The cinema exhibition business in India is witnessing a lot of activity, with the top players aggressively expanding their network, both organically and inorganically. Last week, Reliance Media Works, the entertainment major of the Anil Ambani-controlled business group, signed a deal with little-known, south India-based Carnival Cinemas, to sell off its Big Cinema chain of multiplex screens.

While Reliance Media Works (RMW), did not reveal the value of the deal, it will help Reliance Capital, the financial services arm of the group (which owns RMW), to reduce its debt by Rs7bn. According to Sam Ghosh, CEO, Reliance Capital, the move was to further its objective of focusing on its core financial services businesses, ‘significantly reducing exposure to non-core investments in the media and entertainment sector and reducing overall debt.’

The Reliance-Carnival deal, however, did not include an Imax multiplex and its real estate in central Mumbai, which the company hopes to sell separately for about Rs2bn.

The latest deal was the biggest in the multiplex business, which has in recent months seen several such acquisitions. Analysts see this as part of a move by the bigger players to consolidate their market share.

Headquartered in Kochi in the southern state of Kerala, Carnival is a relatively new entrant in the multiplex business. It has been expanding both organically and inorganically. The acquisition of the Reliance screens would catapult it to the third position after PVR and Inox.

With 454 multiplex screens, PVR is the largest player in the business today. The company acquired Cinemax and its 135 screens in 2012, to take the top slot. The company is now reported to be in talks with another south India-based multiplex chain, SPI Cinemas, which is a regional player.

Inox, with 361 screens, is the second-largest player. It has also expanded inorganically by acquiring other companies. Inox had bought 95 screens from Fame Cinemas in 2011, making it the largest player. However, it was overtaken by PVR a year later after it acquired Cinemax.

Earlier this year, Inox acquired 38 screens of Satyam Cineplex of Delhi for about $30m. In 2007, it had acquired Calcutta Cine Pvt Ltd, a multiplex operator based in the east.

With its latest acquisition of Big Cinema and its 250 screens, Carnival is now the third-largest player in the field, owning 300 screens. Earlier in the year, it had acquired 10 screens of Broadway Cinema from HDIL in Mumbai for about $18m.

Shrikant Bhasi, chairman, Carnival group, says he aims to capture the top slot by owning 1,000 screens by 2017. It is also in talks to acquire two more multiplex chains in north India by March 2015, which would make it the second-largest player. The low-key Carnival group, which has interests in the hospitality and realty sectors, has ambitious expansion plans. In fact, Reliance Capital itself is toying with the idea of acquiring a minor stake in the company.

Unlike the other major chains, however, the Carnival group is targeting smaller cities and towns in India, where the potential for growth is huge. The metros and larger cities have an excess of multiplex screens and footfalls have also been falling in recent months.

BESIDES saturation of metros, another reason driving the multiplex business to smaller cities is the digitisation of screens. Today, almost 95pc of cinema screens are digitised, so distributors can simultaneously release their films across thousands of theatres.

The multiplex business is closely associated with the real estate sector. A slowdown in the construction industry impacts multiplexes as well. Many developers are increasingly opting to promote mega commercial projects, which include shopping malls, boutique hotels, restaurants and multiplex screens, besides a few offices as well.

According to international consultancy, KPMG, about 150 to 200 new screens were added in 2013, but mainly in tier-II and tier-III cities. “Growth of the multiplex industry is highly correlated to the level of real estate development,” notes a report by KPMG. “Organic growth of the industry is expected to be mostly through green field investments as the industry does not perceive value from converting single screens into multiplexes.”

India has about 10,000 single-screen cinemas and more than 2,000 multiplex screens. But a majority of the multiplex cinemas are located within shopping complexes. And with a slowdown in commercial real estate, there has been slackening growth of multiplex facilities.

According to KPMG, despite India being one of the largest producers of films – at more than 1,000 a year – it has a low screen density of just eight screens per million people. In contrast, the US has 117 screens per million.

Worryingly for the multiplex chains, footfalls (or the number of patrons sitting through screenings) have fallen dramatically in recent years. It has declined by almost 15pc over the past one year. According to industry estimates, an average multiplex has 275 seats, but average occupancy for screenings is less than 30pc.

Multiplex companies are also offering hefty discounts on tickets on weekdays and for morning shows. This has brought down the average ticket price to Rs160. Some of the leading companies are now promoting high-end facilities, where they can charge more for the tickets.

Mexican multiplex major Cinepolis, the only international player having a presence in India, recently launched the first 4DX technology enabled screen near Mumbai. Cinepolis, with 193 screens, is the fourth-largest multiplex in India. The company is reported to have acquired the 83-screen Fun Cinemas recently.

The new cinema offers six new technologies to filmgoers – Cinepolis VIP, Imax, 4DX, Dolby Atmos, RealD 3D and 4K projection system. 4DX provides a fully immersive film experience with real simulation of effects including motion seats, water, wind, fog, lightening and scenes.

“Cinépolis pioneered the concept of luxury cinemas and is the largest operator of luxury cinemas worldwide,” points out Javier Sotomayor, managing director, Cinepolis India. “We are glad to bring the same to India. This is our second Cinepolis VIP property in India, which will provide a superior movie viewing experience to the discerning audience.”

The Mexican company is ambitious and aims to have 400 screens in India by 2017. Ashish Shukla, director, expansion, claims that the company is the fastest, organically growing multiplex firm in India, averaging two new screens every month.

Published in Dawn, Economic & Business, December 22th , 2014