After a lucklustre period in the 1970s and 80s, the Indian film industry - or Bollywood - is experiencing a boom in revenues, says Bobby Ailwadhi, and hopes to mirror the success of the country's IT sector
The Indian movie industry - or Bollywood as it has come to be known - is experiencing a massive revival. In its wake, is a trail of dashing heroes, sultry heroines and a population of starstruck fans hankering for more.
Indians live, breathe and drink the celluloid world. It is a world of make believe with heroes, heroines and dastardly villains. A world where good triumphs over evil and all's well that ends well - all the time! A world where the silver screen provides not only entertainment, but also a gamut of emotions and visual experiences set in exotic locations. For a few hours, the viewers escape to a world of perfection, a dream-like world of glamour and glitz. A slice of Utopia for a few rupees is a real bargain.
Indian cinema's era began in the early-nineteenth century when India as a country was still experiencing major social and political reforms. In 1931, the Imperial Film Company in Bombay released the first Indian film with sound, Alam Ara. The last decade has also seen a mass revival of quality Indian cinema after a lacklustre 70s and 80s. Productions such as Hum Aapke Hain Kaun, Dilwale Dulhania Le Jayenge and - more recently - Lagaan are progressing the medium and pushing the revival. The companies that produced films like Lagaan, Kabhi Khushi Kabhi Gham (K3G) and Kaante have created much appeal to the international market, and have all demonstrated high standards of quality in film production, comparable to international production houses.
The Indian media and entertainment industry is one of the biggest and fastest growing business sectors in the world. Indian cinema is regularly acclaimed for its lavish production sets and traditional musical interludes. The Indian film industry produces over 800 films a year across 52 different languages. The industry generates employment opportunities to almost three million people, which by 2005, is projected to increase to over four million.
It is an industry with many segments. There is the software segment comprising films, music and programmes. The hardware segment includes studios and other services that support the creation of entertainment software. The services segment encompasses distribution, exhibition, film procurement and banking services that support the industry. Finally, the front-end media segment includes film magazines, TV, cable and satellite, cinema, DVDs, video cassettes and films that act as an interface between the entertainment industry and the audience.
With the immense diversity in content and media entertainment, the Indian film production companies industry presents itself as a natural developer of business opportunities. The development of new multiplexes and megaplexes, entertainment theme parks and foreign companies seeking to outsource their production to Indian film, are just a few examples of the major transformation that the industry will undergo. And owing to the existence of such diversity of culture and language, the Indian film industry comprises films made in several different languages: The industry now aspires to mirror the success of the Indian information technology sector that has become a major world player. India is moving into the 21st Century as a high-tech economic power. The vast variety of programming on satellite TV is changing the tastes of India's new information technology-powered middle class. Moreover, the whole Bollywood industry is quickly undergoing a transformation to meet these changes.
The Indian film industry is probably the only film industry in the world that has no fear of Hollywood. It is becoming more technically savvy, better organized and better funded. In fact, if Indian society and, consequently, Indian film makers continue on their present course of development, Hollywood may end up competing for world-wide screen space with Bollywood. Already, overseas territories are big money earners for producers and distributors and so many films are now made with an international audience in mind.
The large number of cash-rich non-resident Indians (estimated at 20 million) is considered a major factor in creating a successful future for the industry. The net worth of this group is estimated to be $300bn and their contribution to the Indian economy is valued at $5bn-10bn annually. In the UK there are 2.5 million Asians, worth $41bn, 23 Asian TV channels and 50 active screens showing Bollywood films and live entertainment events, which generate cash for the Indian entertainment industry. London is the launch pad for Indian films, television, music and fashion around the rest of the Diasporas.
These non-resident Indians have become an important audience for the Hindi film industry. Revenues from overseas market are tending to match those from the domestic theatres. According to the UK Film Council, Bollywood is making as much money in the UK as British Films. In 2003, the gross collection for British Movies was £8.2m. For Indian movies, it was £8.1m. As a result, international distribution companies, such as Columbia Tristar and Universal, have entered the business of overseas distribution of Indian films. This has further raised revenues for production companies.
Bollywood's popularity is also ballooning elsewehere in the world and its films are becoming firmly entrenched in international movie theatres. Movies like Monsoon Wedding, which has captivated western audiences, Lagaan, which was an Oscar contender and, Kabhi Kushi Kabhi Gham, which broke box office records in North America, are just a few examples. This overseas market (theatrical, video and television) has become increasingly lucrative for Indian producers with some films realising up to 30% of their total proceeds from overseas receipts. Indian film exports increased by 17% from $99m in 2000 to $115m in 2001.
The USA, Canada and UK are the major export destinations with territories such as Japan, South Africa, Mauritius, Australia, the Caribbean, New Zealand and the Middle East fast becoming important markets for Indian films.
Furthermore, with the growth of cable and satellite television, satellite rights have emerged as a big source of revenue for film production companies. Music rights contribute around 25% of the revenues of big banner movies. The fact that the music companies now pay almost 30% of the cost of the music rights in advance helps a movie that is under production. As a result of these streams, the revenue mix has changed dramatically in the last decade.
As the Western world has finally acknowledged the melodrama, glitz and glamour of the Indian movie business, several corporate entities, including the Halifax Building Society, Peugeot and Walkers Crisps, in the UK, have built successful advertising campaigns around Indian themes. Meanwhile, Glossy magazines are dedicating pages to Indian-style fashion and Western directors are scrambling to make crossover movies inspired by epic tales of love, lust and heartbreak.
Gurinder Chadha, the film director of Indian descent who made the UK hits Bend It Like Beckham and Bride and Prejudice has become an ambassador for British cinema. According to the British Film Institute, in 2002, 25 British Films released grossed more than £27m, with Bend it like Beckham accounting for over £11.5m. At a cost of about £4.5m and with worldwide earnings of over $85m, it is one of the most successful crossover British movies ever made. And Bend it like Beckham is not the only crossover movies that enjoyed a good return on investment - Monsoon Wedding and East is East have also been successful. Each costing about £3m to produce, the films have earned almost $25m and $30m worldwide respectively.
In fact, crossovers are generally becoming a new trend in the marketplace - whether in relation to food, music, movies or fashion. My Big Fat Greek Wedding, for example, cost approximately $5m to produce, but grossed over $350m at the box office.
The cost of making a small budget Bollywood movie in India can be up to $875,000, while a large budget movie typically costs over $3.5m. These budgets are relatively small compared to Hollywood productions and can therefore be very profitable in terms of return of investments. As a general rule of thumb:
n A 'blockbuster' earns five to 10 times its cost.
n A 'super hit' earns three to five times its cost.
n A 'hit' earns two to three times its cost.
n An 'overflow film' earns one-and-a-quarter to two times its cost.
n Even a flop movie usually recovers half its cost.
It is worth noting that these earnings only relate to first time sales; almost all movies recover original investment through repeat sales - usually between three and five years. This means that the rights are returned to the intellectual property owner every few years and re-sales take place again and again. With the effects of inflation and emerging platforms, Indian movies are like annuity plans. They keep earning revenues over the years.
The average investment returns Bollywood movies make is between 40% and 50% a year. As the growth of the industry expands, the multi-diversification, outsourcing and the cross-trading platform in new terrestrial sectors are all key attributes to greater investment returns.
Hollywood is already taking a look into Bollywood's success. Former James Bond actor Pierce Brosnan told reporters that "the cross-pollination between Hollywood and Bollywood is getting closer". After his third visit to India, he said his forthcoming movie will be partially filmed in India. Michael Douglas has also set his sights on Bollywood and agreed to co-produce and star in "Racing the Monsoon". He said that "the film would be shot entirely in India and it will be the first US/Indian feature co-production. Holly and Bolly are mixing quite well nowadays, and this is just another step towards it".
Turnover from India's entertainment industry stands to quadruple by 2007 -the market size is set to touch $6.8bn, according to a joint study by McKinsey and the Federation of Indian Chambers of Commerce and Industry (FICCI) - and the industry could be worth around $11bn five years from now, the Confederation of Indian Industry predicts. "The industry has been growing at the rate of 30% every year - one of the fastest in the country, and even globally," the confederation's president, Sanjiv Goenka, has stated.
Indeed, according to a report produced by FICCI, the entertainment industry outperformed the economy and was one of the fastest growing sectors in 2001 - for example, exports of video films and software increased by 65% from $160m in 1999/2000 to $263m in 2000/2001. It is now likely that the entertainment industry will be awarded incentives similar to those offered to the information technology sector in the near future.
Moreover, with the introduction of insurance covers and completion guarantee bonds for Indian films, investors and financiers are protected with a level of guarantee that films will be delivered on schedule and within budget. Companies like Mukta Arts Limited, Pritish Nandy Communications Limited, and Zee Telefilms Limited are just a few listed companies that will benefit from the flourishing business opportunities of outsourcing and co-production of movies with international partners.
Meanwhile, India's government is moving to encourage corporatisation of the industry, improving access to bank finance and reforming taxation laws to encourage exports. Behind these measures lies a perception that the film industry, like telecommunications and information technology, is one that can leverage the country's highly skilled workforce and low costs to create an internationally competitive economy.
To this end film was accorded 'industry' status by the Indian Government in 2001 thus making it eligible for film financing from banks and financial institutions while the Industrial Development Bank of India (IDBI) set up the country's first film fund worth $25.6m. The government fixed a ceiling of 60% on entertainment tax.
In an interview, the former Information and Broadcasting Minister, Ravi Shankar Prasad, tackled the challenges facing the celluloid industry by reiterating: "Movies are my priority. They have the potential to usher in creativity and generate employment. If you have to push in the last segment of the knowledge economy, entertainment must get top attention. I have been looking at films in a holistic manner by promoting co-productions in a big way. I am also looking at piracy.
"But the larger issue is to give the right exposure to Indian cinema outside our shores, so that the great market possibility it has can be usefully tapped''
India's expertise in content creation, special effects and process management software are already attracting investments. As India's song-and-dance 'masala' movies are gaining popularity in the overseas market, VCs could also target the film distribution segment.
The convergence of information, communication and entertainment would make India a hub of global entertainment business process outsourcing in the next few years and the country will emerge as a major back operations destination for special effects and animation, with rushes of films shot in United States and United Kingdom being brought to India for processing and editing.
The Indian media and entertainment industry is one of the biggest and fastest growing business sectors in the world, employing almost three million people.
The cost of making a small budget Bollywood movie in India can be up to $875,000, while a large budget movie typically costs over $3.5m.
Film was accorded 'industry' status by the Indian Government in 2001, thus making it eligible for film financing from banks and financial institutions while the Industrial Development Bank of India (IDBI) set up the country's first film fund worth $25.6m.
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