Multiplex operator PVR is setting up entertainment cities across the country. Will the move pay off?
Multiplex chain PVR wants to try its hand at something new. It wants to set up entertainment cities across the country. Each of these would have multiplex screens, a bowling alley, a skating rink, a beer garden and food courts. The first, spread over 150,000 square feet, will come up at Noida in two-and-a-half years. By 2013, PVR wants to have five more up and running in Bangalore, Hyderabad, Chandigarh, Pune and the National Capital Region. “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 asprations,” says PVR Chairman & Managing Director Ajay Bijli. All told, the company plans to invest Rs 280 crore in the new venture.
To be sure, this is not the first diversification for PVR (2009-10 sales/revenue from operations: Rs 338.55 crore, net profit: Rs 1.35 crore). In 2005, it had forayed into film production and distribution. But the plan for entertainment cities is by far its biggest gamble till date. The reason for the foray is not hard to find. The entertainment cities are aimed at grabbing a larger share of the wallet of all those who come to a multiplex for entertainment. Sector experts believe the multiplex business has turned into a commodity — one is no different from the other. Such add-ons are necessary if a multiplex wants to create buzz around itself. Though PVR was the pioneer of multiplexes in the country, it has been left behind in the numbers game. While it operates 136 screens in 18 cities, Anil Ambani-owned Big Cinemas has 516 screens in India and abroad (USA and Malyasia).
Consumer likes
Taking off from the insight, PVR conducted extensive surveys to understand consumer preferences with respect to entertainment. Three surveys were carried out by the PVR as well as by agencies commissioned to work on the project specifically with focus on the formats which the consumer believed to represent his happiness quotient. As many as 350 visitors across malls in the National capital Region were questioned in each survey regarding the frequency of their mall visits, purpose of their visits, money spent on each visit, views on the proposed format, entertainment options they exercised and future expectations. The respondents were all between 12 and 40 years of age.
Inferences drawn from the exercise indicated that entertainment as a concept is largely restricted to watching movies in cinemas in malls and shopping centres across the country. The aspirational class that throngs the malls, however, is looking forward to forms of entertainment which provide an eclectic mix of ‘fun, food, fashion and films’. It is on gauging this need gap which has surfaced amongst consumers that PVR has decided on setting up entertainment cities in the country. “Considering our core expertise, years of business experience and a very clear and distinct business opportunity, we felt it made imperative sense to set up entertainment cities to respond to changing consumer demographics and purchasing patterns in the country,” says Arora.
But PVR’s expertise is in putting up multiplexes and not in running bowling alleys and food courts. How does it plan to cope with the lack of these skills? PVR has partners in these areas, and plans to leverage their expertise to good effect. It has an alliance with Major Group of Thailand to set up bowling alleys and skating rinks in the country. For the food business, it has formed a joint-venture company called Food Union with Lite Bites of Amit Burman. That may be fine, say critics, but food is a tricky business. Visitors can get tired of a cuisine or a format in a matter of months. So, restaurants and food courts need to continuously reinvent themselves. But this does not seem to bother Arora. Food Union, says he, is a complete provider of fine-dining solutions and has something for every palate. “So we are very positive that our food courts will do very well with people and continue to do so over the years since these will be a part of the complete entertainment package and destination.”
What about bowling alleys? Ever since the mid-1990s, several bowling alleys have been set up in the country. After some initial traction, they begin to fall by the wayside. Many of them have had to shut shop. It is, after all, not an Indian sport. Arora is only too aware of the disappointing show put up by bowling alleys in the country. He puts it down on their incorrect positioning as a sport. “When we launched in Ambience Mall, Gurgaon, last year, it was a conscious decision to reposition bowling in India as a lifestyle sport. We wanted to create an environment for children, youth and families to come and have an entertaining experience,” says he. “Ours is the largest 24-lane cosmic bowling centre in India. We have been able to create awareness and acceptance for bowling among the people. What has worked well is the complete repositioning of bowling as a fashion and lifestyle sport instead of it just being a regular sport.” The bowling alley has lounges, multi-cuisine restaurants, tattoo parlours and karaoke. It is reasonable to expect that PVR will replicate the same format across its entertainment centres.
Brand-wise
Interestingly, PVR has given each of these a new sub-brand. Thus, PVR BluO has been chosen for bowling alley, PVR Food Union for the food courts and PVR Sub Zero for the skating rinks. This could also be a strategy to raise funds in each of these businesses on a subsequent date. Interestingly, the architecture of the entertainment cities will be kept flexible. The formats and services in demand can be expanded quickly, and those which are not in demand can be contracted. On an average, PVR is looking forward to a payback time of four years. The asset-turnover ratio is projected to be between 1.6 and 1.8. The return on investment is expected to be over 20 per cent.
There are still two pieces of the jigsaw puzzle that PVR needs to fix. One is real estate. Prices of commercial real estate have begun to climb one more time. High-quality retail space is once again selling at a premium. Some retailers have got into a revenue-sharing agreement with landlords. This protects them against any downside in business. For the Noida entertainment city, PVR will lease space for 25 years. Based on the business prospects, it is also considering entering into revenue-sharing arrangements with real estate developers.
The second will be price. PVR has on its target non-serious shoppers, those who aspire to a better lifestyle. But these people have small budgets. Unless PVR gets the price-value equation right in its entertainment cities, the business model could go haywire. This perhaps reflects in the choice of cities for these centres. All the six cities have a large presence of the services sector and there are large pockets of affluence. So, is the business model scalable?