Crazy Kiya Re

We are a nation that is proud to be called movie crazy, where an estimated
1,200 movies are churned out annually and even cynical look-alikes of film stars
make fortunes overnight. A place like this is certainly a good market for the
movie rental business. As times and technologies change, a few players have
attempted to transform this unorganized pirated CD-wala business into a chic,
stylized online movie rental business.

What started off with a few small regional players saw the landscape changing
with the advent of national operators. Seventymm was one of the first to hold
nationwide operations. Launched in 2006, it was soon joined by the likes of
Moviemart and Madhouse media (subsequently acquired by Seventymm). Of late, a
few more names have entered this segment including Catchflix, Flickxpress and
BigFlix (Reliance ADAG).

The basic idea is simpleto provide licensed movies on rent to the customer
whenever he wants, at his doorstep. The modus operandi is also similarly
simpleor at least it seems to be. The customer pays upfront for a membership
and then places an order for a movie, on the Net or on phone or SMS. The
customer can also decide a time slot for delivery and the movie is delivered and
subsequently picked up.

There are monthly subscription plans ranging from Rs 200 to Rs 1000 depending
upon the number of movies to be ordered. Few players also charge a refundable
security deposit. The key to success is in having a large enough subscriber base
and achieving a high number of turns per DVD.

The Elements

License To Rent Out Movies Legally The rental company needs to procure a
rental license from the home video rights holder. These annual license fees
range from a few thousands to lakhs.

Copies: A license is not enough. Multiple copies are purchased from the
distributor and the catch lies in buying sufficient number of copies. The idea
is to maximize the run of a copy without compromising upon customer
satisfaction. There are a lot of permutations and combinations that are taken
into account before placing an order. The number depends upon the title and the
expected demand for the title.

As Suresh Mansharamani, founder of Moviemart explains, We purchase movies
from the distributors at a discount on the MRP. When it comes to popular Hindi
films, we buy copies equal to five percent of our subscriber base and for less
popular Hindi movies, one percent is sufficient. A hit English movie would mean
buying one percent of subscriber base and a normal English movie means a quarter
percent of the subscriber base.

Logistics: Multi-city operation means managing demand and supply of movies
across different cities. A situation where the demand of a movie exceeds
availability in one city while copies are lying idle in another city can easily
arise. According to Kamal Gyanchandani, COO, BigFlix Entertainment, he uses
order processing, business intelligence and demand forecasting systems to manage
demand. The whole distribution system works on hub and spoke model. We manage
logistics through our own warehouse and inventory management at our distribution
centers. Delivery is through third party logistics vendors.

Customer Care: Online movie rental is a service-oriented business. Most
players utilize in-house customer care teams and call centers. Apart from
dealing with customer request, they also work at increasing the subscriber base.

Delivery: This is the customer-interaction part of the business. All
companies claim free home delivery within a few hours of the order provided
there is no queue for the movie. Most prefer setting their in-house delivery
team, while BigFlix has outsourced the function. Why an in-house team?
Flexibility seems to be the driving reason. According to Shubhankar Sarkar, COO
of Seventymm, If the customer is not available, the associate can wait for some
time, visit again on the way back, or re-schedule the delivery. We provide an
option of delivery preference for each day of the week. So, one can ask for an
office delivery from Monday to Friday and home delivery on weekends. These help
in minimizing the cases of failed deliveries.

Challenges

Start-up and Growth Capital: This business is as capital-intensive as it can
get. The whole business runs around your ability to license titles, stock
copies, acquire subscribers and service them well.

Madhouse Media faced problems in getting seed capital and had to dip into the
founders savings for Rs 10 lakhs ($23,000 approx). Subsequently, it raised two
rounds of angel funding of two crores. But it faced the music again when it
required venture funding to take the business to the next level. As Nandini
Hirianniah, co-founder, Madhouse Media says, There were a few risk factors that
went against Madhouse getting venture funded. A team of first time
entrepreneurs, Reliance Entertainments announcement of entering the movie
rental business, Moser Baer announcing movies on DVD for fifty rupees, not
having started the business in a major metro (we started in Chandigarh) and an
inexperienced CEO were some of them. Ultimately, they went the M&A route and on
June 1 2007, Madhouse became part of Seventymm.

Moviemart, launched in April 2006 with a seed capital of two crores have
invested another three crores till date.

Backend Technology: A good technology backend is critical for this business
to run as well as scale. Customer databases, warehouse management, customer and
title history, logistics management, demand forecasting, data mining, etc all of
these are technology intensive activities and almost all players have had to
innovate from start and reinvent the wheel when it comes to technology
deployment.

Size of Collection: You dont stand a chance to become a major player in this
business with a few hundred titles. Given todays metro culture, you need to
have a huge collection of titles including movies of different genres and
languages catering to diverse audience tastes. Seventymm, for example, boasts of
18,000 titles in 14 languages.

Customer service: This is where things may not be up to the mark, yet. There
have been continuous complaints from customers about shabby customer service.
Tales of endless calls to customer service asking for a particular movie in
vain, or deliveries of unordered movies dot various sites that discuss such
things. So as they say, treat your customer as the king because probably he
wont blink an eye before deciding to switch over to the services of the
friendly neighborhood video library-wala or the neighborhood pirate.

Piracy: Piracy has been the biggest challenge faced by this business
vertical. In fact it challenges the very viability of this business. Why will
someone pay fifty rupees for renting a DVD when he can own it by paying just
half?

These players currently operate in a market segment that likes its movies
served clear and unclipped. However, most do believe that the business would
realise its true potential only when piracy ends or is significantly curbed. As
Gyanchandani explains, Piracy can be reduced at best with a decrease in the gap
between theatrical release and the home video release of a movie; the discretion
of which totally lies in the hands of the stakeholders of the film. We would
like to combat piracy with the help and combined effort of all other organized
players in the industry.

Other USPs

The market already has a few established players. So, players have started
using innovative ideas to distinguish themselves from the competition.

BigFlix is trying to cater to a global audience; particularly the NRI
audience by offering movie downloads at their site. The customer can download
the movie and keep it all his life. Down the line, they plan to incorporate a
download to rent option, where the subscriber can download a movie to watch
within three days, at the end of which it is non-viewable.

For young entrepreneurs with a fresh point of view, the passion to do things right and do them well can bring a new dimension to the business Nandini Hirianniah, Co-founder, Madhouse Media	We are looking at expanding to 40 cities by 2009 end. We may use hub and spoke model to expand to some of the tier two cities, which will be serviced from the mother warehouse of a neighboring larger center Shubhankar Sarkar, COO, Seventy MM	The potential of the market is easy to establish by the fact that currently there are more than 15000 home video libraries operating in India Kamal Gyanchandani, COO, Bigflix Entertainment

Flickxpress has come up with a kiosk model for renting movies. It is similar
to an ATM wherein you swap your membership card, enter the password, choose the
movie and pick up the disc from the dispenser slot. Although the one time cost
of these kiosks comes out to be pretty huge, the operational costs are expected
to be extremely low. Currently, five kiosks are operational in Bangalore and
Naren Pasuparthy, founder, Flickxpress is leaving no stone unturned to expand
the operations rigorously. We launched Flickxpress just three months back and
the response has been overwhelming. We are in a midst of finalizing more
locations for setting up our kiosks. We want to be in every market area, big
grocery shop, and mall so that the motto of our businessentertainment on your
termsis fulfilled, he adds.

The Market

The way the future of this business is looking, its all rosy out there. The
figures are pleasing. Moviemart has seen more than 100% growth each year since
2006. Seventymm had more than 200% growth after the completion of first year in
operation. Bigflix has grown at 400% month by month in the last quarter.
According to Mansharamani, this particular industry is growing at 30% per annum.
Add to this the estimates done by ASSOCHAM that state that the size of the
Indian domestic film industry is likely to double to Rs 400 billion (around
US$10 billion) in the next two and a half years.

According to the FICCI-PWC report 2008, the home video market has witnessed
dramatic changes in the last four years, having achieved a growth rate of 30%.
Its contribution stands at 8% of the overall film industry revenues in 2007, up
from 6% in 2004. In 2007, the home video market was estimated to be Rs 7.5 bn.

First published in DARE

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