The country’s largest film and entertainment services company Reliance MediaWorks (earlier known as Adlabs Films) has seen a 37 per cent growth y-o-y in revenues to Rs 189 crore but is still making losses at the net level for the September quarter. Losses thus far have been the outcome of its expansion at its three business segments exhibition (Big Cinemas), film and media services and television production. For example, in 2008-09 it doubled its theatre count by adding 280 screens in a single year. The company now accounts for up to 15 per cent of all collections for Hindi movies across the country. Its CEO Anil Arjun expects that the company will come back to profitability in 2010-11 as revenues stabilise and the company would have completed most of its major expansions. Excerpts from an interview to Ram Prasad Sahu
What are the margins in your three businesses and where do you see them going ahead?
This quarter we have reported a consolidated operating profit of Rs 35 crore which translates to margins of 18 per cent. We expect this to be at 25 per cent over the next few quarters. The film and media services should see margins of 40-45 per cent, the television software should be at 25 per cent and the cinema business should be at 20 per cent. This does not mean that there will be a tilt towards the film and media services. Our business model is a function of the profitability (film and media services) and growth opportunity (such as the digital BPO).
How has the downturn in realty impacted your company’s profitability and growth plans?
There have been some delays in projects, a lot of which are now bouncing back. The downturn in reality in a way has been positive as lease rentals have tempered to more rational levels.
When do you expect to make profits?
2010-11 should be the first full year of profit as by this time our BPO will be set up and our studio gets commissioned and we get the benefit of over 480 odd screens. These will add to the incremental cash flow.
What are the expansions planned?
The company has added 16 screens in the September quarter. We will add another 20 screens in the December quarter. We will add another 100 screens worldwide for 2010-11. We have announced a rights issue, which will substantially augment our resources and the net worth is expected to move up to Rs 1,000 crore post the rights. We have Rs 1,000 crore of debt. We will use some amount of our equity to repay our debt. We borrowed money to complete the projects such as studio expansion, BPO and cinema theatres and most are completed so we will use the funds to retire debt.
Will the revenue pie change after the completion of ongoing projects?
With the commissioning of Media BPO and Studios we expect the contribution of Film Services division to increase by 2010-11 but the pie will remain largely unchanged as Exhibition and Television production division will also be seeing expansion in revenues. In the medium term, we see the ratio at 55%, 30% and 15%. I would however like to add that they are not strictly comparable as cinemas is a B2C business while others are B2B businesses.
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How are the company’s segments structured in the entertainment value chain?
We built a complete end-to-end value chain which starts with the production to processing to exhibition of television shows and films. As long as the volume of films and television shows keeps increasing, our business grows. For example, a 20 per cent y-o-y growth in the number of releases in September quarter has meant that all the three segments that constitute our business would benefit from the same. Broadcasters and producers also benefit as they have a single point of contact for backend support. The model also means that the company does not take any risk in producing the film but benefits from the services that are needed during the production and subsequent release.
What are the costs involved in film production and how is the pie split across the value chain?
Let’s say the total cost of a film is Rs 25 crore. Marketing would cost about a fifth of this, talent and script would be about 30 per cent, while the rest goes into production services. Once the movie is produced the producer and distributor can look at revenues either on a distribution commission basis or outright sale of rights. The distributors take the risk. Then the movie is taken to the exhibitors (like Big Cinemas) where it is split equally between the distributors and theatre owners. If the movie does well in the first week then more incentive (say 2 per cent) is paid to the distributor. If the movie does not fire then the distributor ends up with lower revenues.
What have been the trends in footfalls?
From January to June this year, the collections were low at the box office and not many films succeeded. Starting from July most movies have been successes. Multiplex chains have done much better. What this indicates is that consumers are willing to pay higher prices for the experience. Another trend is that vis-à-vis last year while the number of movies released is less, realisations from films is up by 38 per cent.
Where do you stand on the recent disagreements between producers and theatre owners on releasing movies on multiple media?
The decision to release on a single or multiple media is a function of revenue flow and share and the need to maximise it. For the producers an early DTH release might have an impact on theatrical release (forms the biggest chunk of revenues for distributors across platforms) and the trade-off it involves. These discussions are happening as platforms are multiplying. Since a movie is a perishable product and everybody wants a share of the pie, in the first few months everybody gets affected which is why there is a need for a balance. The release decision over various media varies from a movie to another. In special effects movies there is a greater propensity to view it on the big screen because the movie is meant for that format.
How do you differentiate yourself from competition?
We made sure that we focus on premium shows---marathons, the reality shows (Big Boss, Perfect Bride)---shows which require a multi-camera environment. We are the only chain that has a 150-member team which does projects, architecture, design, supply chain and implementation. Because of the scale of projects we do everything in-house, so the capital expenditure costs are substantially lower. If we spend about Rs 300 crore a year, if we can save 5-10 per cent depending on market environment and contractors that is huge savings. When you do 16-20 screens per quarter, it helps to have your own team, supervising quality and construction and more importantly ensuring consistency in standards.
What areas are you looking at to improve revenues?
Cinema advertising is roughly a per cent of overall advertising revenues in India. Considering that advertising pie in the country is Rs 25,000 crore, cinema advertising should be at Rs 250 crore. It is only Rs 80 crore. As footfalls increase and as we understand consumers better, we would be able to communicate to advertisers the value we bring and we can start customising it.