Kerala Film Producers Vs PVR-Inox: What The War Is All About

Fans of Malayalam cinema were in for a rude shock ahead of Vishu when PVR-Inox, the largest multiplex chain in the country, did not screen any of the new festival releases such as Aavesham (2024), Varshangalkku Shesham (2024) and Jai Ganesh (2024). What’s more, the multiplex chain also pulled out Malayalam films like Aadujeevitham (2024) and Manjummel Boys (2024) that were released previously and were still running. 

It soon came to light that there was an ongoing tiff between Malayalam film producers and PVR-Inox, ostensibly over virtual print fees (VPF). But there’s more to it than meets the eye. 

VPF is the fee that producers agreed to pay for theatres to acquire digital cinema projectors when the film industry shifted to digital prints that are cheaper and allow an efficient and wide release when compared to conventional film reels. Since the shift was beneficial to producers and theatres didn’t want to bear the heavy cost of purchasing the equipment themselves, the cost to be paid to digital service providers (DSP) like Qube and UFO who brought in the equipment, was absorbed by the producers. But, over the years, VPF has led to a lot of resentment in the film business.

Producer M Renjith said it was the Malayalam film industry’s call not to screen the new films in PVR-Inox. “The Competition Commission of India (CCI) has said that VPF must be phased out from 2024, starting with multiplexes and then single screens. Our demand was that VPF should not be charged in the newly inaugurated screens, which includes PVR-Inox in Forum Mall, Kochi, where the equipment is owned by the theatre and isn’t leased or rented from anyone,” he said. “They said they would think over it and then promised to do away with it. But when asked to put it down in writing, they didn’t want to do so. They later went back on their promise.”

Subsequently, Renjith said, the producers were forced to take the stance that they wouldn’t screen the new films in PVR-Inox. The theatre group retaliated by pulling out all Malayalam films across the country. Though PVR-Inox revisited the decision a couple of days later and started screening Malayalam films, including the new releases, producers are still unhappy about the financial loss incurred. The multiplex chain owns over 1,700 screens across India and Sri Lanka. 

“It is even more painful that they took off films that were already running just because we said we don’t want to pay VPF for the new venues. Isn’t that a threatening tactic? It is wrong. When they own the equipment and the CCI report has asked for VPF to be phased out from 2024, why should they charge us?” questioned Renjith. 

Kamal Gianchandani, CEO of PVR-Inox, declined to comment on the issue when contacted.

The VPF war

VPF has been a thorny issue between producers, DSPs and theatres for several years now. In 2018, Tamil film producers said they didn’t want to pay VPF any more. After a standoff that lasted for over a month, VPF rates were slashed. But in 2020, the industry once again demanded that VPF be removed entirely. 

Indian producers often cite the fact that VPF isn’t paid any more in Hollywood where a similar technological shift happened. Tamil writer, director, distributor and trade analyst Cable Sankar acknowledged that the introduction of digital prints was a positive development in the film trade. But, according to him, the film industry ended up being short-changed in the process.

“The producers here entered into agreements without full knowledge of the issue. Nobody is paying VPF in Hollywood where the same technology is being used,” he said. “In India, even to get a film certified, we are asked to get it digitally mastered through DSPs like Qube and play it in the theatre asked for, though that isn’t the law. You don’t have to do it, but if you question it, there are concerns that problems may crop up in the certification process.”

Senthil Kumar, co-founder of Qube, a leading Digital Service Provider, argued that the Indian VPF model evolved independently of the Hollywood model, and that these are two vastly different economic models. 

“Hollywood VPF was based on a recoupment model where the cost of the equipment was to be funded by either the theatre itself or a third party, and the VPF would continue until the recovery of an agreed return on investment after considering maintenance and all other costs,” he explained. “With Hollywood VPF ranging from $850 to $1200/film/theatre, the Hollywood model still required upward of 12 years before recoupment was reached and VPF ended.”

In comparison, VPF in India was based on a usage model where the VPF would be charged per play of a film. 

“Initially, VPF was ₹20,000/film/screen and later, options of a per-week and a per-show VPF were brought in. The effective VPF that is paid for a movie averages between ₹2000/theatre to ₹15,000/theatre based on the size of the release, the length of the run and the charge model chosen for each screen (i.e. per show, per week or a flat fee for the full run),” he noted. “Obviously at such low rates ($850 vs. ₹20,000), recoupment in the Hollywood model can never be achieved in India, especially as the costs in India include an import duty of ~30% thus making the investment and the cost of spares significantly higher.”

In other words, Kumar said, the difference between the Hollywood and Indian VPF models is the difference between a car hire purchase where monthly payments go towards the cost and interest until the loan is fully repaid, and renting a car for use for a short period where one never owns the car regardless of how many times one rents it out.

More stakes in the game

DSPs also provide digital mastering of content for a charge. In a move to counter the power wielded by DSPs, a group of Malayalam film producers launched their own content mastering and distribution unit called Producers’ Digital Cinema (PDC) recently. 

Following this, in February, the Film Exhibitors United Organisation of Kerala (FEUOK) announced a boycott of new Malayalam releases because the producers wanted them to take the content through the PDC and not any other company. 

Speaking to the media, FEUOK President K Vijaykumar said that the PDC had initially expected only new theatres to take the content from them, but that they were now insisting that renovated theatres also take the content only from them. Not all theatres had projectors that were compatible with these prints, he claimed. 

According to Cable Sankar, this move by the PDC rattled DSPs and theatre chains because it interfered with their business dealings. “Most of these theatres run on equipment that comes from DSPs, so what will happen if the DSPs ask them to return it and they’re forced to invest in the equipment themselves? They claim that the prints aren’t compatible, but smaller, independent theatres don’t seem to have any issues playing them,” he noted. Sankar believes that the PDC’s move is in the right direction as it will help break the control that DSPs have over the business. 

Weighing in on the establishment of the PDC, Qube’s Senthil Kumar said that producers were welcome to use any mastering facility as long as VPF continues to be paid to those who invested in the equipment. A vast majority of theatres in Kerala today use digital projectors supplied through DSPs like Qube. If VPF is waived and this becomes a practice across the board, the concern is that DSPs that invested heavily in purchasing and maintaining the equipment will be at a loss. 

“The issue here is that Malayalam producers are refusing to pay VPF and are using their dominant position to push this agenda throughout Kerala,” he said. “They have used their clout to demand that all new theatres coming up in Kerala provide some of their screens to the producers’ mastering facility – the PDC – for delivering content without the payment of VPF.”

According to Kumar, the PDC charges producers for mastering and delivery of content and this charge works out to about 60% of the average VPF costs per screen for a large film, and between 100%-150% of the VPF costs for a small film. “So, they are essentially profiting hugely from someone else’s investment in equipment,” he alleged. 

The issue between the Malayalam producers and PVR-Inox may have been put on the back burner temporarily, but it is far from over. The CCI’s 2022 study notes that multiplexes have agreed to stop charging VPF from 2024, and that other stakeholders should follow suit. But, if the recent tiff between the Malayalam industry and PVR-Inox is any indicator, there are many more battles ahead. 

“CCI’s study of the Indian movie ecosystem recommended that all concerned parties: exhibitors, distributors, producers and digital service providers discuss this issue and arrive at a solution to end VPF, starting with multiplexes and then the single screens,” said Senthil Kumar. “We are happy to be part of a fair, polite, non-threatening business discussion with all stakeholders to arrive at a solution and a timeline to end VPF in India.”