Intermission is unique to India: Javier Sotomayor

Interview with Javier Sotomayor, Managing director, Cinepolis India

In other markets people simply come in a bit early, grab their food and go in. So we have found a balance between the way we do things and customisation for the local market, Javier Sotomayor tells Vanita Kohli-Khandekar.

Cinepolis came to India in 2009. How does it compare to the other markets it operates in?

We broke even in two years and all our properties have been profitable from day one. We truly believe that India is a country with great potential and we are here for the long run. (Cinepolis has 5,000 screens in 13 countries, of which 303 are in India)

There are three ways it is different from other markets on the revenue side — the ticket prices are low, occupancy is high and food and beverages consumption is low. On the cost side payroll is low but rent and electricity are the highest (as a proportion of revenues) in India. They are about three times higher than the lowest (rent) country. In most other markets electricity costs are negligible. Here while average ticket price (ATP) has grown by five per cent CAGR (compounded annual growth rate), electricity costs have grown by eight per cent. However, margins are comparable to other countries on an average.

What are the idiosyncrasies of this market vis-à-vis others?

The first thing that is unique to India is that domestic content — both Bollywood and regional — is so strong. Indians don’t know how strong Hollywood is in the rest of the world — it is about 95 per cent of the market in other countries. It (strong local content) is very good from a cultural point of view. Within this the regional component of domestic content too is unique. Other countries with strong local content — say Korea — don’t have regional content.

Secondly, “intermission”, is unique to India. Hollywood movies have to be cut in order to accommodate the intermission, whereas Indian movies are designed for intermission. It used to exist in other markets, but hasn’t been there for 30 years. In other markets people simply come in a bit early, grab their food and go in. So we had found a balance between the way we do things and customisation for the local market. We usually have two point of sales (food counters) in other markets, in India the theatres are designed to have three because the intermission is 15 minutes and everyone comes in a big way. It impacts the way we run the cinema. So even if people are cleaning or collecting tickets, intermission brings everyone to the point of sales. The other new thing here is service on seats, not just in the VIP section, but otherwise. It is something customers demand, so we had to change our services.

Third, in India cinema is considered a luxury, like a five-star hotel in terms of design expectations. So we needed to adapt and design to appeal to that with dark colours, shiny finishes. In other countries the look is usually plain, light and simple.

Why is Cinépolis the only MNC in this business in India?

In India the multiplex revolution came only in this century. By that time the largest players were divesting overseas investment and trying to consolidate US assets. Of the top 10 theatre chains globally, eight are American, two are Mexican. (Cinepolis is the largest in Mexico and fourth largest globally) The eight American firms were focussed on the domestic market. Mexico was reaching saturation. Therefore, we were going outside. We started with countries nearby and then went to the bigger emerging markets. We chose to expand into India and Brazil.

Why not China?

Because we prefer democracies. China is over-regulated and no one knows what can happen to investments in China, they protect the locals, the cost of capital is lower for them.

In 2011 India and China were at roughly the same screen count (9,000), but then China decided to ramp up. It is today at 40,000 screens and the second largest film market globally. Should you have invested in China?

It is not a natural supply and demand evolution. We prefer a free market environment where the rules of the market prevail. And it is a saturated market now.

In spite of the investment from theatre chains India remains terribly under-screened. And that limits the growth of its film industry. Growth has come largely by raising prices. Comment.

The big question to which no one knows the answer is the total number of screens in India. There is an estimate for the number of single screens, but we don’t take that into account or in any analysis, because no one knows how many there are. Ever since I have been to India, the number of screens (12,000 then) has been revised downward. If I were to take only the multiplex industry it has grown five times in 10 years, occupancies have increased. I don’t agree that growth has come only by increasing ATPs. In real terms ATP has fallen not risen. The industry has grown because of the rise in supply. A positive cycle has been generated.

How are content consumption patterns in India different from other markets?

One, animation movies don’t do as well as one would have expected in such a young country. Two, Hollywood is growing as well as regional. In multiplexes Hollywood is up to 18 per cent from 15 per cent (of collections) five years back.