Description
The report describing about INOX multiplex.
Inox Leisure Ltd.
Strategic Management Research Study Report
Table of Contents
Introduction .............................................................................................................. 4 History of Multiplex Industry in India ......................................................................... 4 Understanding the External environment using PESTEL Analysis ............................... 6 Political Factors ...................................................................................................... 6 Economic Factors ................................................................................................... 6 Socio-cultural ......................................................................................................... 7 Technological ......................................................................................................... 8 Environmental........................................................................................................ 8 Legal ...................................................................................................................... 8 Temporal Evolution of the Firm ................................................................................. 9 Introduction Phase ................................................................................................. 9 1999-2005 .......................................................................................................... 9 Growth Phase (2006 Onwards)............................................................................. 10 Mr. Manoj Bhatia, as CEO ................................................................................. 10 Mr. Arun Tandon as COO .................................................................................. 10 2006-07 ............................................................................................................ 10 Consolidation Phase ............................................................................................. 11 2007-08 ............................................................................................................ 11 2008-09 ............................................................................................................ 12 Critical Assessment of past strategies ...................................................................... 13 Introduction & Growth Phases ............................................................................. 13 Year 2002 ......................................................................................................... 13 Year 2005 ......................................................................................................... 14 Year 2006 ......................................................................................................... 14 Year 2007 ......................................................................................................... 15 Consolidation Phase - 2007-08 to 2008-09........................................................ 15 Recent Developments.............................................................................................. 17 Porter’s Five Forces Analysis .................................................................................... 18 Bargaining Power of Suppliers .............................................................................. 18 Threat of Substitutes ............................................................................................ 18 Bargaining Power of Customers ........................................................................... 18 2
Threat of Competition/Rivalry .............................................................................. 18 Threat of New Entrants ........................................................................................ 19 Current State of Affairs ............................................................................................ 19 Conclusion ........................................................................................................... 20 References............................................................................................................... 20
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Introduction
Inox Leisure Ltd. is the diversification venture of Gujarat Fluorochemicals Ltd. from the Inox Group of Companies. GFL owns & operates Inox Leisure Ltd. with a 65%
th stake. Inox Leisure Ltd. was incorporated on 9 November, 1999 as public limited company. INOX Leisure’s mission is to be the leader in the cinema exhibition industry, in every aspect right from the quality and choice of cinema to the varied services offered and eventually the highest market share. INOX currently operates 28
multiplexes and 101 screens in 20 cities making it the only national multiplex chain. Inox is the winner of the ‘ICICI Entertainment Retailer of the Year’ Award 2005, TAAL Multiplexer 2006 and Emerging Superbrand of the year 2006 – 2007 Award. Recently, INOX is also chosen post a nationwide tender to design, construct and operate the prestigious multiplex in Goa that hosts the International Film Festival of India.
History of Multiplex Industry in India
Multiplex Industry is the new kid on the block for the Film Exhibition Industry, which itself is a part of the huge media & entertainment industry. The media and entertainment industry in India primarily constitutes print & motion media. Motion media is categorized into television, films and others such as web & electronic media. The Indian film industry, with revenues of approximately 110 INR billion as of 2009 is one of the biggest film industries in Asia. A majority of these revenues comes from the domestic collections or ticket revenues which contribute roughly 78-80% of the total revenues. Overseas Collections, Home Videos, Cable, etc. form the other sources of revenues for this industry. The detailed break-up of this industry can be shown as in the following figure.
Figure 11:- Positioning of multiplex industry in the media & entertainment industry
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The multiplex industry in India has been plagued by the non-national, local & unorganized sector players from its inception. Though it cannot be said with certainty, but the Anupam Multiplex in South Delhi, which was started by PVR Cinemas Ltd. way back in 1997, can be considered as the first multiplex by an organized/branded* player. After the advent of multiplexes in 1997, the industry witnessed a boom where many players like Inox Leisure Ltd. (1999), Adlabs (2000), Fun Cinemas (2001,2005)†, Cinemax (2002) and few regional giants like Wave Cinemas entered the multiplex market. The growth of this industry in terms of revenues vis-à-vis the total domestic collections of the overall film industry can be visualized with the help of the following graph.
Domestic Revenues V/s Multiplex Revenues (INR Bn)
100.00 80.00 60.00 40.00 20.00 0.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 30.00 25.00 20.00 15.00 10.00 5.00 0.00
Domestic Theatrical (LHS)
2
Multiplexes Revenues (RHS)
Figure 2 : - Growth of Multiplex Revenues vis-à-vis overall domestic revenues for Indian Film Exhibition Industry.
To better understand the multiplex industry, it is necessary to view its evolution in context of various political, environmental, social, technological, economic & legal developments that were simultaneously taking place.
Branded Player here implies company having presence in more than 10 cities and having atleast 50 operational screens as on Aug’09. † (2001, 2005) Fun Cinemas started as E-City Entertainment Venture in 2001 after which Fun Cinemas was spun off as separate company in 2005.
*
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Understanding the External environment using PESTEL Analysis
Political Factors
The ever-changing political environment in India did not have any adverse effects on the multiplex industry as a whole. This is evident from the PPP which were started in some of the states like U.P., Punjab, Himachal Pradesh, Arunachal Pradesh, etc way back in 2003-04 to give a boost to this industry, by the NDA government are still in operation in the UPA regime now i.e. August, 2009.
Economic Factors Interest Coverage
7.6 5.7 3.3 3.9 4.2
FY 2004
1
FY 2005
FY 2006
FY 2007
FY 2008
Figure 3(a) : - Interest Coverage Ratio Trends for multiplex industry
Debt-Equity
1.54 1.26 0.54 0.50 0.44
FY 2004
1
FY 2005
FY 2006
FY 2007
FY 2008
Figure 3(b) : - Debt-Equity Ratio Trends for the multiplex industry.
From the above graphs it is evident that the industry is witnessing a change in capital structure, with more companies preferring the equity route to capital formation; hence the interest expense as percent of sales has gone down considerably, leading to increase in interest coverage ratio. The preference of the companies to follow the equity route is backed by the boom in the stock market which was witnessed during late 2006 to early 2008. Rising Per Capita Disposable Income: The per capita disposable income has grown by CAGR of 10.3% for the period FY 2004-08. The Y-o-Y growth for the year ending in 6
March 2008 is 11.3%. The rise in spending power of individuals is expected to augur well for this industry.
Trends In Per capita Disposable Income & Y-o-Y growth
28000 23000 18000 13000 8000 3000 -2000 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Per Capita Disposable Income (INR) Per Capita Disposable Income Growth (Y-o-Y) %
Figure 43: - Trends in Per Capita Disposable Income for Individuals in India.
Socio-cultural
Shift in Socio-Economic Pattern: The Indian households can be divided on the basis on their socio-economic status. The status are affluent characterized by rich class, aspirers characterized by credit culture & higher spend and strivers characterized by lower income group
Shift in Socio-Economic Pattern (In Mn Households)
Affluent 3
11 46
Aspirers
124 131
Strivers
96 2003
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2013
Figure 5 : - Shift in the Socio-Economic Pattern in India
According NACER Report, The number of aspirer households is expected to increase from 46 Mn in FY 2003 to 124 Mn in FY 2013 showing an increase of 169.5%. The affluent households will increase by 266% approximately to reach 11 Mn households in 2013 compared to 3 Mn in 2003 Rising Media Audience: According to data released by Indian Readership Survey (IRS) 2007 in the last four years, India's population has grown by 92 million individuals, i.e.
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a growth of 12.5%. Of this, the media audience has increased by 86 million individuals, i.e. a growth of 18.4%.
India's Population 2003 - 81.8 Mn India's Population 2007- 92 Mn
Media Audience 2003 - 72.6 Mn
Figure 6 : - Rising Media Audience in India
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All these factors coupled with the rising young population is expected to boost the revenues of the multiplex industry because, viewing movies in multiplexes is increasingly being associated with social status. Also with the expected rise in spending power of these individuals, a comfortable and enjoyable movie experience is what will drive these individuals to the multiplexes.
Technological
One of the major costs associated with movies is that of ‘reel’ or ‘print’ as it is called in the film exhibition industry. But that all is set to change with the advent of satellite viewing/projection of movies in cinema halls. Satellite viewing is where the movie is directly projected by a satellite and the reels and the old projection system is not used. This system of cinema projection is expected to cut the supply chain costs by approximately 15% for the film exhibition industry. The inventory carrying costs for reels will decrease throughout the supply chain. The cost of installation of the new high-tech equipment is expected to give returns in the second year of operation.
Environmental
The environmental factors are generally the factors on which the company/industry has no control over. Natural calamities like floods, earthquakes, drought, etc are expected to hit almost all industries in similar manner and the extent of these damages is very difficult to fathom or quantify. Apart from these factors, multiplex industry has had few alarming events like terrorist attacks and recent scare of swine flu.
Legal
The multiplex industry is bound by few legal obligations like distance of screen from the first row, sound density in decibels allowed inside the exhibition hall, soundproofing requirements, etc. 8
Temporal Evolution of the Firm
Introduction Phase 19992005
Gujarat Fluorochemicals Ltd. Diversified into the entertainment industry with Inox Leisure Ltd. as its flagship brand into the multiplexes sector. Though it was incorporated as public limited company in 1999, the operations started with the first multiplex, a four screen multiplex at Bund Garden, Pune and similar multiplex at Vadodara in 2002. The senior management at GFL wanted to lay out its plans very systematically and hence over-cautiousness shaved off three years of profit which it could have made during 1999-2002. Even after 2002, the focal firm (Inox Leisure Ltd.) largely functioned under the watchful eyes of its parent GFL. The centralization in this case extended even to the senior management level. GFL could do this mainly because it held 65% of stake in Inox Leisure Ltd. and rest were held by few private players. In 2003 it commenced operations at its first multiplex on leased premises at Elgin Road, Kolkata. One of the few important decisions taken during 2004 was of change in the registered office of the company from Delhi to Vadodara, Gujarat to take advantage of the extended tax benefits offered by the State Government of Gujarat. Other developments during this phase included start of second multiplex in Salt Lake, Kolkata. It also commenced operations at its fifth Multiplex, being a fourscreen Goa Multiplex and commenced operations at its first five-screen at Mumbai In 2005, it was awarded ‘Best Entertainment Retailer’ by ICICI Retail Excellence Awards 2005. Other highlights included commencement of operations at its second five-screen Bangalore Multiplex, entering into distribution business by signing of distribution agreements for few Hindi movie titles in select territories, commencement of operations at its eighth Multiplex, being our two-screen Jaipur Multiplex which was acquired by the company. It also entered into MoU with Pantaloon Group, for preferential access to multiplex areas in all real estate developments with which the Pantaloon Group was associated. Manoj Bhatia who eventually became the CEO of the company after Inox floated an IPO through bookbuilding process in January 2006.
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Growth Phase (2006 Onwards) Mr.ManojBhatia,asCEO
After graduating from Ecole des Roche, a premier hotel school in Switzerland, Mr. Bhatia joined The Oberoi Hotels. He then proceeded to work at the King Edward Hotel in Toronto, rated as the 6th Best Hotel in the World. Following his stint in Canada, Mr. Bhatia set up the Hotel Marine Plaza in Bombay in the capacity of Regional Director and General Manager. Before joining Inox, he was the General Manager at The Taj President Hotel. As CEO of Inox Leisure Limited, Mr. Bhatia was spearheading Inox’s expansion plans.
Mr.ArunTandonasCOO
Mr. Alok Tandon is an engineer with over 18 years of work experience in companies such as Hoechst, ITC Welcomgroup & the Oberoi Group. Mr. Tandon joined Inox Leisure Ltd. as Vice President (Technical) in 2001. In 2005, he was promoted to the position of COO. In this capacity, he handles a wide range of responsibilities, including managing operations, technical resources, business development, overseeing new constructions and IT initiatives.
200607
Mr. Bhatia along with Mr. Tandon initiated various plans for growth of Inox Leisure Ltd. like development of multiplex projects on leased properties. Earlier most of the multiplex that Inox owned were built on its own property. This strategy helped Inox to keep its assets side low and helped in improving its return on assets and made Inox Leisure Ltd. the most profitable multiplex company in the country (Refer Exhibit 1). Leased properties also helped in decreasing the cost of exiting certain cities if a need arouse. They also placed emphasis on carrying out an in-depth demographic research of the market comprising of population segment, income pattern, spending habits, preferences and alternatives for consumers, as well as regulatory framework before selecting the cities where the company wished to set up a multiplex. Being amongst the largest, fastest growing and most profitable national multiplex chain in the country, provided the company with access and ability to lock properties in what the company considered to be the best catchment areas of various cities, which made it difficult for competition to enter in those areas. Location is critical for the success of a multiplex business. While selection of right content helps in reaching out to the right target, selection of right location results in higher footfalls or better pricing power. All the multiplexes from Inox’s stable were located in high traffic commercial business districts or in the midst of affluent residential areas of each town / city of operations, which provided them with significant competitive advantages. 10
Since all the projects represented quality benchmarks in the industry, the brand “Inox” had been established in the consumers mind as a high-quality multiplex chain focusing on consumer satisfaction through services such as tele-booking, home delivery of tickets, internet and SMS booking. The company laid a lot of emphasis on technology and systems. According to Mr. Tandon, the key elements of their future strategy would be as follows: • • • • To identify prime locations for the multiplexes Tie in these properties at viable long-term cost Set up world-class multiplexes at these locations, offering the patron best value for money Offer a superior movie-going experience to the patron, with the best-in-class service Exhibit 11: - Sales Revenues and Profitability of Major Multiplexes in 2006 Company Cinemax India Ltd. Fame India Ltd. Inox Leisure Ltd. P V R Ltd. Net Sales (In crores) 43.17 30.5 102.04 106.09 Gross Margin 73.50% 82.89% 86.37% 83.26% Net Margin 10.78% -16.00% 17.19% 5.17%
Consolidation Phase 200708
Mr. Manoj Bhatia resigned as the CEO of Inox Leisure Ltd. citing personal commitments (late 2007) and the company continued to function with Mr. Arun Tandon at its helm, though in capacity as a COO and a Manager, according to the provision of Companies Act, 1956. After Mr. Bhatia’s exit, Mr. Tandon concentrated in streamlining the company’s operations and differential pricing to enhance customer value. He also placed special emphasis on geographical expansion and expansion into Tier II cities to increase penetration. In addition to the traditional 12-3-6-9 format, the company had introduced various innovative programming slots. They also did block bookings by tying up with various corporates for their employees’ entertainment or their client promotion schemes. Differential ticket pricing depending on the timing of the show, day as well as seating arrangement was another dimension of the new strategy followed by Inox. To increase spend per head on Food and Beverages (F & B) the company adopted various strategies such as having a good mix of F & B items, upgrading the menu
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periodically, display of attractive picture filled menu board, food combos for sale enhancement etc. Another key focus area of the company’s operations is controlling cost at the operating units, without sacrificing service or safety. They had a tight budgetary control system for monitoring and controlling costs across all their operating units. Inox forayed into power sector in this year. The contribution from the power sector is less than 5% of the total revenues. Though the power sector is investment intensive, the company expects it to give abnormal returns mainly of premise of shortage of power in the country coupled with the increasing needs would help the company to satisfy it high profitability objectives. Controlling a chain of multiplexes across the country, gave the company an edge over the local competition in accessing content – both in terms of quality of content as well as price for the same.
200809
Apart from the capital expansion which was continuously going on for Inox Leisure Ltd., in 2008 a new wave of technology had hit the film exhibition industry by the name digitization of film exhibition. The film exhibition industry was in its initial stages of converting from film based to digital projection. Hence the company wanted to evolve in this projecting mechanism because of which the company took the decision to convert all its multiplexes into digital projection facilities, also the newly built facilities will already have these projection facility. On the back of high growth witnessed across the sector, Inox was increasing looking for opportunities to vertically integrate across the value chain (in areas like production, distribution & exhibition) and also tried to diversify the business mix into other entertainment related revenue generating avenues such as food courts, gaming, advertising, etc. Inox revamped the food court by the brand name ‘Refuel’ (which was started in 2006 with launch of its first multiplex) which catered to the need of snacks of the patrons during the interval break in the movies halls. Currently, Refuel contributes approximately 15% of the total revenues for Inox. The Company has set up wind mills in the State of Gujarat primarily for the purpose of generating electricity for its captive consumption. The Total Revenue & Profit from this segment was Rs. 120 Lacs and Rs. 63 Lacs respectively, for the financial year ended 31st March 2009.
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Critical Assessment of past strategies
The strategies that were followed by Inox Leisure Ltd. are assessed with the help of strategy assessment table as followsRating 5 – Awesome! 4 – Good 3 – Medium 2 – Poor 1 – Terrible!!
Introduction & Growth Phases Year2002
Sl. No 1 Elements of Strategy Announced the launch of its first multiplex in Pune. Tied up with CocaCola, Barista and McDonalds for its planned expansion into other cities. Premium Locations for Inox Multiplexes. Pros and Cons Exploitedanopportunity by launching the first Multiplex at Pune, which is used for market research and Test Market for various products. Exploitedanopportunity by having a tie-up with some of the well known brands in the country to be perceived as superior brand Exploitedtheopportunity of having location which will increase the footfalls Exploited the opportunity of being the early mover in selecting the location and by booking prime localities to reduceor avoidthreat from competitors Better accessibility 2 Inox Lesiure Ltd's foray into the Southern Market. Exploitedanopportunity in South where PVR was the only player. A move to achieve economies Good Rating Awesome
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ofscale
Year2005
Sl. No 1 Elements of Strategy Intends to set up multiplexes in Chennai, Hyderabad, Jaipur, Lucknow, etc. Inox Leisure's foray into Film Distribution Pros and Cons Exploitedanopportunity by increasing their geographical presence. Rating Good
2
Exploitedanopportunity by stepping into distribution, which was also supported by their increase in geographical presence & reducesthe threat ofsuppliers ExploitedanOpportunity by having distribution rights for some of the blockbusters like Rang De Basanti Additional stream for revenue growth Also help the company in derisking its business from the multiplex business
Awesome
Year2006
Sl. No 1 Elements of Strategy Customer Focus by providing convenient services of International standards like telebooking and home delivery of tickets Exceptional Talent Pool Pros and Cons Movie viewing experience was made better by concentrating on customer increasing the switching costs for the customers and hence reduces the threatofcustomers Rating Good
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Year2007
Sl. No 1 Elements of Strategy Acquisition of ’89 Cinemas’ Pros and Cons This inorganic growth helped the company to increase its presence across the eastern part of India in single stroke and thereby greatly reducing the threat of competitorsin this region. 2 Screening of English, Hindi and regional Movies Alliance with Pantaloons The move was an effort to reach a large segment of people Exploited the opportunity by forming an alliance wherein Inox gets preferential access to all the real estate development that is either funded or managed by the Pantaloon group Awesome Rating Awesome
3
Awesome
ConsolidationPhase-2007-08to2008-09
No Element of strategy Pros and cons Exploited Opportunities like The Indian film industry is one of the largest globally with a Geographic Expansion (Pan-India Expansion) 1 Concentration on Tier II cities history of steady growth. With films being the most popular form of mass Rating
entertainment in India, the film Awesome! industry has witnessed robust
double-digit growth over the past decade with domestic box office collections (accounting for 75% of total film industry revenues) growing at a CAGR of 15
16% over FY2005-FY2008. It is believed that favorable economics and demographics will help the sector sustain high growth. Risk Mitigation: Though the risk of overbuilding will be high in some catchment areas, India has very low penetration with less than 13 screens for million people. Exploited Opportunities like film industry in its initial stages of conversion from film-based to digital projection technology. Digital Projection is expected to Good. cut costs to a tune of 10-12% which was incurred due to film and film storage space requirements. Exploited opportunities which existed due to rapid expansion of IT industry and requirements Awesome! of people of non-traditional show timings Reduced threat of suppliers by foray into production & distribution which is traditionally very high in this industry. Increased the risk of cash flow problem due to high capital requirements of setting up a power plant Increased sales and exploited the opportunity of high
2
Adoption of digital technology for projection Digitization of all new multiplexes
3
Introduction of new show timings in contrast to regular 12-3-6-9 format
4
Vertical Integration and emphasis on integrating different aspects in the value chain Foray into power sector for captive power consumption
Average
5
Revamp of the F & B business
Good
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disposable incomes of the patrons leading to increase in profitability.
Recent Developments
Before studying the current state of affairs for Inox Leisure Ltd. it is important to take a look at the recent developments. • The film producers and distributors are the sole suppliers for most of multiplex companies.
5th June 2009 Figure 7
1, 4
: - Recent Developments in multiplex industry
•
The revenue sharing model is where the revenue from the ticket sales is shared between the multiplex owners and the film producers. The earlier arrangement calls for 48% share in first week, 38% in second week and 30% in the third week also known as 50-40-30 formula in the film industry. The suppliers, United Producers and Distributors Forum (UPDF) initially wanted 50% share in first week followed by 45% share in second and 40% share of the revenues in the third week; however the solution that has been accepted is 50% share in the first week, 42.5% in second and 37.5% in the third week. Exhibit 21, 4: - Revenue Sharing Arrangement Week Banner Initial Arrangement Revised Arrangement Week Banner Week 1 Big 48% 50% Week 3 Big Small Small 45% 50% Week 2 Big 38% Small 35%
•
42.50% 42.50% Week 4 onwards Big Small 17
Initial Arrangement Revised Arrangement
30%
30%
25%
25% 30%
37.50% 37.50% 30%
In addition to these shares the film producers and distributors are entitled to earn 2.5% extra revenue share in week one and two for films that exceed net box office collections over the life of the film of INR 1.75 Bn or more collectively at the 6 major multiplex chains across India namely Adlabs (Big Cinemas), PVR, Inox, Cinemax, Fun and Fame.
Porter’s Five Forces Analysis
Bargaining Power of Suppliers
The bargaining power of suppliers is very high in this industry as evident from the discussions above. This high bargaining power of the suppliers has lead to the multiplex industry losing about 3.5-3.6% of its annual revenues to the distributors/producers. The foray of Inox into production and distribution is expected to reduce this threat to a certain extent.
Threat of Substitutes
The threat of substitutes in form of pirated videos, CDs, DVDs is very high in the multiplex industry. Every year the film industry looses approximately 42% of the expected revenues due to piracy. Even the advent of DTH and others channels of film exhibition have increased this threat for the multiplex industry. Inox has no plans as of date, to get into DTH satellite television business or CD or DVD production. So this threat is expected to remain high for Inox.
Bargaining Power of Customers
Traditionally, for the multiplex industry the bargaining power of customers has been very high as the switching costs for the customers have been low. Inox has tried to negate this by its programme of special customer focus so that the switching costs of customers become high (in terms of the value).
Threat of Competition/Rivalry
The threat of competition is average for the multiplex industry as the screen density in India is very low and there is ample scope for the few branded players to expand geographically and achieve economies of scale. Increased tax incentives for multiplexes and support of central government to small single players can act as deterrent and increase this threat. 18
Recent emphasis on Pan-India expansion by Inox will help to counter this threat. Inox has started single screen cinema halls in Mumbai to counter the threat of single screens and avail special tax benefits which are expected to be announced for these single screen players.
Threat of New Entrants
As the entry costs for the multiplex industry have been low ‡. Rapid expansion and an attempt to achieve economies of scale earlier than its competitors will hold Inox in good stead against the threat of new entrants.
Current State of Affairs
The Indian Media and Entertainment (M&E) industry has been one of the fastest growing sectors in the country in recent times. The higher propensity for discretionary spending amongst young Indians also propelled more money into leisure & entertainment activities, giving a steady impetus to the M&E industry. In the economic slowdown phase, Inox Leisure Ltd. is focusing more on market share rather than the profit share. Inox Leisure Ltd. is also currently following the strategy of expanding smaller market which gives them first mover advantage in tier-II and tier-III cities. It is enjoying benefits of high economies of scale with 27 multiplexes (94 screens) in over 19 cities. To increase the presence across India, Inox is planning to cater areas' like Chennai, where films are a passion, film stars are worshipped and there are more options of languages which lead to higher revenues. In order to combat economic slowdown and increasing costs, Inox Leisure Ltd. is going for cost cut but without compromising the customer's experience and safety. To reduce the threat of substitutes (i.e. in the form piracy) the company is going for the digitization of movies which in turn helps in reducing the per-print cost also. The product differentiation in this industry is very less, so various firms are competing based on services offered. Inox differentiates itself with competitors in term of technological innovations, i.e. with introduction of multi-location handheld machines etc. To reduce the threat of supplier, Inox is getting towards backward integration wherein they are investing into distribution business. The cinema exhibition industry has an immense scope of growth. In 2005-06, 45-50% and in 2007-08, 70% of the box office is contributed by multiplexes. Inox strategy to focus middle class category seems very effective. Even in the slowdown period, Inox has not been excessively hit by slowdown but the "Quality of content" had a significant effect on the revenues. Inox Leisure Ltd. following the above mentioned strategies is heading towards being a market leader in terms of market share.
Setting up a screen costs less than 25 million rupees without the land cost but inclusive of all other costs like air-conditioning, licensing, equipments, etc.
‡
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The economic conditions are improving from the recessionary phase but has not got back into the growth phase, so the short term future is expected to be under pressure and occupancy ratio is also expected to be less with 'bad content' as another major area of concern. Although in the long term, the firm is expected to have a significant growth on the points of large scope of growth in the cinema exhibition industry. The key drivers of the growth in the long term will be - greater presence of the firm across various cities, quality of services offered and level of vertical integration that the company can successfully do. Few of the strategic decisions taken by Inox Leisure Ltd. For this year include• Memorandum of Understanding (MoU) with equipment manufacturers from Italy to repurchase the film exhibition equipments from Inox, should these equipments become obsolete due to new film exhibition technologies. Entry into single screen film exhibition hall with its first single screen theatre in Mumbai to take advantage of the expected tax benefits to be given to single screen players and targeting the bottom of the pyramid consumer population to increase revenues and hence market share.
•
Conclusion
The recent developments in the multiplex industry are expected to harm the profitability of almost all players in the industry. But the few strategic decisions like foray into single screens, focus for BoP customers and MoU with Italian equipment manufacturer might help Inox Leisure Ltd. to post better FY 2010 results in terms of revenues, profitability and market share.
References
1. Articles from ‘Sectoral Risk Outlook Report on Multiplexes’, by Bharat N. Agrawal done as part of MIP Phase II at Dun & Bradstreet Information Services Pvt. Ltd. Mumbai. 2. FICCI Frames 2009 a report by FICCI on the Indian film industry published in early 2009. 3. Mckinsey Report on disposable income for India published in March, 2009 4. Hindu Business Line articles dated September, 06; August, 07, March 09 and th rd 5 Apr, 09 to 3 Jun 09 5. Annual Reports for the years 2005-06, 2006-07, 2007-08 and 2008-09. 6. Websites like o www.inoxmovies.com o en.wikipedia.org/wiki/INOX
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doc_241542226.pdf
The report describing about INOX multiplex.
Inox Leisure Ltd.
Strategic Management Research Study Report
Table of Contents
Introduction .............................................................................................................. 4 History of Multiplex Industry in India ......................................................................... 4 Understanding the External environment using PESTEL Analysis ............................... 6 Political Factors ...................................................................................................... 6 Economic Factors ................................................................................................... 6 Socio-cultural ......................................................................................................... 7 Technological ......................................................................................................... 8 Environmental........................................................................................................ 8 Legal ...................................................................................................................... 8 Temporal Evolution of the Firm ................................................................................. 9 Introduction Phase ................................................................................................. 9 1999-2005 .......................................................................................................... 9 Growth Phase (2006 Onwards)............................................................................. 10 Mr. Manoj Bhatia, as CEO ................................................................................. 10 Mr. Arun Tandon as COO .................................................................................. 10 2006-07 ............................................................................................................ 10 Consolidation Phase ............................................................................................. 11 2007-08 ............................................................................................................ 11 2008-09 ............................................................................................................ 12 Critical Assessment of past strategies ...................................................................... 13 Introduction & Growth Phases ............................................................................. 13 Year 2002 ......................................................................................................... 13 Year 2005 ......................................................................................................... 14 Year 2006 ......................................................................................................... 14 Year 2007 ......................................................................................................... 15 Consolidation Phase - 2007-08 to 2008-09........................................................ 15 Recent Developments.............................................................................................. 17 Porter’s Five Forces Analysis .................................................................................... 18 Bargaining Power of Suppliers .............................................................................. 18 Threat of Substitutes ............................................................................................ 18 Bargaining Power of Customers ........................................................................... 18 2
Threat of Competition/Rivalry .............................................................................. 18 Threat of New Entrants ........................................................................................ 19 Current State of Affairs ............................................................................................ 19 Conclusion ........................................................................................................... 20 References............................................................................................................... 20
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Introduction
Inox Leisure Ltd. is the diversification venture of Gujarat Fluorochemicals Ltd. from the Inox Group of Companies. GFL owns & operates Inox Leisure Ltd. with a 65%
th stake. Inox Leisure Ltd. was incorporated on 9 November, 1999 as public limited company. INOX Leisure’s mission is to be the leader in the cinema exhibition industry, in every aspect right from the quality and choice of cinema to the varied services offered and eventually the highest market share. INOX currently operates 28
multiplexes and 101 screens in 20 cities making it the only national multiplex chain. Inox is the winner of the ‘ICICI Entertainment Retailer of the Year’ Award 2005, TAAL Multiplexer 2006 and Emerging Superbrand of the year 2006 – 2007 Award. Recently, INOX is also chosen post a nationwide tender to design, construct and operate the prestigious multiplex in Goa that hosts the International Film Festival of India.
History of Multiplex Industry in India
Multiplex Industry is the new kid on the block for the Film Exhibition Industry, which itself is a part of the huge media & entertainment industry. The media and entertainment industry in India primarily constitutes print & motion media. Motion media is categorized into television, films and others such as web & electronic media. The Indian film industry, with revenues of approximately 110 INR billion as of 2009 is one of the biggest film industries in Asia. A majority of these revenues comes from the domestic collections or ticket revenues which contribute roughly 78-80% of the total revenues. Overseas Collections, Home Videos, Cable, etc. form the other sources of revenues for this industry. The detailed break-up of this industry can be shown as in the following figure.
Figure 11:- Positioning of multiplex industry in the media & entertainment industry
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The multiplex industry in India has been plagued by the non-national, local & unorganized sector players from its inception. Though it cannot be said with certainty, but the Anupam Multiplex in South Delhi, which was started by PVR Cinemas Ltd. way back in 1997, can be considered as the first multiplex by an organized/branded* player. After the advent of multiplexes in 1997, the industry witnessed a boom where many players like Inox Leisure Ltd. (1999), Adlabs (2000), Fun Cinemas (2001,2005)†, Cinemax (2002) and few regional giants like Wave Cinemas entered the multiplex market. The growth of this industry in terms of revenues vis-à-vis the total domestic collections of the overall film industry can be visualized with the help of the following graph.
Domestic Revenues V/s Multiplex Revenues (INR Bn)
100.00 80.00 60.00 40.00 20.00 0.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 30.00 25.00 20.00 15.00 10.00 5.00 0.00
Domestic Theatrical (LHS)
2
Multiplexes Revenues (RHS)
Figure 2 : - Growth of Multiplex Revenues vis-à-vis overall domestic revenues for Indian Film Exhibition Industry.
To better understand the multiplex industry, it is necessary to view its evolution in context of various political, environmental, social, technological, economic & legal developments that were simultaneously taking place.
Branded Player here implies company having presence in more than 10 cities and having atleast 50 operational screens as on Aug’09. † (2001, 2005) Fun Cinemas started as E-City Entertainment Venture in 2001 after which Fun Cinemas was spun off as separate company in 2005.
*
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Understanding the External environment using PESTEL Analysis
Political Factors
The ever-changing political environment in India did not have any adverse effects on the multiplex industry as a whole. This is evident from the PPP which were started in some of the states like U.P., Punjab, Himachal Pradesh, Arunachal Pradesh, etc way back in 2003-04 to give a boost to this industry, by the NDA government are still in operation in the UPA regime now i.e. August, 2009.
Economic Factors Interest Coverage
7.6 5.7 3.3 3.9 4.2
FY 2004
1
FY 2005
FY 2006
FY 2007
FY 2008
Figure 3(a) : - Interest Coverage Ratio Trends for multiplex industry
Debt-Equity
1.54 1.26 0.54 0.50 0.44
FY 2004
1
FY 2005
FY 2006
FY 2007
FY 2008
Figure 3(b) : - Debt-Equity Ratio Trends for the multiplex industry.
From the above graphs it is evident that the industry is witnessing a change in capital structure, with more companies preferring the equity route to capital formation; hence the interest expense as percent of sales has gone down considerably, leading to increase in interest coverage ratio. The preference of the companies to follow the equity route is backed by the boom in the stock market which was witnessed during late 2006 to early 2008. Rising Per Capita Disposable Income: The per capita disposable income has grown by CAGR of 10.3% for the period FY 2004-08. The Y-o-Y growth for the year ending in 6
March 2008 is 11.3%. The rise in spending power of individuals is expected to augur well for this industry.
Trends In Per capita Disposable Income & Y-o-Y growth
28000 23000 18000 13000 8000 3000 -2000 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Per Capita Disposable Income (INR) Per Capita Disposable Income Growth (Y-o-Y) %
Figure 43: - Trends in Per Capita Disposable Income for Individuals in India.
Socio-cultural
Shift in Socio-Economic Pattern: The Indian households can be divided on the basis on their socio-economic status. The status are affluent characterized by rich class, aspirers characterized by credit culture & higher spend and strivers characterized by lower income group
Shift in Socio-Economic Pattern (In Mn Households)
Affluent 3
11 46
Aspirers
124 131
Strivers
96 2003
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2013
Figure 5 : - Shift in the Socio-Economic Pattern in India
According NACER Report, The number of aspirer households is expected to increase from 46 Mn in FY 2003 to 124 Mn in FY 2013 showing an increase of 169.5%. The affluent households will increase by 266% approximately to reach 11 Mn households in 2013 compared to 3 Mn in 2003 Rising Media Audience: According to data released by Indian Readership Survey (IRS) 2007 in the last four years, India's population has grown by 92 million individuals, i.e.
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a growth of 12.5%. Of this, the media audience has increased by 86 million individuals, i.e. a growth of 18.4%.
India's Population 2003 - 81.8 Mn India's Population 2007- 92 Mn
Media Audience 2003 - 72.6 Mn
Figure 6 : - Rising Media Audience in India
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All these factors coupled with the rising young population is expected to boost the revenues of the multiplex industry because, viewing movies in multiplexes is increasingly being associated with social status. Also with the expected rise in spending power of these individuals, a comfortable and enjoyable movie experience is what will drive these individuals to the multiplexes.
Technological
One of the major costs associated with movies is that of ‘reel’ or ‘print’ as it is called in the film exhibition industry. But that all is set to change with the advent of satellite viewing/projection of movies in cinema halls. Satellite viewing is where the movie is directly projected by a satellite and the reels and the old projection system is not used. This system of cinema projection is expected to cut the supply chain costs by approximately 15% for the film exhibition industry. The inventory carrying costs for reels will decrease throughout the supply chain. The cost of installation of the new high-tech equipment is expected to give returns in the second year of operation.
Environmental
The environmental factors are generally the factors on which the company/industry has no control over. Natural calamities like floods, earthquakes, drought, etc are expected to hit almost all industries in similar manner and the extent of these damages is very difficult to fathom or quantify. Apart from these factors, multiplex industry has had few alarming events like terrorist attacks and recent scare of swine flu.
Legal
The multiplex industry is bound by few legal obligations like distance of screen from the first row, sound density in decibels allowed inside the exhibition hall, soundproofing requirements, etc. 8
Temporal Evolution of the Firm
Introduction Phase 19992005
Gujarat Fluorochemicals Ltd. Diversified into the entertainment industry with Inox Leisure Ltd. as its flagship brand into the multiplexes sector. Though it was incorporated as public limited company in 1999, the operations started with the first multiplex, a four screen multiplex at Bund Garden, Pune and similar multiplex at Vadodara in 2002. The senior management at GFL wanted to lay out its plans very systematically and hence over-cautiousness shaved off three years of profit which it could have made during 1999-2002. Even after 2002, the focal firm (Inox Leisure Ltd.) largely functioned under the watchful eyes of its parent GFL. The centralization in this case extended even to the senior management level. GFL could do this mainly because it held 65% of stake in Inox Leisure Ltd. and rest were held by few private players. In 2003 it commenced operations at its first multiplex on leased premises at Elgin Road, Kolkata. One of the few important decisions taken during 2004 was of change in the registered office of the company from Delhi to Vadodara, Gujarat to take advantage of the extended tax benefits offered by the State Government of Gujarat. Other developments during this phase included start of second multiplex in Salt Lake, Kolkata. It also commenced operations at its fifth Multiplex, being a fourscreen Goa Multiplex and commenced operations at its first five-screen at Mumbai In 2005, it was awarded ‘Best Entertainment Retailer’ by ICICI Retail Excellence Awards 2005. Other highlights included commencement of operations at its second five-screen Bangalore Multiplex, entering into distribution business by signing of distribution agreements for few Hindi movie titles in select territories, commencement of operations at its eighth Multiplex, being our two-screen Jaipur Multiplex which was acquired by the company. It also entered into MoU with Pantaloon Group, for preferential access to multiplex areas in all real estate developments with which the Pantaloon Group was associated. Manoj Bhatia who eventually became the CEO of the company after Inox floated an IPO through bookbuilding process in January 2006.
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Growth Phase (2006 Onwards) Mr.ManojBhatia,asCEO
After graduating from Ecole des Roche, a premier hotel school in Switzerland, Mr. Bhatia joined The Oberoi Hotels. He then proceeded to work at the King Edward Hotel in Toronto, rated as the 6th Best Hotel in the World. Following his stint in Canada, Mr. Bhatia set up the Hotel Marine Plaza in Bombay in the capacity of Regional Director and General Manager. Before joining Inox, he was the General Manager at The Taj President Hotel. As CEO of Inox Leisure Limited, Mr. Bhatia was spearheading Inox’s expansion plans.
Mr.ArunTandonasCOO
Mr. Alok Tandon is an engineer with over 18 years of work experience in companies such as Hoechst, ITC Welcomgroup & the Oberoi Group. Mr. Tandon joined Inox Leisure Ltd. as Vice President (Technical) in 2001. In 2005, he was promoted to the position of COO. In this capacity, he handles a wide range of responsibilities, including managing operations, technical resources, business development, overseeing new constructions and IT initiatives.
200607
Mr. Bhatia along with Mr. Tandon initiated various plans for growth of Inox Leisure Ltd. like development of multiplex projects on leased properties. Earlier most of the multiplex that Inox owned were built on its own property. This strategy helped Inox to keep its assets side low and helped in improving its return on assets and made Inox Leisure Ltd. the most profitable multiplex company in the country (Refer Exhibit 1). Leased properties also helped in decreasing the cost of exiting certain cities if a need arouse. They also placed emphasis on carrying out an in-depth demographic research of the market comprising of population segment, income pattern, spending habits, preferences and alternatives for consumers, as well as regulatory framework before selecting the cities where the company wished to set up a multiplex. Being amongst the largest, fastest growing and most profitable national multiplex chain in the country, provided the company with access and ability to lock properties in what the company considered to be the best catchment areas of various cities, which made it difficult for competition to enter in those areas. Location is critical for the success of a multiplex business. While selection of right content helps in reaching out to the right target, selection of right location results in higher footfalls or better pricing power. All the multiplexes from Inox’s stable were located in high traffic commercial business districts or in the midst of affluent residential areas of each town / city of operations, which provided them with significant competitive advantages. 10
Since all the projects represented quality benchmarks in the industry, the brand “Inox” had been established in the consumers mind as a high-quality multiplex chain focusing on consumer satisfaction through services such as tele-booking, home delivery of tickets, internet and SMS booking. The company laid a lot of emphasis on technology and systems. According to Mr. Tandon, the key elements of their future strategy would be as follows: • • • • To identify prime locations for the multiplexes Tie in these properties at viable long-term cost Set up world-class multiplexes at these locations, offering the patron best value for money Offer a superior movie-going experience to the patron, with the best-in-class service Exhibit 11: - Sales Revenues and Profitability of Major Multiplexes in 2006 Company Cinemax India Ltd. Fame India Ltd. Inox Leisure Ltd. P V R Ltd. Net Sales (In crores) 43.17 30.5 102.04 106.09 Gross Margin 73.50% 82.89% 86.37% 83.26% Net Margin 10.78% -16.00% 17.19% 5.17%
Consolidation Phase 200708
Mr. Manoj Bhatia resigned as the CEO of Inox Leisure Ltd. citing personal commitments (late 2007) and the company continued to function with Mr. Arun Tandon at its helm, though in capacity as a COO and a Manager, according to the provision of Companies Act, 1956. After Mr. Bhatia’s exit, Mr. Tandon concentrated in streamlining the company’s operations and differential pricing to enhance customer value. He also placed special emphasis on geographical expansion and expansion into Tier II cities to increase penetration. In addition to the traditional 12-3-6-9 format, the company had introduced various innovative programming slots. They also did block bookings by tying up with various corporates for their employees’ entertainment or their client promotion schemes. Differential ticket pricing depending on the timing of the show, day as well as seating arrangement was another dimension of the new strategy followed by Inox. To increase spend per head on Food and Beverages (F & B) the company adopted various strategies such as having a good mix of F & B items, upgrading the menu
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periodically, display of attractive picture filled menu board, food combos for sale enhancement etc. Another key focus area of the company’s operations is controlling cost at the operating units, without sacrificing service or safety. They had a tight budgetary control system for monitoring and controlling costs across all their operating units. Inox forayed into power sector in this year. The contribution from the power sector is less than 5% of the total revenues. Though the power sector is investment intensive, the company expects it to give abnormal returns mainly of premise of shortage of power in the country coupled with the increasing needs would help the company to satisfy it high profitability objectives. Controlling a chain of multiplexes across the country, gave the company an edge over the local competition in accessing content – both in terms of quality of content as well as price for the same.
200809
Apart from the capital expansion which was continuously going on for Inox Leisure Ltd., in 2008 a new wave of technology had hit the film exhibition industry by the name digitization of film exhibition. The film exhibition industry was in its initial stages of converting from film based to digital projection. Hence the company wanted to evolve in this projecting mechanism because of which the company took the decision to convert all its multiplexes into digital projection facilities, also the newly built facilities will already have these projection facility. On the back of high growth witnessed across the sector, Inox was increasing looking for opportunities to vertically integrate across the value chain (in areas like production, distribution & exhibition) and also tried to diversify the business mix into other entertainment related revenue generating avenues such as food courts, gaming, advertising, etc. Inox revamped the food court by the brand name ‘Refuel’ (which was started in 2006 with launch of its first multiplex) which catered to the need of snacks of the patrons during the interval break in the movies halls. Currently, Refuel contributes approximately 15% of the total revenues for Inox. The Company has set up wind mills in the State of Gujarat primarily for the purpose of generating electricity for its captive consumption. The Total Revenue & Profit from this segment was Rs. 120 Lacs and Rs. 63 Lacs respectively, for the financial year ended 31st March 2009.
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Critical Assessment of past strategies
The strategies that were followed by Inox Leisure Ltd. are assessed with the help of strategy assessment table as followsRating 5 – Awesome! 4 – Good 3 – Medium 2 – Poor 1 – Terrible!!
Introduction & Growth Phases Year2002
Sl. No 1 Elements of Strategy Announced the launch of its first multiplex in Pune. Tied up with CocaCola, Barista and McDonalds for its planned expansion into other cities. Premium Locations for Inox Multiplexes. Pros and Cons Exploitedanopportunity by launching the first Multiplex at Pune, which is used for market research and Test Market for various products. Exploitedanopportunity by having a tie-up with some of the well known brands in the country to be perceived as superior brand Exploitedtheopportunity of having location which will increase the footfalls Exploited the opportunity of being the early mover in selecting the location and by booking prime localities to reduceor avoidthreat from competitors Better accessibility 2 Inox Lesiure Ltd's foray into the Southern Market. Exploitedanopportunity in South where PVR was the only player. A move to achieve economies Good Rating Awesome
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ofscale
Year2005
Sl. No 1 Elements of Strategy Intends to set up multiplexes in Chennai, Hyderabad, Jaipur, Lucknow, etc. Inox Leisure's foray into Film Distribution Pros and Cons Exploitedanopportunity by increasing their geographical presence. Rating Good
2
Exploitedanopportunity by stepping into distribution, which was also supported by their increase in geographical presence & reducesthe threat ofsuppliers ExploitedanOpportunity by having distribution rights for some of the blockbusters like Rang De Basanti Additional stream for revenue growth Also help the company in derisking its business from the multiplex business
Awesome
Year2006
Sl. No 1 Elements of Strategy Customer Focus by providing convenient services of International standards like telebooking and home delivery of tickets Exceptional Talent Pool Pros and Cons Movie viewing experience was made better by concentrating on customer increasing the switching costs for the customers and hence reduces the threatofcustomers Rating Good
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Year2007
Sl. No 1 Elements of Strategy Acquisition of ’89 Cinemas’ Pros and Cons This inorganic growth helped the company to increase its presence across the eastern part of India in single stroke and thereby greatly reducing the threat of competitorsin this region. 2 Screening of English, Hindi and regional Movies Alliance with Pantaloons The move was an effort to reach a large segment of people Exploited the opportunity by forming an alliance wherein Inox gets preferential access to all the real estate development that is either funded or managed by the Pantaloon group Awesome Rating Awesome
3
Awesome
ConsolidationPhase-2007-08to2008-09
No Element of strategy Pros and cons Exploited Opportunities like The Indian film industry is one of the largest globally with a Geographic Expansion (Pan-India Expansion) 1 Concentration on Tier II cities history of steady growth. With films being the most popular form of mass Rating
entertainment in India, the film Awesome! industry has witnessed robust
double-digit growth over the past decade with domestic box office collections (accounting for 75% of total film industry revenues) growing at a CAGR of 15
16% over FY2005-FY2008. It is believed that favorable economics and demographics will help the sector sustain high growth. Risk Mitigation: Though the risk of overbuilding will be high in some catchment areas, India has very low penetration with less than 13 screens for million people. Exploited Opportunities like film industry in its initial stages of conversion from film-based to digital projection technology. Digital Projection is expected to Good. cut costs to a tune of 10-12% which was incurred due to film and film storage space requirements. Exploited opportunities which existed due to rapid expansion of IT industry and requirements Awesome! of people of non-traditional show timings Reduced threat of suppliers by foray into production & distribution which is traditionally very high in this industry. Increased the risk of cash flow problem due to high capital requirements of setting up a power plant Increased sales and exploited the opportunity of high
2
Adoption of digital technology for projection Digitization of all new multiplexes
3
Introduction of new show timings in contrast to regular 12-3-6-9 format
4
Vertical Integration and emphasis on integrating different aspects in the value chain Foray into power sector for captive power consumption
Average
5
Revamp of the F & B business
Good
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disposable incomes of the patrons leading to increase in profitability.
Recent Developments
Before studying the current state of affairs for Inox Leisure Ltd. it is important to take a look at the recent developments. • The film producers and distributors are the sole suppliers for most of multiplex companies.
5th June 2009 Figure 7
1, 4
: - Recent Developments in multiplex industry
•
The revenue sharing model is where the revenue from the ticket sales is shared between the multiplex owners and the film producers. The earlier arrangement calls for 48% share in first week, 38% in second week and 30% in the third week also known as 50-40-30 formula in the film industry. The suppliers, United Producers and Distributors Forum (UPDF) initially wanted 50% share in first week followed by 45% share in second and 40% share of the revenues in the third week; however the solution that has been accepted is 50% share in the first week, 42.5% in second and 37.5% in the third week. Exhibit 21, 4: - Revenue Sharing Arrangement Week Banner Initial Arrangement Revised Arrangement Week Banner Week 1 Big 48% 50% Week 3 Big Small Small 45% 50% Week 2 Big 38% Small 35%
•
42.50% 42.50% Week 4 onwards Big Small 17
Initial Arrangement Revised Arrangement
30%
30%
25%
25% 30%
37.50% 37.50% 30%
In addition to these shares the film producers and distributors are entitled to earn 2.5% extra revenue share in week one and two for films that exceed net box office collections over the life of the film of INR 1.75 Bn or more collectively at the 6 major multiplex chains across India namely Adlabs (Big Cinemas), PVR, Inox, Cinemax, Fun and Fame.
Porter’s Five Forces Analysis
Bargaining Power of Suppliers
The bargaining power of suppliers is very high in this industry as evident from the discussions above. This high bargaining power of the suppliers has lead to the multiplex industry losing about 3.5-3.6% of its annual revenues to the distributors/producers. The foray of Inox into production and distribution is expected to reduce this threat to a certain extent.
Threat of Substitutes
The threat of substitutes in form of pirated videos, CDs, DVDs is very high in the multiplex industry. Every year the film industry looses approximately 42% of the expected revenues due to piracy. Even the advent of DTH and others channels of film exhibition have increased this threat for the multiplex industry. Inox has no plans as of date, to get into DTH satellite television business or CD or DVD production. So this threat is expected to remain high for Inox.
Bargaining Power of Customers
Traditionally, for the multiplex industry the bargaining power of customers has been very high as the switching costs for the customers have been low. Inox has tried to negate this by its programme of special customer focus so that the switching costs of customers become high (in terms of the value).
Threat of Competition/Rivalry
The threat of competition is average for the multiplex industry as the screen density in India is very low and there is ample scope for the few branded players to expand geographically and achieve economies of scale. Increased tax incentives for multiplexes and support of central government to small single players can act as deterrent and increase this threat. 18
Recent emphasis on Pan-India expansion by Inox will help to counter this threat. Inox has started single screen cinema halls in Mumbai to counter the threat of single screens and avail special tax benefits which are expected to be announced for these single screen players.
Threat of New Entrants
As the entry costs for the multiplex industry have been low ‡. Rapid expansion and an attempt to achieve economies of scale earlier than its competitors will hold Inox in good stead against the threat of new entrants.
Current State of Affairs
The Indian Media and Entertainment (M&E) industry has been one of the fastest growing sectors in the country in recent times. The higher propensity for discretionary spending amongst young Indians also propelled more money into leisure & entertainment activities, giving a steady impetus to the M&E industry. In the economic slowdown phase, Inox Leisure Ltd. is focusing more on market share rather than the profit share. Inox Leisure Ltd. is also currently following the strategy of expanding smaller market which gives them first mover advantage in tier-II and tier-III cities. It is enjoying benefits of high economies of scale with 27 multiplexes (94 screens) in over 19 cities. To increase the presence across India, Inox is planning to cater areas' like Chennai, where films are a passion, film stars are worshipped and there are more options of languages which lead to higher revenues. In order to combat economic slowdown and increasing costs, Inox Leisure Ltd. is going for cost cut but without compromising the customer's experience and safety. To reduce the threat of substitutes (i.e. in the form piracy) the company is going for the digitization of movies which in turn helps in reducing the per-print cost also. The product differentiation in this industry is very less, so various firms are competing based on services offered. Inox differentiates itself with competitors in term of technological innovations, i.e. with introduction of multi-location handheld machines etc. To reduce the threat of supplier, Inox is getting towards backward integration wherein they are investing into distribution business. The cinema exhibition industry has an immense scope of growth. In 2005-06, 45-50% and in 2007-08, 70% of the box office is contributed by multiplexes. Inox strategy to focus middle class category seems very effective. Even in the slowdown period, Inox has not been excessively hit by slowdown but the "Quality of content" had a significant effect on the revenues. Inox Leisure Ltd. following the above mentioned strategies is heading towards being a market leader in terms of market share.
Setting up a screen costs less than 25 million rupees without the land cost but inclusive of all other costs like air-conditioning, licensing, equipments, etc.
‡
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The economic conditions are improving from the recessionary phase but has not got back into the growth phase, so the short term future is expected to be under pressure and occupancy ratio is also expected to be less with 'bad content' as another major area of concern. Although in the long term, the firm is expected to have a significant growth on the points of large scope of growth in the cinema exhibition industry. The key drivers of the growth in the long term will be - greater presence of the firm across various cities, quality of services offered and level of vertical integration that the company can successfully do. Few of the strategic decisions taken by Inox Leisure Ltd. For this year include• Memorandum of Understanding (MoU) with equipment manufacturers from Italy to repurchase the film exhibition equipments from Inox, should these equipments become obsolete due to new film exhibition technologies. Entry into single screen film exhibition hall with its first single screen theatre in Mumbai to take advantage of the expected tax benefits to be given to single screen players and targeting the bottom of the pyramid consumer population to increase revenues and hence market share.
•
Conclusion
The recent developments in the multiplex industry are expected to harm the profitability of almost all players in the industry. But the few strategic decisions like foray into single screens, focus for BoP customers and MoU with Italian equipment manufacturer might help Inox Leisure Ltd. to post better FY 2010 results in terms of revenues, profitability and market share.
References
1. Articles from ‘Sectoral Risk Outlook Report on Multiplexes’, by Bharat N. Agrawal done as part of MIP Phase II at Dun & Bradstreet Information Services Pvt. Ltd. Mumbai. 2. FICCI Frames 2009 a report by FICCI on the Indian film industry published in early 2009. 3. Mckinsey Report on disposable income for India published in March, 2009 4. Hindu Business Line articles dated September, 06; August, 07, March 09 and th rd 5 Apr, 09 to 3 Jun 09 5. Annual Reports for the years 2005-06, 2006-07, 2007-08 and 2008-09. 6. Websites like o www.inoxmovies.com o en.wikipedia.org/wiki/INOX
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