Daybreak - Why occupancy at the country’s largest multiplex chain is declining

Episode Date: January 10, 2023

PVR, the country’s largest multiplex chain, made up for the pandemic-induced revenue loss by raising the prices of tickets and food and beverages.But it saw its occupancy fall to the lowest levels in a decade even after movie theatres reopened at full capacity.What is keeping India's theatres empty?Tune in to find out.

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Just like in the rest of the world, the pandemic hit the theatre business in India pretty hard. It was only last year that movie theaters began operating in full capacity. But many analysts believe that the financial year 2023 could actually turn out to be a profitable year for multi-party. In fact, some even think that in the next financial year, the earnings per share of BVR and Inox could jump two to three times. To recover from their losses during the pandemic, multiplex chains have hiked up the prices of tickets and food and beverages. Though this may not

be working in the favor of moviegoers like you and me, for multiplex theaters, the future is beginning to look less bleak. And then last week, multiplex owners saw another huge relief from the country's top court. After a four-year-long wait, the Supreme Court ruled that multiplexes have the right to prohibit moviegoers from carrying outside food into the theatres because as the property owners, they deserve the rights to set conditions. Now, food and beverages are among the biggest contributors to the multiplex business. But even after the Supreme Court's ruling, the shares of multiplex chains still slipped into red. So could the jacked-up ticket and food and beverage prices be the reason for this decline?

What could be the other factors? Welcome to Daybreak, a brand-new podcast from the Ken. I'm your host, Nickda Sharma, and in each episode, I will tell your business story that is current, significant and most importantly interesting. Let's begin by looking at how multiplexes have been trying to recover from the losses that they suffered during the pandemic. In the quarter that ended in June last year, PVR reported revenues of €1,000 crore rupees. This was 112 crores more than what it had made in the same period before the pandemic. During this time, we also realised how content is still king. Take for example the Canada movie KGF2.

Just that movie alone contributed to 23% of PVR's overall box office collections during that quarter. So people were ready to spend more money provided the content, irrespective of the language, was worth it. And not just that, PVR's share price also seems to be bucking the global trend. Its stock has actually risen by 50% in the last five years. And in the last year or so, it rallied at 41%. For comparison, the shares of US-based AMC theatres, the world's largest movie theatre chain, declined by 44% in the last five years. In September last year, the British movie theatre chain,

Cine World, the second largest after AMC, filed for bankruptcy. But BVR, on the other hand, is adding more screens to its theatres every year. In the last five years, its number of screens have gone up by 44% and the number of seats by 32%. And it plans to add another 100 screens in the current financial year. Not just that, a merger with Inox, India's second biggest multiplex chain, is also on the cards. Once this deal comes through, it will give the combined entity more than half of the market share in India's movie exhibition business. But despite all these promising trends, occupancy levels at PVR and INOX are seeing a general decline. Let me give you a closer look.

For INOX, occupancy was just 17% in the quarter that ended in September 2022. Only 30 million people visited its multiplexes in the first six months of this financial year. In the same quarter before COVID, Inox's occupancy was 36 million. And PVR, like I mentioned earlier, has also been suffering from the same problem. It saw its occupancy dip to the lowest levels in almost a decade. It was way down to only 24% in the quarter that ended in September 2020. And this is according to the company's own filings. Even the first quarter after the pandemic, which is April to June 2022,

it recorded an occupancy rate of just 34%. High ticket prices are turning out to be a major entry barrier for movie gores. When theatres reopened post-COVID-19, multiplexes increased ticket and food and beverage prices to recover their losses. Average ticket prices went up to an all-time high and there was a 32% rise in average food and beverage prices per head. In the quarter that ended in June last year, PBR's ticket prices went up to 250.

And though they came down to $224 in the following quarter, they were still 11% higher than the pre-pandemic levels. So if a family of four wanted to go watch a movie, they would have to shell out at least $1,000. And a bucket of popcorn with a soft drink would cause them another $500 to $750. An analyst who did not wish to be named told the ken, and I'm quoting, the cost base of multiplex chains is lower than before COVID-19. FNB revenues at chains like PVR are similar to dine in revenues at large quick-service restaurant chains. The only nagging worry is the footfall. End quote.

Apart from the hiked up prices of tickets and FNB, the high cost of the entire movie business, from production expenses to active fees to distribution, are making movie watching unaffordable. for many Indians. Plus, some of the biggest movies of 2022 like Shamshera and Lal Singh Chadda actually failed to lure the crowd back into cinema halls. And last but not the least, the rise of over-the-top or OTT platforms

such as Netflix, Amazon Prime and Disney Hot Star is turning out to be quite a challenge for multiplexes. Many movie makers too are choosing to release their films on these platforms directly. A Mumbai-based producer whose film is scheduled to release early this year told the Ken that the last two years have filtered the audiences palette. So now everyone has to put up their game to bring the audiences back to the theatres. Also gone are those days when one had to wait for months to watch theatrical releases at home. When cinema halls reopened, the industry reduced the window for releasing films on OTT platforms from 8 to 4. weeks. But there are people who don't see OTT platforms as a long-lasting threat.

An executive who runs the domestic theatre business of a leading movie studio told us, and I'm quoting, OTTs largely work on a cash burn model and they will have to re-valuate their strategy eventually as they cannot keep paying big bucks for mediocre content. End quote. So what then is the way forward? The only way for multiplex change, to get back their old growth trajectory is to get more people to come to theatres and make them keep coming back for more. While we do not have an answer to how they can do that, many industry insiders believe that the generational shift happening right now

will make it quite hard. Sudib Sharma, who wrote the screenplay of Patal Lok and Amazon Prime original series, put it quite succinctly. He said, and I quote, we were going to the movies out of habit and the pandemic has yanked it away. I don't think we're going back to the theatre soon. I'm not going to call the exhibition industry a dying one,

but growth will be limited. End quote. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long. long-form feature stories, newsletters, subscriber-only apps and podcast extras.

Head to the ken.com and click on the red subscribe button on the top of the website. I am Sniqa Sharmaa, your host and today's episode was edited by my colleague Rajiv Sien.