Why Bollywood investment model is failing

Hollywood invasion

The Hollywood studios came in soon after"by the mid-2000s. They sensed an opportunity in tapping the potential offered by an entertainment industry that was starting to change, with the gradual mushrooming of multiplexes and changing cinematic content.

The studio model offered local producers a way out of the age-old Bollywood tradition of risking a lifetime of personal savings or mortgaging their homes to produce a movie. The studio model introduced a systematic blueprint for producers to break even, even before a film's release.

Studios such as Viacom18 Motion Pictures, Eros International, Reliance Entertainment and UTV Motion Pictures engaged in operations that involved acquisition, production, syndication, marketing and worldwide distribution of full-length feature films.

Their pre-licensing deals entailed music, television, satellite, home video, Internet, digital, in-flight, overseas and merchandising rights. The studios footed part of the production costs and shared the revenues that accrued.

Local producers embraced these changes, too. Sanjay Leela Bhansali's Saawariya was co-produced by Sony Pictures Entertainment and Guzaarish by UTV Motion Pictures; and Goliyon Ki Rasleela Ram-Leela and Bajirao Mastani by Eros International. Karan Johar's My Name Is Khan was one of the first Indian films to be distributed by Fox Star Entertainment.

Smaller film-makers found a way to tell niche stories when backed by studios"for instance, Dibakar Banerjee, whose Khosla Ka Ghosla (2006) was financed by UTV Motion Pictures, and Vikas Bahl, whose Queen (2014) was backed by Viacom18 Motion Pictures. They both went on to carve out a space for themselves in the movie industry.

Yet, the deep pockets of corporate houses backing film productions may have been their biggest undoing.

That often translates into unreal production budgets"for example, film-maker Sanjay Leela Bhansali today pegs the cost of his upcoming period drama Padmavati at Rs180 crore.

The film will be produced by Eros International and Viacom18 Motion Pictures.

"It is a given that the film will lose money. People who hold the purse strings need to get more conscientious about what they're doing," said a person familiar with the workings of a studio who declined to be identified.

Star remunerations

The reason production budgets have spiralled is the astronomically high remuneration for top actors, a move Nahta calls "studios digging their own grave".

Individual producers such as Sajid Nadiadwala or Karan Johar often share a personal rapport with movie stars, built over several years; in contrast, it is tougher for studios to develop a relationship with stars, and that is where gigantic remuneration figures came in.

Atul Mohan, editor of trade magazineComplete Cinema, said only corporate entities can afford the kind of money top stars have begun to demand today.

Actors such as Akshay Kumar today work on profit-sharing arrangements, making around Rs30-35 crore per film, according to a trade expert who declined to be named.

Added to such high remuneration are the deals signed by actors such as Salman Khan and Hrithik Roshan with broadcast networks for satellite rights to their upcoming films.

"Adlabs had signed a Rs10-15 crore deal with Hrithik Roshan during Koi..Mil Gaya in 2003. Between 2003 and 2016, something should have changed and the industry should have corrected and self-regulated itself," the person cited above said. "Look at Salman Khan's deal with the Star Network. Why would you even do a film with him? You're not going to make any money. Not only will he have a share of the satellite rights, but also a share in the profitability."

The person was referring to the Rs1,000 crore deal the actor has signed with Star Network for the satellite TV rights of Salman Khan's next 10 films and for making appearances on the channel.

Compared with the payment structure in Hollywood, where actors are never known to get more than 20% of the budget, leading stars in the Hindi movie industry take away almost 50-60% of the production budget today, the person said.

Acquisition costs

The high cost of film acquisition remains yet another reason for the undoing of a studio.

There are two levels of producers in the industry today"boutique production houses including the likes of Karan Johar's Dharma Productions, Sajid Nadiadwala's Nadiadwala Grandson Entertainment and studios such as Viacom18 Motion Pictures, Eros International, Fox Star Studios and Walt Disney Studios. Single producers are known to charge anything between Rs4 crore and Rs15 crore per film when they sell movies to studios for distribution.

Considering Rs15 crore is the usual profit on a film, that leaves the studio with little for itself unless the movie turns out to be a box office success. Producer Mukesh Bhatt sold low-budget movies such as Mr. X andHamari Adhuri Kahani that he is reported to have made for Rs5-7 crore to Fox Star Studios for nearly Rs20 crore each, according to a trade expert who declined to be named. The two films made Rs24.79 crore and Rs34.43 crore, respectively.

Ajit Andhare, chief operative officer at Viacom18 Motion Pictures, agrees the acquisition approach is fundamentally flawed.

"When you run with a purely acquisition-led approach, you're paying significant premium, have little control over the product and you'd end up in very one-sided deal structures, which is hardly collaborative," he said. "This is where chasing only big films can land you (in trouble). The question is what is your paradigm? Is it volume, top line or big film-focused or is it based on content and business fundamentals such as story material, bottom-line, risk mitigation and cost efficacy? If you focus on fundamentals, the results have been far better."

The crisis is deeper than foreign studios or corporate movie houses reporting consistent losses"it is to do with the movie business in general. A look at the top 20 Hindi movies of the past three years shows only five or six have made any meaningful profits.

Box-office math

"If you're a studio that is making eight movies a year, obviously not all the profitable five can be yours. In the top five, maybe two or three could belong to you. So out of every eight movies, not more than one or two can be profitable. That is how bad profitability in the Hindi movie industry is," the person mentioned above said.

"Plus, every year, only 10-15 Hindi movies do more than Rs50 crore at the box office, and that is a really small number. So, if you're a studio making eight films a year, by the law of averages and statistics, what are the chances your film will be profitable or even make Rs50 crore? People usually talk of movies losing money, but they're missing the point. The point is not how much money you're losing on the films that don't work but how much you're making on the films that do work," the person said.

Because those two or three movies have to sustain the entire studio slate and the fattest amount on those possible hits goes to the actor and the director, a studio that makes eight films a year"six flops and two possible money-spinners"is left high and dry.

Then there are logistical reasons. In a severely under-screened country such as India, a film-maker has 52 weeks to release a film.

Out of those, there are about 10 weeks which are not conducive to movie business"due to school exams or the Ramzan season or cricket tournaments.

According to the 2016 KPMG-Ficci report, India has more than 8,000 screens (including more than 2,000 multiplex screens) with a screen density of six per million people, compared with 23 per million in China and 126 per million in the US.

"In 42 weeks, you have to release 200 films. That's why you have two films on Diwali, Independence Day, and so on," the person mentioned above said. "Unlike China or North America where there are so many screens that you never have a problem, in India, because the screens are so limited, the same movies are going to eat into one pie because the audience is the same. People get into ego battles, but they forget that we eat into each other's share."

Fire and passion

An additional problem is that many movie studios are diversified into broadcast networks.

"In no other country will a movie come on television within 30-60 days of theatrical release. What you're essentially telling the audience is they need not come to the theatre, the movie will be brought to them for free, especially the smaller films," the person mentioned above said. "The window for movies is so bad. Everywhere in the world, you have such well-protected theatrical windows where for four or five months, you can't put the film on TV. So, we are killing our own business on a sustained basis."

Profits and box office aside, industry experts say the main differentiator between corporate houses and family-owned businesses remains the fire and passion that is missing in the former. MBA degrees notwithstanding, a studio head is, at the end of the day, an employee who draws a salary on a contractual basis and fears losing money for his employer.

And creativity can rarely flourish under such insecurity.

"Our industry has been of an uncertain nature right from the beginning. It is nothing new. We are facing crisis throughout," said Kamal Kumar Barjatya, managing director at the family-run Rajshri Productions, who had tied up with Fox Star Studios for the distribution of its last release Prem Ratan Dhan Payo that netted Rs210.16 crore at the box office. "But we are totally devoted to this and we don't have any other business, nothing else to do but be in this line. We have Sooraj (Barjatya) to take care of the creative side"that is the biggest asset. We are together and it's a joint effort which everybody puts in."

Originally posted by: bips

so basically bollywood families ki chaandi ho rahi hai while the film business as a whole is falling down the drain.