Industry and Firm Analysis Entertainment Exhibition - Cinemax

Agnel Joseph Ashish Dongre Pankaj Mittal Shekhar Menon

26-July-2011

- 1114004 - 1114011 - 1114030 - 1114042

Agenda
Entertainment Exhibition Industry
Scope, Boundaries and Trends Industry Attractiveness Key Success Factors

Cinemax - Overview and Strategy

Resource and Capabilities Analysis

Challenges & Opportunities

Strategic Avenues

26-July-2011

Cinema Exhibition in India

Business of screening movies Rs 6,400 Crore industry with projected growth of 10% YoY Two principal exhibition models Single Screen Theaters Multiplexes Spans procurement of movie exhibition till customer stepping out of entertainment zone.
100% FDI in film industry 800+ multiplex screens & 10,000 odd single screens. Entry of miniplex

Three business models Self owned Leased Franchise

1896 - First Cinema Exhibition in India

First Multiplex (Corporate Entry) in Exhibition

3D Boom

1900Pre-1990s 1990

1997 1990-2000

20032003

2005 2005

2009

2010

Fragmented 13,000 Single Screen Theatres in India

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Imax

strong anti piracy laws

5-7% Multiplexes contribute 25-30% of domestic exhibition revenues in just a decade

Source:http://www.scribd.com/doc/28811849/FICCI-KPMG-India-Media-Entertainment-Report-2010 (pages 11-31)

Effect of Forces on the Industry Attractiveness

Barrier to entry (3.0) 1.Right location 2. Capital Costs Bargaining power of Supplier (2.1) 1. Consolidated Distributors 2. Fragmented exhibitors Barrier to exit (3.5) 1. Liquidation of assets is easy 2. Lease/sell out of space and equipment is easier

Compliments & Drivers 1. Growth in organize retail (malls) 2. Food courts & dining

3. Improving Demographics
Government Action (1.9)

Rivalry of competition (3.1) 1. Intense rivalry for location 2. Multiplex cannibalizing single screens 3.Localised competition between theatres

4. Rising per capita income

1. High taxes 2. Censor board 3. Licenses & approvals 4. Tax exemption for multiplexes

Bargaining power of Customer (2.2) 1. Limited bargaining power Fragmented customers Threat of Substitutes ( 1.01) 1. Home Entertainment, TV, Cable TV, Internet 2. Sports, Games 3. Piracy

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Key Success Factors

Location Quality of Experience Quality and Shelf Life of Movies Distributor Relationship Technology Maximize cross-sell - Food and Beverage Attract Advertising Cost Efficiency Maintenance and Staff

26-July-2011

Agenda
Entertainment Exhibition Industry
Scope, Boundaries and Trends Industry Attractiveness Key Success Factors

Cinemax - Overview and Strategy

Resource and Capabilities Analysis

Challenges & Opportunities Strategic Avenues

26-July-2011

Overview
Promoted by Kanakia group - holding 68.6% stock Cinema Exhibition & Gaming 2002: Cineline 2005: Cinemax Pvt Ltd 2006: Cinemax Public Ltd Rs 197.5 Cr Revenues, Rs 5.45 Cr PAT year ending March 31, 2011 21 Location | 107 screens | 28,097 seats

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Source: http://cinemax.co.in/CMT/upload/ArticleAttachments/Finance%20Presentation%20FY%2010-11.pdf (page 5) http://www.moneycontrol.com/livefeed_pdf/May2011/Cinemax_India_Ltd_300511_Rst.pdf

Cinemax Strategy
Strategic Intent Provide wholesome outside home family entertainment Target young and middle-aged - higher disposable income group

Generic Strategy - Focused Differentiator Differentiating factors Presence in premium locations & malls Eclectic mix of movies not just mass appeal movies High Quality experience High End Technology Sound, Vision Features - Red Lounge, Massage chairs, Giggles

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Generic Strategy
Cost Leader Differentiator

Broad

K Sera Sera
( Miniplex)

Narrow

Venkatesvara (Banerghatta road)

Roxy / Regal

26-July-2011

Agenda
Entertainment Exhibition Industry
Scope, Boundaries and Trends Industry Attractiveness Key Success Factors

Cinemax - Overview and Strategy

Resource and Capabilities Analysis

Challenges & Opportunities

Strategic Avenues

26-July-2011

Resources & Capabilities Analysis

Resource/ Capability Valuable Rare Inimitata Non Risk of ble Substitutabe Holdup Real estate Yes Yes Yes No No experience Risk of Comments Slack No Gives edge in location and mall developer selection, & managing development risks No Yes Sound, Vision technology, Seats Yes No Attract quality, popular movies, revenue sharing No Yes Introduced Red Lounge, massage seats, Gaming zone No Yes Maximize revenue from in demand movies, show multiple genres, lower demand movies in smaller screens Yes No Premium localities once ( property obtained are a sustained rent, falling advantage. mall quality)

Deliver High Quality experience Maintain Distributor relationship Ability to innovate

Yes Yes Yes

No No Yes

No No Yes

Yes Yes Yes

Flexibility to optimize screen usage

Yes

No

No

Yes

Physical resources (land, property, mall space)

Yes

Yes

Yes (for a location/ mall)

Yes

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Resources & Capabilities Analysis

Resource/ Capability Valuable Rare Financial (cash & borrowing capacity) Government contacts- licenses and approvals Reputation/Brand Yes Inimitatab Non Risk of Risk of Comments le Substitutabe Holdup Slack No No Yes Yes Yes Leasing model requires reduced finances, helping achieve early breakeven Yes Yes (in Yes Yes No Different groups are strong short in different regions term) Yes Yes NA NA Yes Helps attract advertising, premieres, initial footfalls No No Yes Yes Yes During recession, this falls, impacting profits Yes No No Yes (3 party website) No
rd

Yes

Yes

Customer Advertising & Promotions Internet ticketing and seat selection,SMS Leverage high end technologies Digital cinema Efficient personnel deployment

Yes

Yes

Yes Majority of single screens do not have this advantage No

Yes

No

No

Yes

Yes

No

No

NA

No

Yes Economies of scale both within a multiplex and across group multiplexes

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Resource Dependency of Generic Strategy

Key Resources & Capabilities Realty Experience & Property ownership Distributor Relationship Ability to Innovate High End Technologies Internet Ticketing, SMS Focused Differentiator Presence in Premium Location & Malls

Eclectic Mix of Movies

High Quality Experience Sound, Vision, Lounge, Seats, Giggles Gaming

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Key Performance Indicators

Sales per footfall - Revenue generated from a customer Number of footfall /Seat Employed - Capacity utilization of the theatre

Expenses per Seat Employed Cost Efficiency

Item # of Screens Number of Footfalls (cr) Seat Employed Annual Expenses (cr)

Cinemax 94 1.08 25,173 166.6

PVR 142 1.53 246.7

Inox Comments 119 Annual Reports 2009-2010 Cinemax annual report; Inox -from annual 1.46 report and SMR report 210.0 2009-2010 P&L Reports from Infoline

36,587 33,656 Cinemax and Inox from annual report;

Annual Sales (Cr)

Sales per footfall (Rs.) # of footfalls per seat expenses per seat (Rs.) Sales per seat (Rs.)
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190.1
176.0 429.0 66,178 75,501

274.8
179.6 418.2

253.7 2009-2010 P&L Reports from Infoline

173.7 433.8

67,422 62,408 75,097 75,365

Source: http://www.cinemax.co.in/CMT/Upload/ArticleAttachments/Cinemax-Annual_Report2009-10.pdf (page 13)

Agenda
Entertainment Exhibition Industry
Scope, Boundaries and Trends Industry Attractiveness Key Success Factors

Cinemax - Overview and Strategy

Resource and Capabilities Analysis

Challenges & Opportunities

Strategic Avenues

26-July-2011

Industry Challenges
Challenges
High and increasing real estate prices Challenges from Suppliers

Strategic Mitigation
Long Term Leasing Expand into aligned food court business or partner a food court company

Mall development delays impacting expansion

Increased pressure from distributor in revenue sharing Government incentives to multiplexes through tax exemptions are removed

Identify and work with the right mall developer for timely execution of projects Long Term Revenue Sharing contracts Form association with multiplex groups for increased bargaining power

Government Government enforces cap on multiplex Introduction of GST is expected to bring and down entertainment tax expense by 50%. ticket pricing e.g. Tamilnaidu Regulatory Challenges High Entertainment tax - up to 50% Need nearly 40 licenses to start a multiplex
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Maintain networks in regions of interest

Industry Challenges
Challenges Strategic Mitigation

Expansion Challenges

Expanding effectively is a challenge due to lower willingness to pay/buying power in tier Price appropriately and create theatres 2-3 cities, where the industry players plan to with lower cost amenities expand IPL and major cricketing events Lower Shelf life of movies in theatres because of DTH and Satellite TVs Telecast sports matches in the theatres Differentiated Movie experience Provide other valued added services e.g. Gaming, Dining.

Substitute Challenges

Piracy

External Challenges

Security Risk from Terrorists and political activists

Lobby for strong anti-piracy laws Introduction of Digital Technologies. Industry acknowledges benefits of Digital cinema Technology in curbing piracy More security cover Better security technology and protection from state government

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Cinemax Specific Challenges

Challenges
Competitors (PVR and Big Cinemas) better placed to play the cost game due to backward integration into movie production and distribution

Strategic Mitigation
Strategically explore backward integration or long term alliances with major distributors Negotiate variable revenue sharing agreements based on different price bands (cover expenses even during downturn)

Competition Challenges

Advent of Miniplexes impacts expansion into Tier 2 and Tier 3 towns

Potential Deterioration of the mall experience where the multiplex is located.

Explore the franchising model and introduce miniplexes in Tier 3 towns. Ensure mall maintenance is part of rental contract

Supply Side Challenges

Build relationship with premier production Large number of movies exhibited turn houses/distributors out to be flops Show various genres of movies to attract different client base Breaking into established multiplex regions like Northern India Identify upcoming localities in the region Retrofit loss making single screens

Expansion Challenges

26-July-2011

Strategic Avenues
Nationwide partnerships with major retailers & realty developers Bundle services such as Dining, Food Courts, Crches, etc to provide comprehensive and relaxed entertainment Utilize lean period for corporate, educational or recreational events Merchandizing (Music, Film Accessories, etc)

Explore miniplex route in Tier 3- towns

Pursue backward integration into Distribution Use patron data and demographics to launch effective marketing campaigns Loyalty cards etc

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