Cinemaxx's Future Strategy, Expansion Amid Tech Disruption

Cinemaxx Global Pacific executive director Brian Riady says Indonesia's cinema industry continues to grow and it is very profitable. (Photo courtesy of Globe Asia)

By : Sarah Yuniarni | on 10:14 AM November 17, 2017
Category : Business, Corporate News

Jakarta. For a young movie theater chain, the Indonesian cinema industry is ripe for the picking on the back of the country's growing middle class and the industry's apparent invulnerability to disruption by digital streaming services.

"It is not true that cinema is a sunset business. The cinema industry continues to grow and it is very profitable," Brian Riady, executive director of Cinemaxx Global Pacific, a cinema network operating under the Lippo Group, said in recent interview.

Case in point, Brian noted, was Cinemaxx's own growth. The company grew its business to 100 screens in the less than two years between August 2014 and May 2016 – a relatively short period, considering "other cinema players spent 10 years to reach 100 screens," Brian said.

Cinemaxx currently operates 26 cinemas with 140 screens in 20 cities across Indonesia, including Denpasar (Bali), Baubau (Southeast Sulawesi), Lombok (West Nusa Tenggara), Kupang (East Nusa Tenggara), Bandung (West Java) and Batu (East Java), while it has set a target to increase the number to 188 by the end of this year.

"Our business in cinema is very healthy," Brian said, adding that the company eyes a total of 340 screens by next year and between 800 and 1,000 within the next five years.

The driver of this rapid growth is Indonesia's 60 million young people and a growing middle class, which have resulted in bigger spending on entertainment, vacation and leisure than on food and clothing, unlike previous generations.

"With the increase in people's welfare, the need for entertainment, including cinema, is also increasing. I believe the Indonesian economy will continue to grow," Brian said.

Shopping malls have also transformed to offer a more lifestyle-oriented experience as sales by traditional retailers, such as food and beverages, shoes and electronics, are moving online.

"In many parts of the world, such as China or the United States, the way people shop is changing. More people go to the mall with friends or family to socialize and be entertained, rather than shopping, as they used to," Brian said.

He believes cinema will play an important role in meeting current consumer demand for entertainment, being immune to the digital revolution that has pressured other retail industries.

Since the beginning of the last century, the cinema business has survived disruption by television, then home videos and DVDs in recent decades, while blooming digital streaming services are unlikely to permanently dent the industry's growth.

"People come to the movie theaters because they want shared experiences with the people closest to them. If you go to a cinema with your family, wife, children, girlfriend or loved ones, you will find a different experience than watching at home, such as YouTube or streaming services," Brian said.

He added that streaming services that allow everyone to access content are not in competition with cinema.

"The cinema is always the first window for a movie, after which they bring it home. If the film was successful in the cinema, then many people will buy it for watching at home," he said.

Opportunities, Competition Abound

Opportunities in the Indonesian cinema industry abound as Southeast Asia's largest economy currently only has one movie screen for every 260,000 to 270,000 people. That is far below the likes of Malaysia or Taiwan, which have one screen for every 30,000 to 40,000 people.

Brian said he believes Indonesia's cinema industry has room for up to five- or even six-fold growth and that it could generate around $300 million annually, or between $1.5 billion and $2 billion over the next five years. However, such a lucrative market attracts many players.

In 1990s Indonesia, it was only Cineplex 21 that served large metropolitan areas, while smaller, independent theaters catered to markets in smaller cities. In 2006, Blitz Megaplex, which was later acquired by South Korea's CGV, made a splash into the urban cinema market.

Over the past few years however, many more cinema operators have entered the scene, including Flik – which operates under property developer, the Agung Sedayu Group – and Kota Cinema Mall. South Korean conglomerate Lotte is also starting to invest in Indonesia's cinema industry following a government decision to allow foreigners to own up to 100 percent stakes in cinemas.

Indonesia now has more than 1,300 movie screens, with Cineplex 21, Indonesia's largest cinema chain, owning about 1,000 and CGV 223.

Key metropolitan markets, such as Greater Jakarta, account for at least 50 percent of the total number of cinema screens in the country. Java, which is home to half of Indonesia's 265 million population, accounts for 75 percent to 80 percent of all movie screens in the country.

"We are still very small, with only about 10 percent of [the market share in Indonesia]. We are also still finding a good model, building a team. But we are only three years old. We have the potential to grow fast," Brian said.

Strategy

For Cinemaxx, that growth is in the underserved markets of Indonesia's medium-sized cities and small towns.

"We are very focused not only on big cities, but also small towns, or tier two and tier three. We are in cities that are not considered desirable by our competitors," he said, referring to cities with populations of between 500,000 and 1 million, and cities with populations of between 100,000 and 500,000, respectively.

Brain said Cinemaxx's strategy is to prepare many different movie theater designs tailored to the character of local customers, as opposed to its competitors, that make all their cinema the same.

"Are consumers in Baubau the same as in Jakarta? Do they have the same ability? Certainly not. ... The development strategy in every city can be very different," he said.

Cinemaxx would also have little difficulty in securing locations for its cinemas, with the Lippo Group's sprawling mall network providing prime locations in every city the company gains a presence.

"For a cinema, if you do not have a location, you cannot grow the business ... [nor] create value for the group. So for the location, we are very confident. The path is right and assured," Brian said.

In cultivating the market, Cinemaxx does not see consumers as one large uniform mass, but instead many groups with specific preferences.

"For example, Cinemaxx Junior is very specifically for children and families. We also have Ultra XD for customers who prioritize image and sound technology," he said.

Brian added that Cinemaxx uses the best technology available in Indonesia to provide a different experience and satisfy its customers.

"For customers who want the VIP treatment, we have Cinemaxx Gold, which provides a first-class experience," he said.

Local Films

Expansion of the Indonesian cinema industry has so far also benefited that local film industry.

"Usually cinema in Indonesia depends heavily on Hollywood movies, such as Disney, Fox, Paramount, Sony, Universal, or Warner Bros. In fact, sometimes the content is not so relevant to the Indonesian market, especially in small towns. The choice of language is often not appropriate, or consumers there are not so fond of Hollywood movies," Brian said.

Cinema operators sold 9.43 million tickets for local films in 2014. This number grew 10.2 percent to 10.4 million in 2015. Brian said last year, cinema operators sold 30 million tickets for films produced in Indonesia.

"The growth in cinema is always succeeded by local productions or films. If you think about local films and productions, in Indonesia or other markets, the biggest market is going to be local audiences," Brian said.

In 2014, local films only accounted for 7.4 percent of Cinemaxx's total ticket sales. This increased to 10.3 percent in 2015, while last year, it jumped to 33.5 percent. That has further increased to 34.5 percent so far this year.

The company is also willing to help promote local films.

"As a group, we have a vision, which is 'transforming life.' We believe that by watching movies, people can be inspired. Movies can create aspirations among many people. What they watch usually educates them. This is our opportunity to instill the right values and opportunities for film producers to educate the public," Brian said.

The Jakarta Globe and Cinemaxx are both affiliated with the Lippo Group.

Show More

 
MORE NEWS