A PROJECT REPORT ON

Multiplex

Report done by

Santosh Chhabria

MY SINCERE THANKS TO

Mr. Talkwell Dillion (O.S.R Cinemas Pvt. Ltd.)

Mr. Nanda Kumar (B&B Imfrastructure Ltd.)
Mr. Deepak Gangadher (Goplan Cinemas)
 INDEX
Sl No Particulars

1 THE CURRENT INDUSTRY SCENARIO

2 FILM EXHIBITION BUSINESS IN INDIA

TREMENDOUS SCOPE

3 MULTIPLEX

4 KEY PLAYERS IN MULTIPLEX

5 GROWTH DRIVERS

6 INCREASE PRODUCTION OF HINDI MOVIES

7 HOLLYWOOD STUDIOS EYE BOLLYWOOD

8 HOLLYWOOD LOOKING TO INDIA FOR

POSTPRODUCTION WORK

10 MULTIPLEX BUZZ!!

11 INCREASING CORPORATIZATION OF
BOLLYWOOD

12 COST AND REVENUE

13 RISK AND CONCERNS

14 WAY FORWARD
THE CURRENT INDUSTRY SCENARIO
India's craze for films has not been fully exploited by the "Film Exhibition"
industry due to the lack of screen density in the country coupled with the poor
quality of screens. "Multiplex Cinemas" offer an alternative to tap this potential
by providing a quality experience to the viewer as well as economies to the
multiplex operator.
"Films" has been one of the integral components of the Indian entertainment
industry contributing nearly 27% of the total revenues of the entertainment
industry. Besides, films also contribute to other components of the
entertainment industry like music, television and live entertainment. The
Indian film industry is one of the most complex and fragmented national film
industries in the world comprising of a number of regional film industries like
Hindi, Tamil, Telugu, Kannada and others. The Hindi film industry is the most
popular among them. Though India produces the largest number of films in
the world (Approximately 1000 per year), it accounts for only 1% of the global
film industry revenues. In spite of being over 90 years old, the Indian film
industry was accorded the status of industry only in 2000. Over the years, the
Indian film industry has been highly unorganized as film financing was
dependant on private and individual financing at extremely high interest rates.
Only recently, the industry has got access to organized finance. With vertical
integration taking place between producers, distributors, exhibitors,
broadcasters and music company’s corporatization is now taking shape in the
Indian film industry. We believe, that corporatization, will bring about
transparency, accountability and consolidation which will help to improve the
overall profitability of the Indian film industry as well as reduce piracy and
leakages which presently account for 15% of the Indian film industry's
revenues.
FILM EXHIBITION BUSINESS IN INDIA
TREMENDOUS SCOPE
Film exhibition forms the most important component of the Indian filmindustry.
According to the – KPMG(Klynveld Peat Marwick Goerdeler) report domestic
theatrical revenues
contributes 57% of the total Rs59bn film industry revenues and are expected
to grow at 16%. Overall, the Indian film industry is expected to grow at 15%
CAGR it is expected to reach Rs143bn in 2012. The main pockets for film
exhibition in India are Delhi, Mumbai and South India. Due to various regional
language film industries in the South, it has become an important film
exhibition pocket. Hyderabad and Bangalore are 2 southern cities where
occupancies are exceptionally high at around 60%-70%.

MULTIPLEX
India currently has 11500 existing screens, 92% are standalone, single
screens. These single screen cinemas are poorly maintained as the owners
find it difficult to upgrade and renovate their facilities, due to unavailability of
organized finance. The deteriorating quality of these cinemas dissuaded
viewers and they started using alternative viewing options. Over the last few
years, multiplexes have emerged as a trend in urban India.
"Multiplexes" are essentially cinemas with 3 or more screens. They provide a
quality viewing experience and are generally located around shopping malls to
increase footfalls in these malls. Each screen in a multiplex has small seating
capacities in the range of 150-400 seats as compared to single screen
cinemas which have capacities in the range of 800-1,200 seats. With around
11500 active screens, India is under screened. China, which produces far
lesser films than India has 65,000 screens while the US has 36,000. India’s
screen density stands low at 12 screens per million populations. There is a
need of at least 20,000 screens as against the current 11500. This gives
multiplex operators enough room to grow as the traditional single-screen
theatres do not have the financial wherewithal nor do they enjoy tax
incentives.

KEY PLAYERS IN MULTIPLEX

1. PVR CINEMAS :
Strong operational performance- PVR is one of the leading multiplex
operators with very strong performance on operational parameters. The
company has been able to establish itself as one of the premier entertainment
destinations, which has resulted in the highest occupancies, footfalls and
spend per head as compared to all of the other multiplex operators.

Aggressive expansion plans- PVR intends to open ~150 screens in the

coming two years. We are assuming a 50% discount to these plans for our
estimates, in order to rule out mall delays. Among the new screens, 20-30 will
be high end PVR Premiere screens with ticket prices in the range of Rs150-
Rs750. It has already opened 17 out of the total 30 screens that we expect for
FY10- 11E, thus providing more certainty to our estimates.

Foray into co-production- PVR has, through PVR Pictures, entered into film
co-production, after its first movie met with beginner’s luck. It has 4 movies
lined up for FY10E and intends to ramp it up to 8-10 movies in FY11-12E. We
expect the movie business to operate at 13% EBITDA margin and contribute
14% to the total revenues by FY20E.
Leading Multiplex operator: PVR is one of the leading multiplex chains in
India with 276 screens under operation in 73 cities at present. PVR has been
successful in building a lifestyle entertainment brand because of its focus on
customer service and quality of experience. Because of the strong brand and
presence at prime locations, PVR has found a very encouraging response from
the customers. It attracted 18 million patrons with
occupancy ratio of 44% in FY09, both the highest numbers among all the
multiplex players. Today, it contributes ~10% plus to the total domestic box
office collections in the country, showing a clear dominance.

PVR Premiere to increase ATPs: The Company has recently started a

chain of luxury cinemas branded as PVR Premiere which will be present only in
the metros and other affluent cities.These screens provide a very high quality
digital cinema viewing experience in luxurious setting. Average ticket price for
these screens is in the range of Rs150-Rs750, as compared to the normal
ticket price of Rs70-Rs250. From 2 screens at present, PVR Premiere will reach
30 screens by FY12E which will help increase the overall ticket revenues.

JV with Major Cineplex to strengthen presence: PVR has formed a

51:49 JV with Major Cineplex, the largest exhibition player in Thailand, to
further strengthen its presence in the lifestyle entertainment space. The
entity, branded as PVR Blu-O Entertainment, will open bowling alleys, karaoke
centers, iceskating rinks and gaming zones across the country. We believe that
this venture is a well thought out move and complements well PVR's
positioning as a leading out of home entertainment provider. With a strong and
experienced JV partner like Major Cineplex, execution will be fast paced.
However, due to a recent start, we are not factoring in any of the traction from
this
initiative as of now.

Entertainment tax burden to decline: PVR started its operations from

those territories where entertainment tax exemption was not available, e.g.
Delhi NCR, Karnataka, Tamil Nadu, AP region. At present, it pays E-tax on 22
out of a total of 28 properties. E-tax as % of gross ticket revenues is amount
the highest for the company at 24% in FY07.We expect E-tax % to come down
to 25% in FY12E and 22% in FY14E due to more screen additions in areas
where E-tax exemption is available like Punjab, West Bengal and Mumbai.
Recently, Delhi government has lowered the entertainment tax rate to 20%
from the earlier 30% levels. This will help PVR the most as it operates 46
screens in that region.

2. INOX LEISURE

Consistent performer- Inox has shown impressive operational

performance, delivering a 65%CAGR in topline in the past 5 years with the
highest EBITDA margins in the multiplex space. The company has shown
remarkable pace of expansion in the last 3-4 years with commendable speed
and quality of execution

Expansion in tier I and tier II cities to be value accretive-Inox has

more than 50% of its screening the tier I and II cities, which has rewarded the
company very well in the past. It plans to add ~150screens in the coming 2
years, 70% of which will come up in select tier I and II cities. We believe that
the move will create value for the company as these locations are comparable
to metros at the EBITDA level.

Impressive capacity ramp-up over the last 4 yrs: Inox Leisure (Inox)
was set up as part of a diversification strategy by its parent company, Gujarat
Flurochemicals. The company opened its first multiplex in Pune in 2002. Since
then, the company has come a long way as one of the leading premier
multiplex chain operators with a strong brand recall. Starting from just 4
screens in 2002, Inox has ramped up its presence to 132 screens in 32
locations at present. While registering a strong capacity growth in the past 4
years, the company has also been very successful in building a strong
entertainment brand for its cinemas. Operating in an industry marked by
execution delays, both the speed and the quality of expansion are
commendable considering that the promoters didn't have prior exposure to
the exhibition industry.

Top 25 cites - compelling growth stories Crisil Research has identified 25

cities where consumption potential is high due tothe strong economic growth
and increasing urbanization. Takingorganized retail market size as a proxy for
future growth potential, they have identified 25 locations that have the
potential to become high consumption centers in the next 3-4 years. This
combined with the past experience of the company
shows that there is a lot of room for leisure consumption at these centers and
hence the move into these cities will be value accretive.

E-Tax exemptions: Inox operates 30 properties but pays entertainment tax

only on 7 of them. 23 properties are fully entertainment tax exempt and 4 are
availing exemption partially. This has resulted in an E-tax payment of 10% as a
proportion of gross ticket revenues during FY07. It has risen to 14% in FY08as
it opened two non E-Tax exempt properties and 2 of its properties became
eligible to pay E-Tax.

Move to create value for the company: We believe that the expansion in
these locations is a well thought out move and will create value for the
company. While it's true that the average ticket prices in these locations are
lower than those in the metros, it gets compensated with far lower rentals and
staff expenses on the cost side. Moreover, it gives the company access to
prime locations in these cities which provide assured footfall growth has the
company has seen in the past.
3.Cinépolis India Pvt.Ltd.

Cinépolis is the world’s 5th largest movie theater circuit, operating more than
2,000 screens in 6 countries and serving more than 100 million patrons
annually. The company operates its screens under four different brands that
span across the ultra premium to the extreme value segments. As a company
that is committed to innovation, Cinépolis was the first to pioneer the concept
of premium movie theaters via its Cinépolis VIP brand. The company aspires to
provide its patrons the best overall experience in filmed entertainment and
employs a global workforce of 13,000 people to support its mission. Founded
in 1971, Cinépolis is privately held and is headquartered in Morelia, Mexico.

Cinépolis India is a wholly owned subsidiary of Cinépolis and is the first

international exhibitor to independently enter India. With more than 110
screens signed and under various stages of fitouts, Cinépolis India has started
its first multiplex at Amritsar, Punjab. This multiplex will house 4 screens and
seat 1000+ patrons.

4. FAME INDIA

Fame India (Fame) is one of the smaller multiplex operators among the listed
Indian exhibitors, with a current slate of 25 properties and 95 screens under
operation. Boasting of a predominantly urban presence, especially in Western
India, Fame has been is proportionately focused on Tier-I cities. With 8 of its
currently operational 16 properties located in Mumbai, Fame is looking to
aggressively add to its existing screen count and
establish a pan-Indian presence.

Heavy skew of properties towards Tier-I locations: 8 of the company's

currently operational16 properties are situated in Mumbai, with three more
lined up before Mar'09. This translates into Mumbai accounting for a whopping
42% of the company's proposed seat count (by Mar'09). In fact, the two
Western states of Maharashtra and Gujarat are likely to account for 75% of the
company’s seat count by Mar'09. This skew towards Tier-I cities is likely to
translate into marginally improving ATPs in the nearterm on a full-year basis
from FY09 onwards. Fame currently commands an ATP of~Rs97, a discount of
21% and 24% to that of Inox and PVR respectively.

Scale to bring in margin expansion triggers: Fame is among the

smallest exhibitors in the multiplex space currently. As of FY09, Fame
commands fairly low EBITDA margins essentially because of a low scale of
operations. Given the high degree of operating leverage (characteristic of the
business), we believe that EBITDA margins would improve once the company
is able to expand its screen and seat count.

5. Reliance Media Works Ltd. Big Cinemas (ADLABS FILMS)

Integrated Play on the Media & Entertainment Sector: Big Cinemas is

the only player at present that has presence in all of the three major segments
in movies i.e. production, distribution and exhibition. The integrated model
adopted by Big Cinemas gives it a competitive edge over others in terms of
capturing value at each level of the value chain. However, it also exposes the
company to more risks as risks of one segment are prone to
disturb the other segments.

Exhibition Segment - The largest player: Big Cinemas has 289 screens
at 92 properties under operation at present, making it by far the largest player
in the exhibition space. It has a two pronged strategy of expansion - opening
multiplexes at the prime locations in the metros and other cities and
expanding through renovating existing single screen theatres in the tier II and
III cities which has helped the company add more than 100 screens in the last
two years.

Expansion through acquisitions: Since ADAG group has picked up the

majority stake in the company, it has shown even more aggression in its
expansion plans by acquiring Rave Cinemas, chain of multiplexes in India and
Lotus Five star, an exhibition player in Malaysia. Both of these acquisitions
have given Big Cinemas a head start in its expansion plans as compared to
other players

Future Plans: Big has forayed into production and distribution of film and
TV content since 2005. It plans to release 6-7 movies per year with varying
genres and budget. On the T.V.content side, it has produced 8 shows adding
up to 214 hours of programming in FY08. In the next year, it plans to launch
15 shows on commission basis.

Film Processing - Leader controlling 70% of market share- Big (RMWL)

started as an ad films processing facility. The company has made fast strides
in this business and today controls 70% of the film processing market in the
Western part of the country. It has set up film processing facilities in Chennai
and Kolkata to tap growing regional markets there. The company has been
awarded Kodak Image care Program Negative Processing Accreditation
recently. This establishes the film processing division among some of the
highly equipped units globally, thus opening doors for business from other
countries. The film processing division is a high margin business contributing
70% to the total EBIT in
09MFY10. With the growing fold of the company in film entertainment
business, this division is expected to benefit in the coming years.

Film Production & Distribution: Adlabs Films entered the production

business in 2005; the company released its first home production Johnny
Gaddaar. Adlabs (RMWL) has signed long term contracts with key Bollywood
talent like Vipul Shah, RGV, Harry Baweja, Akshay Kumar, and Ashok Amritraj.
It plans to release 6-7 movies per year with varying genres and budge. On the
distribution front, it is present in Mumbai, Maharashtra,
Gujarat, Delhi, UP, Punjab, Bengal, Tamil Nadu, Hyderabad and Mysore
territories. These states contribute around 80% to the domestic box office
collection. Some of the movies distributed by the company include Kites, 3
idiots, Ravaan, well done abba,
It has set up strong overseas distribution network through its US and UK
subsidiaries
In addition to this, the company has mandate to distribute all films produced
by Reliance Entertainment Ltd.
T.V. Content Production: Reliance ada group acquired a 51% stake in
Synergy Communications, which is a well known content production house for
television, associated with famous game shows like Kaun Banega Crorepati,
Mastermind and Big Boss, Big Money. The division produces only
commissioned programmers and has produced 8 shows adding up to 214hours
of programming in FY10. In the next year, it plans to launch 15 shows
including Aap Ki Kachehri, Bindass Champ, Kya Aap Panchvi Pass Se Tez Hai,
Angrezi Mein Kehte Hain.

6. CINEMAX
Cinemax India (Cinemax) is one of the smallest multiplex exhibitors within
the listed space with 97 screens across 30 properties, a majority of them
concentrated in the Mumbai territory. The company has a predominant
presence in the Western region and is the largest exhibitor in the Mumbai
territory with a 35% share of the multiplex screens in Mumbai. Cinemax is now
focused on expanding its presence across the rest of India and is seeking to
aggressively add capacity across other regions

Aggressive capacity addition plans: The management at Cinemax has

guided for adding 41screens during FY09E followed by 72 screens during
FY10E. The company employs two criteria for selection of properties: a
payback period of less than 4 years
and a target RoE of 18-20%.

Tapping ancillary revenue streams: Cinemax has been actively seeking

means to tap ancillary revenue streams by foraying into the branded food
court business and the gaming business. In an effort to reduce its over-
dependence on ticket sales (that currently contributes 70% of the operating
revenues), the company is focused on adding other ancillary revenue streams
to bolster the spender head from current levels. Cinemax is targeting F&B
contribution within overall revenues to increase by about 300bps from current
levels of 14%.

Leased operating model to help improve margins: Among the 19

properties that Cinema currently operates (as of Jun'08), 8 are owned while
the other 13 are operated on the leased model. With more properties being
added on the leased model, the proportion of owned properties within the
overall mix would reduce. This shift is likely to push the rentals up by about
600bps (from 8% of the topline), which is likely to be offset by an
equivalent decline in overheads such as personnel costs and administrative
expenses.

Future expansion plans: On the exhibition front, Cinemax intends to add

72 screens during FY10E. The company has also forayed into the movie
distribution space with 'Kismat Konnection', which is scheduled for an all India
release on 18th Jul'08. Cinema has acquired the distribution rights for the
Mumbai and Punjab territories. The company also intends to form a separate
SPV for movie production with a total investment outlay of Rs1bn over the
next two years. Cinemax plans to raise Rs1bn for this initiative of which
Rs700mn will be spent towards production and the rest towards distribution.
At its CMP of Rs87, the stock is currently trading at 18x its fully diluted FY08
EPS of Rs4.91. We do not have a rating on the stock

Property selection criteria: Cinemax applies two criteria for selection and
addition of properties to its existing count. Firstly, the company targets an Roe
in the range 18-20%. Secondly, Cinema targets a payback period of less than
4 years for selection decisions. The management has guided for the following
seat / property matrix over the next 3 years.

7. Fun Cinemas (Essel Group)

In the year 2006-07, Fun Multiplex Pvt. Ltd (FMPL) registered the fastest rate
of growth in terms of number of new screens that were made operational. The
same zest is still there as the company aims to reach over 1500 screens in
more than 250 cities by 2011. Of these, 173 screens are operational in 87
cities and 170 additional screens across 24 cities have been signed to be
made operational by 2009.

The strategy has been built upon our belief about the business opportunity in
cinema exhibition in India. FMPL believes that there is no "one size fits all"
solution in the complex, organically evolved, culturally diverse and
linguistically divided cinema exhibition industry. Hence, FMPL and its
subsidiary, E-City Digital have evolved a 3-level strategy to maximize various
opportunities within this space-Fun Cinemas (Lifestyle brand), Talkie Town
(Value brand) and E-City Digital (Digitally programmed screens)

Fun Cinemas

Target: 300 screen by 2011

To revolutionise the movie business through use of digital technology, thereby
increasing the opening-day reach for distributors, increasing box office
collections for exhibitors, eliminating celluloid print costs, curbing piracy and
improving overall audio-visual experience.

Business Objective

To consolidate the position of E-City Ventures as a total solutions provider in

the motion picture exhibition industry.

To create incremental box office revenue for the industry, increasing the
productivity of a film by a growth in the number of day and date release
centers, technology being the enabler. Therefore, to create greater wealth in
the industry.

Business Footprints

Incorporated in April 2004 as E-City Digital Cinemas Pvt. Limited, a wholly

owned subsidiary of Fun Multiplex Pvt Ltd., it delivers films via satellite, to any
given remote single screen theatre in India.

As on July 08, E-City Ventures operates multiplex screens and digital screen
totaling to 70000 seats. E-City Digital would roll out 1000 screens by 2011,
totaling E-City Ventures screen count to 1500 screens by the year.

The initial focus was to digitize screens in the Bombay film territory (consisting
of western Maharashtra, Gujarat and parts of Karnataka). But seeing the
opportunities and growth in the present Indian movie supply-chain scenario,
the company has now set up offices in Delhi, Nizam, CP, CI & Rajasthan. Future
roll-out planned in Tamil Nadu, Kerala and West Bengal territories and is
confident of achieving targets from operating in these territories.

Opportunities

Today, on an average, the 600 multiplex screens contribute almost 10-15% of

all language theatrical collections; however, the multiplex screens have gained
greater importance as far as the Hindi film business is concerned. But, the
remaining 12,000 13,000 single screens in the country are still influenced by
the traditional ways of working since there haven't been any tax breaks for the
existing single screens and no investments have been made to disturb the
inertia of minimum guarantees. Above all, the industry players failed to realize
that if a change in the business model to revenue sharing suits the multiplex
well, the same would hold true for the single screens.

Sometime in 2005, digital projection technology revealed itself to the industry.

Fortunately, the technology caught flavor with the single screens in India. The
deployment of the digital technology gave a reason to shift from a theatre hire
/ minimum-guarantee regime to a revenue share regime even for the single
screens.

Business Benefits

Digital cinema has the potential to alter the motion picture value chain. The
reason to adopt this technology is simple...

It will reduce industry costs by eliminating expensive prints and improve the
quality with a more consistent projection system.

It will increase revenues via a wider release

Producers / Distributors

Increases industry revenues because of increased productivity of film

software.

Eliminates print costs that currently constitutes about 15-20% of a film's

production budget. Digital cinema will also eliminate print degradation
(scratches and burnout).

Programming can be manipulated with actual demand. Digital cinema does

not have the cumbersome logistics and offers precise scheduling of movies in-
sync with the business potential. Plus, no transportation of bulky film cans.
Strong safeguard against piracy. Every show can have a watermark indicating
theatre, time and date, making it a customized copyright property.

Content flexibility through multiple language sound tracks and subtitles.

Programming freedom with multiple movies in a single screen without film
print acquisition, resulting in higher occupancies.

Makes distribution costs variable as the delivery mechanism is point to

multipoint using satellites. Does not have to order film prints at a fixed cost
before estimating the demand. With digital cinema, the cost is variable.

For Exhibitors

All cinemas will get first run movies which eliminates handing down or
shuttling of prints. The projector-enabled mechanism will make way for
superior digital technology with visual and acoustic richness.

The programming effort and the cost commitments associated are taken care
of by E-City Digital.

For Audiences

Gets day and date release in their catchments.

Gets advanced picture and sound quality.

Can now enjoy a variety of content on big screen.

Can get to watch sports and events, beamed real-time through satellites.

E-City Digital's focus is on cinema exhibition and digital technology is just an

enabler. E-City Digital also has a competitive advantage and expertise in
exhibition business. The company not only digitizes the single screens but also
is responsible for programming them regardless of the business arrangement.

The company practices a hybrid business model:

Theatre Hire-E-City Digital will have long-term theatre hire contracts with the
exhibitors, wherein the company will pay fixed weekly theatre hiring charges
to the exhibitors. The tenure of the contract will be for a minimum period of 5
years, with the risk and reward to be borne by E-City Digital.

Revenue Sharing-E-City Digital shall have a long-term revenue sharing

understanding with the exhibitors. The net box-office revenue will be shared
on pre-agreed terms. The tenure of the contract will be for a minimum period
of 5 years, with the risk and reward proportionately shared with the exhibitor.

Service Commission-E-City Digital is also active in the business of retrofitting

and refurbishing theatres with digital infrastructure for a service fee. The
option of hire-purchase is also available, where E-City Digital will continue to
work on a commission structure, with accountability towards operations and
maintenance.

GROWTH DRIVERS
At a time when single-screen theatres are dying due to lack of footfalls, people
are queuing up at multiplexes that sell tickets at almost 5 times the prices
prevailing in single-screen theatres. This fact provides ample testimony to the
increasing prosperity as well as the Indian consumers’ willingness to pay for
superior-quality entertainment. Given the prevailing demand-supply dynamics,
we believe that the sector offers high visibility for
steady cash flows.

Supply side - Improving dynamics

On the supply side, we look at content suppliers, real estate suppliers and the
prevailing regulatory environment in order to judge the visibility of revenues
from the sector.

Content supply set to boom

Multiplexes are in existence because people want to watch movies in a quality

ambience. Hence, as a direct corollary, more footfalls will be generated with
more movies being released. In this sense, the multiplex operator can do
nothing but depend on the suppliers of content (movie producers and
distributors) for a regular and high-quality supply of content to generate
higher number of footfalls. Content supply is set to boom in the
coming years mainly because of the following factors:

Increasing investment in film production

Film production is presently going through a wonderful phase as far as supply

of funds is concerned. This space has been attracting a lot of attention
because of its inherently strong fundamentals. A number of players with deep
pockets have entered this space, which should keep the content pipeline
robust over the coming years. In this year so far, an investment pipeline of
~$1.7bn has been announced in this space (investible over the
next 2-3 years). Producers are now flush with cash and are no longer overly
dependent on informal sources of funding. We believe that this trend will
continue in the medium-term and supply of content will not be a problem for
multiplexes.
Moreover, ticket sale reporting is far more transparent in multiplexes than in
single-screen theatres. This results in higher film revenues for producers,
which can be ploughed back into movie production.

Reducing shelf life of movies making multiplex the

Ideal format for distributors

The shelf life of a movie has dramatically reduced from a few months earlier to
merely a 1-2 week window now. This has significantly reduced the time
window within which roducers/distributors can monetize the movie and
recover their costs. Multiplexes, with multiple screens, have far more flexibility
in scheduling of movies, which enables them to exhibit multiple shows of a
single movie simultaneously, thereby helping distributors recover a majority of
the anticipated revenues from the film during the first week itself. For
instance, 31 shows of the movie 'Race' were shown on a single day by a
multiplex operator in Mumbai. Today, multiplexes are contributing 35-40% to
the overall domestic box office collections with less than 5% of the total
screens under operation. We believe that the format is highly relevant for the
distributors and none of them can afford to bypass it and still make money on
films.

Hollywood films gaining ground - more content

Supply
Hollywood films are increasingly finding acceptance in India, making India the
fifth-largest market of Hollywood films in Asia and the 15th largest market for
Hollywood globally. An increasing number of Hollywood films are being
released in India in multiple languages with greater number of prints. For
instance, Sivaji was released with 600 prints in 4 languages. The film was a
blockbuster on the Indian domestic circuit, clocking $4.5mn during the
opening weekend. We believe that the number of foreign films released in
India is set to grow, especially with large studios such as Reliance Big
Entertainment and Yash Raj Films foraying into foreign film distribution. We
expect this trend to benefit the multiplex industry in terms of ensuring a
steady stream of content.

Real Estate Supply

Multiplexes are often regarded as the footfall magnets for malls. The concept
of shopping-cum-dining- cum-entertainment outing is gaining popularity
among the urban populace, where multiplexes in malls become the most
relevant destination choice. Almost all upcoming malls have a multiplex
operator as an anchor tenant. Hence, we believe that the supply of real estate
will not be an issue for the sector, even though the pace might be
slow due to development delays. India is presently witnessing a retail
revolution with many big players foraying into organized retail and many mall
development plans being
announced in order to cater to their expansion plans. The pace of mall
development will surely ensure availability of quality real estate for multiplex
operators.

Encouraging regulatory environment

All entities linked to the entertainment space are required to pay

entertainment tax, which is a state subject. Entertainment tax in the past was
as high as 100% of the ticket revenues in some states, which made exhibition
projects unviable in many cases. However, many state governments
appreciate and understand the need to rationalize E-tax levels and have
provided for either entertainment-tax exemptions for multiplex operators or
reduction of e-tax to more affordable levels.

Demand Side - Strong pull

Demand side environment has never been better for the whole media &
entertainment industry in general and multiplex sector in particular. A lot of
demographic changes coupled with sector fundamentals are expected to fuel
demand side of the story for the sector.

Prosperity to drive discretionary spend

India is a highly favorable country for consumer industries with all the key
indicators pointing towards higher consumer spends in the coming years. It
has seen its per capita income doubling in the last 6 years, it has more than
60% of its people under the age of 60, urbanization and exposure to western
lifestyle is rising, all leading towards increasing consumerism in the coming
decade. In the buoyant times; people tend to spend more on the leisure based
consumption. For the multiplex sector, the target group is in the age group of
15-60 years of age, which visits the theaters more often than others.
Where will you watch them?

India is an entertainment hungry nation, and the major sources of

entertainment are cricket and Bollywood. More than 3.3bn tickets are sold in
India annually, this makes us the most cinema going population in the world.
Even then, there are only ~11,000 screens operational in the
country.Secondly, 95% of these are single screen theatres many of which have
poor quality ambience. Most of the single screen theatres are run by single
proprietor, often without proper operational management skills. Moreover,
because of the poor quality of prints supplied to the single screen theatres in
the rural areas, footfalls have been coming down. On top of it, these screens
are not eligible for entertainment tax exemptions. These factors have eroded
the viability of these screens resulting in poor infrastructure spend which
further reduces
footfalls.

People willing to pay for quality

With the entry of multiplexes, which provide better quality movie watching
experience at a higher price compared to single screen theaters, more and
unlocking a latent demand. This is a classic case of leisure consumption
winning over value proposition in India. As content supply booms, more and
more people will turn to multiplexes because of the rising willingness of people
to pay for such services.

Enough space for more multiplexes

We believe that there is enough space for more multiplex projects given the
quantum of demand and lack of supply in the sector. Our preliminary analysis
suggests that at national level and considering only the urban population
demand in the age group of 15-60 years, 662 multiplexes with 3 screens per
property i.e. ~2000 screens can operate at 35% capacity. All of the multiplex
players combined are operating only ~500 screens at present, hence, we
believe that even though there might be a case for overbuild in some pockets,
overall there is enough scope for further screen supply.

PRODUCTION OF HINDI MOVIES

The Indian film industry, with over 3 billion admissions per annum, is the
largest in the world, in terms of number of films produced per year. This
industry, which was worth US$ 2.12 billion in 2006, is estimated to grow at a
CAGR of 16 per cent to US$ 4.42 billion by 2011. The opening of the film
industry to foreign investment coupled with the granting of industry status to
this segment has had a favorable impact, leading to many global production
units entering the country. For example, Walt Disney has partnered with Yash
Raj Films to make animated movies, the Warner Group is funding the Sippys'
film projects, Viacom has joint-ventured with the TV 18 group to form Viacom-
18, and Sony Pictures Entertainment has co-produced Saawariya with SLB
Films (Sanjay Leela Bansali FIlms). Simultaneously, advancements in
technology along with a rise in consumer income and change in consumption
patterns has led a massive shift in all spheres of the film industry --
production, exhibition, distribution and marketing.One perceptible change has
been the rapid growth of multiplexes, which meets consumer demand for
quality entertainment and has also helped boost production of niche films
targeted at niche audiences.

MULTIPLEXES FEEDING INDIA’S

MOVIE MANIA
Indian and Hollywood films, although a ticket now costs about $3
(Rs121).Moreover, many are located in big malls, adding the attraction of
shopping to a day out at the movies. Earlier, it was like one film in one hall,
you don’t get tickets you go home said Dipti Varma, a young executive with a
business forum. Now you have a choice of films under one roof. Such has been
the runaway success of this cinema viewing experience that today, even
though multiplexes make up just 2% of India’s nearly 11500 screens, they
account for more than half the box office revenue of Hollywood releases in the
country and more than a third for Bollywood. That success, however, has not
been limited to the glitzy cinema halls. Industry analysts say that multiplexes,
with their smaller halls, have also redefined filmmaking by creating a niche for
experimental cinema among urban, educated audiences. Multiplexes, where
ticket prices are five times that at a single-screen cinema, ensure a faster
return on investment for producers and, because of quick turnarounds, have
become instrumental in raising the output of films, he said. “The idea now is to
recover investments within the first weekend,” said Bose, who has authored
several books on Bollywood. Independent film-makers like Madhur Bhandarkar
agree, saying multiplexes have proved to be a blessing as many recent hits
would never have been made if it were not for them. “Exhibitors would never
run my films in a 1,000-seater hall,” said Bhandarkar, a leading director known
for his unconventional films. For businessmen who kept their faith in movie
halls and invested in multiplexes, it has been a gamble that paid off. They
have thrived on the back of tax incentives over the last five years, and are
now looking to expand, according to industry group Ficci. Aiming to widen their
base in search of greater profits, they are now moving to smaller cities and
towns, where operating costs are lower, allowing for greater flexibility in ticket
pricing. “Multiplexes will first reap the more lucrative markets— reap the low
hanging fruit first—and then move on to the smaller markets,” said Pavan Jain,
director of multiplex operator Inox. “It is just a question of time before
multiplexes hit the B and C towns big time.” While PVR Ltd, the pioneer, has
about 108 screens, Inox has about 109. Big Cinemas, which
branched out from film processing to multiplexes, plans to have about 300
screens by 2009-10.The multiplex industry is expected to grow more than 32%
to $165 million by next year, according to a recent report by brokerage B&K
Securities. The overall Indian film industry, now worth about $2 billion, is
expected to grow to $4.3 billion by 2011, Ficci says. While more and more
single-screen cinemas are converting to multiplexes in cities, they still remain
the entertainment mainstay for millions in small towns and villages. They are
also popular with the urban poor because of their cheaper tickets. Analysts say
high ticket prices have also meant that average occupancy levels in
multiplexes have hovered at around 40%. They say that as multiplexes
mushroom and begin cutting into each others’ territories, occupancy levels
could plummet to 30%. “This could mean the multiplex boom is a bubble that
will burst unless ticket prices are brought down,”

HOLLYWOOD STUDIOS EYE

BOLLYWOOD
This year's much awaited Bollywood film Saawariya, with a mega budget of
over Rs 50 crore (Rs 500 million), will be the first movie to be produced by a
Hollywood studio. Co-production of Bollywood movies is on the rise, with more
Hollywood production houses -- Paramount Films and Warner Brothers eyeing
the space. And this trend is catching up.
The co-production between renowned filmmaker Sanjay Leela Bhansali and
motion picture company Sony Pictures marks Sony's foray into the Bollywood
production space.
"Given the growth potential and scope in the Indian cinema, the market is very
important for us. India figures in the top-15 markets for Sony Pictures'
business plans," said Uday Singh, managing director, Sony Pictures. Adds
Sarabjit Singh, general manager (India operations), Paramount Films,
"Coproductions are strategic alliances wherein one makes use of the other's
network strength in a particular region." Paramount Films too is believed to be
in talks with Subhash Ghai-promoted Mukta Arts for crossover movies.
Confirmed an official of Paramount, "The discussions with Mukta Arts are at a
nascent stage." Warner Brothers too is following suit. Hollywood studio experts
explain that making a Hollywood film is becoming an expensive business with
audiences' expectations on the rise. A Hollywood production budget could
range anything between $30 million and $120 million, apart from an additional
$60 million for marketing and promotional activities. The overseas market for
Indian films continues to be growing rapidly. The overseas market for
Bollywood movies is currently estimated to be Rs 850
crore (Rs 8.5 billion) and is expected to grow at a compound annual growth
rate of 18 per cent (higher than the estimated 16 per cent CAGR of the
domestic box office collections), according to the latest PWC’s report. For
instance, Mira Nair's much acclaimed movie The Namesake was coproduced
by UTV Motion Pictures and FOX Searchlight. If that wasn't enough, UTV Motion
Pictures and 20th Century Fox recently announced their strategic tie-up for the
co-production of director Manoj Night Shyamalan's forthcoming
Hollywood thriller DEVIL 3D. The movie has a budget of $ 57 million. UTV and
Fox will co-produce and enjoy global revenues equally. Said UTV's CEO Ronnie
Screwvala, "The key to a successful international coproduction is that you
have global distribution partner from day one and that partner needs to be a
co-producer." UTV has five foreign co-productions up its sleeve with studios
such as Sony Columbia, 20th Century Fox and Disney. Co-production alliances
are mainly to make use of one another's business
network and expertise. "Bollywood movie budgets are shooting up.
Collaboration of international and domestic studios provides the essential
money and helps entry into each other's territory, thereby opening newer
markets," said film analyst Komal Nahata.
Using each other's resources is the major driving factor for co-production. Like
in the case of Sony Pictures' tie-up with Sanjay Leela Bhansali, while Sony has
the money, Bhansali has an understanding of Indian cinema and audience
appeal. The same holds true for UTV and 20th Century Fox. UTV has its own
business expansion agenda, Hollywood movies being one of them.
Consequently, being a new market for UTV, Hollywood sought partnership with
an established player. "It is a de-risk model for new players wanting to enter a
new territory for operations. Most of the production houses are now looking at
increasing their level of film production, thereby increasing their intellectual
property rights value and market capitalisation," said movie financier Sanjay
Bhandari. According to the PwC report, the Indian film industry in 2009 is
estimated to be Rs 9,680 crore (Rs 96.8 billion) and is expected to grow at a
CAGR of 16 per cent to Rs 17,500 crore. With the numbers the Indian filmdom
is expected to churn out this year, the entry of Hollywood studios is not
surprising. Going forward, Sony Pictures plans to increase its footprints across
three verticals, co-production of Bollywood films, production of Indian cinema
and
movie distribution. Consequently, last month it has named Deborah Schindler
as the president of International Motion Picture Production and Gareth Wigan
(vice-chairman of Sony's Columbia TriStar Motion Picture Group) to head the
new international movie division. The newly created wing will facilitate
'increasing production in India' and other countries. "At the moment, our focus
is on Saawariya. The movie will mark the beginning of the state we intend to
develop in India. We will look at similar ventures in the near future. However,
acquiring distribution rights, coproduction and production are on our agenda,"
said Uday Singh. Sony Pictures in the past has distributed nearly 20 Hindi
movies such as Monsoon Wedding; Bend it like Beckham, Mr & Mrs Iyer among
others.Audience base and also the scope of production houses," said film
analyst Taran Adarsh.

HOLLYWOOD LOOKING TO INDIA FOR

POST-PRODUCTION WORK
Impressed with the low-budget and good production quality Bollywood
films,Hollywood is eyeing India to outsource its post-production and shooting
work. "There is obviously a lot of talent in India. Hollywood is looking back to
India to commission a lot of the post-production work and shooting work,"
Kishore Lulla, Chairman and Chief Executive of Eros International said. "If you
look at the quality of Bollywood movies, we can produce those movies at
maybe 10 or 20 per cent of the cost that Hollywood can do. If Hollywood is
spending 100 million dollars a movie, we make the same kind of movie for 10
to 20 million dollars budget in India," Lulla, who recently won the BDO Stoy
Hayward Business of the Year Award at the Eastern Eye Asian business awards
function, told the The Daily Telegraph.

PROCEDURE OF SETTING UP A
MULTIPLEX
The procedure of setting up a multiplex is divided into 3 phases after the
multiplex operator has decided the location of the multiplex and entered into
the agreement with the mall developer.

Development of property
In this stage the mall developer develops the property according to the
specifications agreed upon by the multiplex operator and the mall developer.
The mall developer has to get certain approvals from various authorities. After
the mall developer completes development and gets approvals, the property is
handed over to the multiplex operator.

Fit outs:
After the property has been handed over to the multiplex operator, the
interiors are done up by him. This includes civil and architectural work,
designing, seating, carpeting, putting up the screens etc. This stage normally
takes between 2-6 months depending on the size and scale of the project.

Approvals:
After fit outs are completed, the multiplex operator has to get various
approvals before he can commence operations. On an average this stage
takes around 3-6 months depending on the state as he has to get approvals
from the fire department, electrical department, health department and
various other licenses.

MULTIPLEX BUZZ!!
The nation's multiplex industry is all set for an unprecedented boom buoyed by positive
regulatory changes and booming consumerism. Multiplexes /megaplexes have been instrumental in
contributing 28 percent of the total theatrical sales for the film industry according to a report by
Systematix Institutional Research. Industry experts estimate that top six multiplex chains have
plans of 300-500 screens each by FY-12.
DLF, a leading real estate player in the country, plans to invest US$ 298.12 million for
the expansion of its multiplex business. The company has planned to add at least 500
screens in the next four to five years across the country.

Entertainment conglomerate Big Cinemas has drawn up a plan to build 12 megaplexes

in India where you can not only see movies but also cricket and soccer matches on screen.

Multiplex chain PVR Cinemas, which currently has 108 screens, is also planning to add
over 150 screens across India, staggered over a period of three years from 2009-2010,
with a total investment outlay of around US$ 71.55 million. Cinemax India, the multiplex chain
which currently has 55 screens over 17 properties across the country is planning to scale up its
presence to 299 screens across about 100 properties by fiscal 2010

AGE WISE DISTRIBUTION

INCREASING CORPORATIZATION OF
BOLLYWOOD
Film production historically has been a fragmented segment, dominated by a
few family production houses and individual producers. Recently, the segment
has begun attracting corporate funding and along with that a corporate style
of project management. Better planning and discipline in the production
process will bring in higher efficiency, thereby reducing project delays and cost
overruns. Corporatization of Bollywood has actually widened the canvas for
movie producers. Movies are being produced on a much larger scale with
larger budgets, employing more sophisticated technology.

REDUCING SHELF LIFE OF MOVIES

MAKING MULTIPLEX THE IDEAL
FORMAT FOR DISTRIBUTORS
The shelf life of a movie has dramatically reduced from a few months earlier to
merely a 1-2 week window now. This has significantly reduced the time
window within which
producers/distributors can monetise the movie and recover their costs.
Multiplexes, with multiple screens, have far more flexibility in scheduling of
movies, which enables them to exhibit multiple shows of a single movie
simultaneously, thereby helping distributors recover a majority of the
anticipated revenues from the film during the first week
itself. For instance, 31 shows of the movie 'Race' were shown on a single day
by a multiplex operator in Mumbai. Today, multiplexes are contributing 35-40%
to the overall domestic box office collections with less than 5% of the total
screens under operation. We believe that the format is highly relevant for the
distributors and none of
them can afford to bypass it and still make money on films.

REVENUE BREAKUP
The revenue breakup is divided into three distinct parts namely :- Ticket which
generates 69% of the revenue - Food and Beverages is leased out to agencies
which generate 19% of the revenue. These include various stalls like cold
drinks, juices, chocolates and various other snacks. - Advertisements as a
whole generate 12% of the revenue. Conduction fees a key part of the
revenue breakup generates revenue with activities related to the conduction
of a particular show. Companies today are putting in immense effort to try and
expand their operations in prime cities like Mumbai.. Companies are also
focusing on increasing food and beverage spend by introducing new items and
offering
attractive packages like food combo's and providing additional facilities like a
gaming zone which attracts huge number of kids thereby generating more
revenue for the companies.

FRANCHISE MODEL
The company operates two multiplexes under the franchise model; PVR SRSin
Faridabad (3 screens, 776 seats) and PVR Spice in Noida (8 screens,
1,821seats). Under this model, the property the company sells its expertise in
developing and managing the operations of the multiplex to the mall
developer. PVR advises the mall developer on design specifications, business
plan and the financial and operational feasibility of the multiplex. PVR
manages the operations of the multiplex and uses its brand name to attract
patrons. For these services, PVR is entitled to a revenue share from the
multiplex. In the case of PVR SRS, PVR charges 5% of the net revenues of the
multiplex as management fee. For PVR Spice, the management fee is
calculated as 3% of the net revenue and 5% of the net profit of the multiplex.
The franchise model is a good strategy for the company in places where they
want to take limited risk or in areas where the company wants to take
exposure but the mall developer desires to own and operate the multiplex.
COST BREAKUP
 The costs are divided into 4 distinct parts, namely : Direct Cost which is
further divided into various sub parts

 Distributors share-This refers to a stipulated amount which needs to be

paid to the distributor for distribution a particular movie to the multiplex.

 Entertainment Tax which is a mandate tax which needs to be paid and is

charged to the viewer within the cost of the actual ticket purchased by
him.

 Food and beverages cost refers to the cost incurred by the in house
brands to producing or making a particular product or item available for
the end consumer.

 Personnel Cost refers to the cost incurred right from the sweeper and
the security guard right up to the manager of the multiplex.

 Depreciation refers to the ware and tare of a particular machinery over a

period of time which can this case refers to the projector and various
other assets bought to commence the how.

 Interest refers to the amount which needs to be paid on the

Borrowed capital by the company.

RISKS AND CONCERNS

Slowdown in content supply
As multiplexes are the consumers of content, they have no control over the
supply quality and quantity. Multiplexes thrive on rising footfalls which in turn
depend on the better supply of films from producers. Hence, any disruption on
the supply side will definitely have a negative impact on the multiplex players'
growth.

Alternative entertainment avenues

Movies compete for customer attention with other forms of entertainment viz.
DVDs, TV, cricket, festivals etc. An increased acceptability of these avenues
will divert footfalls away from multiplexes. However, we believe that there is
enough room for all to exist and grow
simultaneously. A case in point is US, where almost all forms of entertainment
are present and have been well received by the consumers. Even then, footfall
growth hasn't halted over there. Moreover, there might be possible synergies
among these formats which might benefit multiplexes, e.g. showing of IPL
matches on cinema screens.

Mall development delays

Supply of quality real estate has been a problem in the past for multiplex
players. Mall delays due to various reasons will hurt expansion plans of the
companies. We are building in a 50% delay in mall handovers to the
multiplexes in our analysis. Any delay more than this will hurt future growth of
multiplexes.

Uncertainty over entertainment tax

Entertainment tax in India is among the highest in the world leading to a much
higher Occupancy levels required for break even of multiplexes. Even though
state governments have announced tax free windows for these players,
uncertainty looms over the viability of multiplexes after the window expires.
We believe that the levels entertainment tax will come down in the future,
otherwise any increase will be passed on to the consumer to a large extent
like it is done at present.

Worsening economic environment

The whole footfall growth story depends on rising prosperity in the country
leading to higher discretionary consumer spends. If the economic environment
starts worsening for a prolonged period, it will affect patronage

WAY FORWARD
Kishore Biyani''s Future Group media arm Future Media has acquired the
onscreen media rights for all Inox Leisure multiplexes in India, for the next
twoand- a-half years. It also owns the rights to ad spaces within the Future
Group retail formats, and provides brands with opportunities to reach their
target consumers in the ambience of consumption, be it at malls, airports, or
cafeterias. This deal marks its foray into the multiplex space as well.
Future Media India Ltd is a part of the Future Group, which owns multiple retail
formats such as Pantaloons, Big Bazaar, Food Bazaar, Central and hometown.
The company plans to expand its gaming business by opening seven new
Giggles gaming zones at some of its future multiplexes at different locations in
India. Include pubs and bar. Kishore Biyani-promoted Future Media is set to
launch Future TV Lounge next month to capture a slice of the profitable liquor
and tobacco advertising that is banned in the general media. Future TV
Lounge would be a special vehicle that would put up television screens for
advertising in hotel lounge, restaurants, bars and pubs. Mumbai's multiplexes
are growing bigger and better and working towards transforming themselves
into complete entertainment zones. others are trying to get liquor licenses so
that you can wash down your movie experience with the choicest of liquor.
And, if your kids are bored with the movie, you can also leave them out in the
children's play area or, better still, book a ticket for them in the theatre where
the screen is dedicated to kids' films. Reliance Big Cinemas is one of the firms
that is planning a double-digit number of screens in one of its megaplexes The
firm is investing Rs 30 crore on what will be India's largest megaplex. It will
have 15-16 screens, including an IMAX 3D digital screen, food and beverage
lounges, special screens for kids and sports screens. Adlabs is also opening a
nine-screen multiplex at Ghatkopar also PVR coming up with 8 screens. Big
Cinemas has also tied up with kingfisher airlines were u travel by airlines and
you accumulate points on which you can get a free ticket in Big Cinemas after
you have reached a specific number of points.