Cinema’s big impact puts PVR-INOX merger in limelight

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

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Under the scheme, the shareholders of Inox receive shares of PVR in a swap ratio of 3 shares of PVR for every 10 shares of Inox. Ajay Power of PVR will become the managing director of the merged entity, and Pawan Kumar Jain of Inox will be the non-executive chairman of the new 10-member board. After the merger, PVR promoters will hold 10.62 per cent stake, while Inox promoters will hold 16.66 per cent with equal representation on the board.

While the existing screens will continue to operate under the respective brand names, the new screens launched by the merged entity will be operated under the combined brand name, PVR-INOX. The synergy will help the unit to operate efficiently. In addition, according to public statements by both companies, they will raise 500 crore for investment in new screens, and consider backward integration into the film production business.

There is a long process involved in the merger of two listed companies. The plan was approved by the stock exchanges in June, and approved by votes of the 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 dismissed the petition, following which the CUTS went on appeal to the NCLAT. That appeal is due for hearing on January 12, and a decision is expected by February 9.

PVR and INOX were pioneers in setting up multiplexes two decades back. It changed the entertainment consumption pattern of India. Instead of dirty, poorly air-conditioned halls with uncomfortable seats and low-powered sound systems, multiplexes offered the option of screening in clean, well-ventilated halls with high-quality sound, 3D displays, and comfortable seats. Plus, they introduced better snack options, and yes, they charged a premium.

Going to a multiplex is not just about watching movies; It’s about a pleasant, convenient place to go for families, or courting couples. In many Tier-II and Tier-III cities, multiplexes are often the only or default option for this, and this enables multiplexes to compete against home theaters and OTTs.

Cuts is a non-profit organization that claims to fight for the consumer. Its plea said PVR-Inox would become the largest player in 43 cities with a market share of over 50 per cent in at least 19 cities, “significantly increasing the level of concentration”. This could result in “potential competition concerns”, as it would give the entity more bargaining power.

The merged entity will have the power to bargain for lower rentals and higher advertising rates. It will benefit from facilitation fee deals and distribution revenue with entities such as BookMyShow and Paytm. Administrative costs and back-office costs should be lower. The potential for growth comes from the fact that India produces over 2,000 films per year (the highest in the world) but has only seven screens per million population, compared to, for example, 54 screens in China, and 54 in the US. There are over 100.

Pre-pandemic, footfall was growing at about 5 percent per annum (CAGR) and ticket prices were hiked at about 4 percent CAGR. Before Kovid, the occupancy rate was around 28-29 percent. Expenditure per person (excluding tickets) increased From 98 (April-September 2022) 80 (2019-20) with average ticket 224.

The total revenue for INOX was 1,915 crore in 2019-20, and after catastrophic losses in the Covid-hit fiscal, H1 revenue is now 970 crores. PVR’s first half revenue 1,702 crores. In both the cases, the revenue is actually lower as compared to the first half of the last financial year (FY 2021-22) and the companies claim that this is due to a drop in Bollywood collections in the absence of big hits.

Apart from the bargaining power, the merged entity will have a lot of data about audience preferences and spending patterns. In fact, it can hope to accurately predict which types of movies will generate the most revenue.

This could lead to a scenario where it could affect the content generated by the film industry, especially if it moves backwards in production. While it is being speculated that the merger will automatically lead to anti-competitive behavior, these are long-term considerations that could change content creation and shape the national mood and discourse, given the outsized influence of cinema in the Indian socio-political context Huh. One form or the other, the NCLAT decision can have serious consequences.

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