The Telugu movie industry, the second largest in the country after Bollywood in terms of the number of movies churned out per year, is caught in a bitter standoff between producers and exhibitors over the issue of revenue sharing.
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At the heart of the crisis is the growing unsustainability of the single-screen theatres. Citing the rapidly declining footfalls and increasing operational costs, the exhibitors have been asking for a percentage based revenue sharing system as against the present system of fixed rental system.
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This switch over, they argue, will help the crisis-ridden single screen theatres cope with operational costs even when films do not succeed at the box office.
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According to exhibitors, the current system has become financially impossible to sustain. At present, many Telugu films operate under what is called a โrental system” or โfixed-hire model”.
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In this setup, theatre owners pay distributors or producers a fixed amount to screen a movie, regardless of whether audiences turn up or not. This means exhibitors carry most of the financial risk.
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If a film becomes a blockbuster, producers and distributors benefit. But if a film underperforms, theatre owners still have to pay the agreed rental amount while also handling electricity bills, staff salaries, maintenance, air-conditioning costs and taxes.
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Exhibitors now say this system is slowly destroying single-screen cinemas, pushing them into an existential crisis.
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What producers say
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Several producers, however, say the demand for a swift change can dent their earnings from the films awaiting release, beginning with director Buchi Babu Sanaโs Peddi starring popular star Ram Charan, scheduled to release on June 4.
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There are several production houses like Geetha Arts, Sri Venkateswara Creations, Suresh Productions and Allu Cinemas, which have agreed to the revenue-sharing model. However, other bigwigs like Myrhti Movie Makers and Sithara Entertainment are yet to budge.
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Several leading producers have agreed to the revenue-sharing, but with conditions. The most important condition is that the new business model should be applied to the new movies about to go on floors and not the 60 Telugu films already in production. The theatre owners are insisting that the changes be implemented immediately.
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Rental model
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The fixed rental amount is pre-determined according to the seating capacity and location of the single screen theatre. Exhibitors pay this rent regardless of how the film performs at the box office. Exhibitors say this model is not sustainable, since their earnings largely rely on the box office performance of a film to recover the rent and operational costs. They added that more than 100 single screens across Telangana have closed in the last three years due to diminishing revenues.
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Proposed percentage system
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In the percentage system, 55 to 60 per cent of revenue is likely to go towards producers/ distributors and the remaining 40 to 45 per cent to exhibitors in the first week; 50 per cent to exhibitors and 50 per cent to distributors and producers in the second week. The percentage revenue system is already in practice for multiplex chains.
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Currently, a fixed rent is decided upon based on the filmโs budget and likely box office prospects. When a big budget film arrives, a popular single screen in Hyderabad easily recovers the fixed rent for the week within a day or two. The remaining collections are profits that help run the theatre. But there have been very few big budget releases in the last few months, since pan-Indian films have been postponed due to longer production timelines.
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The shorter OTT windows and the quality of films have also reduced the interest of the audience.
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The Telangana Exhibitorsโ Association has pointed out that while other states follow a percentage system, the Telugu States of Telangana and Andhra Pradesh continue to follow a fixed rental pattern.
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The tussle within the industry is also seen as a conflict between established players who have an entrenched production and distribution system and newer producers who are making inroads into the theatre networks.
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Beyond the internal conflict, the larger issue remains the dismal footfalls in theatres across the Telugu States.