The pandemic wholly belonged to the small screen. OTT platforms bagged first release rights to big ticket movies, threatening the movie distribution business like nothing else. So when PVR and INOX Leisure scripted a blockbuster merger last month, the inevitable conclusion was this was big screen’s strong fightback against the small screen.

Indeed, when asked on an investor call about how the idea for a merger with PVR originated, Siddharth Jain, Director, INOX Leisure, admitted that during the pandemic period his conversations with PVR’s Ajay Bijli became more frequent due to the impact on their businesses. “But then as cinemas started opening up and our Q3 was great, so were theirs. We just thought things were back to normal, our balance sheets look good and from there the discussion moved into future plans. These OTT players are really large. They have big cheque books.” He said with films being made on bigger and bigger budgets, they realised that to tempt them into theatres, they needed to grow fast and offer a platform that would be attractive just for its sheer scale.

Ajay Bijli, CMD, PVR Ltd, echoed a similar sentiment during an interaction with BusinessLine, where he admitted that the pandemic resulted in consumption of content becoming omni-channel. “Although, once multiplexes opened up, consumers have flocked back to the cinemas. But at the same time, we do have some very deep-pocketed behemoths who are there in the form of OTT platforms. So I think by coming together, we just become stronger to make sure that the exhibition sector, which is really the most important form of out-of-home entertainment for our market, continues to propel forward and grow further,” he said.

Together, it is evident, PVR-INOX will have more negotiating power with film producers and certainly have an impact on the way producers plan their movie releases. As Abneesh Roy, Executive Director-Institutional Equities, Edelweiss Securities, pointed out in an analyst note, the new entity would have a 40 per cent combined box office share, giving it a very high bargaining power vis-a-vis producers and mall owners. “The new entity would also have strong pricing power in terms of ticket and food pricing as no other player would have such a good format or prime locations.”

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Film producer Naveen Chandra, who is making a spate of regional films, points out how the merger plays to their strengths. “First, they may be able to charge a premium for their tickets, given the near monopoly control of the market. Secondly, they complement each other very well. In Mumbai for instance there’s hardly any area overlap between the two chains. So it’s scaling up in the true sense without cannibalising. Thirdly, the programming muscle it provides is phenomenal as the entity negotiates their exhibition deals or exclusive release windows with platforms or theatrical shares with producers. Fourthly, the combined entity will hold nearly 60 per cent of the multiplex screens, that’s a great advantage whichever way you look at it.”

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Screen footprint

Industry estimates suggest there are around 3,000-odd multiplex screens in India. With PVR currently operating 871 screens across 181 properties in 73 cities and INOX operating 675 screens across 160 properties in 72 cities, the combined entity post the merger will become the largest film exhibition company in India operating 1,546 screens across 341 properties across 109 cities. 

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As per the latest EY-FICCI report released in March, cinemas’ total screen count is estimated at about 9,423 screens “a marginal decline over 2021.” During the pandemic about 1,000 screens have permanently shut. But even otherwise, over the years, single screen theatres have fallen by the wayside as corporates strengthening their presence.. Mexican movie theatre chain Cinepolis (which incidentally was also reportedly in deal talks with PVR) has been growing in India. 

But the PVR Inox merged entity is a behemoth now with big plans. Bijli said that the merged entity will look at adding about 200 screens per annum with a strong focus on expansion in tier-2 and tier-3 cities, while Jain disclosed over an investor call that there are almost 2,000 screens in the combined pipeline. “The stated goal is in the next seven years, we want to double our size, it is going to require at least ₹4,000 crore of CAPEX,” he elaborated.

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Ongoing consolidation

Jehil Thakkar, Partner and Media and Entertainment Sector Leader, Deloitte India, noted that the sector had been witnessing consolidation with the larger players buying out smaller players in the past few years. “The pandemic did play a catalyst and players had been talking to each other given the battering that the sector got due to pandemic-induced restrictions. At the same time, the shift of consumer behaviour with faster adoption of OTT also led to the need to create a much more financially stable entity to withstand these challenges and expand the screens in a manner that the overall size of Indian box office revenue grows,” he added.

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This consolidation is also in line with the developed markets, where there are only two to three large multiplex players, he added.

“It does reshape the industry with the creation of one very large single player, which will have a significant portion of the box office revenue. It does give existing competition a level of urgency to grow aggressively, if they want to keep up in terms of market power. It also rebalances the equation of the exhibition industry with the film fraternity and it will be interesting to see how discussions pan out in the future in terms of box office revenue shares,” added Thakkar.

Reshaping screens

Analysts believe that going forward, multiplexes will evolve into experience zones for consumers with higher disposable incomes, while getting a newer set of consumers to their fold with lower-priced products. An EY-FICCI report estimates the multiplex audience size to become 100 million customers by 2025. For the next 100 million audiences, it believes a set of lower-priced “cinema products” will emerge across the top 75 cities of India, which will require a different type of content and result in OTT products releasing in a windowed manner.

Hiren Gada, CEO of Shemaroo Entertainment believes the multiplex industry has a buoyant future ahead despite the proliferation of the OTT industry. “ The demand for the theatrical experience is intact as box office collections have been roaring in recent times,” he says. Given the reception that RRR has got, he may be right.