Consolidation is a way to survive for movie exhibitors

Movie-exhibitor INOX Leisure Ltd is in initial talks with Carnival and Miraj Cinemas to acquire their screens, said two people seeking anonymity. The development comes days after media reports said PVR Cinemas was looking to merge the local arm of Mexican theatre chain Cinepolis with itself.

“When you are competitors, you cannot really take talks of rivals merging lying down; you have to make a move yourself. INOX has sent feelers to both Carnival and Miraj though nothing has been finalized yet," said one of the two people cited above.

He said conversations around these deals is the direct result of the pandemic that has devastated the theatre business.

The potential PVR-Cinepolis merger is also an evident threat to INOX, he added.

The pandemic-ravaged Indian film exhibition sector is also facing a challenge from the rise of video-streaming websites such as Netflix, pressuring margins and forcing them to shut theatres.

If the talks bear fruit, INOX, which operates over 600 theatres in India, will add 400-plus screens of Carnival Cinemas and more than 100 screens of the Miraj Group, he said.

While Carnival Group has interests in film production, food and realty, Miraj Group runs hospitality, real estate, food, and pipes and fittings businesses.

The INOX Group is a conglomerate with interests in wind energy, renewables and specialty chemicals.

A deal with Miraj may make more sense for INOX than the one with Carnival, which has a debt of ₹1,400-1,500 crore and has defaulted on paying rent to developers and salary to its employees for a while.

“Consolidation is part and parcel of the business now, and everyone has been in discussion with everyone over the past few months. While there is nothing on the table for us now, there is always a possibility of consolidation tomorrow," said Amit Sharma, chief executive officer, Miraj Cinemas, in an interview.

Carnival did not respond to Mint’s queries. INOX declined to comment for the story, and a PVR spokesperson said the news of a merger with Cinepolis is speculative.

The Indian multiplex industry is dominated by PVR with 846 screens, followed by INOX (675), Carnival Cinemas (450), Cinepolis (360) and Miraj Cinemas with 147 screens.

International markets such as the US have many more multiplex operators. The largest firm in US is AMC Entertainment, with 8,043 screens.

According to a recent report by media consultant Ormax, cumulative gross box office collections for 2020 and 2021 in India was just ₹5,757 crore, almost 50% lower than what the country’s film industry had grossed in 2019 alone.

Further, box office revenue was also robbed of nearly ₹580 crore from the release of 26 Hindi films directly on video streaming platforms between March 2020 and August 2021 alone when cinemas were shut.

Though theatres are seeing initial signs of recovery with an attractive line-up slated for the summer, there is no way losses of the past two years can be wiped off anytime soon, trade experts said, making it tough to invest in new properties and easier to partner with rivals to ramp up screen count.

“It’s clear that the Bijlis don’t see value in the business anymore, and this is the best way to exit. While they could have waited for a while to see how things turn out, PVR is also at a disadvantage, thanks to its model of taking properties on lease instead of owning the asset as INOX does," a second person pointed out on condition of anonymity.

In such a scenario, the merger with Cinepolis India, a conservative, zero debt company since inception, makes sense. The 846 screens owned by PVR combined with Cinepolis’ 360 will enable the combined entity to have a 42% share of the multiplex segment and a 15% chunk of the overall movie screen ecosystem in India, according to estimates by Karan Taurani, senior vice-president, Elara Capital Ltd. The combined entity will command a box office (Hindi and English) revenue share of 35% post the merger.

A film producer and distributor pointed out that such deals will put filmmakers at a disadvantage.

“Competition is always good for the business. The combined entity will be able to dictate shows and screen timings, and producers will have no option. In a monopoly, they may even demand a higher share of box office revenue, more than the 50% that is the standard norm right now," the person said.