Wednesday, August 24, 2011

The evolving business of Bollywood


The story goes that while making his most renowned film Pather Paanchali, auteur Satyajit Ray had to pawn his wife’s jewellery. Fast forward to 2011 and the latest Ajay Devgan starrer Singham has racked up collections in the region of Rs 25 Cr in just over three weeks. The transformation that Bollywood has seen ever since Dadasaheb Phalke made the iconic ‘Raja Harishchandra’ has been nothing short of spectacular.
The early days
The pre-Golden age had film-makers taking the entire financial burden of film-making on their own shoulders. They themselves would reach out to people, entice them and get them ready to sell property, jewellery, and invest in this magical medium. Financial returns were secondary to the attainment of one’s artistic ideals.
The Golden Age of Hindi cinema, which lasted from the 1940s to the 1960s, saw filmmakers like Guru Dutt (Guru Dutt Pvt. Ltd.) and Raj Kapoor (R.K. Studios) organise the cinema sector. They bought land, created the studio system, formed teams on monthly salaries, grouped regular technicians and thereby tried to introduce some semblance of organization into the Hindi film fraternity.
The dark period
Slowly, through the 70’s, commercial interests began to undermine creativity and aesthetics as tradesmen from Punjab and Sind began to pump their money into the film-making business. All through the 70s, 80s and 90s, the film-making business was considered a vice by the government and taxed egregiously at rates ranging from 25 to 75 percent in contrast to the US where tax benefits were provided. With a hit to flop ratio of 1:4, the film financing business was like playing the jackpot. So it wasn’t surprising that the bulk of film-financing came from the unorganized sector. Nearly 25 percent of the films were financed by conventional money lenders who charged exorbitant rates of interest ranging from 36 to 40 percent. The informal nature of the system also made it a convenient haven for 'black money' –- cash investments by gangsters, who needed to hide their earnings from tax collectors. 
Meanwhile, rampant piracy and poor screening infrastructure had the film industry on its knees. Well-off middle class families tended to stay away from cinema halls as the sound systems, seating and air-conditioning facilities were abysmal. It was only when banners like Rajshri Productions and Yash Raj Films, backed by their seminal hits Hum Aapke Hain Kaun and Dilwale Dulhania Le Jayenge, threatened to stop screenings at poorly equipped theatres that there was some improvement.    
Era of the Multiplex
 In the early 90s, in Delhi, India’s first multiplex came up and completely redefined the film-watching experience. In starting the country’s first multiplex, PVR showed a lot of vision and foresight and an impeccable understanding of the changing urban Indian consumer who was ready to embrace the best the world had to offer and was willing to pay for it. A consumer, who up until now was paying 25 rupees for a ticket, was now willing to pay 100 bucks. This one development catalyzed the transformation of film-making in India as films were now looking at substantial theatrical revenues.
The next epochal moment came with the granting of industry status to Bollywood by the government of India in 2001. This opened the door to institutional financing, something that the industry had been waiting for a long time. 
Post-2001 stage
With Bollywood being granted an industry status, the whole business of film-making underwent a paradigm shift. The sourcing for film-financing has now assumed a new avatar with more and more films being financed through organized sources (comprising APO funds, institutional / bank loans, private equity / venture capital from institutions etc). This increase in film financing from organized sources has been led by Media & Entertainment (M&E) companies that have raised funds through IPOs over the last few years and new entrants comprising of high net worth individuals (HNI) & companies, who were traditionally not engaged in the M&E business. This has resulted in the players reducing their funding from traditional unorganized sector debt financiers by a subsequent amount. The major players in the M&E space include Adlabs Films, PVR, Mukta Arts, UTV, Pritish Nandy Communications and YRF. With organized financing came a certain level of professionalism which has ensured that even films with an experimental story and cast get to see the light of the day.  The general film-viewing experience has gone up substantially and consumers (in this case the audience) have more good quality options to choose from.
A major source of revenue in this stage has been the growing foreign market for Hindi films. In many cases, the cost of making the film can be recouped from overseas distribution rights alone. To capitalize on this segment, Bollywood has tried a number of marketing strategies. From holding annual film awards in foreign countries (case in point being the IIFA awards) to increasing the amount of dialogues in English, a number of initiatives are being undertaken to boost overseas returns.  
Challenges ahead
Not everything is rosy though. Bollywood has a long way to go if it harbours hopes of catching up with Hollywood. As of 2002, Bollywood sold 3.6 billion tickets to Hollywood’s 2.6 billion and yet was able to generate revenues of only $1.3 billion as compared to Hollywood’s $51 billion. This disparity has been driven by a vast gap in the average number of prints and the price charged per ticket.
Until the film industry is able to give better structure and organization to the production, distribution and exhibition segments, it will be unrealistic to expect Bollywood to compete with Hollywood. Also, banks are still circumspect about financing films in India as the risks are too high. As observed by the head of the Reserve Bank of India, the film industry must recognize that it is, after all, a business, and the most difficult task for bankers is “to create an environment where the dreamers understand the numbers, and the accountants understand the dreams.”

1 comment:


  1. Are you in need of a loan? Do you want to pay off your bills? Do you want to be financially stable? All you have to do is to contact us for more information on how to get started and get the loan you desire. This offer is open to all that will be able to repay back in due time. Note-that repayment time frame is negotiable and at interest rate of 3% just email us creditloan11@gmail.com

    ReplyDelete