business

Why Reliance Is Buying U.S. Cinemas

India's Reliance Entertainment has acquired more than 200 movie theaters in 28 U.S. cities in pursuit of global expat communities

For a company that thrives on making news, Reliance Entertainment's latest move has been particularly low-key. Over the past three months the Indian company, part of the Reliance ADA group, owned by Anil Ambani, has been quietly buying up movie theaters in the U.S. The $29 billion-in-assets conglomerate—with interests in power, telecom, and financial services, as well as music, broadcasting, social networking, and gaming web sites—has acquired more than 200 cinemas in 28 U.S. cities, including San Jose, Chicago, and Washington.

Reliance says it hopes to reach Bollywood fans in the U.S. through its American movie theaters. "The nature of the U.S. chain provides a significant fillip to Indian film distribution in terms of directly and efficiently reaching a large base of Indian consumers," says Anil Arjun, a senior vice-president at Reliance Entertainment. The group has purchased the theaters from mom-and-pop operators and will give them better acoustics and air conditioning. Reliance will not divulge the cost of its investment or the names of the sellers. The plan is to target areas with the densest populations of the Indian diaspora in the U.S., bringing them Bollywood movies as well as regional Indian films in languages like Tamil and Telegu and other Asian languages such as Chinese, Korean, and Japanese. Reliance plans to rechristen the theaters as "Big Cinemas."

It's easy to dismiss the plan as little more than a vanity acquisition that gives Reliance execs a chance to hang out with movie stars. But it never pays to underestimate the Ambanis. Ever since Anil Ambani parted ways with older brother Mukesh in a very public spat in 2005 and the giant Reliance Industries was split between the two brothers, the younger Ambani has been on a tear. Left with a successful financial-services company, a struggling telecom venture, and a small entertainment business, Anil has been working hard to strike his own path. He has made a slew of acquisitions and done some ambitious and controversial capital-raising (BusinessWeek.com, 1/9/08).

Grand Vision

Buying up cinemas is Anil's latest move, part of his grand vision to make Reliance Entertainment a fully integrated Indian entertainment conglomerate. With interests in film production and distribution, TV station operation, the music industry, and mobile content creation, Ambani wants to be a media and entertainment czar. Although few analysts like to comment on the record about Ambani, many say that the entertainment plan is feasible.

Certainly, Reliance Entertainment has the money to shop in the West. In February, it revealed that financier George Soros had bought a 3% stake in the company for $100 million. Reliance said it will use the money to expand its entertainment business in India. Soros' purchase is part of a growing trend of American companies investing in India's entertainment business. In January, NBC Universal paid $150 million for a 26% stake in New Delhi Television. Walt Disney (DIS) has a stake in broadcaster UTV Software Communications, while Viacom (VIA) has tied up with Network 18, a local media group.

Reliance, on the other hand, has been acquiring assets both in India and abroad. Last year it invested in Phoenix Theatres, a Knoxville (Tenn.) film-management company that constructs and operates theaters, for an undisclosed sum.

Phoenix will manage Reliance's U.S. chain. On Apr. 4, Reliance acquired Burbank (Calif.)-based DTS Digital Images, popularly known as Lowry Digital Images, a film-imaging and restoration outfit that provides picture-quality improvement services for movies, television, and video, from entertainment group DTS for an estimated $18 million. Lowry, which counts Disney, Paramount, and MGM among its clients, will help Reliance restore digital prints for release both in India and overseas and also to cater to the growing 3D content market.

Seeking a Global Audience

Reliance already owns 120 theaters in India through its subsidiary Adlabs Films, a production, distribution, and exhibition house acquired in 2005. It also has a stake in Prime Focus, a post-production and visual-effects company in Mumbai.

Is Reliance spreading itself too thin as filmmaker, distributor, and cinema owner? B.R. Sharan, chief creative officer at SaReGaMa Films, the movie and music division of Kolkata-based conglomerate RPG Enterprises, doesn't think so. "It's a typical Reliance strategy," he says. "Own the hardware—cinemas—and you control the entire supply chain."

Reliance isn't the first company to leverage this opportunity. "Indian entertainment companies can no longer focus on India alone," says Panchapakesa Subramania Saminathan, a managing director at South India-based film production and distribution house Pyramid Saimira. Pyramid says it has more than 900 cinemas with a capacity of 550,000 seats in the U.S, India, Malaysia, Singapore, and China. In the next three years, with more than 2,000 cinemas, Saminathan expects Pyramid's global business to notch 75% of revenues, up from 20% currently. "Just the Indian audience is not a viable proposition. You have to appeal to other global ethnic communities."

Saminathan's competitor—Reliance—is replicating his model of buying cinemas across the world. "They are copycats," he says. Reliance, which has distributed 45 films so far, now wants to follow Indian expats in other countries. The company's plans include buying cinemas in Britain, Malaysia, Nepal, and Mauritius, screening Bollywood, Chinese, Korean, and English films.

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