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Free market and the reel world

N Madhavan | Updated on May 07, 2020 Published on May 07, 2020

Theatre owners need not fear OTT platforms and resort to protectionism. They can continue to be relevant even as tech disrupts

Covid-19 has been brutal in exposing many a fault lines across sectors. It has not spared the film industry either. When speculation started that Akshay Kumar’s next film Laxxmi Bomb could well première on an OTT platform in view of the coronavirus-led disruption, all hell broke loose.

Many film exhibitors were appalled. “You releasing your film directly on OTT will justify the medium and make theatres irrelevant,” one of them said in an open letter to the actor. Down south, the `sacrilege’ actually happened. The production house of a small-budget Tamil film Pon Magal Vandhal went ahead and signed a deal with Amazon Prime for its release bypassing a theatrical release.

Members of Tamil Nadu Theatres and Multiplex Association could not believe their eyes. They were so agitated that they went to the extent of warning actor Suriya, who owns the production house, that none of his future films will see theatrical release if he went ahead with the deal.

There is no visibility on when the lockdown will be lifted, when theatres — even if the restrictions are eased — will be allowed to function and whether people, scarred by coronavirus, will ever flock to the cinema halls like before for a while. Under the circumstances, a producer who has sunk a lot of money in a film is well within his rights to explore options to redeem his investment.

OTT platform is an obvious solution. Clearly, theatre operators went overboard in their reaction. To claim that theatres exist for films and the producers (excepting those films specifically produced for OTT platforms) have no right to bypass theatrical release is against every free market principle. This is true even when there is no lockdown and theatres are up and running. Technological disruptions will happen from time to time and history has shown that fighting it through protectionism is a sure shot recipe for disaster.

In this case the reactions were excessive. It stems more from fear of the unknown. No one really knows if OTT platforms are really a threat to cinema halls. The practice in India (also across the world) is what the industry calls ‘delayed window’ of release.

A film first has a theatrical release followed by OTT platform after about eight weeks (this window is shortening, of late) and then on television. So OTT platforms have never been tested so far with a big ticket release. And the numbers are stacked against them.

Revenue flow

According to the recent FICCI-EY report on ‘Media & Entertainment Sector’, the Indian film industry in 2019 saw a revenue of ₹19,100 crore. The total digital rights paid by OTT platforms that year was ₹1,900 crore. Similarly, 100 million people visited theatres, at least once, to watch a film in 2019 (total footfall 1.46 billion). In comparison, total OTT subscriber base in India stood at around 10 million. In spite of OTT platforms doubling their subscriber base in 2019, theatres witnessed their best ever revenues.

Multiple factors contributed to this. Box office collection typically accounts for 74 per cent of a film’s revenue (balance comes from digital, TV and music rights). This is particularly true for blockbuster movies involving top stars. A successful ₹200 crore Salman Khan or a Rajinikanth film will garner as much as ₹150 crore or more from theatrical collection alone.

OTT platforms cannot pay such large sums of money to premier blockbuster films. Their business model of constantly increasing their subscriber base works better by releasing many low/medium-budget movies to engage its audience rather than spending a lot for just one big film. Exhibitors know that a producer can never ignore them and hence they chose to threaten the producers.

They should ideally be happy that producers are releasing low/medium budget films in the OTT platforms. During most times, there is a huge backlog of films awaiting release and blockbuster films crowd out other movies causing pain to producers.

This is because India’s screen density per million population is just seven compared to China’s 36 and US/Canada’s 111. In 2019, there were only 9,527 screens across the country (down from 9,601 in 2018) and as many as 1,941 films were released (almost 37 a week). One blockbuster movie releases across 4,000-6,000 screens or even more (Baahubali-2/2.0). That leaves very little space for other films.

Offer better value

It is time theatre and multiplex players understand that OTT platforms are growing their subscriber base rapidly because they are offering value to their customers in the form of power of choice, content diversity, seamless accessibility and, above all, absolute convenience. This cannot be wished away.

Rather than arm-twisting the producers by adopting market-distorting policies, they should look at offering their customers a value proposition that compels them to visit the theatres to watch movies.

This can be done by investing in state-of-the-art projection and sound systems, larger screens, augmented/virtual reality technologies and offer the same at a value that is affordable. Once they offer such a deal, people will have nowhere to go but to a cinema hall to enjoy a film, especially blockbuster or large budget movies.

If so, a few smaller films going to the OTT platforms will not worry the exhibitors. Such films, it has been established, actually do well in Amazon Prime or Netflix by recording much higher views than footfalls in theatres. In fact, they will be happy because, it has been established that OTT platforms, by endearing people to films, eventually drive up footfalls into theatres. It is a positive correlation.

So, theatre and multiplex associations should give up their protectionist attitude and allow market forces to play. A producer should have the freedom to choose the platform to screen his film. If the theatres continue to offer a strong value proposition as they are doing today, they should be least worried. Predatory behaviour affords protection only up to a point and has, in the past, pretty much ensured that incumbents are, in the end, consigned to history in the wake of technological disruptions.

Published on May 07, 2020

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