Cinema’s outsized influence puts PVR-Inox merger in spotlight

In March 2022, the respective Boards of Inox Leisure and PVR cleared a merger proposal in an all-share swap deal. The merged entity would become the largest film exhibition company, operating 1,546 screens across 341 properties in 109 cities. This would give it roughly 50 per cent multiplex screen market share and around 42 per cent of box office collection market share.

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Under the scheme, Inox shareholders receive shares of PVR at the swap ratio of 3 shares of PVR for 10 shares of Inox. Ajay Bijli of PVR will become the managing director of the merged entity, and Pavan Kumar Jain of Inox will be the non-executive chairman of the new 10-member board. Post-merger, PVR promoters will own 10.62 per cent stake, while Inox promoters will have 16.66 per cent stake with equal representation in the board.

While existing screens would continue to operate under respective brand names, new screens rolled out by the merged entity would be operated under the joint brand name, PVR-Inox. Synergies would help the entity operate efficiently. Moreover, according to public statements by the two companies, they would raise ₹500 crore for investments in new screens, and consider backwards integration into the movie production business.

There’s a long process involved in the merger of the two listed companies. The plan was approved by the stock exchanges in June, and cleared by the votes of respective shareholders of the companies in October.

But in August, the merger was challenged by CUTS which made a representation to the CCI that it may be anti-competitive. The CCI rejected the petition, whereupon the CUTS went to the NCLAT on appeal. That appeal is due for hearing on January 12, and a judgment expected by February 9.  

PVR and Inox were among the pioneers in setting up multiplexes, two decades ago. These altered India’s entertainment consumption patterns. Instead of single movies in dingy, poorly air-conditioned halls with uncomfortable seats and under-powered sound systems, multiplexes offered choice of screenings in clean, well-ventilated halls with high-quality sound, 3D displays and comfortable seats. Moreover, they offered better snacks options, and yes, they charged premiums.

Going to a multiplex isn’t just about watching a movie; it is about a pleasant outing to a nice, convenient location, for families, or courting couples. In many Tier-II and Tier-III cities, the multiplex is often the only or default option for this, and it enables multiplexes to compete against Home Theatres and OTT.

The CUTS is a non-profit which claims to fight for the consumer. Its plea says that PVR-Inox will become the largest player in 43 cities, with market share in excess of 50 per cent in at least 19 cities, “substantially increasing concentration levels”. This could result in “possible competition concerns”, as it would give the entity more bargaining power.

 The merged entity will have the muscle to bargain for lower rentals, and higher advertising rates. It would have leverage in convenience fee deals with entities like Bookmyshow and Paytm and distribution revenues. Administrative costs and back-office costs should reduce. The growth possibilities come from the fact that India produces over 2,000 movies a year (the highest in the world) but it has only seven screens per million population, whereas China, for example, has 54 screens, and the US has over 100.

Pre-pandemic, footfalls were expanding at around 5 per cent per annum (CAGR) and ticket prices were hiked at around 4 per cent CAGR. Occupancy rates were at around 28-29 per cent prior to covid. Spend per head (apart from tickets) has increased to ₹98 (Aprl-Sep 2022) from ₹80 (2019-20) with tickets averaging ₹224.

Total revenues for Inox were at ₹1,915 crore in 2019-20, and after catastrophic losses in the covid-hit fiscals, first half revenues are now at ₹970 crore. PVR has first half revenues of ₹1,702 crore. In both cases, revenues are actually lower than in the first half of the last fiscal (FY 2021-22) and the companies claim this is due to Bollywood collections dropping in the absence of big hits.

Apart from bargaining power, the merged entity would have huge data on audience tastes and spending patterns. It can, in fact, hope to make accurate predictions as to the sort of movies that would generate more revenue.

This may lead to a scenario where it could influence the content generated by the movie industry, especially if it does move backwards into production. While it’s speculative to assume a merger will automatically lead to anti-competitive behaviour, these are long-term considerations which could alter the shape of content creation and the national mood and discourse, given cinema’s outsized influence in the Indian socio-political context. The NCLAT judgment could, one way or another, have serious repercussions.

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