PVR INOX Deal: What’s boiling?
The Board of Directors of PVR and INOX recently approved the merger of their companies into a single entity called PVR-INOX. The new entity will control 1,546 screens across the country and is set to become the largest Multiplex company by far. They will command a whopping 40% share of the total box-office revenues in the country.
This comes as a surprise. Earlier, there were rumors of a potential merger between PVR and Cinepolis India doing rounds in the media. The merger of PVR and INOX, however, has received positive feedback from investors of both companies. Share prices of both companies hit 53-week highs after the announcement.
But what prompted longtime enemies to suddenly become best friends? After all, they were competing for the neck to neck in the same industry for decades.
To start with, government-imposed lockdowns during the pandemic severely affected the movie business in general and cinema halls in particular. Malls came to a complete halt and multiplexes couldn’t do anything. PVR had to fire half of its workforce while others were forced to take huge pay cuts. Needless to say, those in the movie screening business had to bleed huge amounts of money. They also had to take up loans from banks.
Then came the likes of Netflix, Disney, and Amazon Prime among other regional players. While big screens were shut down due to the pandemic, these new-age OTT platforms became the go-to place for people to watch movies. Deep-pocketed parent companies poured an unlimited amount of money into their OTT business which made things even worse.
Ajay Bijli, Managing Director of PVR was asked in an interview if he thought of entering the OTT space. Unfortunately, it was too late for them to join the party. He confessed that it would be impossible to compete with the likes of Amazon, Netflix, and Disney since they had far more superior financial muscle.
Nevertheless, everything is not bad with multiplexes. Lockdown restrictions are all but gone and cinema halls are slowly coming back to pre-covid levels. Many are also tired of staying indoors and would likely prefer going outside to watch movies on the big screen. The ambiance of watching movies on a big screen is something that smartphones and computers cannot match.
Promotors of Multiplex companies are also trying to convince investors that OTT platforms are more apt for long-form content like the superhit series The Family Man whereas traditional movies like James Bond or Avengers are more suited for theatrical releases.
More importantly, the bulk of the movie revenue is derived from box office collections. Hence, Producers are unlikely to sideline this revenue stream anywhere in the near future. (New movies tend to be first released in theaters and subsequently sell their rights to OTTs and satellite channels)
For now, it seems investors are confident about the PVR-INOX deal but it remains to be seen if they can pivot from present challenges and become profitable in the future.
Will they succeed in expanding their screens quickly? The pandemic also affected retail businesses. Without new malls, it will be near impossible for multiplex chains to open new cinema halls.
Will the government agencies allow the amalgamation of the two biggest players in the multiplex industry? Both PVR and INOX say they will not be subject to such restrictions as their combined revenues are not significant.
Will the new entity becomes a behemoth in the movie screening business or will it fail miserably in the hands of OTT players?
Well, it’s difficult to predict just yet.
This article appeared in Investing.com
