Gradually the dust seems to be settling on the Vishwaroop(am) controversy, now that the movie is released and running in almost all the territories that it originally aspired to show in.

In fact, viewers who may have otherwise ignored the movie seem to be rushing to the theatres — just to find out what’s so controversial about it.

Who knows, in hindsight, what happened may have been the biggest marketing exercise that Kamal Haasan never conceived, but unintentionally helped execute.

Business of movies

As an independent onlooker, I thought that the real-time drama surrounding the movie was probably more thrilling than the movie itself.

An iconic artist pledges all his wealth to make the movie of his dreams, only to be threatened by a handful of people who, in the name of religion and politics, make him a pawn, bringing him down to his knees and onto the streets; reducing our free society and legal system to mere spectators in the process. Before you start wondering when this column on business turned into a movie review section, let me cut to the chase.

What I’d like to discuss about in this article is the business of movies, using Vishwaroop(am) as a case study.

If there is one business where Murphy’s Law is most applicable, it is the movie business — anything that can go wrong generally does, sooner or later. One would expect the insiders of the trade to know this by now and act accordingly by not getting buoyed by greed and putting all their eggs in one basket, but no — rational expectations may be too much to ask in the world of dreams.

The movie financing, production and distribution business is akin to venture capital business. If you manage your risks well, the returns will come. It is almost a given that not all movies would be a hit — in fact, most fail to recover money. But the few hits have the potential to multiply money and produce rewards that will more than make up for the losses and misses by the others.

The business model is such that if you finance a portfolio of movies, and plan your capital allocation appropriately, you will make decent returns overall. Obviously this could mean higher capital allocation to those movies which you think have a higher probability of success, but the catch is, you can never be sure.

As a businessman in the movie financing, production and distribution business, one must always be prepared for your high probability idea to fail and still have a plan B to continue to stay in business to see profits another day on another venture.

Small-budget success

The second, hard to digest, reality is that low-budget movies make higher returns on percentage basis than mega-budget movies. While the latter could make more absolute returns in terms of amount of money, this is more so because the principal investment itself is huge.

So successful people in this business, who are ploughing in their own money, typically back small/mid-budget movies and leave it to the large production studios (corporations) to back mega-budget ventures.

The fact that even relatively successful businessmen/investors such as Rakesh Jhunjhunwala and Radhakishan Damani (who are in the thousands of crores net worth league) chose to produce a small to mid-budget movie such as English Vinglish is an example of how shrewd businessmen behave — very responsibly.

The news is that English Vinglish recovered its capital even before its release and whatever ensued was pure profit.

Thirdly, while the idea of cutting the intermediaries to improve profit margin is valid, one should also realise the flip side to this argument — that is, the fact that if the movie bombs, the producer will be stuck with all the losses. By cutting off all the intermediaries, one is also cutting off the risk-sharing ability within the ecosystem.

Fourthly, just like the case with any product, the product life-cycle/shelf-life has shrunk rapidly for movies as well. There is enormous pressure to recover money invested ASAP, lest the movie becomes stale and it becomes too late.

This further validates the reason for individual producers and regional language movies to keep their break-even point low.

Hollywood is an entirely different story all together — where multi-billion dollar corporations can afford to produce hundred-million dollar movies and hope to break-even as well because the entire world is their audience thanks to the global language — English.

Simple is not easy

Lastly, the audience world-over, including India, has matured to appreciate movies for their stories and core content, without all the other effects. The bottomline is: A simple movie that appeals to many can make producers extremely rich. But simple doesn’t necessarily mean easy.

As Charlie Munger says, the reason that the business/investment ideas of his and Warren Buffett’s haven’t caught on is that they are too simple. So ‘simple’ that they do not justify the need for much of the professional class and experts, who constantly try to make things more complex than they need to be.

Even veteran Hollywood studios — such as Disney, which has been in the business for nearly a hundred years — continue to make errors of judgement, what with their recent movie John Carter wiping out nearly 200 million dollars from the books, forcing the chairman of Walt Disney Studios to step down.

I guess irrationality is deeply ingrained in the nature of human behaviour. Just like large overvalued M&A deals will never stop despite their risks, mega-budget movies will never stop getting produced despite wiping out many a fortune.

(This article was published on February 9, 2013)
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