Q&A: Kapil Agarwal, Joint MD, UFO Moviez

'Half of our FY12 revenues will come from advertising'

The Rs 110-crore UFO Moviez recently took a majority stake in Scrabble Entertainment, the only aggregator of screens in India that are compliant with the digital cinema initiative — a standard developed by the six big Hollywood studios. UFO Moviez is one of the largest digital cinema companies in India with its 2,500 digital screens in 1,300 cities and having a total capacity of 1.3 million seats. Kapil Agarwal, the company’s joint managing director, tells Vanita Kohli-Khandekar what the acquisition means to UFO’s growth and top line. Edited excerpts:

You have been such proponents of the satellite-based MPEG4 technology. Why invest in Scrabble and DCI then?
The key issue in the delivery of films in India is logistics. So we were very clear that we should be able to deliver irrespective of weather, transport or road conditions. But with MPEG2 the file size of a film could only go from 3 terabytes to 60-80 gigabytes. So we weren’t managing to optimise the use of satellite bandwidth. Remember, this was in 2002-03, when satellite bandwidth was very expensive. Hollywood did not have access to MPEG4 so DCI was designed around MPEG2. As luck would have it, the company that developed the MPEG4 standard for films went bust. So we acquired it and the encoders. That is how we ended up using MPEG4 cost effectively.

Hollywood has typically been less than 10 per cent of the revenues of the film business in India. And in 2005, the DCI-compliant system cost Rs 50 lakh-60 lakh. In a market with ticket prices averaging between Rs 10-50, there is no way DCI standards will take off in India. So now we have UFO for emerging markets with a strong local content industry, like Indonesia and Korea. We bought Scrabble, for mature markets, more dependent on Hollywood fare.

What has the pattern on average ticket prices, occupancy and viewership been in the towns where you have digital screens?
Typically capacity utilisation has jumped from 10 per cent to 50-60 per cent, revenues have jumped, and so have ticket prices. A jump of anywhere between 50-100 per cent is normal. So, where ticket prices were at Rs 15, they have gone to Rs 50 and 60 too.

How has your revenue composition changed?
In FY 2010, we got less than 15 per cent of our revenues from advertising. In FY 2012, we will get close to 45-50 per cent from advertising. We now do business with every major advertiser: Group M, Hindustan Unilever HUL. That is the biggest change that has come about. We are already EBIDTA-positive.