PVR plans to redefine fun for the average Indian with its chain of retail entertainment centres and perhaps redefine itself in the bargain,says Ajay Bijl,chairman and MD of the cinema chain.

Written by Rahul Sharma | Mumbai | Published: August 20, 2010 11:44:16 am

PVR plans to redefine fun for the average Indian with its chain of retail entertainment centres and perhaps redefine itself in the bargain,says Ajay Bijli,chairman and MD of the cinema chain.

THIRTEEN years ago it started a revolution. And today it is on the threshold of another. PVR Ltd,the company which introduced the word “multiplex” to the Indian cine-goer’s dictionary,is about to start a new innings in the world of consumer entertainment in India. Come 2013,the company will open the first-of-its-kind “Entertainment City” featuring an Olympic size ice-skating ring,a 24-28 lane bowling alley,food courts with restaurants,a microbrewery-based Beer Island and food kiosks. And to top it all the country’s largest multiplex with 15 screens. Spread over an area of 150,000 square feet,the city will be set on two floors in Logix City Center in Noida.

“The Entertainment City will be a mecca of entertainment in the NCR region as we will house all our formats under one roof. This is a huge step forward for us to realise our dream of becoming an integrated entertainment company. Our innovations are driven by our customer’s aspirations and I am sure that this new format will be well-received by our patrons,” says Ajay Bijli,chairman and managing director of PVR.

The company plans to introduce this format in other cities like Hyderabad,Bengaluru,Chandigarh,Pune,as well as other locations within NCR. The company wants these to be a one-stop shop for all the entertainment needs of the consumers. What this place would offer has been clearly defined—fun,food,fashion (of the street kinds as opposed to haute couture) and films.

It might appear as the next logical step for the movie production to exhibition chain,but this dream was woven almost around the same time when the company set up its first multiplex PVR Anupam at Saket in New Delhi. “The objective of being an integrated entertainment retail came to us by the end of the ’90s,we were reasonably clear about it. But it was very difficult for a company of our size to openly announce this ambition,because we would have either qualified as a liar or would have been called a stupid freak who is thinking about X and can’t even deliver Y,” says Pramod Arora,CEO of PVR.

As a matter of fact,when Bijli started the multiplex business,there were many who were sceptical about such a format working in India. In fact,the options for raising money for such a venture were limited. PVR Anupam Saket was financed through debt and PVR Priya by securitising future cash flows! The screen size was small and the ticket prices much higher than the single screen theatres. Not only did he prove his detractors wrong,but Bijli also led others to look at this as a viable business model. PVR Anupam broke even within two years of its operation. In 2001 came the first private equity investment by ICICI Securities and five years later the company came out with an initial public offering (IPO). “The Indian economy was opening up at that time. But still there were issues of affordability. PVR was the one who started the model by creating a showpiece,of what cinema going was to be in future. And it has done extremely well at that,” says Timmy Kandhari,head of media and entertainment practice at consultancy firm PricewaterhouseCoopers (PwC),India.

The stiff competition in the sector,led by some consolidation in the recent times,has today pushed it to the third spot among multiplex chains with 136 screens. Today,Reliance ADAG owned BIG Cinemas has the maximum of 242 screens,followed by Inox Leisure with 204 (after buying majority stake in Fame India which had 95 screens). PVR,too,wanted to acquire DLF Group’s multiplex business,DT Cinemas,but called off the deal early this year. “The competition has no doubt increased in the multiplex business,but each of the players have their own zones. PVR is strong in the north. Having said that,in other places it has some of the best properties,” says Anand Shah,senior research analyst at brokerage firm Angel Securities.

This was something that was bound to happen. With increasing competition,PVR knew it could not bank solely on the first mover advantage for long. At the time of the IPO,a company,PVR Pictures,already existed within the group that handled the distribution of English movies. This helped it gain an insight into revenue flows in the movie business.

To give it an edge over its competitors,the company went on to do a backward integration. Simply put: Be in production and distribution,the other missing pieces of the jig saw puzzle! It entered into an agreement with Aamir Khan Productions Ltd (AKPL) for a two-movie co-production deal through PVR Pictures. “We realised that production and distribution was a scalable business. It was quality which led us to AKPL,” says Arora.

“If I tell you the financial structuring of the deal,you would wonder how we expected to make money from this deal. We not only ended up making money but it also turned out to be a robust revenue stream for us wherein we were able to establish PVR Pictures. We realised this company could have a separate journey of its own,” he added. After it was taken out of PVR,private equity flowed into PVR Pictures. J P Morgan and ICICI Ventures invested in the company. “While they were present in the distribution business,movie production was new. But the only films which did work were the ones with AKPL. Other movies did not do well. Last year there was none. But what is also true is that while this production-distribution has been tried by many others in the industry,PVR does manage it well,” says Shah.

Recently PVR Pictures released its latest movie Aisha,an Indian adaptation of Jane Austen’s novel,Emma,made on a budget of Rs 20 crore. The movie breaks new ground in brand alliances—it is associating with international brands Christian Dior and Salvatore Ferragamo,which till date have not integrated their products with Bollywood movies to such a degree. Sonam Kapoor,the lead actress in the movie,wears 60 Christian Dior dresses. Even Abhay Kapoor sports Christian Dior suits in the movie. Other brands featured in the movie include DLF Emporio,Portico and L’Oreal Paris. There are two more movies slated for release this year.

Simultaneously,PVR has also worked on increasing the revenues from another source,in-cinema advertising,which was hitherto untapped to a large degree. This has grown from Rs 9 crore in 2006 to Rs 40 crore last year,which is almost half of the total in-cinema advertising in India. Of the total advertising revenues,65-70 per cent comes from ads run during the interval. The rest comes from activations and other branding activities that takes place in the theatre. In fact,the activations have grown tremendously over the last few years.

“Four years back,non in-screen ad activities comprised only 10-15 per cent of the total revenue. But you can’t do activations beyond a certain point. I do not want to spoil the movie going experience of the audience,” says Gautam Dutta,CEO,Cine Media PVR, the sales and marketing division of the company. It is readying a new innovative advertising programme which will address the concerns advertisers currently have with in-cinema advertising.

But backward integration simply wasn’t enough. PVR was looking at other ways to expand. It then conducted a small survey asking its customers to identify domains they would want PVR to get into. “All of the responses told us that it had to be related to entertainment,” says Dutta. That’s how the idea of retail entertainment centres got further solidified. “The serious shopping in a mall is only to the extent of 20 per cent. For the rest,it is a place to unwind,relax and what the customer buys is on impulse. We wanted to build on the high impulse thing,” says Arora.

The first offshoot of this new thinking is reflected in PVR Blu O,a 51:49 joint venture between PVR and Major Cineplex,Thailand. Blu O opened a bowling alley in Gurgaon last year and registered an income of Rs 13.9 crore in the first year itself.

Industry watchers and analysts have been monitoring the second leg of PVR’s journey. “During FY2010-12E,we expect PVR to register a 34 per cent CAGR (compounded annual growth rate) in top-line,primarily aided by seat additions (as we factor in only 3 per cent improvements in average ticket prices and food and beverage spends),56 per cent CAGR in revenue from film distribution and 42 per cent CAGR in revenue from Blu-O’Ray. Earnings are expected to register a 394 per cent CAGR over the same period,” says a report by brokerage firm Angel Securities. What is interesting to note is that bowling alleys had become quite a rage a decade back but then slowly faded out in most cities.

In fact,in Major Cineplex,PVR has found a perfect partner. Major Cineplex is an integrated retail entertainment company. The new business offers a higher asset turnover ratio (turnover for every rupee of capital invested,or ATR) compared to a multiplex. While multiplexes ensure an ATR of around Rs 1.20,in the new format,the ATR could go up to Rs 1.60. “We have been working on getting higher returns,” says Arora.

“This is one of the formats that may help us achieve that as well. But more importantly,it was a gap that existed in the domain of business we operate in. It made imperative sense for us to take that head on,” says Arora. And perhaps enjoy the same first mover advantage it did when it introduced multiplexes.

The marketing and branding strategy of PVR has kept up with the changes. From “Unmistakably PVR” to “Be Here”,it has ensured that the brand communication is a direct offshoot of the company’s overall game plan. When other players joined the multiplex bandwagon,PVR moved to “Movies First”,as that’s what they were all about. And the latest one—Be Here—is an expression that has a “shade of arrogance”. “What we have created are spaces. Consumer today needs a stamp of authority. And plus it is very versatile,” says Dutta.

But the big question is will it work? “Bowling alleys haven’t been tremendously successful in India. There were a number of them around a decade back,but majority of them went out of business,”says PwC’s Kandhari. He adds the these centres will be the peripherals while the core will be production-distribution-exhibition business.

Something which the company does not deny. It has chalked out aggressive expansion plans for not just tier II and III towns but also beyond. Nanded,Jabalpur,Bhilai,Guntur,these are some of the towns on the list. “If you look at the next three years of our growth phase,we’ll get aligned to the non-metros in a big way. They are the next big thing in consumer spending. And due to an easy lifestyle they have time to spend on entertainment,” says Arora. When the entertainment centres open,footfalls are in a way guaranteed,because they will offer cinema as well. What could be critical would be the pricing for these.

But industry watchers agree that the time is right for the entertainment industry to go places. And PVR could just make it happen. “Things look good for PVR. They have learned from their mistakes. The backward-forward integration helps them better in terms of negotiation,understanding business and diversifying risks,” says Shah.

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