PYRAMID SAIMIRA ENTERTAINS A DICEY STRATEGIC OPTION

Leisure and entertainment usually gain prominence  in an economy that is growing fast and provides leeway to the consumer to spend on things other than necessities. India's entertainment and media industry is one of the sunrise industries, growing at a compound annual growth rate of 18 per cent, much faster than the 7 per cent national economic growth rate. According to a study conducted by the Federation of Indian Chambers of Commerce and Industry and Price waterhouse Coopers, the industry size is Rs. 437 billion presently and is projected to grow to Rs. 1 trillion by 2010. Positive measures taken by the government, technological advancement and entry of large corporate houses in all the segments of the industry are fuelling the impressive growth.

Among the various segments of the industry, there are radio, television, films, out-of-home
advertising and live entertainment. While radio and television make up the fastest growing segments, film entertainment growing at 16 per cent annually, is another potential segment.

The film entertainment segment of the entertainment and media industry has several strategic groups that could be roughly categorized along the value chain of film making and distribution. These strategic groups could be: production, distribution, retail, music and home video. While many of the companies operate in more than one activity area on the value chain, such as Yash Raj Films operating in all activity areas except retail, there are a few that concentrate on just one or two activity areas, such as RGV Film Factory that operates only in production of films.
Size based on revenue could be another basis for categorization of the film entertainment companies in India. Among the large size companies are Adlabs, Sahara, Percept, Yash Raj Films and UTV, that could touch or exceed Rs. 1000 revenues by 2010. The middle-rung is of companies of revenue size of Rs. 300 - 500 crore, such as pure retail and distribution companies such as Inox Leisure, PVR Cinemas, Pyramid Saimira and Valuable Group, C pure content companies such as Pritish Nand Communications, Vishesh Films or RGV Film Factory. The third category is of emerging companies in the revenue size range of Rs. 100-300 crore, such as Real Image, Red Ice and Seven Entertainment.

Major investments in the media and entertainment industry in recent years have been ploughed into infrastructure, largely into multiplex chains and digital theatre chains. These investments are made by companies that are pure retail and distribution companies. Among the major ones in this strategic group is the Chennai-based Pyramid Saimira Theatre Limited (PSTL)-India's largest theatre chain company with over 29 multiplexes in operation, with over 371 screens in 2007, projected to increase to 2000 screens by 2010. It was incorporated in 1997 as Pyramid Films International Private Limited and has gone through severe changes of name to emerge as Pyramid Saimira Theatre Limited, reflecting its concentration on the theatre business, though it operated in film production and TV content production in the past.

Film making and distribution in India has been traditionally an unorganized and fragmented industry, managed through experience rather than systems. In recent years, one trend in the film industry is corporatization. Under corporatization the traditional organizations dealing with the various aspects of film making and distribution become formal organizations registered under the legal process, such as the Companies Act, 1956. Along with corporatization comes increasing professionalization in the management of organizations Technology, especially information and communication technology, has played its part in heightening the chances of making corporatization and professionalization successful. A new breed of organizations has emerged on the horizon that deals with the various activities in an organized and systematic manner. Pyramid Saimira intends to be one of such organizations.

The people behind Pyramid Saimira include Mr. V.         Natarajan, a Gemini-studio's veteran of the Tamil film industry, Mr. P. S. Saminathan, the finance and technology brain behind the flagship project and Mr. N. Narayanan, the management man. The financials for the year 2006-2007, show net sales of Rs. 1661.52 crore and net profit of Rs. 158.82 crore on equity capital of Rs. 282.76 crore.

The flagship project of the Pyramid Saimira is the mega digital theatre chain project being  implemented in two phases, with a total cost of Rs. 414.5 crore. This is an information technology- driven venture that is a first-mover in the film industry in India. The basic idea is to have a chain of theatres for exhibition of films that have been encrypted in the digital medium. The theatres are linked through a satellite-based communication network. The films are released in the digital format and simultaneously exhibited in the digitally- enabled theatres through the satellite network. The one-stroke release and exhibition of films is claimed to reduce the chances of films being pirated, which is the Achilles' heel of the film industry in the world. It also avoids the use of costly film rolls and reels now used to photograph and distribute films. The digitized theatres also offer the potential of developing them as value-added service providers, enlarging their role from that of entertainment providers to commercial infrastructure providers such as shopping malls, exhibition spaces and education and training venues.

The business model of the digital theatre concept is based on a vertically-integrated theatre chain on long-term lease, where the revenue streams emanate mainly from the ticket sales at the individual theatres at the demand end, much like it does now. The critical difference is on the supply side where the distribution, retailing and exhibition of films are done in an integrated manner through digital means connected through a communication network. This effectively eliminates the film distributor and tries to achieve economies of scale through volume sales. The centralized network operating centre is the nodal supply point.

A standardized delivery process makes the process operationally low-cost, albeit at a high initial investment. Additional revenue streams, generated through exploitation of the theatre infrastructure to provide other services than entertainment, help to recoup the high initial investment. Creating a franchise system for a long-term lease enables sharing of the initial high costs of realty by engaging partners who own the theatre space but use Pyramid Saimira's digital distribution and exhibition facilities at a price. There are additional possibilities of creating content library of films, extending networks abroad and building integrated family entertainment centers.

The digital theatre is a compact model, having various elements such as digital projectors, servers, connectivity equipments, high-definition recorder and telecine, system integration and software solution providers. For each of these, there are in-house and external agencies in partnership. For instance, connectivity equipments are being provided by TataNet while servers are arranged by a partnership of Saimira Access Technologies with Real Image Media.

Pyramid Saimira's SWOT analysis indicates the following factors:

·      Strengths: Established organization, experienced promoters and networking with financially strong and capable partners.

·      Weaknesses: Lack of in-depth technological experience, risks of being the first-mover and limited financial capability.

·      Opportunities: Favorable demographics, increasing spending on entertainment, potential expatriate demand, availability of technological infrastructure such as broadband and digitized films a regenerative asset that has multiple uses.

·      Threats: Unorganized film industry, fickle nature of demand for films, powerful industry bodies with political lobbying capabilities, high entertainment taxes, piracy, high cost of infrastructure and faulty governmental policy implementation.         .

Pyramid Saimira's global ambitions are reflected in its vision statement, which is 'to be the largest vertically integrated theatre chain in the world carving a unique space in mass access using theatre infrastructure to deliver education, entertainment and information at affordable cost to all sections of society'. The digital theatre project is being implemented in Tamil Nadu and is planned to be expanded throughout India and abroad in areas where there are a large number of Indian expatriates such as South East Asia, Europe and the U.S. The acquisition of the Texas-based Fun Asia made through the subsidiary Pyramid Saimira Entertainment America, targeting the Asian film market, marked the entry of Pyramid Saimira in the U.S. and Canada. There are subsidiaries operating in Singapore and Malaysia, where there is a substantial number of people of Indian origin.

Questions

1 (a.) Attempt   Porter’s five-forces analysis for the Indian film industry, highlighting the factors relevant for   Pyramid Saimira’s strategic planning.

  (b) Attempt a strategic groups analysis highlighting the factors relevant for Pyramid Saimira’s strategic planning.

2.    In the light of the concept of business definition, discuss the possible expansion strategies for the company. Which of them will be a better option for Pyramid Saimira?