Do producers make less money on OTT compared to box office collections?

Nandana James Mumbai | Updated on July 06, 2020

Lately, the pomp and glory of movie releases has been brought closer home, with over-the-top (OTT) platforms stealing the thunder from movie theatres, only for this to trigger high-decibel debates in the film industry. While the industry seems to have come to terms with the fact that the theatre doors won’t be thrown open so easily — what with the coronavirus pandemic raging across the country — as exemplified by a slew of recent OTT movie premiere announcements, there have been other undercurrents brewing alongside. Can direct OTT movie releases actually be sustainable? Will this trend lead to reduced revenues for film makers? Will the big-budget and ₹100-crore movies also follow suit eventually? How long can this trend continue and what will this mean for the film industry?

Disney+Hotstar's announcement last week that it would premiere seven Bollywood movies —which were originally slated for theatrical releases — from July 24 onwards has intensified the clamour in the industry. This is close on the heels of Amazon Prime Video’s move to premiere seven new movies.

It is pertinent to note that traditionally, the theatres’ or box office collections have accounted for around 60 to 70 per cent of the film’s overall revenue, as per industry estimates.

BusinessLine spoke to experts in the industry to deconstruct the current changes brewing in the film industry.

‘Exceptional circumstances’

Where the movie will be showcased is decided at the inception stage and the current turn to OTT releases is owing to the “exceptional circumstances” the industry is faced with amid the pandemic, said Mohan Umrotkar, CEO of multiplex chain Carnival Cinemas. Once the movies that were originally slated for theatrical releases opt for OTT releases, they are never going to amass the kind of revenue that it would have otherwise, unless the deal with the concerned OTT platform happens to be exceptionally lucrative, he opined.

However, this view is not echoed across the industry.

Ronnie Lahiri, the producer of Amitabh Bachchan starrer Gulabo Sitabo — one of the first movies which premiered on Amazon Prime — used a hypothetical situation to explain this. When a movie does well in the box office, it can really go through the roof, whereas, if the audience rejects it, there would be no assurance of a minimum guarantee, he pointed out. So, with theatrical releases, there is a risk involved, while a fixed sum is guaranteed with an OTT release, he said.

All of a sudden, people are discussing theatrical releases at length, he said. “But, in a year, how many Bollywood films are released and how many cross the ₹100-crore? Right now, everyone is talking about those specific ₹100-crore films, but does anyone talk about so many films that finish before, say, ₹10-15 crore? There are many. Success has a lot of fathers. Failures are orphans. Nobody talks about that - just to highlight,” Lahiri said.

OTT rights are sold at a fixed price, with no linkage to performance of the film, affirmed Shailesh Kapoor, Founder & CEO, Ormax Media, a media consulting firm. For a direct-to-OTT release, the OTT rights will constitute almost the entire revenue (80 per cent), while satellite rights may contribute 15-20 per cent, depending on the film, he explained.

OTT niche

Smaller and medium films are actually going to benefit from OTT releases, as they get a certain revenue without any downside risk if they fail at the box office, said Kapoor. They may actually earn the same revenue or even more, he pointed out. “With every passing month, such films are incurring an interest cost on the money invested in the film, and hence, if they get a risk-free deal from OTT, there is enough temptation to go for it,” he said.

Lahiri, whose movie Gulabo Sitabo was one of the movies which premiered on Amazon Prime, said that he’s happy with the deal and so is Amazon. Talking about why he opted for a theatrical release, Lahiri said that it made more sense to showcase the movie when it was “hot and topical”, and that the audience is eager for new content, and will not postpone movie watching to when the theatres would finally be open and safe to go to, which could be even a year away. At a time like now when people are confined to their homes, they are agog for new content, he added.

To be sure, a study by EY said that over 60 per cent of consumers are streaming more content than they were before the lockdown, with time spent on video-streaming surging 1.2 times to an average of 4.2 hours per user per week.

‘Why wait?’

“If the film is complete, why would you want to hold on?” said Taran Adarsh, a film trade analyst, adding that it’s the uncertainty factor that explains why producers may not want to keep holding on. “Why would they wait endlessly, (when) you don’t know when the theatres would reopen? Their logic would be that why should we let our economics go haywire.”

Even, once the theatres open, there would be a rush for films to be exhibited, and the smaller films stand the risk of being sidelined, which might lead them to opt for an OTT release rather, recover their costs and start planning the next film, said Adarsh.

It’s not likely that this trend of direct releases on OTT platforms amid the pandemic will lead to losses and low return on investment for filmmakers, said Jehil Thakkar, Partner and Leader, Media and Entertainment, Deloitte India. “The environment we are in right now is dictating certain practices that are likely to be different when theatres open. Both filmmakers and OTT players have urgent needs - the filmmakers need to monetise the product that is ready, and the OTT players need fresh content. There’s an urgent need from both sides. It’s a win-win situation,” he explained.

Competition on platform

Umrotkar also affirmed that OTT platforms see this as an opportunity to increase their subscriptions, and that they are competing among themselves, and not with the exhibitors. If they garner more subscribers during this period, they will be able to retain them permanently as well, adding that the fact that the yearly subscriptions hardly add up to a huge sum would be another reason.

However, satellite revenues will drop significantly for a film not released on cinema screens, said Kapoor. “The bigger concern is with big-ticket films that have big budgets and stars. Films like Sooryavanshi, 83, Radhe are too expensive to recover their costs via OTT, and their satellite revenue is also going to be impacted significantly. Hence, we can expect that such films won't release on OTT and will wait for theatres to open up,” he said.

Once a movie becomes a hit and garners huge box office collections, its subsequent satellite and OTT rights will also be priced at exorbitant rates, said Umrotkar. “...that way, OTT releases are not going to compensate for the potential the movie could have had,” he said.

A fixed answer to whether OTT releases would necessarily mean lesser revenues for filmmakers remains elusive. It depends on the expected box office performance, which is anybody's guess for a film that will never release theatrically, said Kapoor. “If the film would have flopped, then the theatrical option would give much less revenue than the direct-to-OTT option. But there could be a major loss of 40-50 per cent or even more if the box office potential is high. So, there is no fixed answer to this question.”

Lahiri also drew attention to the releases announced by Disney+Hostar, which featured a few big-budget, blockbuster movies starring A-list actors. “I'm sure there is a mathematics to it that they all agreed to and that’s why they have gone for an OTT release”, he pointed out.

Long wait

However, though big budget movies and production houses will be able to hold on longer, they may not be able to hold on forever, cautioned Deloitte’s Thakkar. It’s going to be a function of how long theatres remain shut and how consumers behave post its reopening, he said.

Amazon’s and Disney+Hotstar’s respective announcements have created a huge outcry in the industry, with multiplex chains like INOX and PVR issuing statements expressing their disappointment.

But, will this trend be a genuine threat to their business prospects in the long run? “No, I don’t believe so. To be honest, for the health of the industry overall, I think this is a good development,” said Thakkar. Production houses would want to monetise their movies especially when the prospect of theatrical releases remains elusive, he said. “Some of the larger houses will keep holding on, but at some point, every businessman has to make a decision. I don’t think it’s even feasible for all producers to hold on until a theatrical window opens.”

Umrotkar also concurred that while it may not be sustainable for big budget movies to follow suit, it is likely that if they get a good deal, it might just happen.

“Because eventually, we don’t want to kill the production houses. If they get killed, we will not get the next crop. It’s all about the next crop,” he said, explaining that they would need to monetise their current projects so that they can proceed to produce the upcoming ones, which will keep the business running and lead to new releases, which can have theatrical releases or releases via OTT platforms, he said.

Then there is the question of sustainability for the OTT platforms too. Umrotkar was of the opinion that these platforms wouldn’t have the bandwidth to keep on purchasing more movie rights at exorbitant rates in the long run, as they don’t have “the revenue model to recover that kind of cost”. OTT platforms are not sitting on huge cash, wherein they can keep on acquiring movies for ₹200 crore and ₹300 crore, he opined. With yearly subscription rates being cheap in India, and with one subscription being shared by multiple people, there are limitations on how these platforms can recover their costs, he said.

Thakkar, however, said that the OTT industry is in its infancy in paid subscription and that they are in the “build or growth mode”. They are not looking to make money from these things, but they are trying to alter consumer behaviour, he said. They are currently in an investment mode with an objective to acquire more paid customers, he said. So far, the OTT movie releases have been announced by platforms that have global fundings and deep pockets, he added.

Lahiri said that while he has released over seven movies in the past, this is the first time he had messages of appreciation flooding in from places like Portugal and Russia. This exemplifies the kind of reach OTT platforms have, he pointed out.


But, both cinemas and OTT platforms will coexist beautifully, he pointed out. “Cinema is always going to be there - the industry started with cinema. It will always remain...It is just a scenario right now, and people are doing their best to stay afloat,” said Lahiri.

Moreover, roughly 80 per cent of the OTT video consumption in India happens on mobile phones, as pointed out by Thakkar. “With regards to the future, we are absolutely certain that the cinemas across the country will witness the same vibrancy and sentiment post the resumption. We have complete faith in the passionate cinema lovers of our country, and we know for sure that their appetite for the giant screen would know no bounds, whenever normalcy would be restored,” said Alok Tandon, CEO – INOX Leisure Ltd, in the company’s official statement on the current trend of direct-to-digital release.

As veteran filmmaker Shyam Benegal told BusinessLine in May, “The cinema offers a larger than life experience. That cannot be replicated easily by television or OTT platforms. Films can be seen by several means. However, going to the cinema hall adds an important dimension - it becomes a social occasion and a collective experience.” Both are here to coexist, he said.

Published on July 06, 2020

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