Most of tenants like Starbucks ,Oyo have sought refusal to pay rentals under force majored conditions but most agreements may not have this clause for the purpose of rental waiver as it’s a Black swan event and could not be anticipated by anyone, though not sure if PVR has this clause in their agreements. Its also true that the property owners or landlords would definitely have the burden of paying EMI,interest,principal etc towards the property. Its therefore is a chain and is not going to stop and would land in courts. Therefore to accept that PVR or other tenants would get the relief on asking may not come about.
Multiplexes like PVR serve as anchor tenants in indian malls . They drive considerable footfalls ,which helps other businesses in the mall . So they may be able to strike a better bargain with mall owners than say a starbucks or other retail shops . No large mall would want to lose a multiplex as the hit to the footfalls could be considerable.
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There are two things to consider while investing in PVR currently.
- Occupancy levels - Occupancy levels for pan india players like PVR is around 30-35% on an annualized basis and this is directly related to releases of big budget movies where the occupancy levels are around 90-95% for 1 week. In every quarter there is atleast 2 big budget movies that releases which preps up this occupancy rate. Given that even movie production is halted and sentiment is low, big budget movies are unlikely to release until Q3/ Q4 of 2020-21. Even if it releases occupancy rates are unlikely to be at historic levels until Q1 of 2021-22.
As a movie-goer i would prefer not to go to movies even if its from my favourite star. Given that scenario for star driven movies, this essentially rules out all the small budget movies which are sleeper hits for the next 6-9 months. This will have a cascading effect on producers since the industry is dominated by only 10-15 top producers. Since they simultaneously produce big and small budget movies, new production ventures will not be undertaken for next 9-12 months.
- F&B revenues - F&B revenues of multiplexes would be around 15-20% of revenues and would contribute margins of around 60%. With the low occupancy levels and change in consumer behavior, this will also go for a toss.
The pain for this industry is just too big to imagine and comprehend currently. I would wait and see for 2-3 quarters and then take a call on investing.
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Could this be the beginning of a new trend setting in Online vs Theatrical Release argument
This online vs theatrical release debate is a very interesting one indeed. I was speaking to a industry veteran in this industry and he opined that the industry dynamics of both these segments are different. It is also very difficult for a movie which is produced targeting a theatrical release to be profitable if it has only a digital release.
The cost structure for a digital release has to be planned considering the revenue stream from that source. Also, take an example of a movie like Baahubali or Avatar which is largely a visual experience. The amount of spending on VFX would be astronomical and covering the same through digital release only will be very difficult. However, content driven movies driven more by tighter screenplay and dialogues, produced on an optimal budget should be profitable in the digital medium.
In summary, I feel there will be a sea change in the type of content being produced for both the mediums. The different strategies that the theatres adopt to pull the crowd back to theatrical releases will be interesting to observe. Normalcy is unlikely to resume for this industry unless some out of box thinking emerges.
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Yes there is a reason sanguine in indian markets because indian markets are still at naïve stage as compared to US’s Multiplexes markets. To compare, AMC theatres have 8200 screens where as PVR has just about above 700 screens.
There are also new developments happening AMC Theatres that amazon might do a takeover of the AMC, and if this done there is going to be re rating across of theatres across globe
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Direct release on OTT gaining ground
If most movies release on OTT now, whenever the theatres open there won’t be fresh content available for sometime. Looks like long wait for multiplexes
Disc. Not invested. Tracking
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Keeping long term view, PVR will bounce back. OTT cannot replace the multiplex . Two major reasons as per me - 1) Sound and picture quality. Dolby atmos, large screen, 3D. 2) Watching a movie in multiplex gives much higher feeling of being entertained. Especially in metros with malls and multiplexes as entertainment zones.
Now the key question is what is the right price range to enter given current lockdown situation keeping global view.
Would like to have views on this aspect.
My views are as under:
1.The viewership will remain blow for the next at least 6months at least while PVR /Inox would have to foot the fixed cost. They don’t have forced majeore clause in their agreements and therefore which way it will land is not known.
2.This is a discretionary expenditure and a no of job losses will definitely impact the industry.
3.The film producers HV started looking for OTT and if they find it lucrative, they may change the way , they do business.
4. The cost of visiting multiplexes for entertainment is definitely much higher that OTT and there is a threshold or break even for multiplex operation and if the viewership which is already low,any further reduction along with reduced expenditure on F&B would definitely impact the multiplexes for long times to come.
Disc:watching but no investment currently
Surprised to see that they don’t have force majeore clause. I was of the view that they will invoke such a clause. If they are not able to invoke the clause, the business will surely take a bigger hit.
Is there any source of info. that they dont have force majeore in their clauses? I read the inox concall and they said they have this clause and they are already speaking to the landlords for rent negotiations for future as well.
Can you share the source of this info.?
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I don’t have specific info about PVR. But I have never heard till date about any rent/lease agreement not paying rent because of a forced majeore clause as the landlords would themselves must have raised funds for the property being rented.For such a clause to be included, the risk premium would be added to the fair value of the rent prevailing at that time. Let us understand that it’s an unimaginable situation (like 9/11 leading to fall of twin structure) .For that matter, even Starbucks and all major tenant companies would approach their landlords for partial/full waiver and it would also give rise to claims/ counter claims , bankruptcies etc. ultimately falling in courts.
They do have this clause in their contract.
You need to read the fine print of agreement to Know exactly how forced majeore has been covered in the clause. Whether it covers a pandemic or not. I know for sure that every builder keeps in agreement and tries to cover himself under it but loses in most cases.
It also depends upon the courts as to how they accept it. U may be aware that honorable SC has struck down the govt order of payment of wages during lockdown on the plea of the companies that they themselves HV not done any business and therefore were unable to pay wages.
A setback to PVR and Inox Leisure in mid-term.
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Cinema Halls to remain closed till July 31 as per Unlock 2 guidelines.
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OTT platform Disney+ Hotstar to release 7 big-ticket movies in next two month starting July 24.
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Avg Ticket Prices btw 2015 to 2020 of INOX & PVR
CAGR - INOX 3.36%
CAGR - PVR 2%
As per both the managements going forward ATP shall rise at 4% to 5% which should be annual inflation rate
This generally depends upon the footfall in the multiplex
Food & Beverages
Amount in Crs
CAGR - INOX 17.28%
CAGR - PVR 16.72%
This is high margin business as gross margins are close to 75%. As per management improvement in margins not possible
Spend Per Head
PVR
For FY 2020 SPH is 99 INR which gives CAGR of 7.54%
As per Annual report of PVR 2018/19
INOX
CAGR - 6.44% (SPH) FY 2020 SPH is INR 80
Advertisement Revenue
PVR & INOX both do not want to increase the number of minutes of advertisement on screen.
Currently INOX caps it at 19 odd minutes and PVR caps it at around 22 mins per show per screen of advertisement.
Both chains looking to increase yields by increasing the rates of advertisement
It is still the cheapest medium of advertising and has a lot of headroom for improvement as per both the chains
Also they aiming to increase offline advertisements as the proportion of it is just 10 cent to the overall advertisements. They see a lot of scope to increase the revenue from offline advertisements.
Advertisement expenses have started to fall since the start of FY 2020. As the economy slows advertisement spends are cut by the corporates
OTT Vs Theatrical Release
Concalls Of PVR over different quarters
Talking about the gap between movie release on OTT and Theatrical release
- Windows in that context we have full confidence that our content partners will respect this sacrosanct model which has been in existence for very long duration, which has basically benefited all stakeholders in, film business.
- the windows between theatrical release and release on any other platform will be sacrosanct.
- As far as OTT is concerned or for that matter of fact even pay television or satellite television or any other form of watching film at home or on the go is concerned you can do it only after eight weeks of a film theatrical release.
Concalls of INOX over different quarters
Talking about direct release on OTT platform
- No direct release to OTT which was the agreement earlier
- Hopes movies will not be released directly on OTT platforms But also accepts some smaller budgets may be released there directly
- Threatening the OTT direct release with cut in producer’s share
Now the scenario has changed as a result of COVID. Lot of movies have been directly released on OTT platform skipping the usual practice of releasing the movie in cinemas which may put pressure on cinema exhibitors either to pay more to distributors or producers of the content or may have to reduce the ticket prices to attract more people & ultimately increase the occupancy at multiplex level.
More footfalls lead to more revenue for any multiplex as they will be able to sell more products in food & beverages & also can attract more advertisement revenues as well.
I really don’t think OTT can take away entire business of multiplexes as IMHO cinemas are there to give an experience of watching any movie which OTTs or for that matter televisions have failed to give us. One may argue that in short term some movies may be directly released on OTT and that may very well happen as well but in longer term people will go out to watch the movie on the big screen. People may start comparing costs of watching movies in cinema & on OTT and may pick & choose which movies to watch where but in longer term cinemas will come out stronger purely because of latest technologies which they can use and the experience they can provide to the consumer coming for movie watching. It may happen that movies being made for OTT release and theatrical release are completely different
One of the PVR concalls where someone asked about the cheaper mobile plans by netflix
I think this move is a validation of the fact that OTT on television is a failure in this market and if people are going to watch OTT on phone that experience is really substandard as compared to cinemas.
Globally if we see the producers they have released some movies but at the same time they have also delayed the releases of some movies.
For another argument regarding simultaneous movie release on all platforms
OTT doesn’t give amount of revenue needed for big box office collections
OTT doesn’t give clarity as in the total collection in numbers whereas box offcie collection was known to everyone from theatrical release of the movie
Last but not the least the movie watching experience.
AMC updates - Amazon thinking of investing in AMC cinemas - Rationale
A distribution channel for Amazon content being produced, a guaranteed outlet for its own production
Get more people subscribing for amazon prime
Can get easy recognition for awards
Can create additional revenue stream for the contents
Well, there is no word on the investment as yet so we ll have to wait & watch for the further action in that direction.
Other Updates
PVR
They have opened one property with multiple screens in Colombo Srilanka. They see a lot of traction in that market
They cancelled the plan to set up screens in Saudi - middle east
Focus is to open more screens at tier II , III & IV cities in India to increase the reach.
VR technology is still in its nascent stage so difficult to commercialise the same as of now.
Trying to develop the popcorn brand by increasing retail sales outside of multiplex. They hold close to 70% stake in Zea Maze (developing Popcorn brand - still making losses)
As per one of the concalls of PVR in quarter 3 of FY 2020 - You will not see very high growth rates at least in the near term, but we still expect to deliver growth, maybe single digits in the ad revenue in the near term and as and when I think the box office outlook improves and we see some bit of improvement in the economy this will also move up.
SPI chains of cinema taken over by PVR operates in southern region of India at 50% to 51% of occupancy which is considerably high looking at the national avg of 30% to 35%. EBITDA around 20% to 25% which is good and it can capture some local content easily.
INOX
They have started taking group bookings for sports / concerts. Generally for the weekdays. They had the rights to telecast world cup cricket matches
Looking to increase yields in advertisement segment.
Trying to increase the occupancy from 28% to above 30%
Making lot of efforts to increase the SPH to ATP ratio.
FY 21 will be EBITDA negative
Looks very difficult to even be able to work at 50 cent of capacity post Covid.
Some Common Points
Have partnered with swiggy & zomato for online delivery of their signature products directly at home
Both PVR & INOX chains focusing to increase the premium screens. Trying to increase the proportion of premium screens to total screens
Premium screens have almost double ATP and higher SPH to ATP ratio. Also it attracts better rates for advertisements.
All the new properties which come up takes about 4 to 5 years time to reach break even
On an average setting up cost of a screen is 2.5 Crore to 3 Crore
After every 6 to 7 years renovation is carried on to the screen which usually comes to 30 cent of total set up cost of screen
Other overheads are around 40 lacs per screen per annum.
Ultimately number of people walk-in into a cinema has a direct impact on our EBITDA.
Only and only good content can increase the footfall in multiplexes.
As per one concall of PVR , they make operational losses if it is only one segment of movie exhibition which is their core segment to get revenue. All other segments are directly or indirectly depended on movie exhibition
Key Risks ( From Annual Reports)
1 OTT direct first day releases
2 Piracy
3 Ticketprice regulation in some of the states
4 Restrictions on number of shows
5 Regulating the food & beverages prices inside of multiplex
6 Development of real estate slowing down
7 License requirements to start operating
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