the government decision to provide Bollywood the industry status helped the flow of legitimate,appropriate funding and curb the flow of illegitimate

Business and Trade

Indian Film Industry

The Indian film industry is an integral part of the Indian socio-economic psyche and the most popular source of entertainment in the country. Indian film industry was conferred Industry Status in the year 2000 and is mainly private funded. Indian Film industry is the world's biggest film industry in terms of the number of movies produced and released in a year. In 2004, there were 934 films certified across, with Hindi accounting for 245 of them. The total number of admissions (people attending movies) is almost over 3 billion, which is almost double the US markets and three times that of the rest of Asia.

The Indian film industry comprises of a cluster of regional film industries, like Hindi, Telugu, Tamil, Kannada, Malayalam, Bengali etc. This makes it one of the most complex and fragmented national film industries in the world.


Raising resources in Bollywood- Economic reforms in the late eighties and early nineties changed this dismal scenario.Insurance companies now freed from earlier shackles and competing for new business started covering films. The film industry was granted industry status and could now access institutional finance from banks.Now Financial institutions are ready to take risks and with increasing liquidity, there is more money to be lent to new and historically risky ventures.It is matter of time when the entire film industry learns the fundamentals of corporate governance and is able to raise large amounts of legitimate funding.


Amir Ullah Khan

(JUST FOR MY REFERENCE...VIBHA)

Red Chillies is Shahrukh Khan's company, that produces movies and owns a cricket team in the IPL league, is getting ready for an IPO (Initial Public Offering) and will be listed on the stock exchange. Large firms like Reliance, Adlabs, Eros and Sony have invested close to a billion dollars in nearly 150 films in the year 2007. In its early days, following the First World War, the Hindi film industry was dominated by corporate entities. Film stars, directors, writers and technicians all worked for fixed salaries with big studios and the entire value chain was integrated. Entities like the Bombay talkies, Ranjit Movietone, New Theatres, the Imperial Film Company and Wadia Movietone ran the industry in the decades of the twenties and the thirties. The industry was then making more than 200 films a year, with a rather well defined organisation structure and a distribution system that was run by the producer firm. Indian cinema is seen not only across the country but also in at least a hundred other countries in nearly 13,000 cinema halls, and by nearly 100 million filmgoers every week all over the world. With more than a 1000 films a year, the Indian film industry is clearly the biggest in the world. In the United States, the Non- Resident Indians (NRIs) have made Hindi films a $100 million industry. In the United Kingdom, Hindi films regularly figure as top- earners on the global chart. In Iraq, 30 % of all films sold are Hindi films. Hindi movies are aired nearly three times a week on cable network in Israel. Even in the 60's, at least 111 Hindi films were exported to Greece. During the period 1954 - 1968, 35 Greek movie theaters were showing Hindi films.

The Second World War changed the way resources were raised for making films. What was completely market driven now saw increased state intervention. A few film producers were granted permits. This new system killed the studios. The market became fragmented as films entered the state list in the constitution and each state drafted its own film policy with differential rates of taxation. At the federal level, the censorship laws, brought in by the British became tighter and import duties went up on various inputs like film stock. The partition of the country saw a massive churn as some big stars, writers, producers and directors moved to Lahore across the border. Governance suffered, as the earlier institutions died out and the state could not set up any institutional mechanisms to back its interventions. What resulted was entirely a home grown, underground but remarkable efficient system that governed the world's largest film industry for more than five decades.

The film sector in the fifties and sixties receded into a state of disorganisation. Film finance became scarce as institutional finance was not available. The big studio with its large negotiating strength had died and individual producers were negotiating at various fronts with starts, technicians, writers, distributors and bureaucrats. Entertainment taxes went up to nearly 150% of ticket costs. Ticket prices were fixed by the government. Power supply became erratic and electricity tariff kept going up. The seventies and eighties in India were difficult years, and not just for the film industry. The entire economic policy was confused. Controls became very stringent, duties kept going up, interest rates had reached dizzying heights and the lack of enforcement made a weak Copyright law even weaker. Technology proved to be the bane of cinema as video recorders made copying simple and inexpensive. An entire nation now could avoid poorly maintained cinema halls and watch the latest releases on Television, which has recently turned colour.

Economic reforms in the late eighties and early nineties changed this dismal scenario. Satellite television brought in private channels hungry for content. The fixed ticket price regime went away. Investments moved in and new air-conditioning made cinema halls more hospitable. Exports grew as the foreign market started demanding Indian cinema. Insurance companies now freed from earlier shackles and competing for new business started covering films. The film industry was granted industry status and could now access institutional finance from banks. Foreign Investment norms, now reformed, allow 100% FDI in the film industry. Sony Pictures, 20th century Fox, Time Warner are all investing in the Indian film industry.

Earlier, filmmaking in Bollywood was a family-oriented business and the cost of making movies was not so high. In those days, people depended on their own resources or resources from family or friends and also on professional money lenders. Typically a project would start off on the basis of available funds and once one has got the project going, one could approach a financier, indicating to him that the project was partly done or was work in progress. Funding was then typically provided against some kind of collateral. Funding could also be provided without any collateral but then the interest rates were extremely high, going as high as 3% per month. Over a period of time, many of these institutions have been replaced, in most cases, by banks and financial institutions. Banks and financial institutions were not allowed to fund anything that was not recognised as an industry. When that hurdle was removed it opened up the gates for people to approach institutional finance. This also happened in the background of a lot of money flowing from questionable sources. Therefore, in a way, the government decision to provide Bollywood the industry status helped the flow of legitimate and appropriate funding and curb the flow of illegitimate funding.

Hindi films generate 5% revenue from home video businesses compared to the 35-40% that is Hollywood's revenue in the US. Overseas revenues are pegged at 15% for Hindi films as compared to 25% for Hollywood films. Significantly, domestic revenues for Hindi films are 50% compared to 20-25% for Hollywood fare. Hollywood, then, with all its sophistication and genre-specific filmmaking, can never match the reach of Hindi cinema. One obstacle to its growth in the Indian market is language. English is still not spoken by the majority of people in India. To overcome this linguistic barrier, Hollywood started dubbing its films, giving them local language voice-overs. Jurassic Park was the first film to be dubbed in India. In 2003, eleven out of the three hundred and eleven Hollywood films released were dubbed; seven of these films were dubbed in four languages. Despite this, Hollywood films occupy barely 5% of the domestic market.

Each year, Bombay alone announces at least four hundred new films. A hundred of these never go beyond the announcement stage. Some are canned after a few songs or a few scenes are filmed. Between 150 to 200 finally get completed and barring a few, the others get released. Just as in Hollywood of the fifties, the beginnings of a project are fuzzy. Budgets are uncertain, costs could vary wildly, the story line could change a dozen times, actors may drop out and the writer may change half way through. Usually the producer is the one who doubles up also as the financier. Some big stars with confidence in their appeal could also become producers and therefore are able to bring in financiers.

The future however seems to be through large corporate houses that run a chain of multiplexes. Also through sale of music rights. Indian films are strong on music, song and dance and very often films make up nearly a third of their costs through the sale of the music rights alone. Some now make money through advertising of products placed in films and this has proved to be very successful for consumer goods that reach out to millions through a film and through the film star. Satellite television also is a big buyer and nearly twenty per cent of revenue could come from selling television rights alone. Export markets are big too and the DVD market, though small is growing. With foreign players coming in, domestic business houses showing interest and an entertainment sector that is growing at a fast clip, it is matter of time when the entire film industry learns the fundamentals of corporate governance and is able to raise large amounts of legitimate funding. The economy is getting increasing monetised and cash transactions are reducing by the day. Financial institutions are ready to take risks and with increasing liquidity, there is more money to be lent to new and historically risky ventures.



Director of India Development Foundation, Amir Ullah Khan studied Electronics Engineering at Osmania University and did his PhD on Intellectual Property issues. After a brief stint with the Indian Civil Services, the author also worked with LARGE (Legal Adjustments and Reforms for Globalising the Economy) of the UNDP, Indian School of Finance and Management, Encyclopaedia Britannica India and the PHDCCI.