For exhibitors, tough times are far from over, despite the go-ahead from the central government to resume operations.
After staying shut for as long as seven months due to the Coronavirus-led lockdown, theatres will reopen from October 15, but it will not be easy for exhibitors to restart business.
From a staggered opening of cinemas in different states to content constraints, there will be many challenges theatre owners will have to face.
Film trade analysts point out that one such challenge will be producers seeking a higher share of box-office revenues.
Producers look for more profits
Currently, box-office revenue is split 50:50 between producers and exhibitors in the first week. The producer’s share drops to 47 percent in the second week, and 45 percent in the third week for Hindi films.
“This model is based on past box-office trends, where film occupancies drop from the second week onwards," explained Shailesh Kapoor, CEO, Ormax Media, a media-consulting firm.
According to film trade expert Komal Nahta, now there will be renegotiations and producers may ask for a 60 percent share in the first week.
He said that producers have been asking for a higher share of profits for a long time now. But in the current times, as exhibitors need content more than ever, it could fetch producers a better profit-sharing deal.
More challenges for cinemas
This will negatively impact the business of theatre owners as ticket revenue is the major contributor to the overall exhibition business in the current times. Food and beverages, as well as in-cinema advertising, will take time to revive, say experts.
“It will be harrowing times for exhibitors because they had to shut shop for the last seven months, and, with no income, it will become difficult for them,” said Girish Johar, film trade business analyst.
Already, theatres are permitted to operate only at 50 percent total capacity.
Rahul Puri, MD, Mukta A2 Cinemas, a cinema chain by Mukta Arts, a company founded by filmmaker Subhash Ghai, said that he hasn't heard anything about producers asking for a higher share of box-office revenues. But such a move will negatively impact exhibitors, he added.
“Exhibitors are limping back to life and if they have to share more box- office revenue with producers, exhibitors will have to make do with a lesser pie. Anyway, for the first couple of months, operating margins will be non-existent. Hence, exhibitors will try to resist any such move," he said.
PVR Cinemas declined to comment.
Don't ignore smaller films anymore
This is why Johar said that multiplex programming needs to be reworked, especially now as small- and medium-size films will be a game changer.
He said that there are around 20 big-starrer films in a year which take around 20 weeks. For the remaining 30-odd weeks, theatres play small- and medium size films.
“While 30-40 percent revenue comes from bigger films, smaller films are the backbone of cinemas as they fill more weeks. That needs to be given more priority by the multiplex programming team. They can’t be given odd hours. Right now, what is happening is that all medium films are going to OTTs and that has dried up the cinema content pipeline. Now, cinemas are more dependent on bigger films and big producers can ask for higher profit-sharing,” he said.
Also, it is not just producers on the home turf who are seeking a higher share. Hollywood producers are also looking for a revenue-share increase.
According to Karan Taurani, Vice President, Elara Capital, “Christopher Nolan's Tenet, which is a big-budget film, has been demanding a higher distributor share in India than the average of 50 percent (in the pre-COVID period)."
Different math of revenue-sharing
While higher share of profits will make the going tougher for exhibitors, analysts say that even producers saw a tough time when they waited for months for cinemas to reopen.
Nahta said that it is likely that producers of Akshay Kumar's Sooryavanshi and the Ranveer Singh-starrer 83 will demand a larger share of the pie as they waited for a theatrical release and did not opt for a digital premiere. This would have cost them several crores of rupees.
The makers had the option to liquidate their investments by taking the direct Over-the-Top (OTT) platforms, he said. Many films took the direct-to-digital route because every passing month of no release meant incurring an interest cost on the money invested in the film.
Kapoor of Ormax Media pointed out another aspect.
“In my understanding, no producer will ask for a higher revenue-share in the first week of a film. But they may expect the first week’s share to be continued for another week or two, which seems like a logical thing to ask for.”
"Owing to COVID-19 and the 50 percent capacity cap, we will see businesses being spread out over 3-4 weeks for a big film. Hence, if the producers ask for the revenue-share terms to be fixed for 2-3 weeks and not change a weekly basis, it should not be seen as asking for an increase but simply as a mathematical handling of the COVID impact on the box office week-on-week trend,” he added.
While producers are discussing an increase in their share of profits in box-office collections, there has been no discussion among exhibitors. "Producers from down South, I believe, also have issued a statement on a higher profit-sharing," noted Johar.
He said that for an increased profit-sharing deal to materialise, both parties will have to agree.