Improve Business Practices

At one time, the majority of Bollywoods' commercial deals were in cash transactions, making it difficult to estimate cost and revenue structures. The Indian film industry is plagued by problems of settlement in unaccounted money. Remuneration paid to various players is neither transparent nor accounted for properly. Bollywood, though the largest film industry in the world, is, as discussed earlier, a highly disorganized and informal industry lacking proper business practices and legal framework. The lack of corporate structure, proper distribution process, difficulty in raising finances, no transparent accounting, lack of documentation and obtaining insurance cover are the major hurdles facing the Indian film industry today. In the words of Subhash Ghai, "The star system, besides the high-risk revenue model, distributor system and cash culture, is the biggest problem.”

In order to adopt a proper legal framework and move towards a corporate structure, the industry must get organized. With the opening up of the market, foreign players like Universal, Sony and Warner Bros. will enter India in a big way and even make films. The industry will have to become more disciplined and the industry players will have to work better. Going corporate will also open up more avenues of finance and ease the pressure on producers who have to depend on private finance with extremely high interest rates.

Zee Network, for its first film production Gadar in 2001, went the complete corporate way. With proper documentation, legal compliance in order and agreements with every single person working on the film and everyone from spot boys to actors and producers being paid by cheque. Zee changed the rules within which Bollywood usually operates. According to the company, compromising on talent is preferable to bending rules, even if they happen to be big stars insisting on unaccounted or black money. Similarly, Idream Production Private Limited is run in a very professional way with the necessary legal requirements in place and proper documentation.

The industry needs a clearly defined royalty payment mechanism to be put in place. Intellectual property rights and the ability to protect them are other issues. Royalty clauses are increasingly being inserted into contracts, but enforcement is still the issue. A strong enforcement mechanism is needed to ensure legitimate cash flows reach the parties they are due to. It is worthwhile for the Indian film industry to keep pressing the authorities to have a better-regulated system.

The requirements of the banking industry by way of transparency in dealings/operations, maintenance of proper books of accounts, accounting discipline, a professional approach to filmmaking with definite schedules and a time frame for completion, budgeting of expenses and identification of means of finance have all been recognized by the industry. Bollywood is willing to comply with all of the above if bank finance becomes available. Transparency in operation, accounts and dealings are of utmost importance. Tax authorities have become more vigilant which has made some traditional ways of paying artists increasingly difficult. There is a great need for formal accounting and financing methods.

Effective Financial Arrangements

Even though Bollywood is the largest film industry in the world and in spite of a huge potential to raise money from the capital market, it does not employ any modern forms of financing. On the other hand, Hollywood industry adopts an organized and set method of financing films as discussed earlier.

With the film sector getting industry status, IDBI has started financing film ventures. Thanks to increasing corporatization, formal sources of financing are opening up for the industry. However, it is not enough. Bollywood, in order to get globalized and corporatized, needs to adopt creative financial arrangements as are followed by Hollywood. Elements like completion guarantors, insurance should become norms in the industry. Similarly, corporate endorsements and merchandising provide additional revenues for the producers. This change will be more than welcomed and will leave the Indian film industry leaner and cleaner than before.

Further, apart from domestic bank financing, the focus would be on accessing international markets for funding ventures in Indian films. Funding options for films produced by individuals and studios would vary and their rate of success would differ. Worldwide, there are enough individuals with both wealth and the tenacity to venture into risky investment, provided the promised return will justify the risk.