The Hindu Business Line : Film funding: The changing scenes

FILM and television software production house K Sera Sera Productions Ltd recently announced plans to tap the capital markets to raise Rs 60 crore for its film and television production activities.

Yashraj Films had sought funds from Exim Bank apart from dipping into its own cash reserves. Pritish Nandy Communications Ltd was yet another entity that was looking at institutional funding to part-finance its films.

Institutional debt and equity funds are slowly entering the funding of India's film industry. The change has partially been brought about by a combination of factors. Some film production companies have become stock-market listed, others have chosen to streamline their finances and lowered costs.

For over 50 years, the film industry was largely dependent on ambiguous sources of funds - personal finances, advances from distributors or funds from friends. Typically, a producer would recover his cost by selling music rights and theatrical distribution rights. In recent times, there are more avenues for recovering costs - rights to cable and satellite television, overseas distribution, gaming rights, broadband rights. (Sometime in November 2004, K Sera Sera Productions had entered into a licence agreement with VSNL to offer content from its films such as Ek Hasina Thi, Darna Mana Hai, Main Madhuri Dixit Banna Chahti Hoon... ). Games based on films are also another form of revenue for the film industry especially in the wireless world.

Although official lending sources are warming up to the idea of funding film projects, they are mitigating the risk by offering finances at interest rates higher than those offered for conventional corporate projects. These rates are, however, lower than the traditional sources of funds that the film industry is able to tap. If IDBI, Exim Bank and other public sector banks are some of the lenders cautiously opening their coffers for the film industry; corporate entities are also taking a chance at film-making.

IDBI has a corpus of Rs 100 crore and has so far funded 30-35 films. Unlike IDBI, Exim Bank's offer of finance largely depends on the film's potential for earning foreign exchange revenues from overseas.

According to CII-KPMG report on the Indian entertainment industry, limited or non-recourse financing on the lines of project financing is not yet common. "It is believed that institutional financing could bring in stipulations like completion bonds, insurance, well-defined contracts," KPMG said.

The pattern of financing has been one of the significant changes witnessed in the film industry. Equally important has been its insistence on bringing down costs. A series of box-office failures had prompted the industry to restructure its operations - reduce delays in productions, lower costs, work from project to project and diversify as a means to hedge risks of film-making.

At one time, distributor took the highest risk and this risk was further enhanced because of the problem of piracy. Mitigating the risk was possible if a film production company also got into distribution. Examples abound - Yashraj Films, UTV, K Sera Sera, primarily film production companies are now into distribution of not only their own films but also others films.

If capital market is one emerging source of funds for listed entities within the film industry, the possibility of getting a working capital loan is not too far off. According to KPMG, financing in the future may not be project-specific but more a working capital loan for an integrated entity. "It will be securitised using the exhibition receivables. Such a scenario will allow the bank to spread its risk across a portfolio of projects of the film production company," it said.

May be in time a Film Fund will be set up allowing the industry further ease in sourcing finances, industry representatives say.

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