Industry and Firm Analysis Entertainment Exhibition - Cinemax
Agnel Joseph Ashish Dongre Pankaj Mittal Shekhar Menon
26-July-2011
- 1114004 - 1114011 - 1114030 - 1114042
Agenda
Entertainment Exhibition Industry
Scope, Boundaries and Trends Industry Attractiveness Key Success Factors
Cinemax - Overview and Strategy
Resource and Capabilities Analysis
Challenges & Opportunities
Strategic Avenues
26-July-2011
Cinema Exhibition in India
Business of screening movies Rs 6,400 Crore industry with projected growth of 10% YoY Two principal exhibition models Single Screen Theaters Multiplexes Spans procurement of movie exhibition till customer stepping out of entertainment zone.
100% FDI in film industry 800+ multiplex screens & 10,000 odd single screens. Entry of miniplex
Three business models Self owned Leased Franchise
1896 - First Cinema Exhibition in India
First Multiplex (Corporate Entry) in Exhibition
3D Boom
1900Pre-1990s 1990
1997 1990-2000
20032003
2005 2005
2009
2010
Fragmented 13,000 Single Screen Theatres in India
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Imax
strong anti piracy laws
5-7% Multiplexes contribute 25-30% of domestic exhibition revenues in just a decade
Source:[Link] (pages 11-31)
Effect of Forces on the Industry Attractiveness
Barrier to entry (3.0) [Link] location 2. Capital Costs Bargaining power of Supplier (2.1) 1. Consolidated Distributors 2. Fragmented exhibitors Barrier to exit (3.5) 1. Liquidation of assets is easy 2. Lease/sell out of space and equipment is easier
Compliments & Drivers 1. Growth in organize retail (malls) 2. Food courts & dining
3. Improving Demographics
Government Action (1.9)
Rivalry of competition (3.1) 1. Intense rivalry for location 2. Multiplex cannibalizing single screens [Link] competition between theatres
4. Rising per capita income
1. High taxes 2. Censor board 3. Licenses & approvals 4. Tax exemption for multiplexes
Bargaining power of Customer (2.2) 1. Limited bargaining power Fragmented customers Threat of Substitutes ( 1.01) 1. Home Entertainment, TV, Cable TV, Internet 2. Sports, Games 3. Piracy
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Key Success Factors
Location Quality of Experience Quality and Shelf Life of Movies Distributor Relationship Technology Maximize cross-sell - Food and Beverage Attract Advertising Cost Efficiency Maintenance and Staff
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Agenda
Entertainment Exhibition Industry
Scope, Boundaries and Trends Industry Attractiveness Key Success Factors
Cinemax - Overview and Strategy
Resource and Capabilities Analysis
Challenges & Opportunities Strategic Avenues
26-July-2011
Overview
Promoted by Kanakia group - holding 68.6% stock Cinema Exhibition & Gaming 2002: Cineline 2005: Cinemax Pvt Ltd 2006: Cinemax Public Ltd Rs 197.5 Cr Revenues, Rs 5.45 Cr PAT year ending March 31, 2011 21 Location | 107 screens | 28,097 seats
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Source: [Link] (page 5) [Link]
Cinemax Strategy
Strategic Intent Provide wholesome outside home family entertainment Target young and middle-aged - higher disposable income group
Generic Strategy - Focused Differentiator Differentiating factors Presence in premium locations & malls Eclectic mix of movies not just mass appeal movies High Quality experience High End Technology Sound, Vision Features - Red Lounge, Massage chairs, Giggles
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Generic Strategy
Cost Leader Differentiator
Broad
K Sera Sera
( Miniplex)
Narrow
Venkatesvara (Banerghatta road)
Roxy / Regal
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Agenda
Entertainment Exhibition Industry
Scope, Boundaries and Trends Industry Attractiveness Key Success Factors
Cinemax - Overview and Strategy
Resource and Capabilities Analysis
Challenges & Opportunities
Strategic Avenues
26-July-2011
Resources & Capabilities Analysis
Resource/ Capability Valuable Rare Inimitata Non Risk of ble Substitutabe Holdup Real estate Yes Yes Yes No No experience Risk of Comments Slack No Gives edge in location and mall developer selection, & managing development risks No Yes Sound, Vision technology, Seats Yes No Attract quality, popular movies, revenue sharing No Yes Introduced Red Lounge, massage seats, Gaming zone No Yes Maximize revenue from in demand movies, show multiple genres, lower demand movies in smaller screens Yes No Premium localities once ( property obtained are a sustained rent, falling advantage. mall quality)
Deliver High Quality experience Maintain Distributor relationship Ability to innovate
Yes Yes Yes
No No Yes
No No Yes
Yes Yes Yes
Flexibility to optimize screen usage
Yes
No
No
Yes
Physical resources (land, property, mall space)
Yes
Yes
Yes (for a location/ mall)
Yes
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Resources & Capabilities Analysis
Resource/ Capability Valuable Rare Financial (cash & borrowing capacity) Government contacts- licenses and approvals Reputation/Brand Yes Inimitatab Non Risk of Risk of Comments le Substitutabe Holdup Slack No No Yes Yes Yes Leasing model requires reduced finances, helping achieve early breakeven Yes Yes (in Yes Yes No Different groups are strong short in different regions term) Yes Yes NA NA Yes Helps attract advertising, premieres, initial footfalls No No Yes Yes Yes During recession, this falls, impacting profits Yes No No Yes (3 party website) No
rd
Yes
Yes
Customer Advertising & Promotions Internet ticketing and seat selection,SMS Leverage high end technologies Digital cinema Efficient personnel deployment
Yes
Yes
Yes Majority of single screens do not have this advantage No
Yes
No
No
Yes
Yes
No
No
NA
No
Yes Economies of scale both within a multiplex and across group multiplexes
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Resource Dependency of Generic Strategy
Key Resources & Capabilities Realty Experience & Property ownership Distributor Relationship Ability to Innovate High End Technologies Internet Ticketing, SMS Focused Differentiator Presence in Premium Location & Malls
Eclectic Mix of Movies
High Quality Experience Sound, Vision, Lounge, Seats, Giggles Gaming
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Key Performance Indicators
Sales per footfall - Revenue generated from a customer Number of footfall /Seat Employed - Capacity utilization of the theatre
Expenses per Seat Employed Cost Efficiency
Item # of Screens Number of Footfalls (cr) Seat Employed Annual Expenses (cr)
Cinemax 94 1.08 25,173 166.6
PVR 142 1.53 246.7
Inox Comments 119 Annual Reports 2009-2010 Cinemax annual report; Inox -from annual 1.46 report and SMR report 210.0 2009-2010 P&L Reports from Infoline
36,587 33,656 Cinemax and Inox from annual report;
Annual Sales (Cr)
Sales per footfall (Rs.) # of footfalls per seat expenses per seat (Rs.) Sales per seat (Rs.)
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190.1
176.0 429.0 66,178 75,501
274.8
179.6 418.2
253.7 2009-2010 P&L Reports from Infoline
173.7 433.8
67,422 62,408 75,097 75,365
Source: [Link] (page 13)
Agenda
Entertainment Exhibition Industry
Scope, Boundaries and Trends Industry Attractiveness Key Success Factors
Cinemax - Overview and Strategy
Resource and Capabilities Analysis
Challenges & Opportunities
Strategic Avenues
26-July-2011
Industry Challenges
Challenges
High and increasing real estate prices Challenges from Suppliers
Strategic Mitigation
Long Term Leasing Expand into aligned food court business or partner a food court company
Mall development delays impacting expansion
Increased pressure from distributor in revenue sharing Government incentives to multiplexes through tax exemptions are removed
Identify and work with the right mall developer for timely execution of projects Long Term Revenue Sharing contracts Form association with multiplex groups for increased bargaining power
Government Government enforces cap on multiplex Introduction of GST is expected to bring and down entertainment tax expense by 50%. ticket pricing e.g. Tamilnaidu Regulatory Challenges High Entertainment tax - up to 50% Need nearly 40 licenses to start a multiplex
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Maintain networks in regions of interest
Industry Challenges
Challenges Strategic Mitigation
Expansion Challenges
Expanding effectively is a challenge due to lower willingness to pay/buying power in tier Price appropriately and create theatres 2-3 cities, where the industry players plan to with lower cost amenities expand IPL and major cricketing events Lower Shelf life of movies in theatres because of DTH and Satellite TVs Telecast sports matches in the theatres Differentiated Movie experience Provide other valued added services e.g. Gaming, Dining.
Substitute Challenges
Piracy
External Challenges
Security Risk from Terrorists and political activists
Lobby for strong anti-piracy laws Introduction of Digital Technologies. Industry acknowledges benefits of Digital cinema Technology in curbing piracy More security cover Better security technology and protection from state government
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Cinemax Specific Challenges
Challenges
Competitors (PVR and Big Cinemas) better placed to play the cost game due to backward integration into movie production and distribution
Strategic Mitigation
Strategically explore backward integration or long term alliances with major distributors Negotiate variable revenue sharing agreements based on different price bands (cover expenses even during downturn)
Competition Challenges
Advent of Miniplexes impacts expansion into Tier 2 and Tier 3 towns
Potential Deterioration of the mall experience where the multiplex is located.
Explore the franchising model and introduce miniplexes in Tier 3 towns. Ensure mall maintenance is part of rental contract
Supply Side Challenges
Build relationship with premier production Large number of movies exhibited turn houses/distributors out to be flops Show various genres of movies to attract different client base Breaking into established multiplex regions like Northern India Identify upcoming localities in the region Retrofit loss making single screens
Expansion Challenges
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Strategic Avenues
Nationwide partnerships with major retailers & realty developers Bundle services such as Dining, Food Courts, Crches, etc to provide comprehensive and relaxed entertainment Utilize lean period for corporate, educational or recreational events Merchandizing (Music, Film Accessories, etc)
Explore miniplex route in Tier 3- towns
Pursue backward integration into Distribution Use patron data and demographics to launch effective marketing campaigns Loyalty cards etc
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