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Jun, 01 2008

Emerging concept - Home video market explores franchising

There was a time when unorganised players used to retail pirated VCDs and DVDs to the customers outside shops, on roadsides and footpaths but today, the cut-throat competition has led to a significant fall in prices of DVD players making way for VCD/DVD p

Gone are the days when the neighbourhood shops around the corner used to dominate the home video market. Today, the players have come up with online stores to provide convenience to customers in a unique way. If we look at the current scenario, the market for movie rental business is highly catching on in India and it is likely to see a boom in the next few years. As the Indian entertainment sector is growing and a number of films are produced in India, it not only augments the entertainment industry but it also generates growth of movie rental business. The proportion of India`s organised home video industry to the number of box office releases is still small compared to western countries like the US. According to a report by the Federation of Indian Chambers of Commerce and Industry (FICCI) the industry witnessed 30 per cent growth in 2007 and expects to grow at the rate of 15 per cent to Rs15-billion industry by 2012.

Commenting on the overall market size of the industry Rahul Mansharmani, MD, Moviemart says, “Entertainment sector is growing at the rate of 18 per cent-- twice the rate of India`s economic growth and the online DVD rental business model which is hugely successful in Europe and America, was non existent in India."

Elaborating on the point, Raghav kher, CEO & Founder, Seventymm, says, “Today about 30 million people own a DVD or VCD player in India . Another way to look at it is about Rs 50 per DVD, let`s say $1 per DVD. If people watch two movies at home, with 100 million movie watchers, it gives us revenue of about $200 million. So we expect the overall market to be $2.5 billion in five years. We are aiming at getting $100 million and therefore targeting one million users. Also, today the six cities – Bangalore, New Delhi, Mumbai, Chennai, Hyderabad and Chandigarh account for 60 per cent of the DVD player penetration in India. This will grow exponentially with the market expected to grow at a rapid pace to 100 million DVD players by end of 2010.” According to industry sources, the home video market in India is growing phenomenally at 30- 35 per cent year on year for at least five years.

Splurge in DVD market

Earlier, the unorganised players dominated the industry but with increasing awareness and highly disposable incomes consumer buying behaviour has undergone a sea change.Another contributing factor is broadband connectivity and internet penetration amongst urban India, which has led to the entry of organised players in the home video market. With fall in prices of DVD players, the customers are spending huge money on buying home video products due to which the concept of video rental business is also emerging. The rental business is likely to grow in years to come, as the opportunity is huge for the players in movie rental business. According to industry sources, India has approximately 15 million DVD players and this figure is expected to touch 70 million by 2010, with an enormous scope in the vastly untapped rental market.

Why is the movie rental business catching up in India? The answer is very simple: today when you miss your chance to catch your favourite movie in a cinema, after one month of its release, the movie is available on a DVD. In this business, the players like Bigfliks, Seventymm, Catch Flix and Movie-Mart offer VCDs and DVDs on rent through online and offline stores. The customer can keep the VCD and DVD on rent for a specific time period. With this, the customer can have easy access to the movies of his choice and preference. Moser Baer is one such company, which is not only into movie rental business, but it offers VCDs and DVDs on low price points. Commenting on the DVD market G. Dhananjayan, COO, Moser Baer, says, “The DVDs` share of the overall home video business remains at 10 per cent at the overall level. However, for new films, it is now becoming almost equal to 50 per cent VCD business in our case, since most customers are happy to buy the DVD of a new film. Our focus is on growing the DVD market. We will continue to offer them at competitive prices to grow the segment."

Today, people have become very time-conscious. Instead of wasting time outside the cinema halls in long queues, they prefer to spend time at their comfort zones while watching their favourite movies. Movie rental business is growing like any other business as people are spending a lot of money on buying DVD players, plasma TVs, projectors and home theatre systems.

Expressing his views, Kher says, “DVD as a format is gaining currency in a big way. However, a large part of the films in home video is available in the VCD format. With consumers upgrading from VCD to DVD players, the market will finally move to a fully DVD format.” DVD provides high quality picture clarity, huge space for data storage, and a surround sound feature, which creates an ultimate effect.

In online business, if you want to buy VCD or DVD on rent, you just have to browse through the company website, choose from a list of movie titles and order by phone and it is delivered at your doorstep within 24-48 hours time. The mode of payment is usually made through credit card. But when it comes to online shopping, people are not willing to share the sensitive information like personal and credit card details just because of the security reasons. To deal with the risk factors in online business, the existing online players are now planning to open offline stores.

Piracy the biggest challenge

The Indian entertainment industry is still dominated by the unorganised sector. The unorganised players in the market produce and retail pirated versions of music and movies and sell them illegally at lowest possible prices. Piracy is the biggest threat to the entertainment industry. Kamal Gianchandani, CEO, Bigfliks says, "The issue of piracy is a global one and has affected everyone. We at our end are employing DRM controls to safeguard the interest of our content providers. We hope to marginalise piracy by offering a legal alternative at a compelling price point. Additionally, we shall collaborate with colleagues from the movie industry and government bodies to crack down hard on sites and stores offering illegal content." Commenting on the issue, Dhananjayan says, “Our products are offered at the lowest prices with wide distribution and aggressive marketing. Hence, we expect consumers to buy them instead of using pirated stuff for both buying and renting. To a large extent we have succeeded. Take the case of our new films. The piracy levels are lower than new films from others who are selling at higher prices." The companies are employing modern techniques to fight piracy.

Competition strategies

With the coming of organised retail in the Indian market, key players have now started upgrading the technology to provide a flawless service to the customers. Globally, the concept has already gained success though in India it is still emerging. In India, the players like Bigfliks, Catchflix, Seventymm, Moviemart and Moserbaer are now focusing on novel marketing and promotional strategies to fight against the cut-throat competition in the home video market. To deal with the rising competition, big players are strategically focusing on cutting down the prices so as to persuade the customers to buy or rent a VCD or DVD. Moser Baer, the world`s second largest optical media company has started selling VCDs and DVDs at low price points of Rs 39 for VCDs and Rs 69 for DVDs. Bigfliks has also come up with Video on Demand (VoD) service, which largely caters to the NRI audiences. Recently, the company tied up with Raj Television Networks, which is one of the largest media and entertainment houses in India. The alliance will enhance its portfolio and enrich the customer experience not only in India but globally too.

Nimbus communications too launched `Showtime`-its home video entertainment business. The venture will entail rental and sale of home entertainment content in formats like DVDs, VCDs, game CDs and other allied products.

Gianchandani says, " In our Video Rentals division, we have the same pricing strategy for both online and offline customers. In our Video-on-Demand division we have both free streaming and Download-to-own model. We have movies, which start from $ 2 to $ 10 in the download to own version."

Expressing his views Vinay Bapan, Founder, Catch Flix says, "We focus a lot on delivering superior customer service, convenience, the right pricing model and leverage the power of internet technologies to make our service very compelling and popular." About the rising competition in the market, Gianchandani says, "Competition is welcome and badly needed in this sector. We need collaborative efforts to deal with the sector challenges." Mansharmani adds,

“There is a room for two or three big players and whosoever gives good service will be the winner in the end."

To provide convenience to the customer, the players are now offering exceptional services like free home delivery and membership schemes to retain the existing customers. According to the industry sources, Nimbus Communications announced its big bang entry into to the DVD rental market with presence in 69 stores across the country. Bapna says, "Currently, we have an online format and will focus on our internet based centralised service in the short term. We do have partnership and franchise based plans for offline services in the long term."

Franchising in home video

Franchising is a unique business model and an ideal concept for investors who want to own a business that involves lower risk and assured minimum returns. Today with increasing penetration of broadband connectivity and internet, consumer perspective is changing which has led to the emergence of home video market. After making their presence in online business, major players like Bigfliks and MoserBaer have also made their presence in offline business whereas Catchflix and Moviemart are looking forward to open their stores through franchise route to provide their services to the customers who are unable to access the internet. According to industry sources, Bigfliks will take the franchisee route to drive this growth. Commenting on the expansion plans, Gianchandani says, "Out of 200 stores we plan to have 50 odd stand-alone stores, 75- 100 shop-in-shop format and rest as franchised outlets." Dhananjayan reveals, “We do have Moser Baer franchise outlets. As of now, 10 stores are put up to sell the entire range of Moser Baer home videos. We have no intention to put up company-owned stores but will be tapping franchise model. Our target is to reach 50 outlets by March 2009."

Bapan says, "Currently, we have an online format and will focus on our internet based centralised service in the short term. We do have partnership and franchise based plans for offline services in the long term." The franchising model is already a proven business model wherein the company can reach a larger customer base. Commenting on the investment required from a franchisee, Mansharmani says, “500 sq ft for street level shop and Rs 5 to 7 lakh for fixtures and working capital.”

Bapan says, “We want to have partners with a passion for high quality service and customer satisfaction. They may already have a rental library or may want to start one but they should be committed to deliver that same service levels as we promise to our customers directly.” Dhananjayan avers, “Franchisee has to be at the right location and right space with the financial ability to absorb the short term losses, for long term gains. MoserBaer supports them to become a success. However, they need to have patience to go through the cycles of business and work with us in the process. Right location and right space (not more and not less- we expect minimum of 450-500 sq ft) is imperative.” Online rental business is usually meant for net savvy people but with the opening of brick and mortar stores across major cities, the company will be able to reach the customers and to expand its operations.

Commenting on franchising in video rental business Mansharmani says, “In my opinion franchising is way to go. This is a very high level of service demanding business. The DVDs have to be delivered physically to customers and they need a particular title at a particular time and scratch free DVDs. Unless a franchise owner is himself involved, the high quality of service is difficult to achieve which is rendered by company-owned stores.”

The future

After its success in the US and Europe, India is also witnessing a huge scope in home video market. There are very few players in this industry, so it provides a vast opportunity to those who really want to thrive in this sector. To expand businesses, the online players are now coming up with offline stores so as to target the masses. To open stores, online players are now open to the franchising option. Forecasting on the future , Bapna says, “The movie rental business will mature very fast to offer a number of innovative options to consumers. A movie is truly a way of life in India. More movies are made and watched by moviegoers in India than anywhere else in the world. Bollywood and its regional hubs churn out more movies and sell more tickets than the rest of the world put together. The rental business will soon become a significant part of this ecosystem.” The future of video rental business seems quite promising as the existing players in this industry foresee franchising as the best available option to expand the operations across the country.

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