How real estate costs changed Cinepolis' revenue model

Before the Covid-19 pandemic and the surge of streaming platforms, the cinema business model was fairly simple and predictable: multiplexes rented large spaces in malls, built theatres and screens. However, as the industry adapts to new challenges, the rules of the game are changing. Multiplex chains are now renegotiating revenue terms, aiming to share profits based on a film's box office success.

Multiplex chain Cinepolis’ managing director Devang Sampat calls it a ‘win-win’ situation for both mall owners and exhibitors. With a presence in 18 countries and almost 7,000 screens globally, Cinepolis, the world’s second-largest cinema chain, has carved out a unique position in the Indian market, particularly by understanding and leveraging local catchment areas.

Despite the delayed entry, Cinepolis saw tremendous potential in the Indian market. “When we entered in 2007, the idea was to understand the market. We believed in the story of India and thought there was still a great opportunity in India, and movie viewing is not going to change,” says Sampat.

Navigating real estate challenges

Since they entered the country, the Indian real estate market, particularly in the retail sector, has seen significant cost escalations over the years. This has posed challenges for exhibitors such as Cinepolis, which relies heavily on securing prime locations for its multiplexes.

“Real estate costs have soared, making it imperative for us to work closely with mall owners,” says the MD. He emphasises the necessity of viewing the relationship with mall owners as a partnership rather than a mere tenant-landlord dynamic. “It's not just about paying rent; it’s about creating a win-win situation.”

An emerging trend is the fundamental shift that has occurred among property owners, many of whom now understand the nuances of managing retail spaces effectively.

“Few real estate owners understood the game of real estate retail initially. This led to supply issues and skyrocketing costs,” explains Sampat. He notes that while Cinepolis aimed to build a higher number of screens, the supply of suitable locations dwindled, and the cost of available real estate became prohibitively high. “Of course, we are to blame ourselves for we kept on bidding a higher price,” he admits.

However, he sees a positive trend emerging post-pandemic, where real estate costs are becoming more manageable, and mall owners are willing to engage in revenue-sharing models.

This shift is crucial for Cinepolis, especially as the company looks to expand. “We need to expand at the right price and not just because we can,” he says. He drew parallels with the film industry's revenue-sharing model, where box office collections are split with producers. Adopting a similar approach with real estate, where mall owners and Cinepolis share the revenue, is seen as a sustainable path forward. “Mall owners are now on board with the idea of win-win partnerships,” he adds.

Evolving preferences

Sampat points out that India is still an “under-screened” country compared to other mature markets, indicating significant growth potential. He also says that post-pandemic, the market has been adjusting, with audience preferences shifting to ‘larger than life’ cinematic experiences.

Blockbusters like “Jawan,” “Pathan,” “Gaddar,” and “Animal” have set new benchmarks, with collections soaring 30% higher than pre-pandemic figures for Cinepolis. “Audiences want bigger movies, and producers are responding to this demand,” says Sampat. This trend has reinforced the need for high-quality multiplexes that can offer an immersive experience, making it even more critical to secure the right real estate partnerships.

“Whether in metros or non-metros, we are now working with mall partners on a model that ensures both sides benefit,” he adds.