As a starry-eyed youngster, did you nurse a secret passion for movie-making? Are you fascinated by the glamour, heartbreak and rags-to-riches tales of tinsel town? Well, if you’re wealthy enough, you now have an opportunity to participate in Bollywood (including its Kolly, Tolly and other versions) by becoming a film financier.

Corporate avatar Nope, film financing is no longer about pawning your family silver and betting it all on one big-banner production, only to see it flop. The ‘corporatisation’ of the Indian film industry, money managers assure us, has helped film financing to be re-born in a new, regulated avatar. The last five years have seen the entry of a small crop of SEBI-registered venture capital funds that invest in the film industry.

For a minimum investment of ₹1 crore, these cinema funds ‘diversify’ across films spanning languages and genres, take calculated box-office bets based on advice from filmi experts, assess movies for their ROI (return on investment) and ‘churn’ portfolios quite often, so that you can exit with a handsome profit.

It is the last aspect that made Kewal Handa, former Managing Director of Pfizer India, take a career detour as CEO of the Third Eye Cinema Fund. “This is an asset class that has great potential. In 2013, equities have given a 6 per cent return; gold has declined. But investments in cinema have managed a 35 per cent return.

Cinema is now a ₹13,000 crore industry in India. There are investment opportunities in production, marketing as well as distribution of films,” he says.

But isn’t film funding errr…. a little murky? There’s a feeling that movies aren’t funded entirely by legitimate sources, right? Handa points out that the business has become a lot more professional in the last four-five years.

Jehil Thakkar, Head - Media and Entertainment, KPMG, agrees. “Film funding has changed dramatically in recent years. Today, movies are often funded by established corporates, some of them public limited companies — Disney-UTV, Yash Raj Films or Reliance. These companies enter into co-production or distribution agreements with producers and at a group level, may even have access to bank funding,” he says.

It is the improving transparency which has made it possible for SEBI-registered film funds to make a debut. The Third Eye Cinema Fund, for instance, has a battery of third-party checks to satisfy investors — the fund has IL&FS as its trustee; KPMG as tax advisor; E&Y as the valuation partner and Fidelis as production auditor.

Better economics Industry watchers spout many stats to illustrate the eye-popping returns that film financing can deliver. A FICCI-KPMG report notes that the film industry topped off a record year in 2012 (20 per cent growth) with 12 per cent growth in 2013, proving quite immune to the downturn.

This is partly because box office collections for Bollywood blockbusters have been soaring. Five years ago, when 3 Idiots grossed ₹100 crore at the box office, everyone was agog. But in 2013, nearly eight films hit the ₹100-crore mark. The star-spangled Dhoom 3 hit the ₹200-crore mark within a week of its release. Soaring ticket prices, expanding number of screens nationwide and cost savings from digitisation have boosted the profits from film-making, note industry watchers.

Thakkar cautions that this nationwide blitz comes with high marketing spends. But he does see film-makers tapping into new revenue streams: “What has changed in the last two years is that the bigger movies can sell cable and satellite rights. On a ₹80-100 crore movie, you can get as much as ₹20-40 crore. But it does depend on the size of the movie”.

Nor do you need to sign on A-list stars to make blockbuster returns, given the burgeoning appetite for ‘content-driven’ movies like English Vinglish, Vicky Donor, Kai Po Che and The Lunchbox . The genteel ₹15-crore English Vinglish , reports have it, netted a revenue of ₹85 crore for its producers; Vicky Donor (cost ₹11 crore) grossed four times its budget; and the violent Gangs of Wasseypur made a ₹59-crore revenue on a budget of ₹18 crore.

But getting a piece of the action on the more lucrative movies isn’t easy for the tiny venture capital funds, which have to jostle with old-world financiers, star-studded production houses and corporate houses, in this jamboree. The venture funds have thus come up with new ‘business models’. The four-year-old Cinema Capital Venture Fund, for instance, has invested $24 million in four companies, which in turn produce, acquire and distribute films.

The Third Eye Cinema Fund plans to diversify across different ‘verticals’ such as mid-sized Hindi films and regional movies, apart from buying international rights for Indian films. “We plan to invest in 12-15 films a year. The turnaround time we’re expecting in early stage movies is about 12-18 months. However, we may buy into movies just before their release.

In such cases, we can earn our money back in just three-four months. If a film does not pay off, our effort will be to monetise it as quickly as possible to exit and move on to the next investment”, COO Shariq Patel explains.

Risks galore But even the most bedazzled movie financiers admit that, despite all this strategising, film funding is one high-risk business. For one, there is the unpredictability. “If you were funding another startup, say a healthcare one, once you set up the business, you will be fairly assured of annual cash flows. But in the film industry or in gaming, you could have a fantastic return one year, and no return the next year.

Investors try to mitigate that risk by investing across different genres, languages, budgets,” says Thakkar. Therefore, make sure your fund isn’t placing all its eggs in one genre or production house.

The second problem is the high ‘execution’ risk, as half the movies that are started don’t even make it to the screen. Venture funds hire a panel of experts from the film industry to judge the commercial viability of every film.

But there are no guarantees. This is where the fund’s diversification helps — a mix of early-stage and late-stage investments. Also, ask if your fund plans to mix equity stakes with bond funding, where the film-maker promises a fixed payoff.

Finally, if you’re smitten by the prospect of film financing, remember that even regulated film funds don’t yet have much of a track record to judge their performance.

Therefore, however alluring getting a piece of Bollywood may appear, film funding is a passion play. It can’t substitute bread-and-butter investments such as tax-free bonds, equities or mutual funds.

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