In the State Budget 2017, Karnataka government decided to place a price cap of Rs.200 on all the cinema tickets, except for premium tickets. The budget also said that for Kannada movies the service tax will be Rs 3/-, and for other languages it will be Rs 4/- in addition to entertainment tax of Rs 60/-. The price cap is not applicable for weekends and holidays.
Many of the movie buffs are happy with the state government’s decision of having a price cap. But what is the economic impact of price cap on movie business?
We met the manager of multiplex in a mall in Bengaluru to understand the issue better. He did not want to disclose his identity, but didn’t mind sharing what he thought. So, here goes the interview.
Are you aware of the recent Price Cap on movie tickets in Bangalore? If yes, then what are your thoughts about the same?
As we all know that higher the demand for a particular movie, higher goes the ticket price. This brings a lot of profit to the multiplex owners and also the market achieves the equilibrium where demand meets supply. But with this new price cap, we will have to stick to a particular price, and even though the demand will be more, the price won’t go up.
This will lead to shortage of tickets for blockbuster movies. And we all are aware of the black marketing of movie tickets decades back which might return. Moreover, people who can afford to pay higher prices will get demotivated due to such high competition in the movie ticket market. Moreover, a certain section of the society who wouldn’t have visited the multiplexes with the old higher prices would now fight for tickets.
Will this affect your profitability?
For the time being it is not. In the first week, both the mall owner and multiplex owner share the profit in 50-50 ratio. In the second week, the theatre owner gets 60% and the multiplex owner receives 40%. From the third week, theatre owner receives 70% and the multiplex owner gets 30%. In the longer run it will start pinching the pockets of both hard. May be now the mall and multiplex owners’ pockets are full of cash. But there will be a time that they (the owners) will incur loss.
Will multiplex owners start compensating for the price caps by overcharging other services?
As of now, we have only thought of raising the parking fees, but it seems that once the owners start losing money they might increase the food price as well. Although, according to me increasing the food price is not a good option as there will be many people who can afford the ticket only because it has been capped and thus, they won’t buy anything to eat within the theatre premises.
Will the multiplex owners prioritise mega block busters over small independent movies to make up for their revenues?
Absolutely yes. What else can the owners do in order to save themselves from losses? Due to laws and regulations, we do have to screen independent movies but that won’t last long. We have to keep them for a week and then shift to the mega blockbusters.
Since the weekend and premium tickets are not capped, will this see a significant increase?
I don’t have any idea of how much they will be increased but to some extent we all have some idea that weekend movie ticket price will be increased. Only time will tell how much it is going to be.
Will this affect multiplex maintenance?
I don’t think so. Because whatever loss will be incurred that can be earned through high food charge, parking fees and higher ticket price for the weekends and holidays. So, we don’t have to worry.