video cassettes of the latest movies and watching them in the comfort of their homes.
However, good quality theaters were still in demand....
Source: http://www.icmr.icfai.org/casestudies/catalogue/Marketing/MKTG127.htm
PREFACE
This report present a strategic IT-IS plan for PVR Cinemas. It looks at the existing IT implementations and suggests a few applications to improve the performance of the company. We look at PVR Cinemas in particular and the multiplex film exhibition business in general to identify factors that are critical to the success of PVR Cinemas in this business. Based on the analysis, we suggest certain IT-IS applications that would be the most beneficial to PVR Cinemas as they directly improve the performance of the critical success factors for PVR Cinemas.
Secondary data available on the web has been used to understand the film exhibition
business. Information specific to PVR Cinemas has been obtained from its RHP.
Last, but not the least we thank Prof. S.D. Vaidya for guiding us in this project and
providing us with the framework to do this analysis.
INTRODUCTION
The Film Industry
The Indian film industry is the largest film industry in the world in terms of the number
of films produced and admissions each year. In India, Movies have always been a very
important source of entertainment. Movies directly contributed Rs. 4,500 crores out of
the Rs. 19,200 crores entertainment business in India in 2003. The Indian film industry
revenue for 2004 was estimated at Rs. 59 billion. The pie chart below shows the
percentage contribution of various revenue sources to the total revenue of the Indian film
industry in 2004.
The Indian film industry currently realizes almost 70% of its total revenues from
domestic and overseas box office sales unlike the U.S. film industry, which earns only
35% of its revenue from box office sales and the remaining 65% of revenue is derived
from other revenue sources such as sales of DVDs and VHS tapes and the sale of cable
and satellite television rights. India is one of the few markets globally where U.S.
produced films (Hollywood) have not been able to dominate. Hollywood films only have
a 4% market share in India, arguably the lowest amongst all other film exporting
countries. A combination of highly fragmented ownership, high entertainment tax rates,
large cost of setting up new theaters, and unavailability of organized funding has resulted
in many such single-screen theaters not being able to continuously upgrade or renovate
their facilities, thus resulting in a decline in the quality of such theaters. This has been
detrimental to the entire Film Industry, as viewers started staying away from theaters and
started using alternative viewing options including video and cable TV.
In the year 2002, the film industry moved towards corporatization. Corporatization marks
a fundamental shift in the way different elements of the Film Industry value chain
including preproduction, financing, production, post-production and distribution are
managed and run. This is likely to result in a scenario where movie making is governed
by transparent and enforceable contracts and is carried out in accordance with global best
practices.
Historically most of the theatres were single screen with large seating capacities (around
100 seats). They have been poorly maintained and their occupancy rates are very low.
This has led to a shakeout and many such theatres have shut down.
Since 2002, film exhibition business in India has grown tremendously on the back of
entertainment tax exemptions announced by select State governments on construction of
new multiplexes. Since then there has been a significant increase in patrons (customers)
and revenues, in what has got to be known as “the multiplex boom”.
The competitive advantages that multiplexes enjoy over single screen theatres are:
1. Better occupancy – The screens are of different seating capacities. Hence films
can be allocated to screens based on their popularity. This leads to better
occupancy
2. Greater number of shows – because of more number of screens, a variety of
different movies to suit tastes of different audience segments can be shown.
3. Better cost management and Operating efficiencies – Economies of scale and
shared resources across screens.
4. Increased preference by distributors – Due to a more transparent box-office
reporting practice and location advantages enjoyed.
Elements of Cost
The main cost components of a multiplex are:
1. Entertainment Tax
2. Distributor Share
3. F&B cost
4. Personnel Cost
5. Property Rentals
6. Marketing Cost
PVR CINEMAS - INDIA’S LARGEST CINEMA CHAIN…
It all started as a dream in the year 1997, and within a decade, it has turned the same into a 70 mm reality.
Setting up the very FIRST multiplex in the country - Setting up a movie haven for filmgoers in the form of the eleven screener: PVR Bangalore, India's largest ever multiplex - Delighting not one, not two but more than 8.75 million patrons last year. They now have an unmatched 68 screens across the country.
They just love to entertain.
Singular Belief: MOVIES FIRST
- It's a mantra every single one of our 1,000 employees swears by.
- It's a motto that helps us deliver the finest cinema experience, year after year.
A HALL OF FIRSTS. LIKE NO OTHER.
Breaking new grounds is our specialty; here is a proud list of our “Hall of Firsts”:
- First to bring premier movie viewing to India with the exclusive “Cinema Europa & Lounge”
- First to introduce “Gold Class Cinemas & Lounge” in India
- First to introduce “Heritage Cinemas” in India
- First to form a “Foreign Joint Venture” with Village Road show, Australia
- First to receive “Institutional Funding” in the cinema industry - from ICICI
- First to offer “Computerized & Online Ticketing”
-
First to introduce “Real Time Ticketing” on
- First to introduce “Mobile Based Information & Ticketing Service”
- Introduced “Cross Location Ticket Sales”
THE FUTURE OF THINGS TO COME..
PVR Cinemas will soon have a very firm national footprint with 250 screens across the country. PVR will soon open cinemas in Delhi, Mumbai, Chennai, Jalandhar, Amritsar, Ludhiana, Aurangabad, Latur and other territories.
FINANCIALS
INDUSTRY ANALYSIS
PEST ANALYSIS
In this analysis, we intent to see the impact of four environmental factors in the growth of multiplexes in India
THREAT OF NEW ENTRANTS
Investment Barriers
The investment barriers for the film exhibition are relatively insignificant. The cost of setting up a 1200 seater multiplex in a metropolitan city is between Rs. 8-9 Crores apart from the cost of leasing the land. Assuming a 40% occupancy rate and average ticket price of about Rs. 100 and an operating margin of 25% the payback period is between 4-5.5 years. If food and beverages earnings are taken into account this reduces to 3.5-4.5 years. Theatres have a negative working capital requirement. This means that a multiplex project can generate free cash flow in a very short while.
Regulatory Barriers
There are regulations that require that new films released in cinemas, may not be shown
on television or released on home video for a fixed window of time. This regulation is
intended to protect distribution in the cinema from the development of television and
video. The clearance periods may vary according to the box office success of a film, thus
creating further discrimination. This ensures that depending on the films potential, the
exhibitors have sufficient period to lock-in as much profit as they can before the video
and television release of the film.
Barriers through Incumbency Advantage
Established relations with the major distributors
Big players who have been in the film exhibition business for some time have established
close relationships with distributors. With lobbying with the distributors being extremely
important for rights acquisition to first-run movies; these relationships prove to be crucial
in getting rights to the most anticipated films.
Squeezing out small players
The rapid growth of the multiplex variety of film exhibition and its growing dominance
in deals with the distributors has meant that small theatres have to be content with the
second-run movies leading to major competition for the first-run big-banner movie
exhibition between the multiplexes only.
All these factors result in this factor being attractive to the incumbents. Infact new
entrants to the industry are mostly in the form of producers / distributors entering as a
vertical integration strategy.
THREAT OF NEW SUBSTITUTES
Though not a direct substitute, video and television releases for a movie are close
substitutes for movies exhibited in cinemas. Due to the regulations as mentioned before,
this substitution is mainly for the second-run of the movies. This effect is bound to
increase as pay-per-view television is introduced and producers find television releases
more profitable. [DI]
Where multiplexes differentiate from these substitutes is in the entire experience that
watching a film in a theatre provides. Watching a newly released film on the “big-screen”
with the entire family is a major attractant for the movie-goer.
Hence the avid movie-goer (which is a large proportion of the audience for a first-run
film) will never exchange ‘the experience’ for watching the movie on video.
For some families a movie might be a form of a family outing. For such cases other forms of
entertainment like amusement parks might be considered as remote substitutes.
All of this suggests that the ambience and quality of movies and infrastructure would play a major
role is mitigating this threat of substitutes.
Hence there is little threat of substitutes for first run films and is mildly unattractive for
second-run films.
POWER OF SUPPLIERS
The suppliers here are the film distributors and vendors for the food and beverages. Of
these the maximum power is wielded by the distributors. Although the process of giving
exhibition rights is supposed to be through inviting for bids, such transparency rarely
exists and most of the deals are closed through lobbying.
Refusal to supply is a major concern for any exhibitor. A decision by either of the two
largest distributors to refuse to supply first run to an exhibitor may lead to the destruction
of that exhibitor’s business where that exhibitor is in a competitive market. The decision
by a distributor not to supply may also be due to the exhibition site being of inferior
quality or that there is insufficient demand to justify a first release print.
This results in the power of suppliers being unattractive for the incumbents.
POWER OF CUSTOMERS
The customers usually choose a theatre based on the proximity of the theatre to the place
of residence / work. They don’t differentiate much between theatres unless the ambience
is very different.
Also there is a interesting heuristic observed in the location of the multiplexes
summarized by the 5-mile rule which states that ‘no two theaters (competing or otherwise)
can show the same film if those locations are within five miles of each other’. So a customer is
forced to go to the only theatre in her proximity which is showing the film she wants to see.
She will go to a theatre even if she is unhappy with it provided her desire to see the movie is
high enough.
Besides this, many exhibitors are coming up with Customer Loyalty Programs, further
reducing the power of the customer.
This results in the power of customers being very attractive for the incumbents.
INTERNAL RIVALRY
The major players in the multiplex business are PVR, Inox Leisure, Adlab Films and
Shringar Films
The rivalry among these players is mostly restricted to location selection. With new malls
springing up very rapidly, and multiplexes also looking to expand in numbers and into
new areas negotiating lease deals with mall owners is very important.
A new trend emerging (as shown by the entry of Shringar Films, is that of vertical
integration by production houses / distributors into the multiplex business. Producers /
distributors have realized that their operations could be enhanced by joint control of
distribution and exhibition. With producers wielding all the control over their films, this
could mean squeezing out of competition from independent exhibitors. But as of now the
integration have benefited to improve efficiency without much of a negative effect on
competition
Overall the internal rivalry in the industry is attractive for the incumbents.
COMPANY ANALYSIS
In terms of Porter’s generic strategies the dominant strategy that PVR follows the
differentiation strategy to suit the needs of its target market.
PVR places a huge emphasis of “Movies First” experience. This it hopes to achieve
through immaculate facilities, superior customer service and ensuring the highest levels
of safety. The “Movies First” experience is also emphasized in the brand building
exercises of the firm.
PVR differentiates itself on the basis of:
1. Location –PVR selects only premium locations
2. Excellence in design – All of PVR’s theatres are state of the art in terms of
projection angles, sight lines, stadium seating, projection and sound systems and
international quality large screens. This ensures that the customer has a superior
cinema viewing experience
3. Value added services – Being located in malls, PVR provides the entire bundle
of activities such as restaurants and shopping for the complete family outdoor
experience.
IDENTIFICATION OF CSFs
Industry Specific CSFs
High Occupancy Ratio
The fixed cost of a multiplex is very high and variable cost is low. Hence it becomes
imperative for the multiplex to have a high occupancy ratio.
Also a large share of the profit is contributed by the F&B segment. The movie itself is
considered as a loss leader by the theatre owner. It is meant to get people into the theatre.
Once in the average spending by one person is Rs.30 on F&B and merchandise. Most of
this revenue contributes to the operating profit due to the high margins in the F&B
segment. That is why it is usually said in the industry that most of the theatres would shut
down if it were not for F&B.
This also makes it important for the multiplexes to increase the footfall and as a result
have high occupancy ratio.
Maintain active contacts with the suppliers
As explained in the Porter’s industry structure analysis supplier power is very high in the
industry. For getting rights on popular big-banner movies, lobbying with the distributors
assumes high importance. Exclusive rights on a well hyped movie can attract large
number of patrons. Also maintaining good relations with distributors results in favorable
negotiations in terms of the duration of the right and the percentage revenue share. This
reduces the uncertainty in the results of the multiplex. Apart from distributors good
relations with suppliers of electricity / water to the multiplex ensures that it can provide
uninterrupted service.
FIRM-SPECIFIC CSFs
As discussed in the company life cycle analysis, the company is in the growth stage and hence expansion into new geographies and promotion of the brand become critical.
Location selection is perhaps the most important factor in considering expansion. While
selection of right content helps in reaching out to the right target, selection of right
location results in attracting higher footfalls. All our’s PVR multiplexes are located
areas where largo footfalls occur. This provides them with a competitive advantage.
Once a location is decided the important things are closing the deal with mall owners and
obtaining no-objection certificate from the government. It becomes important to maintain
cordial relationships with these entities to have a favorable deal.
ENVIRONMENTAL CSFs
From the PEST analysis it is evident that government regulations and decisions on tax
exemptions to multiplexes can affect their performance in a significant way.
Hence lobbying with the government to ensure that activities like allowing for tax
exemptions, clearance for locations, etc are more favorable to the company.
On the technological environment side, an important CSF is to be in tune with the
technological developments in the industry and plan for adopting or managing these
technologies.
IT-IS APPLICATIONS FOR FIRM SPECIFIC CSFs
Existing Applications
- PVR Cinemas has a strong MIS system, on the backbone of a technically sturdy software system, which provides it with regularly updated performance reports on all its Operating Units. This assists it in its day to day operations.
The software is used for the following:
- F&B
- Ticket Sales
- Account Sales
- PVR Cinemas has invested in IT Infrastructure to connect all its Units with Corporate Office. This has been key factor in streamlining its operations across
Operating Units in 7 cities. This has also benefited in a more real time MIS system, effective decision making and quick solution of issues leading to better control of units.
PROPOSED STRATEGIC IT-IS APPLICATIONS
- Location Selection
Type of system – DSS
Scope of system – Strategic Planning
Decision Definition – The decision here is to select a location for the multiplex such that
the firm is able to maximize the expected footfalls while remaining within the constraint
of the budget imposed for the proposal
Constraint - Budget
Benefit - The manager is allowed to enter the data items of each of the potential
location. The manager then specifies criteria for selection on any of the attributes. Only
those that satisfy the budget constraints are shown. The manager can then choose a
location from the narrowed set of choices.
- Lobbying Assistance
Type of system – Directory / Scheduler
Scope of system – Management Assistant
Description – As seen earlier, lobbying / maintaining good relations with suppliers
(distributors / mall owners / government) is a very important critical success factor for the
multiplex industry.
- Ticket Distribution – Kiosks
The new methods of ticket booking (internet, SMS, phone) have become very popular for
multiplexes. Taking this one step further PVR cinema has introduced kiosks as the latest
mode of ticket distribution.
The kiosks provide a multimedia interface to provide an unattended ticket sales/pickup
environment. They enable ticket purchase through credit cards like MasterCard and
VISA. Even the tickets booked from remote websites can be picked up from these kiosks
by swiping the credit cards (used to buy tickets on the website). These kiosks can be placed at strategic locations.
- Promotions – Push Marketing
Push marketing can be very effective in the multiplex business. If the consumer is given
targeted information regarding the movies to be released and the schedules, we can
expect high conversion rates.
Here data mining can be helpful to select the information content based on the customers’
likes and dislikes. The data can be captured during bookings through internet / phone and
the information can be sent via email / SMS.
Although this is currently done to some extent, more emphasis should be laid on it.
REFERENCE: