In the aftermath of the COVID-19 pandemic, the rapid growth of OTT platforms and the extensive variety of content available at the click of a mouse posed significant challenges for multiplex operators. Facing intense competition, PVR and INOX, two of India's largest multiplex chains, decided to merge in 2022, aiming for better profits and market expansion. Despite achieving a dominant market position, the merger's results have been underwhelming. This article will analyze the reasons for the failure of the merger and propose plausible solutions to sustain in the long run.
Facts regarding the Merger
Priya Village Roadshow Ltd or what is known as PVR in March 2022 owing to a sudden decline in ticketing sales and lack of turnout of audiences to watch movies decided to merge with INOX Limited. PVR at that point in time was operating 871 screens in 72 cities while INOX was operating 675 screens in 72 cities. The merged entity as it was estimated would capture 70% of the market in terms of a total number of screens and more than 50% of the Box office Revenue Share across all languages. This capture of market share ensured expansion across the country since INOX was majorly operating in the Southern and Eastern Circuit whereas PVR was majorly operating in the North, West, and South circuits.
The merger was duly approved by the SEBI and all other concerned regulators in March 2022 and the merged entity was named PVR-INOX. This left only Cinepolis as the other major competitor pan India.
Objectives of Merger
Market Capture
The primary objective behind the merger of PVR and INOX was to dominate the market, as these two were the major players. However, this raises questions about why the Competition Commission of India didn't intervene, given that the merger resulted in a single entity controlling 70% of the market. This situation could be seen as an anti-competitive merger, which is prohibited under the Competition Act, 2002.
Post-COVID Recovery
The COVID-19 pandemic severely impacted multiplex operators, with lockdowns preventing people from going out. Even two years after the peak of the pandemic, its effects are still felt. Additionally, the rise of OTT platforms has further hindered the recovery of multiplex operators. This merger was seen by both parties as a strategic move to recover from the significant losses suffered during COVID-19 and to drive mutual growth and recovery.
Significant Competition from OTT Platforms
OTT platforms experienced significant growth starting in 2020, primarily due to the pandemic. Services like Amazon Prime, Netflix, and JioCinema offer annual subscriptions at nominal rates, providing a wide variety of content, including talk shows, web series, and movies in different languages, all accessible at the click of a button. As a result, cinema attendance did not recover post-pandemic. The merger aimed to attract audiences back to cinemas across India, encouraging them to watch movies on the big screen again.
The leading question
It entire discussion eventually boils down to the question of whether the merger yielded the desired results and which party benefitted more. From the current merger, it can be clearly observed that it failed to achieve the desired objectives.
The anticipated benefits have completely failed to materialize, with a significant dip in overall profits and a notable decline in footfall.
a) The merger aimed to strengthen their market control and enhance profitability, especially after the adverse effects of the COVID-19 pandemic. However, the results have been disappointing, primarily due to the rise of over 50 OTT platforms in India that offer a vast variety of content conveniently accessible at home.
b) Secondly, Producers have increasingly partnered with these platforms, releasing movies within one or two months of their theatrical debut. This trend has reduced the incentive for individuals to spend on movie tickets when they can get annual subscriptions to multiple OTT platforms for a similar cost.
c) Thirdly, proper due diligence would have provided a clearer picture of the potential hurdles and helped in formulating more robust post-merger strategies. This process should have included a detailed market analysis to understand the impact of OTT platforms on consumer behavior, a financial evaluation to assess potential risks and synergies, and a competitive assessment to anticipate regulatory challenges.
As a result, Multiplex Operators have faced financial struggles in recent times due to which they even took to live streaming of live sports matches, private screenings, etc. Facing this decline, PVR INOX has proposed shutting down several screens since even recovery of costs has become extremely tough because of lack of turnout rate.
Which party benefitted more?
It is very difficult to determine which party actually benefitted more from this merger. Initially, it could have been presumed that since PVR was operating at a larger scale, INOX would have been subjected to larger benefit because of the wider reach in the market they would have received.
However, at present bot parties have been at a disadvantage. Further, this problem has not been unique only to PVR-INOX but for all other Multiplex Operators as well such as WAVE Cinemas, and Cinepolis. The only greater issue is that the amount invested and the costs of PVR-INOX are significantly higher than all other operators hence the scope of loss of revenues will also cause greater harm.
Possible Solutions
Though the merged entity has found itself in a position of vicious circle of losses where more the money they invest their losses are also constantly increasing, there can be a few measures that they can take to minimize their losses. However, there's no surety whether these will work in the long run.
Competitive Pricing
Probably the only direct way to attract more audiences to theatres is by resorting to competitive pricing. They are facing stiff competition from OTT Platforms which charge an annual subscription of not more than 800 to 900 which can be the average price of a single movie ticket and Food and Beverages in Cinema Hall. Though it is not possible to reduce the prices to exactly match with the OTT Platforms since operating costs itself will not be covered, they can resort to reduction in F&B and Ticket Prices.
PVR-INOX has already made efforts to reduce the prices through several offers. One of the most prevalent ones is the PVR-INOX monthly pass of Rs 349 which is valid for 4 movies in a single month on Monday-Thursday. Additionally, a three-month pass of Rs 1047 has also been introduced for 3 months which is valid for 12 movies.
With respect to F&B, unlimited popcorn refills are allowed during weekdays along with Rs 99 offer valid from 3 PM to 6 PM in certain areas that too on working days.
Hence, these are some of the Competitive Pricing Techniques adopted by PVR-INOX and several other multiplex operators to attract more individuals.
Diversification
Multiplex operators can diversify their operations which will provide them with additional sources of income. An example of the same is PVR's 4700 BC Gourmet Popcorn which they have introduced in the market and offer it for sale to the general public which was previously sold exclusively in their theatre lounges. However, this will still not be a major income-yielding source and also will not be related to the principal economic activity which a Multiplex Operator should ordinarily carry out.
Film Production
Another remote solution that can be adopted by PVR-INOX is with respect to entering into the area of film production. They have previously tied up with producers in respect of producing the movie such as RRR but have not taken it in a full-fledged manner (all by themselves) before. This can be a lucrative source of earning significant profits. However, this shall again not be their primary source of income.
Conclusion
Going forward, PVR-INOX must adopt innovative approaches to counter the competition from OTT platforms. Competitive pricing, diversification into related businesses, and even exploring film production can offer new avenues for growth. However, these measures come with their own set of challenges and uncertainties.
Ultimately, the success of the merger will depend on the ability of PVR-INOX to adapt to the evolving market dynamics and to continually innovate to meet consumer demands. While the current situation presents significant challenges, with strategic planning and execution, the merged entity can still find a path to profitability and growth.
References
Kajal Khetwani, Shubham Jain, PVR INOX Merger: Consolidation Decoded, International Journal of Research Publication and Reviews, Vol 3, no 5, pp 1457-1459, May 2022
Gaurav Sharma, A Big Bang Merger called PVR INOX, Money Control.com, published 28th March 2022 accessed 16th July, 2024 available at:
https://www.moneycontrol.com/news/business/stocks/a-big-bang-merger-called-pvr-inox-8284841.html
PVR, Inox merger was the only way to strengthen balance sheet: MD Ajay Bijli, Economic Times.com, published 27th March 2023 accessed 17th July, 2024 available at: https://economictimes.indiatimes.com/industry/media/entertainment/pvr-inox-merger-was-the-only-way-to-strengthen-balance-sheet-md-ajay-bijli/articleshow/99016800.cms?from=mdr
Power Play: Analysing The Implications And Opportunities Of The PVR-Inox Merger. BW Online Bureau, published 10th May, 2023 accessed 17th July 2024, available at: https://businessworld.in/article/power-play-analysing-the-implications-and-opportunities-of-the-pvr-inox-merger--476071
Ankit Kanodia, PVR-INOX, a Monopoly? Published 3rd May 2024 accessed 17th July 2024, available at: https://smartsyncservices.com/2024/05/03/pvr-inox-a-monopoly/
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Parth Verma is a 4th year student of BBA LLB at Christ, Bengaluru
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