The bottom line

Indian cinema, especially Bollywood, needs to get its streamlining in order to have a bigger share of the pie June this year could become a major landmark for India's cinema business. Not only is Hrhitik Roshan set to take flight as India's first superhero in Krrish, a new range of relatively low-priced multiplexes is also set to open that month.

They will provide “a premium movie-going experience” to price-conscious audiences, mainly in small towns like Aurangabad and Latur, according to the scheme's promoter, Ajay Bijli. The owner of the PVR brand of multiplexes says tickets at the new range of multiplexes will be priced at around Rs 40. He says the difference between these and his established PVR multiplexes will be like that between Big Bazaar and Pantaloon stores, both of which are owned by industrialist Kishore Bayani.

Already, the number of multiplexes in India has mushroomed to near a hundred (close to 300 screens) since tax incentives were offered in 2001, particularly the 50 per cent corporate tax break for multiplexes in non-metros that was announced in Budget 2002-03. Plans are now in place to almost double the number of multiplex screens in the country over the next couple of years.

This will broaden the consumption base for upmarket cinema. Since multiplexes ride the consumption lifestyle associated with malls and leisure destinations, only three of the 73 multiplexes in India a year ago were in the east, 42 in the west and 23 in the north.

Although only 0.8 per cent of India's 11,000 screens were in multiplexes in 2002, according to global market trends published by the organisers of the 2005 Cannes Film Festival, Bollywood producers, financiers and distributors now focus sharply on the multiplex market. That is not surprising. Multiplex ticket charges mean they contribute a larger share of the revenue pie than the numbers of seats in them would indicate. Plus, multiplexes spin off a huge lifestyle market – not only malls, snack bars and stretch sofa-seats priced at Rs 500 each in some theatres, but also character – or theme-based merchandising.

Krrish could be path-breaking for India's cinema business on that front. Its producers have tied up for a range of merchandise that will tap into the popularity of the Spiderman-type character among children. Spiderman II did exceptionally well in India. Between them, its original and dubbed versions made Rs 34.2 crore – more than Murder and Hum Tum, which were also released in 2004.

It is “a great retail opportunity,” says Bijli, but adds that the merchandise “must stand the test of time.” He points out that Disney still sells merchandise associated with films it made years ago, such as The Lion King, Shrek or Snow White.

Aamir Khan Productions and indiatimes.com had tied up with Archies to market several products associated with Lagaan but merchandising has a long way to go in India. Consider some vignettes. Fact one: Disney made deals with 130 companies for 101 Dalmations, including cross-promotional deals with McDonald's and Frito-Lay. Fact two: after a child in ET shared some Reese's pieces with a friendly alien, Reese's sales shot up 65 per cent. Fact three: the 007 Store stocks 550 products, all related to the James Bond character.

In-film advertising is another Hollywood stock-in-trade. Indian films have already taken to it, but audiences complain that the way products are flaunted is often far from smooth – nothing, for example, like what Cast Away did for courier company, FedEx. Indian producers are pleased nevertheless. Current annual takings are no less than Rs 10 crore, according to the industry grapevine. Indeed, Bollywood insiders say Subhash Ghai probably recovered production costs from Coke and other products even before the release of films like Yaadein and Taal. And they say YashRaj Films got a tidy sum for Shah Rukh to sip and then mention Stroh's beer in Dilwale Dulhaniya Le Jayenge.

The sobering fact is that, leave alone merchandising and in-film advertising, Indian filmmakers have only recently become aware of just how short of the potential they are even in the core of their business. A study completed last year by KPMG

for the Confederation of Indian Industry (CII) points out that, although India produces more films than any other country in the world, its share of global cinema revenue is a dismal one per cent. The US takes the lion's share, sixty per cent, but India's takings are well behind Japan, the UK and France too.

Projecting 16 per cent annual growth, the KPMG study estimates that the Indian industry could cross Rs 10,000 crore in revenue next year and Rs 14,300 crore by 2010. Given the pull factor of the emerging young audience and the access that more and more multiplexes will provide, that could well happen – as long as the current consumer binge lasts.

The good news is that the Indian market is most insular, giving foreign films only two per cent of its Rs 5,900 crore estimated current annual revenue. Forty-three per cent goes to mainstream Hindi films, 17 per cent to Tamil and 15 to Telugu films. However, Hollywood appears determined to pierce that insularity. Not only Spiderman II, dubbed versions of other films with spectacular special effects like Titanic and King Kong did extremely well in India's small towns.

The Indian industry has become aware of the reverse challenge: to sell in the global market. In an age of globalisation, it cannot afford to limit itself to what filmmaker Sudhir Mishra calls “the homesickness market” – although KPMG estimates the Indian diaspora at 20 million, with a combined wealth of US$ 300 billion. Already, the industry has tasted success abroad. While Dilwale Dulhaniya Le Jayenge is estimated to have collected Rs 20 crore abroad in 1994-95, Rang de Basanti collected Rs 24 crore abroad in just six weeks.

Britain-based “crossover” films such as Bend it Like Beckham and East is East have done well enough, developing a niche audience in many countries, but those are basically foreign films. There is much greater potential in collaborations of the sort common in East Asia. Market statistics compiled for last year's Cannes Film Festival showed that 16 of the 20 biggest Asian successes in Europe between 1996 and 2004 were joint ventures. Six of the top seven included a US partner. Two Pokemon films and Crouching Tiger, Hidden Dragon led the chart.

Not one of the twenty had even an Indian partner. Bijli is nevertheless optimistic. “I don't see it taking very long for Brad Pitt and Hrithik Roshan to star together in a cop buddy movie,” he says with a laugh.

However, Bollywood will have to pull up its socks on at least time management if it wants to be competitive. KPMG's study points out that Hollywood takes three years on average to develop an idea and script, a year each on pre- and post-production and just half a year on production, the most costly part of the exercise. In contrast, Bollywood often spends just half-a-year each on developing the project and on pre-production, a year-and-a-half on production and, as it hurries to recover costs, just a couple of months on post-production. The study holds that more efficient systems could save Indian films ten per cent in costs, which have been known to touch Rs 300 crore and are often around Rs 50 crore.

The other sobering fact the study points to is that Hollywood spends 40 per cent of a film budget on marketing against Bollywood's 17 per cent. Instead, some filmmakers complain, distributors have been known to print posters advertising a super-hit before a release and put them up a week after the opening.

KPMG emphasises the need to integrate the value chain, so that studios with several projects on hand could raise funds on a corporate level instead of each film scrounging separately. It recommends that well-equipped studios hire fine professionals so they can simultaneously work on several films.

As things stand, established Indian producers often demand very high minimum guarantees to finance films they have not developed from start, skewing the risk-returns sharing.

Corporatisation has helped, but is relatively new. Since the government declared cinema an industry in 2001, even an institution like the Industrial Development Bank of India (IDBI) has set up a unit to finance films. Though total corporate finance for films in 2004 was still just Rs 700 crore, filmmakers have begun to adopt ratings, insurance and completion guarantees. KPMG predicts that the resultant weeding will reduce the number of productions and that perhaps half the films made by 2010 will get corporate finance.

Fewer films might not be good enough. In fact, more will be required. As Shringar Films' head Shyam Shroff points out, the repeat audiences that used to fill the front stalls of small town theatres are petering out. Indeed, the basic logic of a multiplex is to offer fresh choices. Shroff talks of the possibility of more dubbed films from Europe, Iran, etc. and from other Indian languages if demand outstrips Bollywood's supply.

KPMG's study also recommends vertical integration. This has already begun. Telecom leader Anil Ambani recently bought a stake in Adlabs Studios, producers now invest in multiplexes and multiplex owners in distribution, even production. “We'll be in exhibition, funding and filmmaking, and film processing continues to be our core,” says Manmohan Shetty, who heads Adlabs. The company even bought 46 licenses for FM radio recently.

The study points out another major area for growth: outsourcing. Hyderabad-based Ramoji Rao Studios has hired equipment and post-production services for at least seven Hollywood films, including Gladiator. And India has cost-effective manpower and technology to generate special effects. NASSCOM estimates that India's animation industry alone is worth Rs 2,500 crore. And of course, the government could promote Indian shoot locations with tariff incentives.

The DVD, satellite pay channel and other television-based segments of the market too have huge growth potential. Hollywood already gets only 35 per cent of its revenues from theatres. On the other hand, 57 per cent of India's film revenue comes from domestic theatres, another 12 per cent from foreign theatres. Since nine per cent of the remainder comes from satellite and DTH, which is generally sold clubbed with foreign theatre rights, only four per cent comes from DVD and VCD sales and another two per cent from music. Piracy takes most of what is left of that pie.

Much needs to be done to restrain piracy but that is not the industry's biggest corporate headache, for digital technology will sort that out sooner or later. But having only studied its real problems last year, it is still on the starting block of a race not just to maximise profits but to optimise growth.

David Devadas Mumbai/Delhi, with inputs from Gautum Doshi, Mumbai