01-01-1970 12:00 AM | Source: Motilal Oswal Financial Services Ltd
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Some respite from pandemic woes, but OTT overhang persists

Finally some relief from COVID-19 restrictions

After remaining severely impacted for nearly a year, weighed by the COVID-19 disruption, the Cinema industry’s plea has finally been heard by the central government – cinema operators are now allowed to operate their screens with 100% occupancy.

Although it would take some months for operations to commence entirely (as many states are still restricting occupancy to 50%), the silver lining is that the release of some fresh content in the regional markets has shown good traction. Moreover, the content pipeline looks strong, with many big banner movies (initially scheduled for release in CY20) awaiting release, including the recent announcement of the Salman Khan starrer ‘Radhe’ in May’21.

The rollout of COVID vaccines and cinemas being allowed to run at 100% capacity in Tamil Nadu are welcome positives. However, pan-India recovery could take longer, until which the risk of lower occupancy may continue to put pressure on cash flows and more blockbusters may be released on OTT platforms.

 

Fresh screen adds could slow over next 1–2 years

Multiplexes, particularly PVR, have experienced one of the fastest growth rates, driven by consistent screen additions in the last five years; they have benefited from: a) low penetration of good-quality screens in India and b) value migration from single-screen theatres to multiplexes.

The management has indicated that operations at 15–20 new screens, which are in the advanced stage of development, may commence by Mar’21. It further indicated long-term screen adds would remain intact as normalcy returns. Compared with ~80 screen adds each in the last two years, COVID-19 has severely impacted the pace of new screen additions.

We believe this impact may continue to be seen over the next 1–2 years due to the development of new malls – which could prove challenging given the ongoing pressure on real estate players and incremental balance sheet stress due to prolonged recovery. On the flip side, lower rentals in the backdrop of weak market conditions could offer better business economics and aid in accelerating additions.

 

Changing dynamics in Entertainment market

The improving ecosystem of OTT consumption, led by increased digital content and data penetration, is a well-known evil. This is despite the Cinema segment’s value propositions, such as a better movie-watching experience, limited alternatives for recreation in India, and favorable comparisons with the developed markets (such as the US). However, occupancy rates are at risk of softening over time due to certain inevitable factors. A) The contribution of movie theatres in the movie revenue pie has declined to 75% in India and ~40% globally. Over time this could diminish the bargaining power of cinemas in India for exclusive screening windows – this trend is already seen globally. B) Increasing viewership and the growing size of the OTT market are attracting a strong talent pool and the ability to develop good-quality content, which is creating a strong substitute (unlike TV content), especially in a price-sensitive market such as India.

 

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