Only three weeks ago, everyone was talking about a possible merger between PVR, India’s largest multiplex chain, and Cinepolis, India’s third-largest multiplex chain. Then, just a week later, reports surfaced that Inox, India’s second-largest multiplex chain, was planning its massive acquisition of Carnival and Miraj Cinemas.
After that, you can guess what occurred.
Instead, PVR and Inox announced that they would merge to form PVR INOX, a new company. They will now control 50% of India’s multiplex sector in one fell swoop – a merger of epic proportions. And if you’re not impressed by this, consider this: for every 100 dollars made at the box office, this behemoth might take home $42! The magnitude of this place is insane!
But why are they suddenly clasping hands? Why are two competitors who used to go toe-to-toe now becoming friends?
It doesn’t take a genius to figure this out, but if you’re looking for a quick summary, the pandemic is to blame. Multiplex chains have had a particularly difficult time in recent years. When the threat of an unseen illness loomed largely, people were locked up at home, movies weren’t coming out thick and fast, and no one wanted to go to the movies. Meanwhile, box office receipts have sunk to new lows. According to some estimations, the Indian film business lost at least 15,000 crores as a result of the incident. It was a disaster.
To make matters worse, it wasn’t the only problem plaguing companies like PVR and Inox. Netflix and Amazon Prime, for example, have increased their direct assault. They persuaded filmmakers to release their films only on online platforms, bypassing the traditional theatre distribution. In other circumstances, filmmakers willingly shorten the theatrical window to release their films as soon as feasible via OTT platforms. They weren’t having it with multiplex chains, and OTT players bribed them to strengthen their resolve.
This was another setback for an industry already reeling from the pandemic’s aftermath. Needless to say, they needed to take action. And this merger demonstrates that they aren’t going to take any of it lying down. Both corporations stated after the announcement that this merger was an attempt to “resist the onslaught of OTT players.” It’s what they’ve said. It isn’t ours.
In conclusion, this combination gives both organisations greater breathing room and may even help them prosper in the long run.
But how do you do it?
What exactly does this mean for the companies’ success?
According to one study, it’s an “invincible size advantage.”
It’s known as bargaining power in layman’s terms. When you own a significant portion of the market, you can impose terms on both your suppliers and customers.
Allow me to explain.
Multiplexes now account for half of all box office earnings. That is a substantial sum. The only thing keeping them from reaching new heights is… competition. They are intensely competing with one another, and they don’t have as much power over producers. However, if a single organisation (such as PVR-INOX) emerges to control a significant portion of the market, producers will find it difficult to refuse, even if they seek a bigger cut. And it’s not just about box office receipts. Consider advertisements: today, Inox offers a 30% discount on commercial slots when compared to PVR. That discount is unlikely to last if the purchase is completed.
Finally, there are individuals such as you and me. We already pay a lot when we go to the movies, with the food and beverages being extremely expensive. However, it is now possible that it will become even more costly. This is what negotiating power accomplishes.
When someone possesses this type of power, the Indian Competition Commission should step in to investigate the merger. They’ll investigate whether the union has a detrimental influence on customers, innovation, or industry growth. PVR and Inox, on the other hand, did not require CCI’s approval.
Why?
Companies do not need express authorisation to merge if their combined revenues do not exceed 1,000 crores, according to their laws. And, given the previous financial year’s lockdowns, closures, and mass shutdowns, this was never going to be an issue. Inox and PVR’s revenues have dropped from over 5,000 crores in the fiscal year 2020 (FY20) to just over 300 crores in fiscal year 21 (FY21).
They weren’t even close to hitting the $1 billion level.
However, incumbents can still file a complaint with the CCI. The only issue? They’ll have to prove that PVR and Inox are indeed breaking antitrust rules.
Is it true that PVR-Inox has a virtual monopoly?
And the answer is… perhaps not. They do, after all, control half of the multiplex market. However, when all movies are considered, including single-screen theatres, their proportion reduces to less than 30%. This becomes a non-starter when OTTs are added to the equation.
There’s also another factor to consider. Despite its love of movies, India has a limited number of movie theatres. The country’s 9,000 screens equate to only 6 screens per 10 lakh people. In the United States, on the other hand, there are 125 screens for every ten thousand individuals. In some aspects, PVR Inox may argue that the market requires large players to develop further.
Anyway, all of this is just speculation at this point, and the deal will most likely take another 6 to 9 months to complete.