‘A Gamechanger Of A Deal’: The PVR-Inox Merger, Explained

The week brought with it the news of a merger between India's multiplex giants, PVR Ltd. And Inox Leisure Ltd. The two brands will join hands to create PVR Inox – a new, and arguably the most powerful force in the exhibition industry. While all their existing entities will continue to be called PVR and Inox respectively, the new screens they acquire going forward will hold the new brand name.

But Wait, What Does This Mean?

In a word – monopoly. One of the biggest takeaways of the merger is that PVR and Inox combined will have a definitive stronghold in the multiplex sector. Take this: PVR currently operates 871 screens across 181 properties in 73 cities. Inox operates 675 screens across 160 properties in 72 cities. The merger will now lead to the combined entity owning 1546 screens in 341 properties in around 109 cities. With the total number of multiplex screens reportedly being a little over 3200  in 2019 as reported by Statista, it's safe to say that the merged entity will hold a comfortable above-40% market stake in 2022. "It's a gamechanger of a deal, possibly the biggest that has happened in the history of India's exhibition sector till date," says film exhibitor and distributor Akshaye Rathi.

What Are The Direct Implications?

The direct implication is more a pro, less a con: more number of screens. "It may allow them to open more screens and make their outreach wider. In smaller towns, Tier 2 and Tier 3 cities, there would typically be one or two multiplexes available. This merger could potentially spur the growth of theatres in India," explains Shailesh Kapoor, Founder and CEO of Ormax Media.

While the short-term plan will be to scale up the number of screens by 200 every year since the time of its inception, a report from Moneycontrol.com suggests that PVR Inox already has a real estate plan in place. According to it, more than 1000 screens from each of the brands can be expected over the next 5-10 years. This would essentially open up a better platform for several sectors, including suppliers and vendors of F&B (food and beverages), technology services, sound equipment etc.

Does That Mean Higher Ticket Rates?

Maybe. However, considering the existing screens will not change their brand names post the merger, and the operational execution of the merger can take up to as long as six months to a year to come into being, it's too early to talk about ticket prices. In any case, the determining factor of the rates will be less to do with the new brand, and more to do with the demographics involved. "It's more about the location, the demographics, the disposable income levels of the people in that area," explains Rathi. "More than anything else, the anticipation around the content being played out in a particular weekend during a given show is ultimately what determines the ticket price."

Why Did The Deal Take Place?

The exhibition sector took a huge hit during the pandemic. Theatres were completely shut for several months, and even when they finally did see the light of the day, most theatres ran in limited capacity across states. Maharashtra, a key market for films and distribution alike, hadn't even allowed theatres to reopen till October 2021. All these factors led to the Multiplex Association Of India running at losses of over Rs. 4800 crores. "The pandemic has made the exhibition sector bleed profusely and deeply. There is virtually no help in terms of any kind of financial relief from the government or from any other stakeholder. Therefore, the onus of recovering from this scenario has fallen back on the sector itself," explains Rathi. "These are steps that are being taken by members of the sector to bring those synergies in terms of efficiency and the better amortization of the spends that happen."

In fact, if the deal works out as planned, it is likely that more such collaborations will soon come into play in the market. This will be done to enable a more systemized and organized exhibition sector that would focus on synergizing in order to lessen the operational costs and increase profitability.

Will The Film Industry Get Affected?

It is a possibility. However, it depends from industry to industry. While the merger will come as good news for Hollywood and international releases in general, the southern film industries in India will be less affected by the development. "For Hollywood films, 30-40% of a film's collection comes from PVR and Inox. The merger should be a comforting thought for them since they have positive perceptions of both brands," says Kapoor. For films in the South, however, the dependency on multiplexes is lesser as they largely comprise a market driven on single screens.

For Bollywood, however, the new brand could prove to be crucial, packed with its own set of repercussions. "For an average Hindi film, the revenue earned from multiplexes are generally around 40-45%," says Kapoor. The monopoly of the two brands could essentially lead to renegotiations of the current revenue model, with a potential raise in distributor's shares on the cards, as well as a reassessment of the theatrical window for films (currently at four weeks) before they are televised or released on digital platforms.

"Periodic negotiations of terms will keep happening. They've happened in the past and they'll happen again. So will discussions with producers on revenue sharing – but then, those are the normal codes for the industry, which take place every few years," Kapoor adds.

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What About OTT?

In the press release issued by PVR and Inox, a major significance was given towards how the merger would be a step towards combating the rise of the OTT sector and making theatricals in India the first-choice viewing experience for the consumers yet again. "This merged entity, alongside a more consolidated exhibition sector, can create more value, wealth and revenue for content creators. That, as a step, will encourage them to want to come theatrically with their films rather than selling it straight to streaming platforms," explains Rathi.

Will that mean lesser number of direct-to-digital films? Only time – and consumer behaviour – will tell. However, with the massive successes of Sooryavanshi, Spider Man: No Way Home and more recently, The Kashmir Files and RRR, it won't be wrong to suggest that theatricals have already made a comeback. "The footfalls in March have probably been the highest ever in any month, not only at a post-pandemic level but pre-pandemic too," says Kapoor.

While cinema halls do generate the largest revenue streams for a film, its success has, off late, only translated to certain genres – typically, the big-budgeted spectacle cinema or family-centric comedies. Till the time that line is blurred, it is safe to state that the parallel consumer habit created by the OTT space, which was accelerated by the pandemic, is here to co-exist.