Power Play: Analysing The Implications And Opportunities Of The PVR-Inox Merger

Prior to the pandemic, PVR held a commanding 33% market share while Inox Leisure was in second place with a 20% share, both engaged in fierce competition. These companies were established in the 1990s, when the Indian cinema industry was dominated by single-screen theatres. 

However, the advent of multiplexes in the early 2000s gradually replaced many single-screen theatres in major cities across the country, and PVR and Inox were among the early entrants to this industry, quickly establishing strong market positions. Despite the intense competition, PVR's revenue increased from 274 crores in 2010 to 3284 crores in 2020, achieving an impressive compound annual growth rate (CAGR) of 42%. 

Inox also saw impressive growth during this period, with revenue increasing from 230 crores to 1897 crores at a CAGR of 30%. However, the industry faced disruption when OTT services entered the Indian market in 2016-17, driven by the increasing affordability and accessibility of high-speed internet and the rapid adoption of smartphones and mobile devices. 

OTT platforms seized the opportunity to offer on-demand video content to a large and growing audience, challenging the traditional cinema industry. The rise of OTT presented a challenge to the theatre business, as it offered benefits such as convenience, flexibility of time, and cost-effectiveness, without the need for travel. 

This impact was reflected in the revenue growth of PVR, which increased at a rate of 39% from 2010-2016, but only grew at a CAGR of 21% in the last five years of the decade. While multiplexes were attempting to compete with this new challenge, the Covid-19 pandemic struck, resulting in prolonged closures of multiplexes and a significant loss of revenue, profitability, and liquidity. 

This was compounded by the fact that OTT platforms gained more popularity during the pandemic due to people staying at home. As we can see in the figure, both PVR and Inox were severely impacted by the pandemic, with revenues in 2022 barely reaching the level of 2014.  

Furthermore, with OTT platforms offering an alternative to movie theatres, it has become increasingly difficult for multiplexes to regain their market share. Given the current circumstances, it seems that the merger of the two leading companies in the industry is aimed at revitalizing their operations with increased strength and flexibility. 

Prior to March 2020, the idea of PVR and Inox merging would have been improbable as both companies were performing satisfactorily. Ajay Bijli, CMD of PVR, acknowledged that the pandemic expedited the process of the two companies coming together. PVR and INOX were once fierce competitors, with PVR dominating the northern, southern, and western regions of India and INOX holding the eastern and central regions. 

The recent merger of the two companies will result in a multiplex industry share of around 16% if single screens are taken into account, but close to 50% if they are not. With a total of 1,546 screens located across 109 cities, the merged entity will have significant bargaining power and be able to achieve substantial cost and revenue synergies. 

Siddharat Jain, Director of Inox Leisure, stated that the potential for expansion in the industry is vast. India has only 9,000 screens compared to China's 80,000 and the US's 40,000. Despite the Indian audience's strong preference for watching movies on large screens, it has been challenging to penetrate smaller towns and cities due to real estate congestion. 

However, since PVR and Inox have strongholds in different parts of the country, the merged entity can focus on expanding into untapped markets. India is a diverse country with a population of 1.3 billion, and different people have different preferences. While OTT and theatres are two separate industries, a large section of the population enjoys going out to watch movies in theatres. The combined entity will be in a better position to expand and cater to the demands of different regions. 

Puja Aggarwal Gulati, Associate Professor,

IMT Ghaziabad