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As funding dries up, movie launches and releases are deferred, and there is much introspection about needless spending and stars’ salaries..

(L-R) Yash Chopra, Yashraj Films; Ronnie Screwvala, MD & CEO, UTV Software; Mukesh Bhatt, Vishesh Films; Sheetal Talwar, CMD, Vistaar Religare Film Fund; Hiren Gada, Director, Shemaroo Entertainment
(L-R) Yash Chopra, Yashraj Films; Ronnie Screwvala, MD & CEO, UTV Software; Mukesh Bhatt, Vishesh Films; Sheetal Talwar, CMD, Vistaar Religare Film Fund; Hiren Gada, Director, Shemaroo Entertainment

Varada Bhat

The sweet dreams on celluloid may lose their gloss as financial turmoil hits the pause button on Bollywood films. Indian film companies say that there will be fewer offerings in 2009-2010 as nearly a third of the films already produced will be going unreleased due to lack of funding.

Ronnie Screwvala, Managing Director and founder-CEO of UTV Software, said during the FICCI-Frames conference, “Around 30-40 per cent of planned Bollywood films will not take off this year due to tightening of budgets by corporations, banks and other players.”

According to the FICCI-KPMG report, the release of a few movies may get pushed to as late as 2010 as funding had dried up. “Even if these movies are produced, they may not be released as the marketing costs of a movie are on the same lines of producing a movie,” said Screwvala.

Industry sources say projects yet to take off have been grounded as financiers (banks, production houses) have backed out and asked directors to look for other buyers.

“Movies which were backed by big business houses have been put on the backburner and low to medium budget films have been totally scrapped,” says a source, requesting anonymity.

With return on investments in mega-budget flicks such as Drona, Victory and Love Story 2050 being dismal, corporate houses and banks are sensitive about the costs regarding the new projects.

“We have become more cautious about lending money as budgets of films in the past six months have skyrocketed,” says Karan Ahluwalia, head of the media and entertainment division, Yes Bank.

“The cost of production had gone up to a level where even the breakeven point did not justify that kind of cost structure. Consequently, 2008 didn’t see a lot of hits,” says Sheetal Talwar, Chairman and Managing Director, Vistaar Religare Film Fund.

Vistaar Religare is a venture capital fund with a total capital commitment of Rs 200 crore; it recently produced the movie Victory, the story of a small-town boy who becomes a cricket legend, and The Stoneman Murders, a crime thriller.

With a vibrant growth in India’s economy over the last 2-3 years, the film entertainment sector grew by over 13 per cent in 2008, crossing Rs 10,000 crore. But high interest rates and increase in inflation in the latter half of 2008 put brakes on the expenditure.

Even after the government took a series of measures including aggressive rate cuts and two stimulus packages, access to loans and funds had become difficult as banks and corporate houses now have become cautious about the economic outlook.

Hiren Gada, Director of Shemaroo Entertainment Pvt Ltd, says the company has postponed a few projects by two or three months as he feels things will ease off by the latter half of this year. “Loans which were once easily available from banks have slowed,” he adds.

According to Mukesh Bhatt, who runs Vishesh Films, in the last few years, the corporate houses had jumped onto the film-making bandwagon, without having much knowledge about the industry.

“They gave astronomical amounts to artists. So obviously there is no commensurate sense of returns for those are sitting at the end of the value chain,” he says.

Most of the movies which signed multi-crore deals with mega stars were funded by Reliance Entertainment, Mukta Arts, UTV and Studio 18. These production houses have now lost 50-80 per cent of their market cap in the past one year. Such erosion in market caps will call for cost-cutting, including a lot of such production deals, points out film trade analyst Vikas Mohan.

In addition, film costs have more-than-doubled over the last two-three years with talent comprising more than 50 per cent of the total cost base of a project. Actors who just entered the industry had unrealistic pay packets of Rs 3-15 crore, says an industry insider.

Therefore, for films to profit, lead stars will either have to take a salary cut or work out a ‘revenue-share’ model with producers. Bollywood actors such as Shah Rukh Khan and Aamir Khan recently entered into such revenue-sharing arrangements with their producers, say analysts.

Vistaar Religare’s Talwar said the fund is close to signing up two actors who will be paid on a revenue-sharing basis. He was hopeful that if more production houses and actors are willing to work on innovative fee structure arrangements, there could be a 40-45 per cent reduction in input costs for producing a film this year.

However, analysts remain hopeful that the slowdown will bring costs to a reasonable level and ensure that quality movies are made at a decent price. “There will be a lot more rationalisation of costs now. There will be a lot of quality projects available at rational prices,” says Taran Adarsh, film trade analyst. According to him, talents costs have gone down considerably. “Stars who were being paid Rs 20-50 crore for a movie are now willing to take a 50 per cent cut in their fixed fee,” he said.

A producer who wishes to remain unnamed says he was approached by a director with a budget of Rs 30 crore but after the deal got rejected he was willing to do the same film for Rs 8 crore.

Yash Chopra, owner of Yashraj Films, believes the slowdown has brought some sanity to budgeting. “In the past few years, everything was over-priced. Production, acquisition and talent salary costs had illogically shot through the roof with no recovery of costs,” he said. Looks like the slowdown is set to bring the stars, their rates and other production-related costs down to earth.

Do send in your queries, feedback and suggestions to brandline@thehindu.co.in

Related Stories:
Slowdown bites Bollywood
Hollywood looks east for funds
Theatre property for sale in Chennai

(This article was published in the Business Line print edition dated March 5, 2009)
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