PVR, Inox shares recover post RIL shock, but winter may be coming

  • Considering that RIL plans launch of this service in mid-2020, threat seems limited from a near-term perspective
  • Exhibition players such as PVR, Inox Leisure will not be affected by Jio’s movie offering as out-of-home entertainment demand cannot be challenged by at-home movie offerings, say analysts

Shares of multiplex operators PVR Ltd and Inox Leisure Ltd are now down about 1.6% and 3.2%, respectively, after Reliance Industries Ltd’s (RIL’s) annual general meeting. The stocks had fallen much more last week, after the oil-to-telecom conglomerate’s bundled entertainment offering including a disruptive concept for watching new movies at home on the same day they are released in theatres.

Why are investors breathing easy? To start with, since RIL hasn’t given many details about its plans, the exact impact is difficult to quantify at the moment. “We do not expect any material impact on overall revenues of PVR as such a segment which subscribes to ‘premium Jio Fiber’ would be relatively small," analysts from Bank of America Merrill Lynch said in a note to clients.

Analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd said to its clients, “We do not think exhibition players such as PVR and Inox Leisure will be affected by Jio’s movie offering as out-of-home entertainment demand cannot be challenged by at-home movie offerings."

As such, considering that RIL is looking to launch the so-called First Day First Show service only in the middle of 2020, from a near-term perspective, the threat from this move seems limited.

Still, the uncertainty of how the situation would evolve may weigh on multiplex stocks.

If JioFiber manages to screen popular movies on the same day as their launch on theatre screens, the impact will not be trivial.

“Reliance JIO’s announcement of ‘First Day First Show’ movie launch is in-line with our long-term thesis that consumers will reduce the visits to a multiplex due to the content being available on OTT," said Spark Capital Advisors (India) Pvt. Ltd’s analysts in a report on 19 August. OTT is over-the-top and refers to internet streaming media services such as Amazon Prime Video and Netflix.

Given more choices at the consumer’s disposal, it will be interesting to watch if at-home movie offerings will take a big bite from the out-of-home entertainment demand. “Theatrical and at-home are two completely different experiences and each has their own places. Both these experiences have co-existed and prospered for decades and will continue to so in future," said PVR in a statement on 13 August.

From a medium- to long-term perspective, there are potential risks, nonetheless. “With content producers deriving ~75% of their revenues from theatrical Box Office collections, we see no immediate impact to PVRL’s footfalls; however, we believe more movie producers will commence embracing the OTT format over the long term as they begin to see a value proposition emerging out of the new modus operandi," added the analysts at Spark Capital.

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