Global Financial Crisis Aur Hindi Film Industry
With a slew of big releases planned for next three months, it almost seems that the Hindi film industry is showing no impact of the financial crisis that has engulfed the world. While the impact of the financial crisis on other sectors in India like Banking, Realty and IT has been covered widely in media, there’s been limited focus on its impact on the entertainment sector. It will be interesting to analyze what the impact on the industry will be and what could be the potential responses by the industry.
First, a quick summary of the outcomes of the current crisis (past article on the origination of the crisis here). While a lot of us relate the crisis to ‘events’ like the collapse of Bear Stearns (who, incidentally, were the Bankers to Disney), of Lehmann Brothers and the fall of stock markets (Indian indices have fallen by over 60% in about 9 months), the real impact of the crisis on the “main street” has been on liquidity, that is, the ability of the companies to meet their financial obligations when they fall due.
Liquidity is the grease that runs businesses. Beyond the visible indices of capital markets lies the staid world of money markets where banks lend each other money for short-term to meet their obligations, companies borrow money or issue commercial papers to raise funds to manage their business. This is what makes the world go round. The crisis has dented this space. The huge write downs and collapse of the banks has meant the liquidity has been sucked off the system. Also, liquidity is as much a financial construct as it is a psychological one. Once you lose confidence about the other party’s ability to pay back your money, you stop lending. That’s what’s happening currently. So, in a short period of time, through real or imagined fears, there’s no money going around. That’s the reason you find governments in UK and in Europe stepping in and announcing that they will insure the deposits of the banks in their country. It is a signal to shore up confidence. It’s telling banks to go about lending to one another without the fear of the counterparty going insolvent since the government is now backing their deposits. The nature of global financial networks means that this liquidity crisis is real in India as well. To put it simply, there isn’t much liquid cash flowing and by the look of things, this isn’t going to turn around in a quarter or two.
Secondly, the combination of surfeit of bad news, rising interest rates and inflation (though these numbers are bound to come down over the course of next year) and toned down outlook of growth for the year ahead across sectors mean there is a general decline in consumer confidence index in India. This has already happened in US, UK and most of Western Europe where there’s official recession (2-3 consecutive quarters of degrowth). So, there is a growing reluctance among the consumers to spend or atleast cut down on discretionary spends.
What does all of this mean for Hindi film industry? I am no soothsayer but here are a few predictions and the rationale behind them. I have drawn some analogies from previous crisis periods and its impact on Hollywood to see if they fit the Indian context.
1. Funding
Most of the large production houses (Adlabs, Balaji, Ashtavinayak, K Sera Sera, Mukta Arts, NDTV, TV18, UTV) have lost between 50%-80% of their market cap in the last 12 months. These production houses were the ones funding and signing the multi-crore block deals with A list actors and directors. Such erosion in market caps will call for cuts in the companies including a lot of such production deals. It has already happened in Hollywood with Time Warner significantly pulling back New Line to save about USD 50 million a year. Assuming that we have gotten away from the ‘conventional’ funding models of ‘black money’ and underworld, this would mean there’s going to be a reduction in number of films bankrolled. And unlike Hollywood, many of these companies are yet to become full-fledged diversified conglomerates which generate enough cash as part of their operations to continue financing films. Global conglomerates which have dipped their toe in water in India (Sony, Disney) will become very choosy about the projects they take up (if they weren’t already). The other privately held houses or even PE funded shops are also going to become extremely tight-fisted as the credit crunch hits them or as PE funds assume corporate debts of the portfolio companies they bought in leveraged buyouts. Simply put, when you have had financial institutions racking up close to USD 1 trillion in writedowns and losses, there aren’t many places to go for money
2. Consumer Behaviour
There are many clich'©s about what kind of films people watch when times are tough. During the Great Depression, the number of movie goers actually went up and Hollywood went through a kind of golden period. The conventional wisdom says that people went to movies to escape the hard reality of life around them and so preferred films which made them “feel good”. This isn’t exactly true. Movies did offer an escape but what people liked during those days weren’t exactly escapist cinema. The types of movies that did well in that era were either gangster movies with the anti-hero (Warner Brothers staple during those times like Public Enemy or Little Caesar), or, gritty realistic cinema (like the biggest draw of that decade ‘I am a Fugitive from a Chain Gang’) or mocking satire of the system embodied by Marx Brothers (more on my take on Groucho here). The same pattern repeats itself in the recession of mid-70s (Scorcese and others) and the late 80s, early 90s. So, there is no definite trend of audiences watching escapist fare during tough times. Also, there is a significant difference this time around in terms of avenues of entertainment open for consumers in India (and globally) apart from going to cinema. A single trip to a multiplex for a family of 4 could end up setting them back by about Rs. 1000 and it seems unlikely they are going to repeat this a couple of times in a month when the news around them is bad. So while they will crave for entertainment in these times, it won’t be going to the theatres. What this could mean is more time in front of TV, more DVD rentals (including pirated ones) and more illegal internet downloads (mostly by net savvy youngsters). This in-home entertainment sector is the one to watch out for.
3. What might work
a. “Event” movies (“tent poles”) are recession proof: Multiplex audience might dwindle faster than single theatres in small town (where the global impact of recession might not be that hard). This could set back the ‘multiplex movement’ by a couple of years. What this means is people will spend money at multiplexes only for ‘event’ movies (or “tent poles”) which have an all-inclusive appeal once a quarter or so. Like a big SRK, Akshay Kumar release which gives the whole family a fun-filled ride for 4 hours.
b. Hinterland hits back: There could be tough times for high on content, low on star-value small film where the audience will either wait for the TV premiere or DVD rentals for catching the movie. Films which could attract the single theatre, small town crowd will do well. Don’t be surprised if Bhojpuri films give Hindi films a run for their money in these places.
c. Focus on stay-at-home segment: Banking on TV premieres and quicker and wider DVD release might be better ways of recovering money than depending on the opening weekend. In fact, in some cases, it would be best to avoid the opening weekend and negotiate a good TV or DVD deal. Also, the means of marketing and distributing DVD will have to change with focus on differentiated content within the DVD.
d. Change channels: A legal internet download strategy would also make a lot of sense (PFC is ready as a platform for the same) or even a DTH alliance which would bring the films to home at a much lower cost. DVD rental companies will do well in these times and it will be interesting to see which among them actually uses this crisis to innovate.
4. Multiplex story
The expansion of multiplexes is going to slow down considerably because of the credit crunch as well as the fall in demand. This will mean more innovative pricing strategies to attract audience. We could see a sub Rs. 50 per ticket pricing strategy for the non-regular show timings or an annual flat fees model for bulk bookings. One might even see clubbing together of two short duration of movies to create a 4-hour watching experience at the same price. The going will get tough for multiplexes and they will need to innovate. However, there’s a silver lining in all of these. The real estate and lease prices are going to fall (quite significantly, if you ask me) over the next 12 months and beyond. The smarter ones who can still make money will have the opportunity to make the best use of this for their expansion plans of future. And yes, once this phase gets over, we will have more multiplexes because of the fall in prices of real estate.
5. Consolidation
The industry is ripe for consolidation. There are just too many production houses, networks, multiplex chains, animation shops et al. Expect a shakeout – buyouts, more vertical integration and some shops going bankrupt.
To sum it up, the old maxim of entertainment being recession proof will still, possibly, hold true. Who knows Madhur Bhandarkar’s next might be titled ‘Sensex’! However, the chances of me spending Rs. 1000 on it at the Bangalore PVR remains bleak till things start looking up.
Tags: business, Commerce, Credit Crunch, Duniya Mein Traahi Traahi, Film Industry, Global Financial Crisis, Liquidity
Anurag Kashyap
Abhay Deol
Dibakar Banerjee
Hansal Mehta
Khalid Mohamed
Kundan Shah
Anish Kuruvilla
Jaideep Verma
Manish Gupta
Navdeep Singh
Bhavani Iyer
D. Santosh
Onir
Ashvin Kumar
Ramu Ramanathan
Sudhir Mishra
Pankaj Advani
Revathy
Saurabh Shukla
Shilpa Shukla
Sujoy Ghosh
Suparn Verma
Santosh Sivan
Shashank Ghosh
Shivajee
Pavan Kaul
Partho Sen-Gupta
Prroshant Naryannan
Sam Langoria
Satish Kasetty
That’s a very nice study that you have made there.
That is a well researched post. It has always amazed me how Bollywood continues to steamroll many of its projects despite the fact that close to 80/85% of the movies or more don’t recover their costs. If you keep that stat in mind, recession should not really bother this industry!
And you look at production houses like White Feather films which at one point had 4-5 movies being produced simultaneously even though they have hardly had any hits. I guess their Shootout at Lokhandwala was about the only hit and that too an average one! But the still manage to raise funds for their movies. Or look at RGV’s factory as another example. Even his last “hit” Sarkaar Raj was supposed to be just an average grosser.
We might see some of these things happen:
1. Global production houses might view other markets as the returns on backing a good director’s movies will be attractive. A 1-2M USD production of a Madhur Bhandarkar movie with reasonable returns assured is an attractive proposition! We might see much more collabs than we have seen so far.
2. The days of production houses like YRF bullying Multiplexes will end … and who knows they may drop the ticket prices too.
3. Some of the obscene deals that actors have struck up with the production houses in the past year will have to get renegotiated.
About time we had more small budget meaningful cinema!
a very well researched article as expected from u…..
though one question similar to that of ravi’s point…
most of the movies bomb..how do the same production houses keep on making movies…or is that in todays times that the revenue sources have diversified so much that box office collections are only part of the entire pie?
Subrat, i guess one really good outcome of the crisis, is that people will learn some basic stuff like budgeting, cost control and finance management will no longer mean, some vague quick fix packages with fancy terminology.
And i for one would welcome the end of this multi crore madness. Some of the A list actors, have also given B grade stuff. Honestly, i really dont see any sense in throwing crores and crores of money on expensive duds like Drona, Kidnap, Mission Istanbul, Tashan. If not for nothing, this would teach movie makers to make movies within a reasonable budget. And thankfully, i hope we don’t have any more songs shot in exotic locations. If i want to see Vienna or Slovenia, i would watch NGC or Discovery Travel & Living, why should i really waste 500 bucks on a crap movie, just because a song was shot somewhere in Slovakia or Timbuktoo.
And this i guess could also mean, that our movie makers give up their phoren mania. Honestly would it have made any difference if Drona was shot in Bikaner instead of Budapest.
“Don’t be surprised if Bhojpuri films give Hindi films a run for their money in these places.”
Well as of now its happening. In vast swathes of the hinterland, its the Bhojpuri or Western UP movies, that are a bigger draw compared to Bollywood movie. As one of my friend put it sometime back, in what way a guy living in Ranchi or Rourkela, would connect with a story of a live in couple somewhere in Melbourne?
Salaam Namaste or KANK might work in the metro multiplexes or NRI enclaves of US,UK, but the rural hinterland would still go for something like a Vivah.
Subrat!
Neat ,clean and well compiled articles and yes it looks optimistic time for TV channels and DVD’s and infact i preferred to watch Golmaal return in single theatre for 50rs and saved atleast 150 bucks , adding that movies was bad and cacophonic.
Subrat, the finance guys in these corporates must be working on a strategy to help them ride out the recession, if and when it strikes the film Industry.
As of now consumer consumption of most products is down, people see a product and then take a decision to buy it or not. Entertainment works the other way around, we buy the product and then get to see it. There is still the thrill of the unknown and this is what will keep this sector insulated for a while.
The business of film making is simple, you invest a certain amount of money for a while, finish the project, sell off the various rights and sit back. Which other business projects offer you such an option?
Manufacturing or trading doesn’t. Real estate was a good option untill some time back.
You can sell the film rights again and again.
Yes, I agree the entertainment sector will have to look for newer platforms to deliver content. That is where its future lies.
Good post Subrat
@ratnakar..
the sad part is that people like u and me who do not like to watch those disconcerting swiss alp and item songs forms a small fraction of the overall audience..
i remember watching wednesday with a friend from UP. after the movie i asked him how was the movie and he replied
‘ theek thi yaar magar gaana nahi tha ‘
there are many more like him ….
@arun prakash:
“As of now consumer consumption of most products is down, people see a product and then take a decision to buy it or not. Entertainment works the other way around, we buy the product and then get to see it. There is still the thrill of the unknown and this is what will keep this sector insulated for a while.”
Yeah, but now the word of mouth will be more valued! Its unlikely that I would see Fashion on big screen now. I was 50-50 on that one and would have perhaps gone ahead and seen it despite the not so great reviews and blown 300 bucks on it. I had rather wait for the DVD now! Just an example :-)
Excellent piece Subrat, clearly thought out with good examples. Some assumptions may or may not be right but great to start a meaningful debate. Interesting times to be alive in indeed. :-)
According to this article.. investment will increase.. :-S
Ravi, Ratnakar, Arun: financial discipline during making a film is as important during a boom as it is during a recession. I hope the likely downturn inculcates that discipline. No better time to learn than a crisis.
Though my initial point was more about sources of funds drying up. So it doesn’t matter how efficiently you want to run the project if you don’t have funds to start with
Ravi – your question regarding how does it matter when 80-85% of films flop has been answered in the past by Prof Arth Shastri (see http://passionforcinema.com/your-questions-the-return-of-prof-arth-shastri/)
I have ppasted the relevant part below:
Q3
Professor,
I don’t read much. But when I do, I discover interesting facts. Like yesterday, I found that 85% of the films released in a year do not make money. Then why hasn’t the industry folded up yet. What is running this whole loss making enterprise? Should I suspect a foreign hand here as well? Should I ask Sushma Swaraj?
Yours “Tez Dimaag Waala”
Faster Fane
A3
Dear Faster Fane,
You remind me of my friend Dabba who reads infrequently but comes up with startling insights. And he has a sense of irony, so he doesn’t call himself “tez dimaag waala”. Anyway, coming back to your question. You don’t have to go to Sushmaji for the answer to this question. I can give you a few pointers
Firstly, the distribution structure of a Hindi film ensures that the gains and losses accrue at the distributor level (mostly) who has a portfolio of films through the year. 85% films losing money doesn’t necessarily mean 85% of producers losing money. Nor does it mean 85% of distributors losing money since they manage a portfolio of movies. Secondly, there are many more channels of revenues these days than theatre runs, namely, satellite rights, music rights, merchandise etc. Lastly, if you think each new film as a new product/brand introduced, a 15% success rate is way above the success rate of new product introduction in any other industry (technology, pharma et al).
@ Jaideep – Thanks. This post was prompted by your query on the impact of financial crisis. Would be keen to hear from you on the assumptions which you think may go wrong.
@Subrat..One theory that I shall disagree with here is Liquidity crunch. Traditionally, the movie industry is a cash industry. You release your movie and you start to get liquidity into your set up.
Corporations who are in this business do block deals with distributors of various regions who in turn retail it to exhibitors. Earlier, a lot of films that had no takers used to be released on commission basis. That is no longer the case now. In most cases, it is the exhibitors who are taking the hit in the last few months of flops. But then, they have an option. They pull down the movie to minimise their losses. Also, every Friday, they keep adding new content and the cash keeps coming in. It may so happen that for long periods they are in the negative. But then something like a OSO or Jab we Met arrives and sanity is restored. I have talked to a majority of these guys and the point they make is generally the same.
The distributors who make block deals are hedging their bets and risks with a smorgasboard of offerings. So, they shall have a few small movies, a few multi starrers and some regional cinema for derisked business plans. Of course, as seen some of them have been stupid here too. Notably, Big Pictures!
The producers in practically all cases try and sell on the table. If the streams of income do not permit a good income, then a territory of distribution is retained for some risks and allied rewards. Of course, I am yet unaware, how many of them actually do run spreadsheets for all of this.
So, no matter what they say and what it looks like, this is pretty much a recession proof industry with a lot of cash oiling the tills every weekend to survive on its own merits.
I have met distributors who have made millions during Manmohan Desai’s times. I have met exhibitors who have made money like crazy with Jurassic Park dubbed in Hindi. I have made Exhibition company CFOs who have gloated about 22%EBIDTA as recent as 2007.
Yes, there shall be shake ups, reorganizations, new revenue streams, better transparencies, online retail, double bill features, movies on order, Joint developments, Franchises, mergers and acquisitions (especially in the exhibitors arena), the DTH platform for new movies and a huge upheaval in regional cinema for local content. So, interesting times ahead!!
Subrat, since there is a fair amount of unchartered territory staring at us, it is not easy to predict what the responses from various quarters will be (and they are unlikely to be homogeneous anyway). Yes, liquidity will be a problem, but the industry will still have to function. One school of thought suggests that funding will be more for the safer projects with stars, which promise assured returns to the producer. The distributor anyway gravitates towards safety. Another point-of-view ponders on the possibility of the smaller budget cutting edge projects getting more of a look-in simply because they need less money to start them up. If the latter happens (even on a small scale) it could be the best thing that happens to the industry not just in terms of quality of work but also commercially. It would be great if this industry of gross excesses and highly unequal attitudes focuses on innovation and originality out of sheer commercial need. It could lead to amazing things.
I agree with your comments on multiplexes. It would be a good thing if they’re forced to review this whole idiotic luxury viewing phenomenon which really at the end of the day reinforces maximum returns and safer films and discourages risk-taking. If cinema halls can just be comfortable with working air conditioning and zero frills, and bring ticket prices down to hundred bucks, a totally different film climate could thrive which one suspects will have tremendous commercial viability. This could well be the exhibitor’s business model of the future (and current multiplexes might have no choice but to move towards that), and the first one off the blocks could well prove this. If the liquidity crunch helps us move towards that, what a great thing that would be.
Your arguments for stay-at-home entertainment becoming even more significant are sound given the current film viewing options but if necessity forces more inexpensive options to come up, then who knows what could happen? The “high on content, low on star-value small film” could then actually find more takers than they do now.
The next few months will be interesting.
Indraneel, very interesting points.
intrstng post…very wel researched subrat, cheers for that!!!
1 point to b noted is, most of th corporates r not directly making money (read theatrical) but frm other revenue sources…to some pepl an ‘aamir’ is making money but in ths case only a utv is making money, but not a distributor, certainly not an exhibitor. later films wil b sold on dvd, satellite etc. films lik ru ba ru r directly released by ppc n likes, but r wash out for evry1 involved. in short yes entertainment wil b affected, but by thn biggies(read head honchos) wil make good money and move on…consumer wil not get affected, certainly thy r affected by other market conditions(inflation,stock market etc.) my question is if lehmann bros, merry lynch smthng cn shut shops, can a tv 18 n othrs save thr ass frm a recession season al around???
money making films for al involved
bheja fry
khosla ka ghosla
bhoot
phoonk
a wednesday
whras
a manorama six feet under kind films did extraordinary in dvd circuit only, but a punjab etc distributo who paid certain lakhs to get few prints+ publicity cudnt hav slept wel for months :-)
What about the Reliance’s deals with Hollywood ( Spielberg, etc ) ?
Now people should think of UAE. Hollywood already has done so. Abu Dhabi, for example, has pledged 1 billion USD over the next 5 years, for Hollywood makers, to come and do films for them !!
Reliance Hollywood Dream gone bust..
http://in.rediff.com/money/2008/nov/04bcrisis2.htm