mm2 Asia wants its cinemas to be a hip place for movie goers

Executive chairman Melvin Ang is exploring opportunities.

MAINBOARD-listed mm2 Asia has a cinematic vision. The local movie producer bought Cathay Cineplexes' Singapore theatre chain last November and it doesn't plan to stop there.

While the group has been forced to reconfigure its cinema strategy after a deal to acquire Golden Village (GV), Singapore's leading cinema operator, got scuppered in August last year, it doesn't mean they won't try again.

Executive chairman Melvin Ang told The Business Times last month: "(Acquiring) GV is still possible. If you do an in-depth study of Orange Sky, maybe you'll see that we still have a chance."

Orange Sky Golden Harvest Entertainment gained full control of GV last October. The Hong Kong group surprised mm2 by making a late decision to exercise a right of first refusal to buy off the 50 per cent stake in GV held by Village Roadshow that mm2 had been eyeing.

Golden Village was a joint venture between Orange Sky and Australia's Village Roadshow formed in 1992.

Mr Ang said of the failed acquisition: "I think the market is disappointed, I don't blame them. The only thing is to work harder and prove the market wrong."

When Cathay's founding family heard about mm2's interest, they got to talking and quickly struck up a deal. But the market felt differently and mm2's market value has fallen.

Mr Ang said: "It doesn't matter, because we just want to start growing the cinema business. So if GV is not available yet, we want to acquire something and move forward."

Earlier last year, Orange Sky dropped its expansion plans in mainland China amid a box office slowdown and sold its China cinema assets to Dadi Digital Cinema, the second-largest theatre chain in the country. Notably. however, the China film exhibition business was loss-making, whereas GV in Singapore is profitable and generates steady cash.

So is GV for sale now?

"I don't know," Mr Ang replied, before citing the axiom that everything is for sale at the right price.

He added: "I've got people queueing up to lend me money, if I buy the right thing."

Owning a larger market share of the Singapore cinema circuit will create better economies of scale, Mr Ang believes, though anti-competition rules would have to be managed as well.

In any case, mm2 is "not in rush" to buy more assets, and the group continues to evaluate other opportunities, like cinema management services.

"There're a lot of opportunities out there in Vietnam, Malaysia, Hong Kong, Taiwan. There are a lot of cinema opportunities. But we really want to understand the business," Mr Ang said.

Physically remastered

As much as cinemas across the world remain sorely underutilised, Mr Ang is confident that Cathay can bring back the crowds once his team figures out the right concept.

"You can't sell too much food, because after that you've got to clean up the place," said Mr Ang, noting that popcorn sale alone is not the answer.

He's seen examples of cinemas that have successfully boosted snack kiosk concession revenue to offset falling ticket sales, so much so that concessions make up more than half of total cinema revenue.

"So basically it's not a cinema, it's a concession stand, it's a bar," explained Mr Ang. "People go there to chill out, and then they watch a movie. The movie becomes secondary, and the rest becomes primary. I've always felt that cinemas could have more open spaces for young people to chill out, drink a bit. We are looking at all these options."

Right now, cinema utilisation rates in Singapore and across the world are in the 25-35 per cent range, Mr Ang said. Moviegoers complain that some cinemas are getting more desperate, as evidenced by the sheer number of commercials that are screened before showtime, replacing movie trailers.

But that doesn't signal the end for movie houses.

"Cinemas have gone through a few phases of threats but they always come out stronger," Mr Ang said, because some motivations to visit the movies are immutable, like family outings and dating.

But he admits that some challenges remain, like piracy. "Piracy is really bad. In the past you will see people that look like me, this kind of profile, carrying a bag and selling DVDs," said the self-deprecating man. He is mm2's founder and largest shareholder with a 38.11 stake.

In the three months to June 30, mm2 made net profit of S$7.25 million, up 13.2 per cent from the same period a year earlier. Revenue nearly doubled after consolidating cinema takings from the acquisitions of Cathay and 13 Lotus Fivestar cinemas in Malaysia last year. But the cinemas also incurred higher utilities and rental expenses and financing costs so earnings didn't rise as much.

Still, a bulk of mm2's revenues continues to come from its core business of film, TV and online content production, distribution and sponsorship. The core business accounted for 49 per cent of group revenue last year, while cinemas were 23 per cent.

UnUsUaL, the group's event production and concert promotion arm, accounted for 24 per cent of revenue. (mm2 doesn't provide segmental reporting on a quarterly basis).

mm2's trade receivables have risen 140 per cent in the last year to S$134 million as at June 30.

This is the result of mm2 working on a lot of bigger projects, Mr Ang said. One example is the Taiwanese remake of the Korean romance flick More than Blue, which will be released in Taiwan in November.

Grants are another major factor, he said. Grants are paid to movie investors instead of to mm2 directly. mm2 only gets the money after completing certain milestones, so it has to dig into its own pockets to finance the projects until the investors disburse the funds.

mm2's three largest trade debtors each represented 6 to 15 per cent of its trade receivables at the end of March. Mr Ang explained that the numbers will keep evolving: "These are big accounts. These are local and international companies (not China companies)."

Making movies

On average, mm2 completes between 20 and 25 movies a year. As a rule of thumb, one-third of all movies produced will make money, one third will lose money, and one third will break even.

mm2 collects a producer bonus of 8 to 10 per cent of box office receipts for every successful movie. Otherwise, it makes only producer fees.

Mr Ang said: "Last month (August) was like another Chinese New Year period for us. We released two Malay movies in Malaysia that did very well, they did about 40 million ringgit (S$13.2 million) each. One is called Munafik 2, another one is called Hantu Kak Limah.

"The Malay movies suddenly just boomed, it's unseen before. Munafik 2 was in Cathay exclusively (in Singapore). Shaw and GV did not carry it. And it did over S$1 million, a higher box office than some of our local Chinese New Year movies."

Films in the Singapore pipeline include Mr Kiasu, Jack Neo's Killer Not Stupid, and Circle Line, a Singapore movie about a MRT monster.

mm2 also has it sights set on North Asia expansion.

"For China, we are very cautious. We always tell people our China strategy is from Hong Kong and Taiwan, because we can only co-produce in China," said Mr Ang, explaining that the restriction was due to a regulatory requirement.

Asked what checks are in place to ensure that mm2 doesn't place too much focus on acquisitions and spin-offs at the expense of delivering sustainable growth, Mr Ang replied: "I think we have the most well-staffed management team. They come from years and decades of exposure in their own areas of specialisation ...

"My job is strategic growth, and I'm very thankful that 20 years in this industry has allowed me to build up a network - I can call people up and get things done. That's my strength, and I look like I sell DVDs. So I think there're no worries."