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HomeEconomicsAn Economic Model of Bollywood – Part 2

An Economic Model of Bollywood – Part 2

What is the new economic model that is making audiences’ choice redundant?

By Shreya Narayan

(The article is the second part of a series of three, making an attempt to unravel the new economic model for film industry and throwing light on its various components)

Today making a film is nothing! For despite the headaches, making a film is easier than releasing one. Oh yes, despite corporatisation….despite the large number of cinema halls and multiplexes now available…..despite so much of organisation and transparency and clarity…the film business has been turned on its head. Isn’t it ironic that one needs more money to release a film than even make one? What is this formula that the corporates have chanced upon to minimise uncertainty in revenues earned, that despite shelling tens of crores, and the bombing of the film too, corporates come back to announce another film being made at a budget of another 100 crores.

Let’s work backwards to probe the reality of films today.

Once a film has completed shoot and entered the post production phase of editing, dubbing, colour correction, digital imaging and the likes, one needs to contact the distributors of films. Distributors distribute it to the exhibitors i.e. cinema houses and multiplex owners. The territories of distributorship is divided thus,

1) North India which includes Delhi, UP, Punjab, Jammu, Haryana, and in some cases Bihar and Nepal too.

2) CP.CI- Central Provinces and Central India, which include states like Rajasthan and MP.

3) Mumbai territory. This includes besides Mumbai, Goa, Maharashtra, and Gujarat. This is also the maximum revenue generating territory for Hindi films.

4) South Territory includes Nizam, Karnataka, Tamil Nadu, Kerala etc.

5) Orissa

6) Bengal Territory (which may include Nagaland and Assam)

In a city like Mumbai, where entertainment cost is 40 percent, the share distribution on a ticket sold at the box office for Rs.100/- is thus,

Ticket                                                      Rs.100/-

Tax                                                          Rs.40/-

Net Box Office collection per ticket     Rs.60/-

Exhibitor’s share (50% of Rs.60)           Rs.30/-

Producer’s share (50% of Rs. 60)          Rs.30/-

Distributor’s share (mostly 10% of the

producer’s share)                                   Rs. 3/-

Final Producer’s share                           Rs.27/-

The exhibitor collects all the money earned at the box office. He keeps his 50 percent after the entertainment tax is deducted and passes on rest of the money to the distributor. The distributor then collects his ten to twenty percent, as negotiated, from the money passed over to him, and then sends the rest to the producer. However, no transparent data is available on this particular transaction.

The above kind of transaction between the producer and distributor comes under Commission basis of distributorship. However, when a huge star such as say Shah Rukh Khan stars in a film, the same distributor shall release the film on the basis of Minimum Guarantee. So, say a particular distributor paid Rs. 5 Crores for the rights to distribute Shah Rukh Khan’s film, because he expects the film to do well. Till his share he wouldn’t need to pay anything to the producer. Once his share reaches the said amount, he has to share the over-and-above profits with the producer as negotiated.

The importance of an honest distributor in such a scenario cannot be overemphasised as the producer may not be able to do a thing….despite the Daily Collection Report (DCR) filed by the Exhibitor. It’s because the DCR is such a detailed fine print, that it may take months of studied dedication to make out what was the exact money earned. Today, the fate of a film is decided in a matter of a week! And once that week is past, everything becomes history. A number of films now hire a Distribution Head who can keep an account of the money through DCR. That simply means more money spent to even make money which rightly belongs to the producer.

In 2009, exhibitors engaged in tough negotiations over revenue sharing with producers and distributors that ended with the two sides agreeing to a 50% share for producers/distributors in week one of a film’s release in theatres, 42.5% in week two, 37.5% in week three and 30% in week four for a film earning between Rs.10 crores and Rs.17 crores net at the box office. Rest was to go the exhibitor. If a film collected more than Rs.17 crores, the producer’s share would increase by 2.5 percentage points in weeks one and two (i.e., 52.5% in week one and 45% in week two). If the film earned less than Rs.10 crores net from the box office, then the producer would make 2.5 percentage points less revenue in weeks two and three (i.e., 40% in week two and 35% in week three).

The threshold of Rs.10-17 crores (Net Box Office collection of a film) that determined the percentage to be shared by theatres with producers/distributors was revised in 2011 to Rs. 24 crores. This threshold is called base revenue limit. This threshold is determined every six months on the basis of the total number of multiplexes in the country. For example in 2009, when the total number of multiplexes was say 500, the base revenue limit was around 17.5 Crores. In 2015, the number of multiplexes has risen to say 2000 (that is four times of 2009), then the base revenue limit is also four times today i.e. 70 crores!!!

Thus, though the Exhibitors do not participate in the earth-shattering process of making a film, they walk away with more than half the pie if the film earns any money. If the film does not earn any money, then the producer has to shell out more money to keep the film in the theatres, over and above the show rentals. One is not even talking about the money spent on making the film. Exhibitors say they have invested huge money on creating infrastructure for film and pay huge taxes on it, thus are justified in walking away more than half of the money earned on every film. But, this practise has nearly killed the independent producer. Given the huge economics involved, only big players can dream of getting mass audiences through reach of multiplexes and cinemas halls in commercially viable locations in India. Most of these multiplex owners are associated with Malls, which are social hubs of retail shopping, food and entertainment. Maximising footfalls is the clear goal, and when multiplexes work in conjunction with shopping, footfalls increase, and the risks are shared.

With ticket prices zooming to Rs.1250/- per person in Mumbai multiplex during the weekend shows of the Shah Rukh film ‘Dilwale’, it is obvious that selfish interests are put above any other, thereby putting off the regular viewers of films from the film experience altogether!

Exhibitors have their own story to justify their actions. They say that real estate prices in places like Mumbai is comparable to New York, but the difference in ticket costs is about one-third that of New York, thus recovering costs is a tough task. While this may be true for real estate in Mumbai, this argument can hardly be applied to most multiplexes spread all over India. Moreover, while they compare everything with US, they forget to account for the huge population of India; India has more than three times the population of US. Just ticket prices may be lesser, but volumes could certainly be higher in India, that is, if the film is worth watching, there is access to cinema halls, and the tickets are correctly priced. With ticket prices zooming to Rs.1250/- per person in Mumbai multiplex during the weekend shows of the Shah Rukh film ‘Dilwale’, it is obvious that selfish interests are put above any other, thereby putting off the regular viewers of films from the film experience altogether!

However, one does understand the difficulties that Exhibitors have to face to work under the regulations of the state. After all, cinemas are regulated by State governments. Thus Multiplex owners have to deal with multiplicity of regulations in different states. They also have to take permission from 40 state governments departments towards working of the multiplex. And finally they are issued the licence to run the cinema by the Police Department, making them feel like criminals. Alas, this red tape happens because the Cinema Acts and Laws were made nearer Independence when cinema was frowned upon. That is why cinema is taxed as a Sin Tax, with the same kind of high taxation applying to it, as on tobacco, alcohol and gambling industry. But is entertainment and cinema bad for health, mind or ethics? Is it addictive? This is the question the government needs to answer. Times have changed but the government of India has not updated Cinema Rules and Regulations. In an example of one of the most outdated laws concerning fire security in cinema halls, the Maharashtra government still wants a pail of sand painted bright red, to hang both sides of the cinema screen in order to give fire clearances….and this is even if the multiplex has installed a 50 lakhs fire security system with sprinklers!

By credible estimates, India’s multiplex screens are forecasted to number more than 2,200 by 2016. The more their numbers, the more power they exert over film business. In fact, an exhibitor has a great power to decide if he will even play a movie or not. Money that can be made is the prime decision maker. If he sees that your film is not making as much money as expected, he may remove it at his will despite the rentals being paid….your creative vision, hard work, blood and sweat be damned! It’s unfair to expect exhibitors to empathise with art when they are businessmen who only want to earn profits. Towards this goal they exert pressure on producers to take big stars who they think can pull in audiences into the cinema. This reduces uncertainty in revenues earned to a certain degree. Thus today the film corporate houses are ready to finance any film if the director or producer can manage to get a star through their personal connections.

Isn’t it not ironic in the face of the argument that corporate culture would bring down dependence on the stars and fuel creativity?

You may read the third part of the article at: http://qrius.com/films-shelf-life-3-days-status-flop-corporate-returns-100-crores-part-3/

4Shreya Narayan is an actor. Her most recent work includes Tigmanshu Dhulia’s film ‘Yaraa’, and Syed Afzal Ahmed’s ‘Ye Laal Rang’, both slated to release in 2016. She also featured in Anurag Basu’s Rabindranath Tagore stories for Epic Channel, in the story ‘Dui Bon’. Her earlier work include films like Tigmanshu Dhulia’s ‘Saheb, biwi aur gangster’ and Inder Kumar’s ‘Supernani’. She has also co-produced her first film this year. Named ‘Wedding Anniversary’, it features Nana Patekar.

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