Can BookMyShow Rise From The Ashes Again?

Vikas Sharma (name changed) is one of those startup employees who believe conventional office timings should not limit workdays if one is trying to make a difference. In essence, he is a hustler.

Still, he was laid off a couple of weeks ago and no longer holds the job that ruled his life for the past five years. “It was totally unexpected. In fact, I had already planned things for the next six months,” says the business development manager who was among the 200 employees recently laid off by BookMyShow, the popular movie-ticketing platform. Sharma got two months of severance pay in line with the company’s policy.

It is the Covid-19 pandemic that has sealed his fate. He looked after the media and entertainment company’s event management business in Andhra Pradesh and Telangana and had a team of three under him before the pandemic struck last year. But the axe had fallen on those three staff members when 270 people were asked to leave in August 2020.

As lockdowns were reimplemented from April this year to contain the second surge of Covid-19, movie theatres were closed down, all events across the country were called off, and the business dried up. Even the initial recovery after the first wave failed to put the events business back on track. The biggest annual money-spinners that Sharma is proud of — New Year and Holi celebrations — also turned out to be dampeners this year. 

It was no different for the movie-ticketing business, BookMyShow’s biggest cash cow. Between October 2020 and March 2021, the company sold more than 16 Mn tickets due to fractured releases and capacity/operational restrictions before the second wave hit the country. The numbers were abysmally low as it used to sell 10-15 Mn movie tickets a month before the pandemic struck.

The inevitable followed. BookMyShow founder and CEO Ashish Hemrajani recently announced the latest round of layoffs as business was down. However, this is not the first time Hemrajani has let go of employees en masse. 

The first time it happened was in the aftermath of the dot-com bubble burst at the turn of the millennium when the stocks of US-based internet firms crashed and many companies went out of business. This also affected the Indian startup as the American investors pulled the plug on Bigtree Entertainment (the parent company of BookMyShow) that used to sell ticketing software to movie theatres at the time.

It was 2002, and Hemrajani was compelled to slash his team size from 150 to six. But he managed to keep the company afloat and, in August 2007, launched BookMyShow as a consumer-facing online ticketing platform for movies, sports and live events like plays and concerts. 

A year later, the global economy went into a recession that battered companies worldwide and across sectors. As the economy shrank and sales plummeted, the newly launched platform asked its people to take pay cuts for three to six months. It was either that or sending home a lot of folks. “On our part as an organisation, we saved on electricity, switched to Skype from telephone lines and cut down further on operational costs,” Hemrajani later recalled.

And now, in the pandemic years, it is happening all over again. It is as though the company’s fate is inextricably tied to destructive macroeconomic or black swan events. But it had managed to survive the earlier scares because all businesses face them now and then, be it a funding crunch and consumer spending going for a toss during an economic slowdown.

But the problems run deeper this time. 

BookMyShow: Turning Into A Cash Guzzler

The BookMyShow of yesteryears, which was back on its feet after each crisis, was not the business it is today. It could weather the storms in the first decade because it always ran a tight ship. Expenses were kept low as BookMyShow had always steered clear of the tech startup trope of gorging on VC dollars to fuel a rapid expansion. In fact, few consumer-facing tech startups in India are in the black as they continue to pour millions of dollars to market their brands, enter new business segments or expand to Tier-2 and Tier-3 geographies. 

Of course, BookMyShow also reported losses — running up to a few crores — but these numbers were insignificant compared to the massive losses incurred by other ecommerce companies. Besides, the company turned a profit now and then — INR 1.45 Cr in FY12, INR 3.22 Cr in FY13 and more importantly, INR 3.17 Cr in FY16. 

Mark the last number as it is quite significant for a couple of reasons. First, the company has not reported a profitable year since then (filed up to FY20). And second, fintech giant Paytm muscled into the online movie ticket market in 2016 and threw a lot of money at it in the form of deals and discounts. The following year, it signalled its seriousness about this segment by acquiring Mumbai-based Insider.in, a distant second to BookMyShow in the sector, for INR 35 Cr.

Unsurprisingly, BookMyShow had to pay its pound of flesh to retain its pole position in the market. The company spent INR 146 Cr and INR 151.9 Cr in advertising/brand promotion in FY17 and FY18, respectively, to preserve its territory. But the huge losses incurred since — INR 128.4 Cr in FY17, INR 140.25 Cr in FY18, INR 83.7 Cr in FY19 and INR 134.73 Cr in FY20 — cannot just be attributed to an intense marketing war between the incumbent and the disruptor.

According to the company’s cofounder Parikshit Dar, only the FY17 losses can be attributable to the stiff competition with Paytm. In that case, why did a sinkhole suddenly appear in the tapestry of BookMyShow’s robust financials?

We must take a short detour to demystify this.

The Curse Of The Movie Market

The lion’s share of BookMyShow’s revenues comes from selling movie tickets. This, in itself, was a profitable business for two years before the pandemic hit India in 2020. According to the last reported numbers, the online ticket booking business accounted for about 60% of the company’s topline. But the mainstay of the online ticket booking business — movie tickets — faced a huge problem even then. It was not growing. 

A look at various industry and analyst reports published in the past five years shows that the Indian box office has not grown beyond the range of $1.6-2 Bn. This is further validated by the near-static number of movie screens across the country. It has been around the 10,000-mark in the past decade.

Interestingly, more multiplexes are coming up every year while a similar count of single screens seems to be shutting down. But unlike the single screens operated by local owners, multiplexes are controlled by national and regional players such as PVR, INOX, Gold Cinemas and more. This gives the multiplex chains huge bargaining power over online movie ticketing companies. 

This power play is apparent from the paltry margin of 10% that online ticketing companies get from ticket sales. They are at the lowest in revenue-sharing, while film distributors take home 40-45%, and the rest is split between movie producers and theatre operators. 

A 10% margin in a market that is not growing at a fast clip is not exactly scalable. According to market research firm Statista’s estimates, digital penetration in the movie ticket space is roughly 7%, pegging the online ticketing market at a maximum of $140 Mn, or INR 1,045 Cr, in the pre-Covid times. Going by the data often cited by the company — that it has a market share of 70-75% — the online movie ticketing market is not even worth INR 1,000 Cr yet.

The equation is simple. Even if one assumes that the company’s earnings from online ticket booking in FY19 and FY20 (INR 331.56 Cr and INR 378.68 Cr, respectively) solely came from movie tickets, the size of the online movie ticket booking market could not have been more than INR 505 Cr.

However, the Indian box office is not exactly accurate about numbers. An industry executive, who did not want to be named, even claimed that online movie ticket booking accounted for 35% of the total box office (about INR 4,200 Cr) before the pandemic. In that case, BookMyShow’s movie ticket revenue should have been around INR 3,150 Cr. But its total revenue was about 6x smaller in FY20.

Moreover, the online movie ticket booking business cannot be decoupled from the broader box office, which has seen an annual decline in the number of tickets sold in the past few years. Film and trade business analyst Girish Johar also said in 2020 that there was no growth in footfalls at movie theatres in the last four to five years. “It was the ticket price that got us increased box office annual revenue in cumulative terms,” he said.

The anaemic nature of the overall movie ticketing business meant BookMyShow could not rely on it for sustainable growth. The company was compelled to explore new revenue channels. And it found a healthy diversification option in the event management space. 

Event Management Takes More Than It Gives

The thesis was simple. The business of hosting and managing events like music concerts, plays and comedy shows offered the prospect of higher margins as the company could tap into multiple points in the value chain. 

For instance, it could earn revenue from ticketing, take a cut from the food and beverages sold at the venue and earn more from selling advertising and sponsorship rights. This marked a departure from the traditional movie business where only the operators such as PVR and INOX take home all the sideways revenue — right from the popcorn their viewers buy to the ads shown on the silver screen. 

But the new revenue channel focussed on event management had its fair share of issues. Although BookMyShow is a market leader in ticketing solutions for movies and a host of live events, organising such events at scale has been challenging. 

According to an industry executive who does not want to be named, “You won’t find more than 50 performing artistes in India for whom you can organise a show and earn INR 50 Lakh in ticketing revenue. The market is heavily tilted towards comedy shows as there is still an audience ready to pay INR 3,000 to watch a comedian perform. But people won’t be willing to buy a ticket worth INR 300 for a Bollywood singer’s live performance even though he/she has 100 Mn views on YouTube.”

Industry insiders say that the live events industry is like a ‘flea market’ where one can easily organise smaller events, with tickets ranging from INR 100-150, and host a few hundred people. But this model cannot be easily scaled to a business that consistently generates an annual revenue of INR 100 Cr. Besides, if the ticket price is more than INR 500 in live events, it attracts a GST of 28%, the highest slab applied to sin goods. 

“The kind of events which can help you hit that scale is a concert by the international band U2 or something similar. BookMyShow hosted the U2 event in 2019, and it could have easily sold tickets worth INR 20 Cr besides earnings from F&B. But that might have cost the company somewhere around INR 30 Cr,” says the industry executive quoted above.

BookMyShow did not reveal the exact cost of organising the U2 event, but the costs involved are not difficult to ascertain. Consider this: The band came with three aircraft full of equipment; a local train had to be chartered to ferry the audience to and from the event premises, and an audience of 40,000 meant a huge sports complex had to be booked.

Also, concerts like U2 will make sense only if 30,000 or more people attend the event so that the cost can be recouped. Besides, the event organiser will require a space to accommodate so much equipment and such a huge audience. There are perhaps three or four cities in India that can host such an event. The obvious choice for BookMyShow was the DY Patil Sports Stadium in Mumbai, as it has a capacity of 50,000. But it does not allow alcohol on its premises, which means a dent in sponsorship and sales revenues.

Given this scenario, it will not be easy to make money from the event management business anytime soon, even after reopening. And this is precisely why the company has incurred such massive losses even during the pre-Covid years. This is the sinkhole through which profit and sustainability have disappeared.  

“We are today in live entertainment where the movie ticketing business was 10 years ago. We have started investing heavily in the live entertainment ecosystem, and most of the losses have come from there. Unfortunately, the pandemic hit just as we were hitting an inflexion point, and we had to pull the plug on it,” says Dar. 

The Pandemic Reset

As discussed before, the Covid-19 pandemic brought the movie and events businesses to a standstill, and a new revenue channel was needed to keep the cash registers ringing. 

“When the lockdown happened in March last year, we went back to the drawing board and worked on how the world has changed. And we were hoping it would last maybe six months, nine months. But eventually, we clearly saw that things continued to be fluid. So, we looked at all parts of our business at the time. We ran a consultancy exercise across the board, saying, this is where we are today; as a company, this is our strength and these are our weaknesses, and we asked ourselves what other areas of business we can explore. At the time, we came up with four or five different ideas,” says Dar.

One of those ideas was a transaction video on demand or TVoD service. Simply put, it is about renting a film online for a specific period (YouTube does it all the time). But the online movie consumption market is pretty much controlled by subscription players like Netflix, Amazon and Disney+ Hotstar that offer a plethora of content for a few hundred rupees a month. So, why should a movie buff spend INR 150 on the BookMyShow platform to watch a particular movie instead of opting for an OTT subscription?

According to several analysts tracking the digital media space, there is little scope for the expensive TVoD segment to succeed in a country where global OTT players have to resort to a 10x smaller price tag to sell subscription packages.

But BookMyShow claims to have a different experience altogether. When the company launched its TVoD service in February this year, it fared better than expectations. “We were surprised to hit the numbers in the first month that we had targeted for one year. When Zack Snyder’s Justice League could not be released in the movie theatres here, we started planning its release on the platform and had an initial target of 20,000 streaming. But we hit close to the 100,000-mark within three days of its launch, and that took us by surprise. Obviously, the TVoD business will not hit the scale of the movie ticketing business anytime soon. But we are at a very early stage, and the right content and curation are the key to success in this arena,” says Dar.

Another revenue stream that the company is targeting, especially during the pandemic, is hosting live events online. While the TVoD service aims to replicate the movie-viewing experience in theatres, online live events will do the same, focussing on comedy shows, yoga classes, acting workshops and more.

“These virtual events and workshops are more profitable than hosting live events as there is just a fixed cost of technology and a marketing cost. Besides, viewers have to pay a lot less for these shows. For instance, a ticket to an ‘offline’ stand-up comedy show would have been priced at INR 3,500. But the online live event will cost only 10% of that, around INR 350,” says the industry executive quoted earlier.

According to him, the revenue-sharing arrangement is lucrative enough. The hosting platform takes a 10% cut if it is just a ticketing deal. And it may go up to 50% if the platform enters into a ‘partnering’ agreement that includes marketing, audience analytics, bringing in sponsorships and other such activities.

But here is the catch. New digital products have to go through a long gestation period. It takes considerable time to build the platform and ensure large-scale user adoption to drive growth and profitability. While that may happen over a long stretch, the immediate concern for BookMyShow is to maintain a healthy cash reserve and get back on track when India fully reopens.

The cash reserve part should not worry the company. Its FY20 financial report showed that the business had current assets (these can be converted to cash within a year) worth INR 1,385 Cr. These included mutual fund investments of INR 301 Cr, bank balance of INR 24 Cr, and cash and cash equivalents of INR 44 Cr, among others. 

However, the long wait before the country reopens fully will be challenging for the business. By various estimates, it will take about two years for the entire population to be vaccinated, while murmurs of an impending third and fourth wave are growing. The efficacy of the vaccines beyond a six-month window is also doubtful.

Experts also think that the large-scale digital adoption happening in the wake of the pandemic may bring a paradigm shift in the consumer mindset. In line with the growing traction seen in e-grocery, food delivery and the edtech space, people may prefer to watch new movies or attend concerts and other live performances from the comfort and safety of their homes. 

It also means BookMyShow may have to look at new segments, away from the businesses it has been building for the past decade and a half. The company has to reinvent itself yet again, and quick fixes like pay-per-stream will not be enough to plug the massive revenue holes.

In Greek mythology, a king named Sisyphus was punished for cheating death twice. He was forced to roll an immense boulder up a hill, but it rolled down every time it neared the top. And this went on for an eternity.

BookMyShow cannot afford to be shackled by the Sisyphean myth anymore. Otherwise, it is only a matter of time before VCs pull the plug — $224 Mn of their money has been invested in the company on the assumption that it will be a multibagger tech investment.

The question then is: can the two-decade-old company rise from the ashes of the pandemic like the phoenix and get a new lease on life?