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Multiplex chains in talks to lower rents, revise capex terms amid declining business

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In Short:

The cinema business model has been disrupted by Covid and streaming platforms, prompting multiplexes to rethink their strategy. Multiplex chains are trying to convince mall developers for partnership models to co-invest in new theaters instead of lease rent. Terms are being renegotiated, with rents based on theater occupancies and revenue sharing based on film performance. Malls rely on multiplexes as anchor tenants for footfall.

The Changing Landscape of Multiplex Industry Post Covid

The cinema business model has undergone a significant shift in recent times, especially with the impact of Covid-19 and the rise of streaming platforms. Multiplexes are facing challenges with reduced footfall due to the lack of big releases in various languages and the popularity of events like elections and IPL.

Partnership Models and Renegotiations

Multiplex chains are now looking towards partnership models with mall developers to co-invest in new theatres. They are renegotiating revenue terms to move away from fixed lease rents to sharing revenue based on a film’s performance. This shift is essential to adapt to the changing dynamics of the industry.

According to Anuj Kejriwal, CEO of ANAROCK Retail, developers are showing interest in locations with great potential, and rents have decreased by 15-30% in the past six months to accommodate these new deals.

Abhishek Sharma, director at Knight Frank, mentioned that chains are adjusting rents based on theatre occupancies and are looking for a minimum guarantee plus a share of revenue arrangement. The focus is on sustainable business practices until big-star films start releasing again.

Strategic Moves by PVR Inox Ltd

PVR Inox Ltd is taking proactive steps to navigate these challenges. The company plans to close underperforming screens and reduce overhead costs through renegotiated rentals and a leaner organizational structure. They are focusing on a capital-light growth model, prioritizing expansion efforts in south India, and partnering with developers for new screen investments.

Ajay Bijli, managing director of PVR Inox Ltd, emphasized the importance of redefining their growth strategy to improve profitability and generate free cash flow in the current scenario.

The Role of Multiplexes in Malls

An industry analyst highlighted the essential role multiplexes play as anchor tenants in malls. While renegotiations are ongoing, malls are finding ways to minimize expenses by adjusting movie screening schedules to align with content availability.

Malls understand that the presence of multiplexes is crucial for attracting footfall, and both parties are working towards mutually beneficial agreements in the post-Covid era.

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