Point of View
CEO — Reliance Big Pictures
1. How has the year 2012 been for the Indian film industry? What are the key trends that have been noted?
The first film to cross the INR1 billion mark in the domestic box office (net of taxes) was released four years ago — 3 Idiots, released by Reliance in 2009, is still the overall leader, having grossed more than INR2 billion at the domestic box office. Last year was notable with nine films crossing the INR1 billion mark and a few others coming close. Furthermore, for the first time, we saw smaller films with diverse stories, some without the support of big stars, earn substantial box office revenues. This is a very encouraging trend. However, the high cost of making and marketing films and high tax rates continue to be a worry.
2. Are ticket prices rising in multiplexes?
In most cities, there are very few entertainment options apart from movies, restaurants and malls. Movies continue to be the primary choice for out-of-home socializing with friends and family. Ticket prices are keeping pace with the overall improvement in the movie-going experience — with better theaters, digital screens, comfortable seats; rising incomes, economic growth, etc. Furthermore, multiplexes are investing significantly in improving facilities, including food and beverages, which substantially enhance the movie-going experience.
Overall, there has been a growth of around 15% in the industry and I understand that increased footfalls contribute about half of this. The balance is due to the rise in ticket prices. Most theaters have differential pricing, depending on the time of day, with early morning shows being the cheapest and evening shows the most expensive in order to attract different target groups, based on their ability to pay. Multi-screen multiplexes also differentiate different screens by providing reclining seats, dinner, etc., at the top end, and charge a higher price for an enhanced experience.
3. Corporatization of films — how do you see its success?
Corporates in the film industry are very young. The film business has only been corporatized in the past seven to eight years — Reliance has been in the industry for six years, and the film industry is celebrating its centenary this year. Corporatization has had a positive impact in terms of how films are financed, distributed, marketed and exhibited, in exploitation of rights and expansion of the global footprint of Indian films. Corporatization has also had a positive impact in terms of contracts, transparency and IPR management. One area in which its impact has not been strong is in production. Corporates have established themselves in the business side of the industry, but have yet to make a significant impact, barring a few cases, on the creative side. Development of scripts, investing in creative relationships — with actors, directors, producers and technical professionals— will have to be their focus, going forward.
Overall, access to public and private equity funding, global infrastructure in distribution, marketing and sale of rights, a strong legal and financial framework has grown significantly, but investment in creative talent and relationships within the creative community has lagged behind. This is a major focus area for Reliance at present.
4. Are co-productions on the rise? Why?
A few years ago, when corporates were new, the prevalent model was acquiring rights to films for a limited period with little underlying ownership of IPR. Reliance has not acquired film rights for more than three years, preferring to produce with ownership of all rights. Singham is an example of a partner producer and directors in co-production relationships, sharing ownership, This means that once the script and budget are approved, the primary responsibility of casting and making a film lies with the co-producer, with the corporate providing finance, distribution, marketing, sales and legal services. If executed well, this marriage can be very successful. It leverages the abilities, efficiencies and creative relationships of a producer along with the financial resources and global infrastructure of a corporate, and creates joint ownership, and thereby, assets for the corporate rather than merely the rental model of acquisition. Reliance is also engaged in fully owned productions every year.
5. How big is the international market for Indian films? What is the percentage of total revenues that can be generated from international releases?
This depends on the size of the film. For a large film, it could be as large as 25% of the total revenue; for a smaller one, it could be less than 5%, and some small films may not be released abroad at all. Currently, we have offices in Los Angeles, New York, Toronto and London, and release films simultaneously with their Indian release in up to 45 countries with an Indian diaspora (to a maximum of 70+ countries for a large film). We are also continuously engaged in expanding our global footprint — 3 Idiots was released in Korea, mainland China and Taiwan and is now being released in Japan this year, as is Don 2; Kites was released in Latin America. These are all new markets for Indian films. Indian films usually generate the bulk of their international revenues from seven to eight key markets including the US, the UK, Canada, the Middle East, Australia and South Africa. We are also focused on ancillary rights — DVD, digital, VOD — which can form a substantial part of international revenues, since some markets are very well developed for these rights.
In addition, we have partnered with Dreamworks globally and get a good look at changing trends around the world.
6. Given the CAS environment, how would you expect satellite right values to move?
Currently, pricing of satellite rights is based on advertising revenues. Broadcasters will be able to generate higher revenues from their investments in content as they become more transparent in terms of their subscriber base and share in subscriber revenues. Furthermore, digital cable will support real VOD. Films and film-related programming remains an important part of the overall TV pie and we expect satellite prices to remain stable. That said, the theatrical and satellite appeal of a film are quite different, since they address a different audience, and not all films can finalize a satellite deal
7. What are the challenges the film industry faces?
The first of these is taxation. The industry is highly taxed, with Entertainment Tax levied on tickets, Service Tax on input costs, Corporate Tax on income, etc. We hope the upcoming GST will address some of these issues.
Secondly, the cost of making and marketing a film, especially talent costs, is outstripping revenue growth and needs to be contained. Although the industry is moving toward backend participation to address upfront costs, this continues to be a serious concern.
Thirdly, the industry is expanding and needs an efficient infrastructure to identify, develop and promote new on-screen talent to broadbase content offerings. This is a limitation at present, although many new films are debuting new talent to address the issue.