Indian film industry on a bull run
The silver screen is on a bull run. The Indian film industry has never had so much money on offer in itâ€™s over 100-year history. For years, content chased debt with payback riding on hysterically high interest rates. Today, the tables have turned. It is equity, which is chasing content. â€œTalent indeed, is making capital dance, a fact which has never been truer than now, in the film industry,â€ says Sony Pictures India MD, Uday Singh. Singh himself unabashedly admits to having chased the right content for years to mark Sonyâ€™s debut into production and Bollywood.
From the time that Sanjay Leela Bhansali conceived Devdas (which was finally bought by Bharat Shah) and then Black (Applause Entertainment), Singh had been wooing Bhansali for Sony. Finally, when Bhansali was making Saawariya, Singh and Sonyâ€™s deal came through.
While Sony was pursuing Bhansali, so was the rest of the industry, including those with deep pockets who have recently raised money in the market. And all this for one reason â€” there just isnâ€™t enough content in the industry, and even less in the top bracket.
DEBT TO EQUITY
The tables on this debt equity ratio began turning when Bollywood got industry status six years ago, and organised funding began flowing in. Over the last six years, since the Reserve Bank of India issued guidelines to banks to lend to films, more banks joined IDBIâ€™s success story. Collectively, between Rs 600-650 crore has flowed into various film projects though the skew has been towards Hindi cinema. With corporate names, banks, private equity players and, lately, Hollywood studios as well as companies within the industry raising money from the markets and from abroad, funding for content has been in abundance.
â€œYet, content has not been able to keep pace. Even if you count the handful of people who are producing content, like Farhan Akhtar and Ritesh Sidhwani, or Karan Joharâ€™s Dharma Productions, Ramuâ€™s RGV, or Ramesh Sippyâ€™s RSE or Rakesh Roshan or Shahrukhâ€™s Red Chillies, it all adds up to 50-70 good films, what after that? Where is the rest going to come from?â€ asks Timmy Kandhari, head, media and entertainment, Pricewaterhouse Coopers (PwC).
According to industry estimates, anywhere between $ 350 million and $500 million (Rs 1,500-2,000 crore) is available for content players in the film industry today. â€œToday, the ratio of debt to equity has come down drastically. You could safely put it at 20:80 debts to equity. There is enough equity in the market today so people do not need to borrow from dubious sources.
The 20% is those who cannot raise even the rest of the money after the bank loan etc.,â€ says Aditya Shastri, CEO, People Pictures. Indian content, he adds, has always had value but this kind of equity flow has unlocked the real value of content.
So, the money is there. Plenty of it. Which raises the question of who is going to lap it up? A Karan Johar can direct only one movie at a time, and even as he tries to scale up his Dharma Productions and increase his slate of movies, he can at best make 4-5 movies, between a mixed bag of big budget and medium. T
He same goes for a Sanjay Leela Bhansali. Or even a Mukesh Bhatt who, with his non-star model, cannot make movies fast enough to fill the audiences. â€œAnd the theatres and audiences demand two-three new movies every Friday. Who is going to make them?â€ asks Ram Gopal Varma, whose company is aptly called The Factory â€” churning out movies without dwelling on hits and misses. â€œEverybody needs content as the turnaround time on content is quicker than, say, building an exhibition business,â€ says Kandhari.
Meanwhile, companies building studio models are also spending money. Yet most of it is focused on marketing, acquisitions and co-productions, playing the role of financiers than pure content creators. Companies that are building on studio models are spending huge monies on acquisitions. Eros acquiring Om Shanti Om for Rs 75 crore is the latest case in example. â€œFrom an industry perspective, the talent pool has been unable to grow alongside and keep pace with the demand, therefore there is a skew towards demand in the ratio. This is definitely not a short-term problem, yet from a studio point of view, both co-productions as well our home productions are the same,â€ says UTV Motion Pictures COO Siddarth Roy Kapur.
Yet, as UTV releases its biggest budget home production, the Rs 25 crore Goal, the way forward is for more home productions. In fact, for the 2008-09 slates, UTVâ€™s skew of its 18-24 films will be at least 50% towards their own home productions, says Kapur. Then there are studio models like the one Yashraj follows. Even as it built its distribution business, content was in-house for all home productions.
Yet, even with the might of its banner, Yashrajâ€™s slate of films cannot exceed more than 4-5 in a year.
The road to creating content, though, is not easy for Indian cinema. Largely a star-led model, it makes it difficult for everyone to access them and afford them. â€œFor one it takes the cost of production into a different stratosphere,â€ says UTVâ€™s Kapur, adding that the recoveries however come largely from star-led movies.
There are people like Mukesh Bhatt who have consciously moved away from the star system to create their own model, and with at least 60% cost savings he has so far been successful in his low to medium budget movies with a faster return on investment. â€œVery few film makers have the capacity to bring in stars and this is a bottleneck, which needs to be addressed. Once we have better content and stories, this system should cease to matter and maybe we can have the scriptwriter as the star in the future,â€ says Kandhari.
The way forward then, is a host of pure creators. To create more models the way Miramax is to Walt Disney, Dreamworks is to Universal and Foxlight is to Twentieth Century Fox. Back home, Karan Joharâ€™s Dharma attached to Yashraj Studios, comes closest to this model. Hollywood studios are still in a dipstick mode and will be so for the next three years at least, spending small amounts to test the market. Though they know that the future is in local content and, like Sonyâ€™s Singh says, going forward, at least 90% of his India revenues will come from his local content.
Cinema here is booming, as the Indian middle class mushrooms, and builders erect air-conditioned multiplexes in cities to show the 1,000 or so annual homegrown productions (as well as the foreign movies). PricewaterhouseCoopers projects that Indiaâ€™s industry will expand to $4.4 billion a year in 2011 from $2.1 billion in 2006.
This opportunity is what Anupam Mittal of the Rs 120 crore People Group wants to tap â€” his new arm People Picturesâ€™ focus is to be the Miramax of India. Beginning small, with an investment of $10 m, Mittal says that while industry consolidation is bound to take place with three to four large US style distribution studios emerging over time, there will also be three to four creative studios that will be able to scale and boast large market caps based on the content premium attached to them.
â€œThis is the opportunity we are chasing. Most of the current investment is going into distribution, somebody has to do content. What we have to do is attract the right talent; it is no magic potion,â€ says Mittal who, according to sources, is tying up with an independent studio from the US very soon.
The time has never been more right for the content creators, and they are more in demand than ever before. While SRK discos his way to the box office, the Bheja Frys are also in demand to keep the rest of the seats filled. Welcome to the era of the story teller. Let the magic unfurl.