Mergers — now playing out on multiplex screens

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Market abuzz with consolidation moves.

Varada Bhat

Mumbai, Aug. 2 Mergers and acquisitions are expected to dominate the Indian multiplex landscape in the coming months.

Last week, rumours of three merger deals sent media scrips into a tailspin. All involved Inox, now in the midst of a tug-of-war with the Anil Ambani- promoted Reliance MediaWorks (RMW) to acquire Fame Cinemas.

The market buzz is that RMW is buying out a majority stake in Inox which caused the scrip to jump nearly 30 per cent in eleven trading sessions. On Monday, the Inox scrip closed at Rs 81.05, down 2.58 per cent.

Speculation was also rife that Inox was looking at selling its 51 per cent stake in Fame (acquired in February) to RMW. Both companies were quick to deny the stories but not everyone is buying it since, according to them, “there is no smoke without fire”. In the midst of all this, reports began doing the rounds that Inox is in talks to buy Cinemax.

Earlier this year, PVR Cinemas was close to buying out the DLF-promoted DT Cinemas till a valuation mismatch caused the deal to be shelved. Around this time, IFCI acquired a minority stake in Satyam Cineplex, a multiplex chain in the North.

“There is huge appetite for mergers and acquisitions in the multiplex sector. With economies of scale being a prime value driver, this segment is expected see further consolidation,” said Mr Timmy S Kandhari, Leader (Entertainment & Media Practice), PricewaterhouseCoopers.

Within the entertainment industry, officials feel there are advantages in consolidation. After selling Fame to Inox, Mr Shravan Shroff, Managing Director, said the industry had grown too fast. “There must be lesser competition as the industry has not grown on the expected lines. This may lead to smaller players shutting down,” he said. This is precisely what happened in the aviation industry which, over the last decade, attracted a whole lot of new entrants such as Kingfisher Airlines, Air Deccan, SpiceJet, Indigo, and Go Air. While these airlines changed the dynamics of competition, they had their backs to the wall when oil prices skyrocketed and loads began dipping.

This script is being played out in the multiplex arena too. The big players with deep pockets offer premium services such as recliner seats while discounting liberally. They are also drawing up huge expansion plans while investing in better technology such as 3D, and digital screen.

In contrast, the smaller rivals are looking at no-frills multiplexes keeping in mind the dictum of ‘fortune at the bottom of the pyramid'. Examples here are K Sera Sera and Mr Manmohan Shetty who are reportedly exploring these options called the miniplex where tickets are priced between Rs 50 and Rs 75.

Can they pull off this business model successfully or eventually sell out to their bigger rivals as happened, again, in the aviation space? Only time will tell but it is increasingly clear that this business is driven by volumes and boils down to survival of the fittest.

Related Stories:
Essel plans to set up 50 multiplex malls in AP
Inox buys Fame Cinemas' promoter stake for Rs 66 cr

(This article was published in the Business Line print edition dated August 3, 2010)
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