With a 20% combined market share in the movie exhibition business, PVR+Inox combine is all set to become a formidable behemoth in India. However, those on the other side – Film Producers, Financiers, Distributors, Actors and other artists are a worried lot – if this could lead to a monopoly in the making.
Circa 1995. Raj and Simran travelled across Switzerland for several days and the audience engrossed themselves watching the picturesque locales of the countryside with oversized cows, fancy Eurorail coaches and (almost) no dust on highways. Dilwale Dulhaniya le Jayenge went on to become not just a super hit film but the making of a new superstar in Hindi cinema. One had to stand in a Q for 10 – 100 mins to buy the tickets for the movie, at times several days in advance, at odd hours when the ticket counter would open. Movie goers bought a portion of freshly made pop-corn or “Corn-Puff” packs in polythene for Rs. 10 and shared it with their group of friends or family. A glass bottle of Pepsi or Coke would cost Rs. 5 then and similarly, the group would pass on a sip among themselves. Elderly people would keep munching channa dal or ground nuts brought from home. Life was pretty good watching movies in 70mm screens in an air-conditioned auditorium. Every town in India had 2-10 such screens. The ones which were yet running high-celing fans (without a/c) were being warned by regular visitors – either upgrade the auditorium or we move on to those with more facilities.
Cut to 2023. Pathaan is a Indian RAW Agent and is dancing with his beau in Spain on the big screen. We see him doing all kinds of stunts – in a car, in a helicopter and even a human plane, all of which look almost real, as though it is happening in front of our eyes. Mind you, it’s a film being seen in 2-dimension only, sometimes on an IMAX screen. The tickets were bought using a third party website or app on the internet and not waiting in queues at theatres. Pop-Corn now costs Rs. 200 for a tub and Rs. 300 if bought along with a long paper cup of Cola which can serve your entire apartment. There is no Corn-Puff, but the freshly made Samosa now costs Rs. 150 for two. The sound system inside the screen is mind-blowing, sometimes quite jarring on the ears as well. The best of all – If one is not interested in certain portions of the movie, then they move their eyes to a smaller screen on their hands – the ubiquitous mobile phone.
The entire movie-watching experience has been redefined in the past 25 years and the entire transformation have been done by just half a dozen multiplex operators. However, the revolution was brought in and led by PVR Cinemas and INOX. Priya Cinemas started their first screen at Vasant Vihar in New Delhi, as a joint venture with US-based Village Roadshow, a company involved in producing and marketing foreign language movies, especially in English. The new entity was called PVR Cinemas. INOX, who’s parent company Linde (formerly Indian Oxygen) is a global industrial gases and engineering company with a turnover of USD 31 Bn in 2021, inaugurated its first screen at Pune in 2004. PVR today operates 900 screens and Inox, over 700. It must be noted that at Inox, only vegetarian food is served, as a business policy.
At the peak of the pandemic, the two listed companies announced an industry stunning announcement, to merge with each other. Many people in the industry were caught in a surprise, including Mall owners, who made these movie exhibition companies their Anchor tenants and expected them to draw crowds. Several staff members at the mid-to junior levels were perplexed. These people were on the ground and were witnessing 30-45% occupancy during weekdays for at least 30 weeks a year at both chains. They wondered how would this merger span out to be and whether they would retain their jobs. Their worries continue, with the top management already announcing potential layoffs with the meged entity planning to save costs on common areas of management.
The standalone screens, when the pandemic panic struck, had dwindled from 24,000 at the time DDLJ released to a mere 12,000 by 2020. When Pathaan released on Jan. 25. 2023, only 8,500 remained active in operation. Over 3,000+ screens were shut for business with equipment and furniture rotting inside. They didn’t have the bandwidth to refurbish the auditoria and reopen for operations; nor did they have the decisiveness to shut the business and redevelop. Shanthi Theatres in Chennai was one such exception. The property belongs to Chevalier Late Sivaji Ganesan, the thespian of Tamil Cinema. Shanthi was his sister’s name and he built a theatre to ensure his, and later on, his son Prabhu’s movies had a great opening. Jayaprada had one to her name in Chennai and so did Jayalalitha. Several 100s of actors, actresses and producers had their own theatres across India. After the pandemic, Shanthi Theatres decided not to restart the exhibition business in the sprawling one acre property, rather modify it for commercial purposes. Not all of the 3,500 have been lucky to decide that way.
With Over the Top (OTTs) Apps coming to prominence during the lockdown, it was also seriously believed that audience will avoid a monthly outing to theatres. Amazon’s Prime Video has an estimated 45% share in terms of subscriptions, followed by Disney+ Hotstar, ZEE5, VOOT, among others. Global giant Netflix has a low single-digit market share in India while regional players like Aha! couldn’t expand beyond their home territory (Telugu language in this case).
Pathan’s success at the Indian and global Box-Office has surprised the entire film industry in India. Even Shah Rukh must be surprised after a string of flops for a decade. The superstar tried every trick in the book, including acting a dwarf, a philosopher, etc. No one ever thought that the action-packed movie would garner Rs. 1,000 Crores in ticket collections worldwide. Over 500 Crores was generated within India in Hindi language, the rest split between dubbed versions, OTT & Satellite rights and international collections. Akshay Kumar’s “Selfie” which released four weeks later also came as the Industry’s biggest surprise. The movie collected a mere Rs. 2.50 crores for the first three days everyday vs. Rs. 50+ Crores for Pathaan for the same duration.
The audience in India have matured. Partly due to the pandemic, but beyond that, the consumption of entertainment is more personal and personalised today. Middle class households with more than 4 members have at least 1 device each for themselves to consume their preferred content. And subscription to OTT platforms changes based on demography and needs of entertainment. India’s “lowest cost of internet in the world” tag is an added advantage for youngsters who consume no more than 2-3 GB per day, yet watch their preferred programs, movies, sports and web series.
Once the regulatory hurdles are fully cleared, the management of PVR Cinemas and INOX will undertake cost optimisation across various functions to bring a centralised approach towards managing the business. Together, they would operate 1,600+ screens in 113 cities in India spread over 350+ properties by Q1 FY 23-24. That would make them hold an 18-20% market share in the Exhibition business in terms of number of screens.
For simple and easier understanding, the cost of making a film is invested by a Producer, mostly with borrowed funds from a private Financier, usually at exorbitant interest rates as the entire proposition is risky – being an unsecured loan. The film is then sold to Distributors who in turn sell it to theatre owners. Standalone theatre owners pay a fixed fee while the multiplex operators pay a combination of fixed guarantee fee and / or a revenue share on sale of tickets at the counters, read the Box-Office, whichever is higher. To ensure higher revenues, the Producers market the film at malls where the multiplexes are located to draw crowds.
The estimated size of the Indian Film Industry pre-pandemic was Rs. 22,000 – 24,000 Crores pa. Of the 2,000 films that were made annually back then, almost 800 would be in Hindi language alone, followed by 300+ each in Telugu and Tamil. All other languages contributed to the rest.
The film industry has 5 reasons to worry. 50% of the cost of production is paid as remuneration to the lead actors. Many of them are also preferring to take distribution rights, so they get more income, should the movie turn out to be a hit. If the movie bombs off, then they do not take any responsibility either. Secondly, the cost of financing a movie ranges from 30% to 50% pa as interest charges of the borrowed sum. Longer the lead time to release the movie, more to pay as interest to the hawks.
Three, there is no guarantee which film would do well at theatres. Akshay Kumar witnessed his first ever lowest grosser in Selfie, which surprised industry watchers and himself. Ram Setu, his previous outing surprisingly had more crowds for a few days at theatres. Fourth, the cost of movie watching at a multiplex for a family has gone up significantly, sometimes mathcing or overtaking a meal for 4 at a five-star hotel. Ticket prices range from Rs. 190 – 350 on normal days, with the food concessions sometimes earning more than tickets sold during a particular show.
Last but not the least, is the near-monopolising the multiplex business that worries Distributors, the main cog in the wheel. Other than PVR+Inox, only a handful of them exist in the country today, which have a pan-India or at least a regional spread – SRS Cinemas, Cineapolis, Carnival, Miraj and Dishoom are the others on the top of the list. It costs Rs. 3 – 5 Crores to build a multiplex format with 1 screen, so essentially Rs. 20 – 30 Crores for 5-8 screen multiplex. RoI is between 7-10 years – which in today’s scenario is too far to decipher and way too expensive to fund from debts. Given the high Capex, it is almost certain that no new player would enter the fray anytime soon. After Anil Ambani’s BIG Cinemas rout, it is highly unlikely that even Reliance would revisit this space, though Mukesh Ambani is betting heavily on his digital outing – JIO platforms.
Will the new combine benefit the film industry and the audience by their consolidation? Or would movie watching become more expensive due to the combined negotiating ability of a handful of operators? Would the exhibition industry get cartelised like a few others in the commodity busness, such as coffee, tyre, cement, etc.?
No ready answers. Competiton Commission of India, has for now cleared this merger. Now, it is up to the industry captains how they play the game. Time will decide the outcome. Perhaps, the movie watching audience would decide. Matter of 5 years, at best.
