The Hindu Business Line : Reviving the cinemas

In the beginning, the bugs bit you and cockroaches crawled over your legs, but slowly movie theatres improved themselves to a level where the inconvenience was nothing more than creaky seats with the cushioning out in clumps, stinking toilets and faulty air-conditioning. To the film lover, cable TV and DVDs provided an enticing opportunity to watch a movie in the cosy confines of his living room, and the theatres began to miss their customers.

At a time when the movie theatres were struggling with falling clientele, Pyramid Saimira, a company practically unknown until less than a year ago, stormed into the industry and acquired 270-odd theatres in six months. Today, it is the largest theatre chain in India, with over 1.75 lakh seats in Tamil Nadu, Andhra Pradesh and Karnataka. "We are a dominant force in the film industry today. No producer can afford to ignore us," says P. S. Saminathan, Pyramid Saimira's Managing Director.

The company's business model is singularly unoriginal, straight from the textbooks - eliminate middlemen, use volumes to kill costs. To attract the film lover, it was necessary to do up the theatres and here exactly is where volumes are helping. A quality seat typically costs about Rs 9,000, but by placing bulk orders, Pyramid can get it for Rs 3,000. A xenon bulb (in projectors) costs others Rs 62,000 but Pyramid pays only Rs 21,000. But this is only one part of the story.

The other part is content development. Towards this end, Pyramid Saimira has set about doing a few things. First, the company has begun to fund film production directly. The recent release in Tamil, Mozhi, produced by actor Prakash Raj, was funded by Pyramid Saimira to the tune of Rs 4.5 crore. Incidentally, Pyramid's own theatre managers, who felt Mozhi was a rather high-class movie, were sceptical about the collections. Indeed, the film contains none of the usual `selling' elements of sex or violence, but is instead a romance story gently told in a mix of sentiment and humour. In other words, a business risk. Saminathan feels if a culture of watching good movies has to be fostered, good movies have to be made first, even at a business risk.

Pyramid Saimira has roped in the services of Infinity, a Mumbai-based company that offers film completion guarantees to financiers. With completion of the film certain, and exhibition undertaken by Pyramid, banks are coming forward to lend money for film production. Third, the company is acquiring exhibition rights to some 60 movies that are made but not released for want of funds to pay the financiers. (The financiers would not let the films be released from the labs (such as L. V. Prasad or Gemini) until their dues were paid first. Because of this, an estimated 120 Tamil fully made films are lying with labs, gathering dust.

Pyramid Saimira is entering into agreements with the financiers to get the movies released and let themselves be paid back out of the collections. (Although seemingly obvious, such a solution would not work earlier because the financiers would never trust the theatre-owners not to fudge the figures.) With a hand in film production and a control over exhibition, Pyramid Saimira's business model eliminates the traditional middleman— the distributor. Again, because of its control over hundreds of screens, the company sees in itself an ability to do simultaneous show of a film in multiple locations, which, to some extent, kills piracy. According to Saminathan, Pyramid Saimira intends to invest this calendar year Rs 600 crore directly - partly in direct funding of film production but mostly on refurbishing theatres. Apart from this, the company would arrange for about Rs 250 crore of institutional funding for production. While many movies go bust, some turn out to be extremely profitable. At a 35 per cent capacity utilisation of the theatres, the company expects an IRR of 175 per cent.