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The Comeback Formula

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Bombay has many firsts to its name. The country’s railways kicked off in 1853 with a line from Bombay to Thane; the first cotton textile mill was set up in Bombay by Cowasji Nanabhai Davar in 1854; even the Indian National Congress shifted its inaugural meeting in 1885 to Bombay after a plague outbreak in  Poona (now Pune), where it was originally scheduled.

Bombay is also the first city of dreams. The film industry cannot claim the vintage of the Indian Railways or the Congress Party, but its birthplace was Bombay. After a couple of experiments with short films by the Lumiere Brothers in 1896, Dadasaheb Phalke released the country’s first full length film, Raja Harishchandra, in 1913. It was the era of silent movies then; it was only in 1931 that Ardeshir Irani released the first ‘talking and singing’ movie called Alam Ara.

Today, as the industry celebrates a 100 years, Indian film-making is the most diverse and prolific in the world, producing 1,255 films in 2011 in as many as 24 languages. Yet, for a century-old industry, it has not been able to fully monetise its popularity and cultural depth. In size, it is a little over Rs 10,000 crore, and only the 8th largest in the world in box-office collections. Private television, launched only in 1993, is now a Rs 35,000-crore industry; ironically, drawing 33 per cent of its content from films.

This year though, fortunes have turned. Even as a slowdown dampened business sentiment, the film industry was on a roll. From Housefull 2 to Ek Tha Tiger, more than a dozen blockbusters entered the Rs 100-crore club during 2012. Last year, there were just five. And it was not just Bollywood. Tamil cinema, too, produced some jackpots. A.R. Murgadoss’s Thuppakki competed with Ek Tha Tiger both in the number of screens and revenue earned.

As the crowds returned to the box office, the revenues flowed in. In film-making, the new script is more corporate, studio style. So, is the industry finally finding its feet?

Back With A Bang
For films, 2011 was a turnaround year. Salman Khan was rediscovered; and after two years of contraction in 2009 and 2010, when the industry’s revenue fell below Rs 9,000 crore, five movies — Bodyguard, Ready, Ra.One, Singham and Don 2 — earned over Rs 100 crore each. The industry grew to Rs 9,600 crore. But 2012 has been bigger with hits at regular intervals, and the Rs 100 crore-mark has become the norm.

“In 2009, when we spoke of grossing Rs 100 crore, people used to laugh. The first (to make the mark) was 3 Idiots. Now it has become commonplace. The industry has even surmounted the fear of IPL with films like Paan Singh Tomar and Housefull 2 releasing and becoming hits during the cricket mania,” says Shemaroo Entertainment’s CEO, Hiren Gada.

Significantly, the top end is growing faster than the industry average and, therefore, bringing in more revenues. “Big is getting bigger. It is not only that 13 films in 2012 have delivered more than Rs 100 crore in gross box office (GBO) compared to five the previous year, it is also that the GBO of the top 25 films grew 35 per cent over the past two years versus 10 per cent for the overall market,” points out Vijay Singh, CEO of Fox Star Studios. More specifically, while the domestic GBO for the industry is estimated to go up 9 per cent to Rs 7,678 crore for 2012, the top 25 movies’ earnings may rise 39 per cent to Rs 3,120 crore from Rs 2,240 crore.

As the crowds return and the multiplexes thrive on what Singh calls the “meals-and-movie nights”, the domestic box office has galloped on wider releases as well as a growing appetite for variety. Hollywood releases in multiple Indian languages have accounted for 8 per cent of the industry’s revenues, double the figure two years ago. Life of Pi, released by Fox Star in India, has earned Rs 65 crore so far. Similarly, two years ago, films that released on more than 1,000 screens were considered very big. Today, the norm is 2,000 screens for big releases, with tentpole earners like Ek Tha Tiger and Rowdy Rathore going up to 3,000 screens.

Multiplexes have contributed in a big way to the box office revolution. Though they account for just 1,200 screens, or 10 per cent of India’s 12,000-screen exhibition industry, 70 per cent of box office earnings come from them. “Multiplexes are aiding growth. You can segment films and target smaller audiences better; it has also allowed more liberal ticket pricing,” says Sudhanshu Vats, group CEO of Viacom18.

Tastes have changed too, which made Vicky Donor and Barfi hits. Two years ago, Love, Sex and Dhokha or Bheja Fry were seen as offbeat movies that did well on multiplex screens. This year, Barfi, in which Ranbir Kapoor plays a deaf-mute, earned Rs 106 crore, while Vicky Donor, on sperm donation, collected Rs 48 crore. “High concept movies are not small any more; they have become mainline cinema. Paan Singh Tomar is no more a ‘multiplex movie’ in the old sense. It did net earnings of Rs 20 crore. On the other hand, to make money, every movie has to be a multiplex movie,” says Siddharth Roy Kapur, MD of Disney UTV Studios.

New Concepts, New Revenues
Most importantly, Bollywood seems to have shaken off the shackles of weather-beaten and ‘formula’ content and is willing to experiment with home-grown, fresh themes (many of which come from Tamil cinema) with a new crop of scriptwriters. It has also dropped its fascination with ‘Hollywood’ themes and ‘hi-tech’ production for the sake of it. ‘Hi-tech’ Ra.One scraped through as a hit only on its marketing blitz.

“Some of the biggest Bollywood hits — Wanted, Bodyguard, Rowdy Rathore — are remakes of Tamil or Telugu films. Tamil films are rooted in local culture; Bollywood has a lot to learn from Tamil scripting and its use of a wave of new stars,” says Fox Star Studios’ Singh.

The synergy between entertainment television, movie content and film stars has always existed, but the film industry has now learnt how to extract its pound of flesh from TV channels. “About 15 per cent of the GRPs (gross rating points or the total viewership count) of entertainment channels comes from movies,” concedes Vats of Viacom18, which runs a slew of channels as well as produces movies. Revenues from broadcasting rights sold to TV channels have increased 2-3 times over the past three years; and since a large part of the consideration is paid upfront, often before the movie is on the floor, television directly funds movie-making.

An analysis of the amounts paid by television networks for satellite rights of the top 10 films shows that about 30 per cent of a blockbuster’s earnings came from them. While Wanted sold for Rs 15 crore in 2009, 3 Idiots earned Rs 34 crore in 2010. In 2012, Dabangg 2 is believed to have gone for Rs 50 crore.

On the other hand, film releases have increasingly turned away from prints to digital and downloadable formats that make simultaneous release across the country easier, and plug piracy. For instance, UFO Moviez, a vendor of the non-print, digital format, released Ek Tha Tiger on 1,182 screens for the film’s opening week while Aamir Khan’s Talaash opened in 927 digital theatres. This has made it possible to scale up the number of screens by 70 per cent, while bringing down the cost of a release per screen from Rs 25,000 in 2010 to Rs 21,000.

In advertising revenue, Ra.One ushered in a revolution wherein the Shah Rukh Khan starrer generated almost its entire marketing budget of Rs 45 crore from the 100 or so brands that paid huge amounts to piggyback on the film and its stars. Newer forms of revenue for producers are in the making. In the case of the soon-to-be-released Rajinikanth film Kochadaiyaan, the producers billed Karbonn Mobile Rs 5 crore for the rights to use the film’s branding on the cellphone wrapper! Eros, which has the distribution rights, will release the movie in Japanese, English and Malayalam in a carpet-bombing strategy, reveals CEO Jyoti Deshpande.

Rise Of The Studios
But the single biggest game-changer has been the rise of studios, many of which have Hollywood credentials. These have added scale to the industry, sourced funds and introduced much-needed transparency. Writes Smita Jha, PwC’s leader of entertainment and media, in a report: “The entry of Indian corporate houses such as UTV and Reliance, and foreign media players such as Fox and Viacom, has led to increased professionalism in the film industry, which was earlier characterised by its unorganised, non-transparent nature. These players have brought in greater transparency in operations and have also focused on improving processes and conducting regular audits with a view to controlling costs and ensuring financial discipline.” In a way, it is a throwback to the days when R.K. Films, Navketan Films etc. ruled.

Each of these studios, with a war chest of Rs 800-1,000 crore a year, produces and releases 8-12 movies a year. The JVs also distribute 8-10 films produced by their Hollywood principals. For instance, Viacom18 distributes Paramount’s movies (Madagascar 3 is an example). While the Indian entities produce a few movies themselves (The Girl In Yellow Boots was produced directly by Viacom18), they buy the distribution rights or co-produce films with smaller production houses to acquire scale and a diversified slate of releases. In the past 2-3 years, nearly 70 per cent of Bollywood productions have the stamp of this handful of studios.

Typically, the studios operate on a ‘portfolio’ formula — 2-3 big releases with big stars, a few in the middle range, and 4-5 low-budget, experimental movies that appeal to urban audiences. Viacom18, for instance, balanced its big-budget Gangs of Wasseypur I and II with Oh My God!, a September 2012 hit co-produced with Ashwini Yardi’s Grazing Goats Pictures. Kahaani, on the other hand, was just a Rs 8 crore film that turned out big, grossing Rs 106 crore. Cherry-picking allows studios to balance hits with flops.

Most of the studios have undergone several rounds of corporate restructuring to fit the tough Indian market. The origin of Viacom18’s movie-making started in 2007 when Network18 promoter Raghav Bahl floated The Indian Film Company (TIFC) on London’s Alternative Investment Market, raising around $110 million. TIFC’s Indian production arm, Studio18, made a splash with a few big productions such as Ghajini, but ran out of steam and funds by 2010. Viacom and Bahl-promoted IBN Broadcast had by then set up Viacom18 to manage and run TV channels. In May 2010, Bahl exited film-making and TIFC was bought out by Viacom18. Parent Viacom infused funds, and expanded into film-making. For 2013, the studio has 13 planned releases, including Inkaar with Sudhir Mishra, and biopic Bhag Milkha Bhag, a co-production with Rakeysh Omprakash Mehra.

The coming together of Walt Disney and UTV Motion Pictures is an interesting story too. Promoted by Ronnie Screwvala, UTV Motion Pictures was originally a division of UTV Software, which operated several verticals including broadcasting, TV content, gaming and film production. The studio division did well, delivering hits at regular intervals that included Rang De Basanti and Raajneeti. But Disney had several false starts in India. Many of its ventures, such as the highly publicised animation film Roadside Romeo made with Yash Raj Films, flopped. But over the years, it had continued to acquire equity in UTV Software and had become the majority partner. The acquisition process was completed in July 2012 when Disney bought out the remaining shareholding of around 30 per cent of UTV promoters Ronnie Screwvala and others for Rs 2,000 crore.

“While we do use the worldwide Disney infrastructure and distribution team, UTV Motion Pictures continues to function autonomously in India,” says the studio’s chief Roy Kapur. The studio has a string of releases lined up for 2013, including Race 2 and a remake of the 1983 hit, Himmatwala, which will feature Ajay Devgn and new talent Tamannah. To ramp up the number of releases, the company is experimenting with a dance and musical 3D movie ABCD. “We are continuing to release movies under the UTV Movies and UTV Spotboy branding. Disney-branded movies, though, are still a work in progress,” says Roy Kapur.

Fox Star Studios was set up in 2008 as a joint venture between two of Rupert Murdoch’s News Corp-owned companies — Star India and 20th Century Fox. It has had smaller productions than its competitors, but a few big releases — Slumdog Millionaire and My Name Is Khan —have given it traction. It generated sales of Rs 450 crore in FY12, and has been inking long-term deals with a handful of producers who it feels will deliver in the long run.

“We want to build key alliances. We have a two-movie-a-year deal with Tamil filmmaker A.R. Murugadoss who gave us the hit Engaeyum Eppothum last year. We also have a deal with Mukesh and Mahesh Bhatt, who are ‘commercially sensible’ and avoid expensive stars,” Fox Star’s Singh told BW. “We are looking at a slate of about eight films a year,” he added.

But in terms of scale, it is the Anil Ambani-promoted Reliance Big Entertainment (RBEL) that is the leader. His was the first Indian business house to acquire a piece of Hollywood. In September 2008, he signed a partnership with Dreamworks’ Steven Spielberg and David Geffen, investing $550 million for Dreamworks’ exit from Paramount and to set up an independent $1.3-billion studio. Two recent releases, The Help and War Horse, have done well but there were duds too. The JV hit a wall when it ran out of cash and the expected second round of funding of $750 million did not go through.
In India, Reliance Entertainment started with a bang, picking up the distribution rights for 3 Idiots. The film grossed Rs 315 crore.  Then followed two huge flops — Rakesh Roshan’s Kites in May 2010 and Mani Rathnam’s Raavan — burning a hole of over Rs 100 crore. Calendar 2011 was better with the Ajay Devgn hit Singham in August. However, the company showed signs of fatigue this year with only Aamir Khan’s Talaash among the big performers making it to the top 15 list.

Interestingly, among the smaller production houses, Balaji Telefilms is making a comeback. After Star parted ways in 2008, and tore up the special content deal it had for TV serials, Balaji Telefilms went through a crisis. Turnover plummeted from Rs 341 crore in FY09 to Rs 175 crore the following year, while profit after tax (PAT) was almost nil for 2-3 years. In recent times, it has rejigged its portfolio, with movie-making now in the front seat. “Balaji is now a 50:50 production house for TV content and films, with movies acting as the driver,” says Shobha Kapoor, joint MD of the company. “We have planned for seven releases a year, with Rs 150 crore in the pipeline,” she adds.

The strategy seems to be paying off with its July release, Kyaa Super Kool Hain Hum, generating gross box office revenues of nearly Rs 70 crore, and the company’s topline inching up to Rs 188 crore with a net profit of Rs 24 crore. “We had only one release this year, but we have a pipeline of six for next year, including a big co-production, Shootout At Wadala, with Sanjay Gupta,” says Balaji’s CEO Tushar Garg.

Monetising Opportunities
Financially, 2012 has been good and optimism abounds. At a recent CII media and entertainment convention, PwC’s forecast for the film industry was a compound average growth rate (CAGR) of 9.9 per cent that will see it grow from Rs 9,580 crore in 2011 to Rs 15,360 crore by 2016. It also expects the Indian industry to become the “fastest-growing market, next only to China” in a couple of years.

There are those, however, who say the pace is slow. For a 100-year-old industry in a market where films and film stars are worshipped, and consumer spends are rising, a size of $3 billion by 2016 is not good enough, they say. Promoters of some film studios said at the CII convention that box office revenues had scaled up not because of higher footfalls, but because of increased ticket prices. “Audiences have not expanded much since the days of Sholay (1975),” says the head of a major production house.

Speaking at the CII convention, The Big
Picture, Star India’s CEO Uday Shankar struck a contrarian note saying that India was not plugged into the global industry, either in terms of technology or content. “On the domestic front, the industry is yet to fully unlock the potential of the vast market,” he said. Speaking to BW later, he added: “The business model is still restrictive. The studios have not scaled up enough; many are still dependent on a Karan Johar to make their one or two big movies for the year. Talent, too, is in short supply and is becoming a drag on the industry.”

Another major bottleneck is exhibition — taking the movies to the masses. A KPMG-Ficci report expects the total number of multiplex screens to touch 2,200 by 2016. In other words, exhibitors will be adding just 150 screens every year. Unfortunately, multiplex growth is linked to the expansion of malls; and the latter is in the grip of a slowdown. Property brokers Cushman & Wakefield’s latest retail report says that 58 per cent of the total expected mall supply (4.8 million sq. ft) has been deferred in 2012 due to the slump in real estate and retail sales. Film producers may put out the best content, but if there aren’t sufficient screens for potential viewers, box office revenues will take a hit.

This problem was highlighted during the Diwali release of Yash Raj Films’ Jab Tak Hai Jaan and Ajay Devgn’s Son of Sardaar. Not finding enough single-screen theatres to release on, Ajay Devgn approached the Competition Commission of India alleging that Yash Raj Films had used its dominant position to deny cinema theatres to Son of Sardaar. Devgn’s plea was rejected, but an insufficient number of screens resulted in the two movies competing for and cannibalising each other’s audiences.

Meanwhile, a shortage of film content is being felt mainly by television. Highlighting the TV-film hook-up, Fox Star’s Singh says, “3 Idiots was watched by 40 million people on the big screen; but 200 million watched it on television.” The ongoing digitisation of cable TV networks will make the synergy even stronger over the next 2-3 years. The share of subscription revenue for movie channels is expected to go up to 23 per cent from the current 15 per cent, and these will compete with the general entertainment channels. “Higher subscription revenues for movie channels will generate more demand for film content. The next step is that TV networks will become film producers to keep the pipeline flowing,” predicts Shemaroo Entertainment’s Gada.

The scramble is on. The filmmaker is on the lookout for every distribution avenue — tablets, mobile phones, iPTV, YouTube — to monetise his content. Yet the big, silver screen is still the first choice of the masses; and the industry will have to ramp up on this front to tap the pockets of the ‘meals-and-movie-nights’ families.


(This story was published in Businessworld Issue Dated 07-01-2013)