mall-closure-india

India is known for its robust film production business, but in exhibition, the numbers are startling. There are 9,000 screens in India, serving a population of 1.2 billion. This means that each screen has to serve some 133,000 people. Compare that to the U.S., which has more than 40,000 screens for a population of 319 million, or 8,000 people per screen.

The paucity of screens is not a reflection of the film industry, which is in good health and poised to be worth $2.3 billion this year. The sector is heavily dependent on domestic theatrical revenue that accounts for 75% ($1.7 billion) of income. Around 2,000 of India’s 9,000 screens are in multiplexes, and it is here that growth has slowed. In order to secure more business, multiplexes are usually set up in shopping malls. After a headlong rush that saw more than 120 malls built in India over the past three years, some 40 of them have shuttered and mall development has slowed, thus directly affecting the theatrical business.

“The malls were set up wherever the space was available and things like location planning, zoning of tenants and mall management strategy were not considered by some. This has resulted in some of the malls getting closed as a process of market correction,” says Kumar Rajagopalan, CEO of the Retail Assn. of India.

Economic growth in India that was close to double digits two years ago is hovering around the 5% mark. Tax incentives formerly offered by the government to encourage multiplex growth are not available anymore. Also, entertainment tax rates are high in India and can be as steep as 45%-60% of ticket prices.

However, Javier Sotomayor, managing director of Cinepolis India, the local operation of the giant Latin American group, continues to be bullish about the country. He estimates that India has the capacity to absorb 11,500 multiplex screens. Cinepolis has 84 screens with plans of spending $165 million to increase that to 400 screens by 2017. That will put it close to market leaders PVR and Reliance, which have more than 400 screens each.

“If you mix the high rentals due to the high price of land plus very high entertainment tax structure it, affects operating profits. But occupancies are at a consistent level in the country, so there is still room for good business,” says Sotomayor. Despite the slowdown, Cinepolis is sticking to the mall expansion route.

A solution to the impasse might be at hand. “We at RAI are working with various state governments to try and get retail and entertainment zone planning as part of the larger urban planning process. If retail and entertainment companies are not forced to compete for space with other commercial establishments, cost and quality of real estate can be greatly improved,” says Rajagopalan.

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