Industry Status & Bank Finance

In August of 2000, Bollywood, received the much-awaited industry status from the Indian government. Some of the primary advantages pursuant to this new status are:

(a) Banks have been allowed to finance films against the 'underproduction' film as collateral, which will lead to more accountability, discipline and effective management in the film industry;

(b) Opening doors for insurance companies to actively participate in the film industry; and

(c) Liberalization of foreign investment in the film industry.

Some of the benefits that bank financing brings are:

(a) Improvement in the structure of the film sector, thereby resulting in increasing corporatization in the film industry;

(b) Reduction in the circulation of unaccounted money in the industry;

Insurance of films as an important requisite to obtaining bank finance. During 2001, IDBI financed approximately nine projects, all of which were adequately insured. Similarly, big-banner and budget films like Lagaan, K3G, Gadar and Devdas were all insured; and

The timely completion of films and the reduced burden of costs on producers.

Further, the credit rating agency CRISIL has developed a model to grade film and television software producers, thereby helping lenders and borrowers assess the risk on their investments. This process is likely to speed up corporatization and the film industry will become more organized in terms of putting in place hard-bound scripts, schedules, budgets and funding sources so that the projects get better ratings. Financial institutions, banks and insurance companies which are currently hesitant to do business with the industry will probably be more confident after the film and television producers are graded. In the case of film producers Crisil will assign a grade for a specific project which will indicate the agency's opinion on the producers ability to complete a particular project and recover costs incurred. Similarly for television producers, generally constituted as corporate entities, the grade would indicate Crisil's opinion on credit worthiness of the entity.²⁶⁷

Growth of Television

Television ("TV") as an alternate form of entertainment has emerged and grown rapidly in the last ten years. India rolls out 60,000 hours of original television material a year, the third largest output after the U.S. and Canada.²⁶⁸ TV has created tremendous competition for the film industry by offering sitcoms (e.g. Friends), serials (e.g. Kyoki Saas Bhi Kabhi Bahu Thi), shows (e.g. Kaun Banega Crorepati), music channels (e.g. MTV) and film-based channels (e.g. Zee Cinema and B4U movies) to the cinemagoers. Television is also grabbing audiences for broadcast of old films and recently released ones as well. However, TV is a collaborator as well as a complementer to the film industry by providing a new channel for film distribution and creating residual income.

For Bollywood films, just like Hollywood, the box office no longer dictates film revenue. Satellite/Cable TV, music and overseas rights provide additional revenue sources ensuring that a film can make money even if it is an average success at the box office. In addition, Bollywood has been able to exploit this new medium for the sale of video and song rights and create another big source of legitimate revenue. Similarly, in recent times, the sale of satellite rights to TV channels creates large revenues for a film producer. During the past few years, the earnings from music sales and satellite rights have been realizing higher values every year. Traditionally, a major part of a film's revenues have come from theatrical rights. In Saudagar (1991), theatrical rights sales accounted for about 77.5% of total film revenues. In contrast, in Taal (1999), theatrical rights accounted for just 71.8 per cent of total film revenues.²⁶⁹ It started with the film Satya, whose owners sold theit's the film's satellite rights to STAR Plus at Rs. 13.5 million in 1998. Kuch Kuch Hota Hai followed suit with Rs. 40 million in 1999 and Fiza sold its rights for Rs. 57.5 million in September 2000.²⁷⁰Further, with the current slump in the box office collections in 2002, producers have sold their satellite rights to channels to be aired within three months of release in theaters as opposed to the earlier norm of six-12 months. Films like Humraaz, Mujse Dosti Karoge and Deewangee were aired on satellite within three months of their theatrical release which move was thereby resented by the distributors and theater owners exhibiting the said films. Producers are now looking at cashing in on the satellite rights as the revenues collected from theatrical exhibition have been on the downslide.

Just as Hollywood has been able to work with TV and co-exists with TV by complementing it, Bollywood has also started a similar process. Several Bollywood producers are now producing TV serials and many leading Bollywood actors are participating in and hosting TV shows.