Mumbai: The all-stock merger between two of the country’s largest multiplex chains PVR and Inox Leisure announced earlier this week has been reckoned as positive for the industry on all counts. Led by PVR’s Ajay Bijli as MD, the combined entity PVR-Inox will have an invincible size advantage with its 1546 screens across 341 in 109 Indian cities, against Carnival and Cinepolis’ nearly 400 screens.
Meanwhile, Kanakia Group-owned Cineline India has announced to re-enter the business after a decade in Q1FY23 with a total of 75 screens, of which 27 were acquired in February.
Valued at 30-45 per cent higher than standalone entities Inox (~Rs 64 billion) and PVR (~Rs 110 billion), PVR-Inox will have a screen share of over 50 per cent within India multiplexes and 18 per cent within overall screens. Its combined box office share for Hindi and English content, which has a 65 per cent share in the overall box office, will be around 42 per cent, as per Elara Securities.
Gaining from Premiumisation
Weakening dynamics for the unorganised and single-screen film exhibition players, even before the pandemic hit, presented a tremendous opportunity for the organised ones to increase their foothold in the segment.
Consolidation in the film exhibition sector started around 2014-15 with the buyout of Satyam Cineplex by Inox for Rs 240 crore, and Carnival’s mop-up of HDIL’s Broadway Cinemas for Rs 110 crore. In December 2014, Reliance Capital sold its multiplex business of Reliance MediaWorks (RMW) operating under the brand name ‘Big Cinemas’ to Carnival Cinemas for Rs 700 crore. The following year Mexican multiplex chain Cinepolis acquired Essel Group’s Fun Cinemas and PVR bought out DLF's DT Cinemas for Rs 500 crore.
Cineline India, which was present in the trade as Cinemax since 1997, sold its multiplex business along with Cinemax brand to PVR for Rs 395 crore under a non-compete clause in 2012. In light of the deal’s expiration on 31 March, the company is set to re-enter the business in the first quarter of FY’23.
From 9,600 screens in 2009, single cinema screens were reduced to just over 6,300 by 2019 in India. This decline is reflected in the country's screen density which stood at 74 in 2019 (Statista). At an estimated overall screen count of 9,423 (FICCI-EY, March 2022), India is a largely underscreened country as compared to China which has around 70000 screens for comparable population size. Its ATP (Average Ticket Price) and SPH (Spends Per Head) are also among the lowest. Bridging the demand-supply gap in the Indian exhibition industry is expected to increase the box office collections by more than three times, as per Delloite’s 2018 report on screen density.
Even as the economies of scale usher in revenue and cost benefits, rapid premiumisation in cinematic and customer experience led by technologies like 3D, 4DX, Imax, F&B, and other luxury offerings, as well as Covid-mandated hygiene standards, will drive ATP and SPH on one hand, and create more and better opportunities for advertisers on the other, thereby boosting advertising revenues for the new entity, and consequently for the industry at large.
The merger will help in getting higher SPH (Rs 99 for PVR vs Rs 80 for Inox in FY20) on existing Inox screens. In FY '20, Inox's footfall of 6.6 crore gave additional F&B revenue of ~Rs 125 crore and net cost revenue of more than Rs 90 crore. The synergies may also result in substantial savings on manpower costs. On combined manpower costs of over Rs 600 crore, even a 20 per cent saving will result in savings of Rs 120 crore for the combined entity. Overall, the merger has the potential to add over Rs 300 crore to the bottom line of the combined entity, digital cinema distribution network and in-cinema advertising platform, UFO Moviez tells IndianTelevision.com.
Boost to in-cinema advertising
Last October as theatres began to reopen after 18 months of strict and partial lockdowns, in-cinema advertising which contributes 10-12 per cent to the overall revenue pie for cinemas, witnessed a slump of 25-30 per cent in rates. Studying the trend, Inox Leisure chief sales and revenue officer Anand Vishal had previously told IndianTelevision.com that “cinema is not going to be an easy sell” for quite some time hereafter.
Cinema is not going to be an easy sell: Inox's Anand Vishal
This merger is expected to turn the tables in favour of the exhibitors sooner than previously estimated. According to UFO Moviez “the consolidation will be positive for overall in-cinema advertising in the country. In FY '20, PVR was earning ad revenue of ~Rs 45 lacs per screen whereas Inox was at ~Rs 28.5 lakh, a difference of nearly Rs 17 lakh per screen. The combined entity should be able to get the same revenue as PVR for all screens. Thus, on around 650 screens of Inox, differential ad revenue of Rs 17 lakh per screen will translate into additional ad revenue of ~Rs 110 crore for the combined entity.”
The segmentation of advertisers between big and smaller chains/single screens, which already existed by virtue of the players having differentiated TGs, will become more pronounced going forward.
“PVR and Inox together have screens in around 110 cities whereas UFO has ad rights of over 3500 screens (smaller chains/single screens) spread across close to 1400 cities and towns. An advertiser/agency will now be required to deal with only two entities to advertise on a pan India network spread over 5000 screens. This will help in minimising admin work, which in turn will lead to faster closure of deals,” UFO Moviez observes.
In spite of being among the hardest hit, the cinema exhibition industry is staging a phenomenal recovery with the success of films like "The Kashmir Files," "RRR" and “Gangubai Kathiawadi."
dentsu Creative India CEO Amit Wadhwa points out that while “brands may have been circumspect regarding the above investments, in-cinema advertising will pick up henceforth, especially with the two big names coming together to form a much stronger brand. It has the possibility of creating better opportunities for brands to advertise and hence, in the bargain, the likelihood of charging a premium.”
On the contrary
Even though the “onslaught of OTT” has been ostensibly stated as the reason, the PVR-Inox merger was always on the cards. The surge in OTT consumption as a result of the pandemic may have only expedited it. As film producer Naveen Chandra opines, “We are in the initial stages of OTT growth in India so any responsive strategies based on the binging nature of consumers may be premature.”
Commenting on its likely impact on distribution, he adds, “Any business that scales up to a near majority market share will have an advantage of charging a pricing premium for its products. The combined entity will hold nearly 60 per cent of the multiplex screens. That’s a great advantage whichever way you look at it. The programming muscle it provides is phenomenal as the entity negotiates its exhibition deals or exclusive release windows with platforms or theatrical shares with producers.”
Irrespective of the assertions and speculations, OTT players have considered Cinemas an enabler rather than a competitor, even in the context of ‘windowing’ which became a ‘hot potato’ for the industry and media in the last couple of years.
OTTs to benefit from the availability of price discovery platform as cinemas reopen
Shemaroo Entertainment COO Kranti Gada asserts that “right from providing a barometer to assess a film’s worth, to unclogging the pandemic-paused film pipeline, and saving marketing costs for streaming platforms, the growth of cinemas will only be beneficial for OTT platforms." Shemaroo Entertainment owns the video-on-demand service ShemarooMe.
While OTTs are being projected as the eventual replacement of single screens, affordable cinema is here to stay, players and observers agree. The Southern anomaly where PVR and Inox hold six and three per cent share respectively stands testimony to it.
