The Karnataka government is evaluating a series of recommendations to revitalise the Kannada film industry and relieve moviegoers from high ticket prices.
A 14-member committee, headed by Kannada filmmaker SV Rajendra Singh Babu submitted these recommendations to the government on Tuesday. Some of these – such as developing housing for those working in Kannada cinema, opening new Janata (public) cinemas where vernacular films can be screened at affordable prices, instituting more honours and awards for films, filmmakers and artistes and giving subsidies to quality cinema – can be seen as a step in the right direction.
The most headline-grabbing recommendation, however, of putting a price cap of Rs 120 on movie tickets in all theatres, including multiplexes, defies economic sense as well as logic.
For this, the committee took inspiration from a similar policy implemented by the Tamil Nadu government, which also caps ticket prices across the state at Rs 120. However, a look at how the policy is working there should serve as a strong signal to keep away from it.
The price isn't right
The cap was introduced in Tamil Nadu eight years ago and has not been revised since. However, the cost of operating a theatre, including the rent on the property, labour charges, cost of acquiring a film from distributors and electricity bills have only increased. This has forced many theatre owners to shut shop and sell their property in the hope of recovering some of their losses.
The larger point here is that the government should stop using the price mechanism to achieve random social objectives. It rarely works.
When a price ceiling is introduced to the market mechanism, it causes severe distortions and leads to a chronic imbalance between demand and supply. This, in turn, causes shortages and an overall reduction in social welfare.
Based on economic reasoning and historical precedent, one can predict the events to come in Karnataka if the cap is implemented. Theatre halls and multiplexes will start making losses and will find it unviable to operate. Distributors will thus see a drop in the demand for movies and will therefore not sign contracts with the film producers. Ultimately, the very industry that the policy is aiming to protect will suffer.
Movie halls will try to make up for the loss of revenue from tickets by charging exorbitantly for other services, such as parking and food and beverages, as is the case in Tamil Nadu currently.
Multiplexes may start screening only those movies that guarantee them a full house. These, typically, are those that either have big stars or are made by established directors and film crew. This, in turn, will prompt production houses to fund only those movies that have a popular cast and a time-tested story line.
All of this will severely impact upcoming actors and directors who want to try something new, thereby stifling the growth of creative and experimental cinema. It will also negatively impact moviegoers, who will now have lesser films to choose from.
Scope for change
Karnataka does not have to look too far for an example. Actor Kamal Haasan spoke about the adverse effect of Tamil Nadu’s decision to cap ticket prices on small filmmakers.
The policy will also be harmful for producers, because a movie made at a cost of Rs 100 crore and another made for Rs 100 lakhs will have to be sold to distributors at the same price, because the revenue from tickets and thus, royalties will be the same for both kinds of films.
Yogish Dwarkish, a movie producer, in a recent Op-Ed, said the policy would be disastrous for the Kannada film industry. At present, thanks to a favourable entertainment tax policy, tickets for Kannada movies (which are exempt from the tax) are cheaper than that of others, such as Hollywood and Bollywood films.But with a uniform cap on ticket prices, this advantage will be lost. Dwarkish predicts that Kannada films might lose more audience than it gains through such a policy.
Another unintended and unaccounted consequence of such a policy will be the transfer of customers from single-screen theatres to multiplexes. Presently, the price difference between the two is significant enough for a several moviegoers to opt for single-screens. A price cap may drive more people away from single-screens and towards multi-plexes.
A better solution would be to reduce the entertainment tax levied on movie tickets. This is one of the reasons for the high ticket prices in the state capital of Bangalore. A movie ticket attracts 30% entertainment tax in Karnataka, compared to 20% in Andhra Pradesh, Delhi, and Gujarat, among others, 15% in Tamil Nadu and none in Rajasthan. If the government is really concerned about the price of a movie ticket, it has plenty of scope to reduce this tax, without impacting regional cinema.
Anupam Manur is a policy analyst at the Takshashila Institution, an independent, non-partisan think tank and a school of public policy.