Cinema Vs. OTT In India
Brainwaves Into A Complex World
Ajay Bijli joined his father’s transportation business in 1988. However, post-1990, he started taking an active interest in the family-owned movie theatre called Priya Cinema, an old cinema house that his father had acquired in 1978. But Ajay saw a unique opportunity and started to renovate the property, add advanced sound systems, clean the toilets, and provide his staff with uniforms.
The strategy started to pay-off with Priya Cinema’s revenues picking up. Ajay now started to think bigger and wanted to introduce the multiplex model in India (multiple screens within a single movie theatre complex). As disposable incomes in India were rising in the 1990s, he was confident that this western concept would work well for the Indian audience.
Ajay went on to meet executives of Village Roadshow (VRS), an Australian media and multiplex company and decided to form a joint venture in India called Priya Village Roadshow (PVR) in 1995. By 1997, India got its first four-screen multiplex in Delhi called PVR Anupam.
After that, there was nothing to stop Ajay. He went on a growth spree and by 2002, even bought out Village Roadshow’s share while keeping the PVR name. Over the course of the last 20+ years, PVR has introduced multiple innovations in the theatre industry including dynamic pricing, emphasis on full-service Food & Beverage and combo packs, partnerships with online ticketing services, and backwards-integration into movie production through the launch of PVR Pictures.
PVR has continued emphasis on aggressive growth through new properties, acquisitions, and international forays. It is by far, India’s largest cinema chain operator.
In this week’s issue, Stuti explores the Indian theatre and OTT space, in the context of the pandemic and the regulatory environment. We also explore how to maximise our “Return On Curiosity”, how to think, the 7 moats of great investors, and lots more.
Let’s dive in.
Cinemas and OTTs - Competition Or Coexistence?
Guest Article by Stuti Johri
When I think of date night, dinner and a movie always come to mind. Netflix and chill, its sleazier second-cousin, doesn’t quite have the same ring to it. Are streaming platforms really a perfect substitute for the cinema experience?
We often talk of going to the movies and watching something on Netflix as binary either-or options, but they are far from perfect substitutes. For friends and families across the country, going to the cinema is an event in and of itself (as someone who grew up attending birthday parties at the movies, I can confirm). One element of going to the cinema that streaming platforms cannot conjure might be unique to India – the cheering and jeering of a passionate collective of strangers simply cannot be recreated at home. Other intangible thrills might be more relatable for higher-end moviegoers: kicking the slightly too tall person sitting in front of you ever so discreetly, whispering “omg why did he do that” to your not-so-omniscient companion only to be loudly shushed by another, trying to manoeuvre through a pitch-dark theatre without spilling the overpriced contents procured from an all too crowded food counter.
The high-margin food offering (including and especially popcorn) forms a huge part of going to see a movie with friends. This was beautifully captured by the buyers of cinema chain Odeon in the UK, who said "The management team really believed they were part of the film business. I had the difficult job of explaining to them that they were in the popcorn-selling business." PVR in India has definitely embraced this, with their menu available to order online. Before the pandemic, the luxury revamp of high-end multiplexes to highlight their dining options also pointed to this understanding – cinemas wanted to capture revenues from both parts of date night.
Arguably, streaming platforms are a much more direct replacement for cable TV than for cinemas. And yet, it’s hard to dispute that they do pose a very considerable threat to the cinema business. In 2020, a number of prominent Bollywood films chose to skip the traditional theatrical release and opted to release directly on streaming platforms instead. Gulabo Sitabo kicked this off in May 2020, and the strong backlash from Inox clearly indicates the adverse impact of such actions on cinema revenues. The huge success of the films that followed, such as Dil Bechaara, might then be worrying for those invested in the cinema business. Warner Bros’ intention to release all 2021 movies on HBO Max alongside their theatrical release will confirm for sure the extent to which streaming platforms are a preferred alternative for consumers, at least in America.
In India, production houses stand to earn far more from a theatrical release – a direct to streaming release considerably limits their earnings upside. However, if fears from the pandemic continue, people might prefer the more convenient way to watch movies. Even if they are willing to step out, social distancing rules might dampen the experience to the extent that it becomes unappealing or even pointless. Faced with the option of minimal income from cinemas vs capped income from streaming platforms, production houses will be forced to tailor their approach to customer preferences and protect their downside. If this continues long enough to become a habit, cinemas might find themselves with far lower bargaining power even after fears have abated. I don’t doubt they’ll survive, but I’m sceptical of there being a significant growth opportunity here, particularly given the high fixed costs involved.
I am convinced there is a pent up demand for movie-going, especially if the recently released Tamil movie ‘Master’ is anything to go by. Bollywood films have begun announcing their theatrical releases as well, clearly hopeful of a strong comeback. However, cinemas will definitely lose a chunk of market share in the segment of erstwhile patrons who used to frequent cinemas for the content itself and are not particularly interested in the accompanying experience. While this analysis applies primarily to high-end multiplexes, the general principles will trickle down. Cinemas also lose out to streaming platforms on affordability and accessibility and are quite a luxury particularly in the post-Covid world of higher unemployment and wide availability of convenient, pocket-friendly entertainment options (compounded by the wide availability of cheap phones and internet).
The post-Covid world also happens to be one in which censorship is at an all-time high. Calls for boycotting some movie or the other have been prevalent for a while, gaining steam over the release of Ae Dil Hai Mushkil in 2016 and reaching a crescendo by the time Padmaavat rolled around in 2018. Sadly, no momentum has been lost since – at any given point in time, Twitter trends feature one movie that has fallen out of favour with the internet’s moral police. Even outside the regulatory purview, film exhibitioners are repeatedly being forced to bow down to pressure or fight legal action. In dealing with such matters, well-established Indian cinema houses might have an edge – the leading streaming platforms in India are foreign-owned with a potentially lower appetite for continuous conflict, and homegrown streaming platforms are quite small with potentially lower ability to absorb mounting legal and PR costs.
This is not even taking into account the present legal climate. The new draft IT Rules 2021 propose to give the central government discretionary power to block access to content on streaming platforms under an ‘oversight mechanism’, making matters increasingly difficult for streaming platforms. These rules have yet to come into force, but courts have already begun to prioritise hurt sentiments over freedom of speech in online content, as seen in the Allahabad High Court’s judgment on Friday in relation to the Amazon Prime show, Tandav. These developments are clearly a blow to the streaming ecosystem in India, as part of the draw towards such platforms has been the availability of uncensored content.
It’s too early to tell if rising censorship will be enough to deter streaming platforms, but I imagine not – India is a huge market for international players and the growth potential for domestic ones is likely to be too attractive to pass up. The question is – will streaming platforms outperform cinemas with their cost, convenience and content advantage? Or will they continue to coexist as beautifully, as the representatives for India’s biggest multiplexes assert they have been ever since streaming became popular in India? Either way, I can’t see it being an easy journey for cinemas. I do believe that people are yearning to return to physical experiences, but also that streaming platforms will continue to hold a vice-like grip over their customers. Whether or not the two are in direct competition, even the extent to which they are definitely competing is damaging enough to cinemas to make them not compelling as new investment opportunities.
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That's all for this edition! We hope you liked it and would love to get any feedback you may have. This newsletter is written and curated by Mishaal Nathani and Ashutosh Gehlot.
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I enjoyed reading the article. The writer starts by drawing in the reader by sharing an irreverent personal experience that most of us will smile about and be able to connect to. She goes on to offer a good mix of information, point of views and insights into what lies ahead. This makes me think and debate in my head with the writer even after I have finished reading. My personal view is that the ' real' world will come hurtling back before we know it and people will want to go out and spend money and have a good time because the underlying human desire to connect with others and not be on their own will prevail. This is already evident in many economic categories. All the best, Indriyajit