India is a world leader in film production. With an output of more than 800 features a year, India is way ahead of even the United States in terms of sheer volume.
On the other hand, the total aggregate budget of every Indian film produced in 1998 did not equal the cost of that year’s mega-blockbuster Titanic something in the region of US$1bn. And in terms of value, India still accounts for less than 2% of the global entertainment market.
Ever since its inception one hundred years ago, the Indian film industry has been pretty much a law unto itself, with its own channels of production, finance and marketing a personality-based, clannish and stand alone industry, almost entirely isolated from the integrated and highly-evolved global Media & Entertainment (‘M&E’) sector.
Indian producers are still largely content to service an exclusively Indian/NRI audience with a steady and appetizing diet of masala features; and a small number of ‘informal’ financiers rake in the moolah, secure in the knowledge that desi film-makers have had no option but to pay (often literally) extortionate interest rates in the absence of serious institutional finance.
All in all, the Indian film business continues to bear a striking resemblance to the Hollywood of the 1930’s, when big-shot producers, financed by shady Las Vegas businessmen, made star-driven tearjerker extravaganzas for an audience seeking temporary diversion from a life of grinding poverty.
In the long run, Hollywood became truly corporatised and now functions as professionally and transparently as any other business. Now Bollywood is being pushed in the same direction.
Following the Govt. of India’s bestowal of ‘industry status’ upon the film sector earlier this year, and an ongoing trend of public issues by some of India’s leading entertainment companies, Bollywood has suddenly achieved respectability. Institutional behemoths such as the IDBI are making their first tentative steps into the world of film finance; and a multitude of blue-chip Indian corporates are eager to grab a piece of the movie action.
Attractive and glamorous as the film world may be, however, any potential investor in Indian films would do well to consider the following home truths:
- Bollywood films are only watched by Indian people
Indian films are exported to many countries around the world. But outside of India, just about the only people watching these pictures are from the NRI community in other words, only a tiny fraction of the total non-Indian population. Mainstream audiences in key markets such as the US and Europe are just not interested in spending three hours watching Salman and Sushmita cavorting in the Alps. Granted, Indians aren’t very interested in watching foreign films either Hollywood has captured only 5% of the Indian market but the fact is, India needs the global entertainment market a lot more than the global market needs India.
- Bollywood movies seldom make any money
Contrary to public perception, most Indian film producers are stuggling to make ends meet. There are still only 12,500 cinemas in India (as opposed to more than ten times that number in the US) each of which has a thousand new films to choose from each year. The majority of Bollywood films lose money. A movie that breaks even is considered a success. A small minority actually make a worthwhile profit. And remember, every box-office rupee is ultimately divided between the exhibitor, the distributor and finally, the IPR-holder who is unlikely to see more than 25% of total receipts (net of heavy taxation).
- Indian distribution is disorganised and fragmented
Whereas the global film distribution market is dominated by such behemoths as Time Warner, Universal and Orion, the Indian scenario is still very fragmented, driven by small companies, big personalities, informal contracts and secretive relationships. If I was a Bombay-based producer, I’d be feeling worried about what was really going on with my film in, say, the hinterlands of Rajasthan and or the outer reaches of Bihar. There’s still no way of ascertaining the true box-office status of a film in India.
- Indian financial institutions cannot scale up investment in Bollywood
Whereas the budget of a mainstream Hollywood film starts at about $20m (and the sky’s the limit), the most expensive Indian feature to date is the recent production of Devdas, at about $10m. The majority of Bollywood features are made for less than a quarter of that amount. Sensible Indian producers would be loath to spend more than Rs 20 crore on a picture, because the combined Indian/NRI film market is simply not big enough to realistically secure a return on any larger sum – which means that institutional investors will find it impossible to scale up investment in purely ‘local’ films, unless they decide to go for quantity….in an already crowded market
If Bollywood looks like a perilous option for the serious Indian financier, there is a more attractive alternative, in the form of international co-production – i.e., India-based projects that are developed by established European/US companies for the wider global audience. For each of the risk factors mentioned above, the co-production route offers a solution.
Whereas, for example, a Bollywood movie is destined to be watched only by Indians and NRI’s, an international co-production (such as Gandhi, or, more recently, Monsoon Wedding) is relevant to an infinitely broader audience and will be marketed as such around the world. This vastly improves the commercial prospects of any film from India.
Furthermore, a co-production is likely to be developed by an established European or American company that is ‘plugged into’ the global M&E marketing network. Such a film will probably have been given the green light by a major distributor, even before a single frame is shot – thus removing the risk of having to tout a picture (often unsuccessfully) at film markets long after production has been completed.
By joining forces with international production/distribution companies, the Indian investor will make a place for himself in the wider global market. Starting with a modest project (Monsoon Wedding, for example, cost much less to make than a typical Bollywood feature), the Indian investor can form the relationships and gain the experience necessary to participate in much larger and more ambitious film ventures – without being confined by a relatively small and overcrowded market, as with purely Bollywood ventures. Players such as the Amritraj brothers, Shekhar Kapoor and Deepak Nayar have gone on to work with mainstream western projects that have nothing whatsoever to do with India.
A word of caution, by the way: avoid film ventures that are primarily funded by western government subsidies or film funds or tax-incentive schemes, many of which are never even expected to make any money. If, on the other hand, a well-established international production company is exposing itself to risk by investing significant sums in a film, then there’s a greater likelihood of commercial viability. It’s simple: why risk your shirt if your potential joint-venture partner is unwilling or unable to risk his too?
Via international co-productions, the Indian film industry, along with the Indian capital market, will achieve rapid integration with the worldwide M&E sector. This process of integration will bring incalculable dividends to the Indian economy. If you still think of showbiz as lightweight and frivolous, not to be taken seriously, consider the fact that entertainment is the second biggest US export after aviation. There is no doubt that India’s success in the global IT industry can be replicated in the film business.
For India to achieve its potential as a global entertainment powerhouse, the Indian government has to give not just recognition, but wholehearted support to the film industry. One important step in this direction would be to sign co-production treaties with important film-producing countries such as the US, Britain, Germany, Canada and Australia. This will give international producers numerous financial incentives, and a formal structure through which to collaborate with Indian partners. As things stand, with no such treaties in place, there are few incentives to base an international production in India. Instead, there is a lot of official red tape.
This morning I called up the Commercial Attache of the Indian High Commission in London. I suggested we meet to discuss new strategies to improve India’s presence in the global M&E market. He told me that his office was not at all involved or interested in the world of film and entertainment and that a meeting would serve no purpose. This is the kind of attitude that has to change.
The time has come for India to take its fair share of the $300bn global film industry. India’s government and capital markets must work together to make it happen.
Note: The author has worked in the cross-border Media & Entertainment industry for over ten years. He was Chief Operating Officer of PNC Ltd. (one of India’s leading entertainment companies and a pioneer in international co-production) before setting up Cinemantra Film & Television Ltd. – a film production/services company – at the beginning of 2002. George is based in Bombay and London and can be contacted at: darleydoran@usa.net
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