore at the box office in the first week but, “Thanks to a digital release, Aiyyaa was able to release in more centres at a much lower cost,” says UFO’s Jaysinh. “Had the film been released only on analog, its distribution cost alone would have been in the region of ₹3.2 crore and the losses would have been higher.” Almost 80% of the films released these days are going digital. 

Small films have also flourished. The Vidya Balan starrer, Kahaani, was released in 700 theatres despite being made on a shoestring budget of ₹11.5 crore and it totted up net revenues of ₹68 crore. “If screens were not digitised, we would have never looked at releasing a small budget film beyond 200 theatres,” points out Kamal Gianchandani, president, PVR Pictures, the production and distribution arm of the PVR cinema brand. 

More importantly, losses are also minimised. Gianchandani goes on to cite the example of one of PVR’s small budget releases. Teen Thay Bhai, which didn’t do too well at the box office. PVR released the film in 650 theatres and it made sense to do so only because it was being released on the same day across the country. “Had it been on analog, we wouldn’t have looked at more than 30 cities,” Gianchandani confirms. “More importantly, theatre owners beyond these 30 cities would have refused to take the film a week later because it was declared a flop. The same day release across cities has helped us cut losses in a big way.”

The FICCI-KPMG Entertainment report puts the current size of the domestic theatrical industry at ₹8,510 crore in 2012, estimated to grow at a CAGR of 10.8% to cross ₹14,220 crore in 2017. While Ranganathan of Real Image expects the number of screens to grow to 20,000 in the next three to four years, Eros’ Jain shares some interesting statistics, “The US has 117 screens for every million population but we only have 12 screens for every million population in India.” The Ficci report estimates that number to be even lower — just eight screens for every million people. The under-penetration of the
Indian movie exhibition industry in a country where everybody loves the movies makes for quite another winning story.