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Pursuant to our Jun-22 report (‘Bollywood yet to get its mojo back’), Bollywood boxoffice performance has further deteriorated over the last two months. Poor content performance is largely underscored by deprecatory critics-reviews and social media influencing. We maintain that content quality has superseded star power which is evident in the recently-released movies being a letdown (Exhibit 3 & 5). On the other hand, regional and Hollywood movies (a slew of releases) continue to do well, partially offsetting the weak Bollywood performance. After a successful Q1FY23, overall boxoffice collections have meaningfully tapered, with mega-budget movies performing poorly in Q2FY23 owing to weak content; based on this, we cut our FY23 revenue estimates for PVR/Inox by 11-12%, but maintain FY24/FY25 estimates in the hope of a trend-reversal in Bollywood content delivery. We have a BUY on both, PVR and Inox, with TP of Rs2,340 and Rs695, respectively, while we remain watchful of the audience acceptance of Bollywood, which has struggled lately.

As regards content, while Bollywood has seen a trough in the past, it is witnessing deterioration in movie-collections again this time round. Going ahead too, while the movie pipeline looks healthy, audience acceptance is key. If Bollywood content performance continues to be poor going ahead, it would lead to further earnings cut as well as de-rating for PVR and Inox. A timely merger remains crucial.

* Sub-par content quality being rejected by audience: As highlighted in our previous note, Bollywood content has been sub-par, pushing audiences to switch to other languages and mediums of entertainment. Critics reviews and word-of-mouth communication, which play a major role in box-office collections beyond the first week, have been negative-to-mixed for most movies released since the end of the pandemic (Exhibit 3). Thus, most movies have even struggled to recover the cost. A mega-star cast, which was able to pull audiences to theatres, is now no longer effective as weak content has become the decisive factor. The first weekend net box-office collections for movies with prominent stars are getting restricted to

* Regional content- ‘The savior’: Regional cinema has been the major driver of box-office collections post Covid. Regional content with positive/strong reviews has also received acceptance from Hindi-speaking markets. We believe this has been the silver lining in the last six months, though it may not sustain ahead, as Bollywood would remain the mainstay for collections in the non-South markets.

* Content releases on OTT: Majority of Bollywood movies (Exhibit 6) released directly on OTT over the last two years have also got mixed-to-negative critics reviews and fairly low YouTube trailer views (vs movies released directly in theatres). This clearly points to the sub-par content and not to consumers being averse to returning to theatres.

* The OTT factor in play: Covid has been a critical catalyst in increasing acceptance of OTT platforms with in-home content consumption. Shorter content windowing also played spoilsport (to some extent) for patrons fully returning to cinemas. Now, when the impact of Covid has receded, sub-par content performance is causing consumers to deviate from cinemas, towards OTT content.

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