India Equity Research Media June 18, 2021 Mediascope SECTOR UPDATE After the break: Blockbuster show The multiplex industry bore significant and direct brunt of the pandemic. Fear of the virus compelled state regulations as well as consumers to turn unfavourable for the industry. Although the second covid wave has derailed recovery, we expect strong recovery to commence soon with starting of unlock, pick up in vaccination drives and opening up of international markets. In this report: a) we look at global markets to evaluate how fast footfalls resumed post unlock; and b) how regional films fared during Unlock 1 in India, to get a better sense of how the industry recovery will look like in FY22-23. Eastern markets: Good response despite stringent caps The Japanese and South Korean markets can be a good comparison to India’s industry as they have a strong local language film industry co-existing with demand for Hollywood movies. Both these markets saw many films that pulled in heavy crowds at theatres despite operating under occupancy caps and strict rules. These movies did not entail much discounting in ticket prices, which is a strong positive sign. Apart from local language films, Hollywood blockbusters like F9 have also garnered strong support. The quick bounce-back of these markets is another strong positive sign. Western markets: Strong bounce-back Western markets are important to look at because most big budget Bollywood films earn a significant part of revenue from them. US and European markets have clocked strong recovery after theatres reopened this summer. In Europe, while in France a bunch of local language films drove up collections post reopening, Hollywood blockbusters evinced strong response in UK. Multiplexes in these markets have gradually started relaxing restrictions based on regulatory guidelines with a few multiplexes permitting vaccinated patrons to not wear masks. Outlook: India to see huge pent-up demand India’s multiplex industry has faced strong odds in the past one year with state restrictions and movie release delays by producers. The next important movie release window is during the Independence day week in August and Q3FY22. Already a few states have announced opening up of cinema halls, much quicker than last time. We expect the industry to see strong pent-up demand given customers are bored of confined living. Huge content line up also bodes well. Upcoming movie of Akshay Kumar “Bell Bottom” on 27 July is expected to bring in huge crowds. Opening up of a number of international markets is also a positive since Bollywood movies derive significant revenue from overseas markets. Most consumers and producers still prefer theatre releases and OTT will not cause any structural change in the industry, in our view. We expect both to co-exist. Abneesh Roy +91 (22) 6620 3141 [email protected] Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited Mediascope Scenario in Eastern global markets Theatres in Japan Strong recovery signs in CY20; cinemas close in April 2021: Japan’s cinema industry showed quick recovery last year when theatres had opened briefly. There was strong pent-up demand which helped in immediate bounce back. In fact, the runaway success ‘’Demon Slayer – Kimetsu No Yaiba The Movie: Mugen Train’’ became the biggest film ever in the market. Cinemas this year, however, were shut in Tokyo and Osaka beginning April 25 with a state of emergency extended on May 11. Cinemas reopen, albeit with restrictions: Movie theatres in Tokyo are now making preparations to welcome guests once again as the metropolitan government eases coronavirus restrictions. Officials said the state of emergency in Tokyo will be extended for three weeks starting June 1, but some restrictions will be eased. As per Japan times, the Tokyo Metropolitan Government will allow cinemas to operate at 50% capacity and until 9 P.M. Osaka Prefecture will likewise be permitted to open, though only on weekdays until 9 P.M. and also with a capacity cap. Major Japanese multiplex chain Toho Cinemas said it will reopen 20 sites across Tokyo and Osaka (both represent 35% of Japan’s box office collections). Another chain United Cinemas confirmed three reopenings in Tokyo with masks and socially-distanced seating. In the last weekend of May, movie theaters in 10 prefectures (Tokyo, Osaka, Kyoto, Nagoya, Fukuoka, Hyogo, Hokkaido, Hiroshima, Okinawa and Okayama) were still shuttered or operating under restricted capacity and shortened hours. Outlook: The industry believes it will see quick recovery and almost full occupancy (within caps) for major movie releases. The fast recovery in footfalls and strong support for major releases is an extremely positive trend. We continue to keep an eye on financial impact of operating under restrictions and pipeline of major movies. South Korean cinema The South Korean cinema industry, in pre-pandemic CY19, was the world’s fourth largest box office territory, but revenues and admissions for much of CY21 are still at rock bottom levels. South Korea has controlled the virus better than many countries, but it has failed to prevent new clusters emerging– nationwide there have been over 400 new cases per day as per data on June 3, 2021–and anti-virus vaccination levels are currently low. Discounts for vaccination: As per latest reports, multiplex operators have started giving discounts for moviegoers who have been vaccinated. Lee Chang- moo, president of the Korea Theater Association, was quoted by local media as saying, “we’ve decided to launch this campaign in hopes of encouraging people to get vaccinated and return to normal daily life as soon as possible.” This has prompted a muted response in occupancy. Occupancy levels have failed to recover since a peak in October. For much of 2021 weekend, box office has languished in the USD3-4mn range. Local news sites have reported that, “the long-standing malaise has caused several distributors to delay theatrical releases and divert some key titles directly to streaming platforms. And several cinemas have closed their doors.” 2 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited Mediascope Major releases have done well: However, despite general tepid footfalls, major releases still evinced good response. For example, ‘’The movie Demon Slayer – Kimetsu No Yaiba The Movie: Mugen Train’’ pulled in large crowds. Collections also perked up to over USD6mn for the last two weekends of May, propelled by the arrival of F9 at the top of the chart. F9 has sped off to USD15.1mn cumulative collections since its release on May 19. That makes it the third highest grossing film this year in Korea. At this pace, it will soon overtake “Demon Slayer The Movie: Mugen Train” with a running total of USD17.9mn and Soul, currently on USD17.1mn. Chains like CGV ran promotions by offering popcorn in cement bags for discount during May 2021. Outlook: The market seems to be facing operational difficulties and slow recovery in occupancy. Pipeline seems to be impacted by delays by movie producers and shift to OTTs. But once again what’s heartening is the strong support major releases have garnered. CGV promotion - Popcorn in cement bags Source: CGV cinemas Top grossing movie in Japan and South Korea - Demon Slayer Source: msn entertainment News Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited 3 Mediascope Conclusion on Eastern markets: Overall, when we look at eastern markets, we find that the most markets have started permitting theatres to operate, albeit with some restrictions. Despite some producers delaying movie releases, major movies have garnered strong support. Similarly, we believe strong content will play a major role in pulling crowds. There does not seem to be any hit on revenue of major releases and no discounts in terms of ticket prices for them. This is a strong positive. F9 performs in East & West markets Source: msn Entertainment News 4 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited Mediascope Scenario in Western global markets European cinema UK theaters reopen with restrictions and strict rules: Cinemas across England, Scotland and Wales were allowed to reopen from May 17. Prime Minister Boris Johnson confirmed the third stage of government’s roadmap to easing restrictions, which allows for theatres to reopen with rules that need to be followed by visitors. Ireland has opened cinemas on June 7 with 50 people max capacity per screen. Some of the rules in place at various multiplex chains include: 1) Social distancing will be in place, with physically distanced seating. This means there will be unoccupied seats between parties. 2) Film start times will be staggered to prevent crowds and queues gathering in foyers, and only pre-packaged food and drinks will be on sale. Cash will not be accepted. 3) Customers are encouraged to book tickets online where possible to reduce contact with staff. 4) Face coverings are required inside cinema halls, but once customers are in their seats they can remove these to enjoy food and drink alone. 5) High touch points like door handles and arm rests will be frequently sanitised and perspex screens will be erected in areas where social distancing is difficult to maintain. UK reopening saw strong box office performance: In the UK, Sony’s animated comedy Peter Rabbit 2 drove UK cinemas’ box office takings in their reopening weekend to the highest since the pandemic took hold in 2020, giving a boost to cinema chains, which had been burning through cash during months of lockdowns. Overall box office collections at the weekend of reopening came in at more than GBP7mn, with the speed and size of the return beyond anything most companies were expecting, UK Cinema Association CEO Phil Clapp told Reuters.