Overview of film industry analysis in India

The poor performance of some big budget films at the box office and the economic slowdown is starting to pinch the Hindi films industry (also popularly known as Bollywood). Over the past 2 years, the easy availability of finance and the excellent box office performance of several films, led to a sharp rise in the costs of acquiring talent and distribution rights as players competed with each other to acquire scarce talent and content with good face value. However, with distributors not being able to recover the exorbitant prices paid for acquiring the rights for many films and funds no longer being easily available, we are beginning to witness a correction in prices in this industry. Film production budgets and acquisition prices are being looked at closely, and previously signed deals are being renegotiated at lower prices.

The risk to profitability of producers, distributors, and exhibitors would change as a result of the anticipated correction. In the first section of this report, CRISIL Research has detailed the current scenario in the film industry. Further ahead, we have assessed the impact of the changing dynamics on producers, distributors, and exhibitors over three different time periods - 2005/2006, January - September 2008, and 2009/2010 - by using an illustrative example.

Despite the projected correction, CRISIL Research is confident about the long-term prospects of the Indian film industry. In fact, the correction could act as a much-needed reality check for the industry. The key challenge before the industry is to reduce dependence on a few top stars and create a continuous pipeline of quality content using a wider talent pool.

Over the next 5 years, we expect the total film industry revenues (Hindi films plus films in other languages) to increase to Rs 251 billion, translating into a 16 per cent CAGR. This growth would be driven by higher domestic theatre revenues, on account of an increase in the number of multiplex cinemas and wider release of films, as well as increasing contribution from other revenue streams.  We expect average ticket prices to shoot up significantly from an estimated Rs 26 in 2008 to Rs 43 by 2013.

Table 1: Film industry projections

(Rs billion)	2005E	2006E	2007E	2008P	2009P	2013P	CAGR
							(per cent) 1
Domestic box office	54	65	76	86	99	165	13.8
Overseas box office	6	7	9	12	15	30	20
Ancillary revenues	10	13	16	20	26	56	23
Film industry revenues	70	85	102	119	139	251	16.1
1 CAGR is from 2008 to 2013
E: Estimated; P: Projected
Note: Revenues include Hindi films and films in other languages.
Source: CRISIL Research

Current scenario

High dependence on theatre revenues despite emergence of new revenue streams

The proliferation of outlets to monetise content has reduced the dependence of the Indian film industry on the box office collections of a film. For producers, the ancillary revenue streams such as home video rights, cable and satellite rights, music rights, mobile and internet rights, film advertising and merchandising contribute anywhere between 35-50 per cent of the total revenues, depending on the type of the film and its performance at the box office.

For example, Singh is kinng (2008) is reported to have fetched its producers Rs 108 million through the sale of its music rights. The film had an approximate budget of Rs 500 million. Fashion (2008) made at a budget of Rs 200 million, reportedly earned Rs 85 million from advertising through the film.

However, distributors and exhibitors continue to rely heavily on the box office collections of a film. In total, revenues from domestic theatres account for 75 per cent of the total revenues of a film, though the share has reduced in the past few years. This is in contrast to the US film industry, which earns 35 per cent of its revenues from the box office sales and the remaining from other ancillary revenues.

Another trend becoming increasingly visible in the last few years is that the time frame available to a film to monetise revenues at the box office has come down drastically; at least as far as Hindi films are concerned. Distributors flood the market with prints, hoping to garner as much revenues as possible during the opening weekend of the release. Thus, the largest source of revenues (for a film) flows into the value chain within 3 days in most cases.

Box office collections have increased phenomenally

As seen from the table below, the growth in net box office collections of the top 10 films (box office collections less entertainment tax) from Rs 278 million to Rs 571 million can be attributed to the mushrooming multiplexes and digital cinemas. The multiplex boom, especially in the large cities, has dramatically increased the average ticket price. The increasing adoption of digital technology is enabling a wider release of films on the day of the release and that too, at a lower cost.