Carrying outside food at Maharashtra movie halls may increase ticket prices

According to a report by ratings agency CRISIL, the operating profit of the Indian multiplex industry could moderate 200 basis points (bps), or by Rs 1 billion, if half of the movie-goers visiting multiplexes in Maharashtra carry their own food & beverages (F&B) inside. CRISIL estimates that multiplexes will be required to hike ticket prices by Rs 70 in Maharashtra to offset the impact on the F&B division. However, such a sharp increase may not go well with movie-goers.

There has been a debate around allowing outside food inside multiplexes and rationalising the cost of F&B sold at multiplexes. A public interest litigation (PIL) on the matter is also currently pending in the Bombay High Court. Earlier in July, the civil food and supplies minister for Maharashtra had said in the state assembly that there is no law forbidding people from carrying food inside multiplexes. There were reports that a rule allowing outside food inside multiplexes will be implemented from August 1, but there is no intimation to multiplexes sent by the government or the Bombay High Court to the effect so far.

Maharashtra accounts for roughly a quarter of the revenues of multiplex operators and non-box office segments like F&B, and advertising are highly profitable and subsidise losses on ticket sales. Apart from being highly profitable, non-ticket revenues are growing twice as fast as ticket sales. The compound annual growth rate for non-ticket revenues was 29 per cent in the past five fiscals compared with 15per cent for ticket revenues. As a result, the share of non-ticket revenues has increased to 43 per cent in fiscal 2018 compared with 30 per cent in fiscal 2013.

Sachin Gupta, senior director, CRISIL Ratings, says, “The gross profit margin of multiplexes in the F&B segment is about 75per cent, and in the advertising segment over 80 per cent. In fiscal 2018, leading multiplexes reported an operating profit (EBITDA) of Rs 5.8 million per screen. Of this, the gross profit generated by the F&B segment was Rs 6.1 million per screen, while advertisements reeled in Rs 3.3 million per screen. Put another way, these multiplexes would have bled if their only source of revenue was ticket sales.”

Nitesh Jain, director, CRISIL Ratings, adds, “Today, multiplexes account for half of the box-office collections despite having only a fourth of the total movie screens in India. They are also the main attraction at shopping malls. Therefore, any disruption in multiplex operations will, apart from having a cascading impact on the film industry, will affect footfalls at malls, too.”

In the event the rule is imposed, the ability of multiplexes to augment their revenue streams by raising tickets prices and advertising tariffs will be the key monitorable.