Mumbai: The all-stock merger between two of the country’s biggest multiplex chains, PVR and Inox Leisure, announced earlier this week, was seen as positive for the industry by any measure. Led by PVR’s Ajay Bijli as MD, the combined PVR-Inox entity will have an invincible size advantage with its 1,546 screens spread across 341 in 109 Indian cities, compared to the nearly 400 screens of Carnival and Cinepolis.
Meanwhile, Kanakia Group-owned Cineline India announced its return to the market after a decade in the first quarter of FY23 with a total of 75 screens, 27 of which were acquired in February.
Worth 30-45% more than standalone entities Inox (~64 billion rupees) and PVR (~110 billion rupees), PVR-Inox will have a screen share of more than 50% in multiplexes Indians and 18% across all screens. . Its combined box office share for Hindi and English content, which accounts for 65% of the overall box office, will be around 42%, according to Elara Securities.
Take advantage of Premiumization
The weakening momentum for players in unorganized, single-screen movie exploitation, even before the pandemic hit, presented a tremendous opportunity for organized players to increase their presence in the segment.
Consolidation in the film exhibition sector began around 2014-15 with Inox’s takeover of Satyam Cineplex for Rs 240 crore and Carnival’s cleanup of Broadway cinemas from HDIL for Rs 110 crore. In December 2014, Reliance Capital sold its multiplex business of Reliance MediaWorks (RMW) operating under the ‘Big Cinemas’ brand to Carnival Cinemas for Rs 700 crore. The following year, Mexican multiplex chain Cinepolis acquired Fun Cinemas from Essel Group and PVR bought DT Cinemas from DLF for Rs 500 crore.
Cineline India, which had been trading as Cinemax since 1997, sold its multiplex business with the Cinemax brand to PVR for Rs 395 crore under a non-compete clause in 2012. In light of the As the agreement expires on March 31, 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 have shrunk to just over 6,300 in 2019 in India. This decline is reflected in the country’s screen density, which stood at 74 in 2019 (Statista). With an estimated total number of screens of 9,423 (FICCI-EY, March 2022), India is a vastly under-detected country compared to China which has around 70,000 screens for a comparable population size. Its ATP (Average Ticket Price) and SPH (Spends Per Head) are also among the lowest. Closing the gap between demand and supply in India’s exhibition industry is expected to more than triple box office revenue, according to Delloite’s 2018 Screen Density Report.
Even as economies of scale usher in revenue and cost advantages, the rapid upscaling of cinematic and customer experience through technologies such as 3D, 4DX, Imax, F&B and other luxury offerings , as well as the hygiene standards imposed by Covid, will stimulate the ATP and SPH on the one hand, and create more and better opportunities for advertisers on the other hand, thus increasing the advertising revenues of the new entity, and consequently of the industry as a whole.
The merger will help achieve higher SPH (Rs 99 for PVR vs. Rs 80 for Inox in FY20) on existing Inox screens. In FY 2020, Inox’s footfall of 6.6 crore generated incremental F&B revenue of around Rs 125 crore and net revenue of over Rs 90 crore. Synergies can also result in substantial savings on labor costs. On combined labor costs of over Rs 600 crore, even a 20% saving will result in savings of Rs 120 crore for the combined entity. Overall, the merger has the potential to add more than Rs 300 crore to the bottom line of the combined entity, digital cinema distribution network and cinema advertising platform, UFO Moviez said. at IndianTelevision.com.
Cinema advertising boost
Last October, as cinemas began to reopen after 18 months of strict and partial closures, cinema advertising, which contributes 10 to 12% of overall cinema turnover, saw a drop of 25 to 30% of fares. Studying the trend, Inox Leisure Sales and Revenue Director Anand Vishal previously told IndianTelevision.com that “cinema will not be an easy sell” for some time thereafter.
Cinema is not going to be an easy sell: Inox’s Anand Vishal
This merger should reverse the situation in favor of exhibitors sooner than expected. According to UFO Moviez, “the consolidation will be positive for all cinema advertising in the country. In FY2020, PVR earned advertising revenue of ~Rs 45 lakh per screen while Inox was at ~Rs 28.5 lakh, a difference of nearly Rs 17 lakh per screen. The combined entity should be able to obtain the same revenues as the PVR for all screens. Thus, across Inox’s approximately 650 screens, incremental advertising revenue of Rs 17 lakh per screen will result in incremental advertising revenue of approximately Rs 110 crore for the combined entity.
The segmentation of advertisers between large and small channels/single screens, which already existed due to players with differentiated TGs, will be accentuated in the future.
“PVR and Inox together have screens in approximately 110 cities, while UFO owns advertising rights to over 3,500 screens (smaller channels/single screens) in nearly 1,400 cities and towns. An advertiser/agency will now have to deal with only two entities to advertise on a pan-India network spread across 5,000 screens. This will help minimize administrative work, leading to faster closing of deals,” observes UFO Moviez.
Despite being among the hardest hit, the cinema industry is enjoying a phenomenal recovery with the success of films like ‘The Kashmir Files’, ‘RRR’ and ‘Gangubai Kathiawadi’.
Densu Creative India CEO Amit Wadhwa points out that while “brands may have been cautious about the above investments, cinema advertising will now pick up again, especially with the two big names coming together to form a much stronger mark. It has the ability to create better opportunities for brands to advertise and hence in the market the likelihood of charging a premium.
On the contrary
Even though the “OTT onslaught” was ostensibly cited as the reason, the PVR-Inox merger was still on the cards. The rise in OTT consumption in the wake of the pandemic may have only accelerated it. As film producer Naveen Chandra asserts, “We are in the early stages of OTT growth in India, so any reactive strategy based on the greedy nature of consumers may be premature.”
Commenting on its likely impact on distribution, he adds: “Any company that scales to near majority market share will have the advantage of charging a price premium for its products. The combined entity will own almost 60% of the multiplex screens. That’s a big plus no matter how you look at it. The programming muscle it provides is phenomenal as the entity negotiates its exposure deals or exclusive release windows with platforms or theater shares with producers.
Regardless of claims and speculation, OTT players have viewed cinemas as an enabler rather than a competitor, even in the context of “windowing” that has become a “hot potato” for the industry and the media over the past couple of years. last years.
OTTs will benefit from the availability of the price discovery platform when cinemas reopen
Shemaroo Entertainment COO Kranti Gada says that “from providing a barometer to gauge a film’s worth, de-bottlenecking the pipeline of films on pandemic hiatus, and reducing marketing costs for streaming platforms, the growth of cinemas will only benefit OTT platforms.” Shemaroo Entertainment owns the video-on-demand service ShemarooMe.
While OTTs are projected as the eventual replacement for single screens, affordable cinema is here to stay, gamers and watchers agree. The anomaly in the South where PVR and Inox respectively hold six and three percent shares testifies to this.