The economics of moviemaking

There's no business like show business. Which is why, glamour apart, it is so alluring. Brokers, builders, diamond merchants and even the underworld flock to be a part of the film industry because films can be great money-spinners --- that is, if they work at the box-office. When they do, it is enough to get you addicted to the business forever.

Ask N Chandra, whose film Ankhush was made in 1986, long before the Madhuri Dixit-Anil Kapoor starrer Tezaab that was to become the high point of his career. Ankush was sold for Rs 3,00,000 in the Mumbai territory before its release. The film became a runaway hit and made Rs 90,00,000 in just one year of its run in Mumbai theatres alone. That is a whopping 2,900 per cent rate of return on investment.

"Film revenues have grown over six times in the period from 1991 to 1999. Saudagar, which was released in 1991, generated total revenues of Rs 43.6 million. Taal, released in 1999, raked in Rs 266.9 million. It is a high growth business that unlike other ventures does not require any fixed capital outlay," says Subhabrata Majumder, a media analyst with Motilal Oswal Securities Limited.

Over the years, as revenues have jumped, costs of filmmaking have risen substantially. A film from a big production house with a glitzy star cast can cost Rs 150 to Rs 200 million, whereas low-grade films are completed under Rs 15 million.

The leading actor is the single most expensive component of the film. Fees range between Rs 15 million and 30 million, depending on star status and most lead actors do three to four films at a time. Bollywood's leading superstar Shah Rukh Khan is estimated to charge upto Rs 30 million as fees for a single movie while a hot newcomer like Vivek Oberoi carries a price tag of Rs 10 million.

The high fees, coupled with them working on numerous films simultaneously means that films take longer to make and producers pay interests for longer periods on their capital. "You have to ask why films are so expensive today? It is because you are paying so much for the stars. There is a fallacy that big star cast can make films a hit but we have seen that is not true. Second, ideally, a film should be made in six to eight months. But that rarely happens. There is not enough homework done before you make a film," says Box Office editor, Indu Mirani.

Today, when a film flops, star salaries don't take a hit immediately. It takes a few flops to get them to reduce their price. The worst hit is the distributor, because if the cinegoers do not turn up at the theatres, there is no other way he can recycle the film to make up for the losses.

Costs of Moviemaking
Category No of films Avg cost /film (Rs mill) Total cost (Rs mill)
Hindi 230 53 12075
Tamil/ Telugu 402 25 10050
Others 381 8 2858
  1013 25 24983
* Source: Media industry Report/Alchemy Shares and Stockbrockers
All time top box-office hits (India):
Movie Year BO Collection (Rs mill)
Gadar -- Ek Prem Katha 2001 650
Hum Aapke Hain Koun...! 1994 600
Dilwale Dulhania Le Jayenge 1995 500
Raja Hindustani 1996 450
Kuch Kuch Hota Hai 1998 425
* Source: Morgan Stanley Research

Another factor that has skewed the economics is that over the years, shooting in studios has given way to foreign locales, which adds another substantial chunk to the budget. Though shooting abroad is very expensive, producers prefer to do it because exotic locales add an element of novelty and visual appeal to the film. It also guarantees that actors allot block dates for the shooting thus ensuring that the film gets completed quickly.

But once the camera starts rolling, multiple revenue streams open up: Domestic and overseas theatrical rights; music rights; in-film advertising; satellite rights and cable rights. Each is a legitimate money-spinner on its own.

Domestic rights sold to the various distributors account for the bulk of the revenue, around 80 per cent. But that is changing rapidly. The other revenue streams are eclipsing the revenues earned from the theatres.

Today, the highest growing market for the Indian film industry lies outside India. Revenues from sale of overseas theatrical rights have been increasing exponentially.

Indian films have caught the fancy of global audience in the last five years. Dilwale Dulhania Le Jayenge --- a huge hit in the UK and USA in 1995 --- started the trend. Taal and Kuch Kuch Hota Hai were extremely successful in export markets and grossed over Rs 350 millon. In fact, Taal's phenomenal success propelled it to the UK Top 10 and US Top 20 charts of 1999, even though the movie was termed a no-show in India.

Overseas success has not spared even movies from the South. Rajnikanth's Muthu found an unlikely audience in Japan, where it became the second biggest hit of 1998 after Titanic and played to sold-out crowds in theatres across Japan. Muthu went on to make $ 2 million in 161 days of its run in Japan.

Indian films reach theatres in Canada, the UK and the US within a month of their domestic releases. Film exports have increased 100 per cent from Rs two billion in 1998 to Rs four billion in 2000. Overseas rights now account for close to 12 per cent of total revenue earned.

Music rights, too, are becoming a big revenue generator. Music companies like Saregama, TIPS, Sony Music and Venus fight fiercely to acquire the music rights of the latest films. Film music accounts for 70 per cent and new film music for 48 per cent of total music sales in India. Music rights now account for nearly four-five per cent of film revenue.

As satellite channels increase their spend on the latest films, satellite rights is now the cash cow for film producers.

While the numbers seem mindboggling, inherently, films are a whimsical business, one whose fortunes depend on the fancies of the millions of cinema-loving audience in the country.

Only 20 per cent of the 160 odd Hindi films released in a year are commercially successful and just about eight films are hits. Past performance is no indicator of future success and even the veterans of the industry can go terribly wrong.

For instance, Subhash Ghai's company, Mukta Arts Limited, had an unparalleled track record of delivering six hits --- Taal, Pardes, Khalnayak, Saudagar, Karma and Hero --- out of the seven films produced under its banner, an enviable success rate of 86 per cent.

One of the three production houses in the film industry to be listed on the Bombay Stock Exchange, its next big project, Yaadein, was billed to post a 75 per cent growth over Taal, the last big movie released by Mukta Arts in 1999.

But the film failed at the box-office. Ghai has moved on to making his next film, but the stock market still has to come to terms with it. The ratings on Mukta Arts swivel between Buy and Neutral, the Buy tag prompted by the lure of a potentially successful film that can provide unimaginable scale of profits and the Neutral, when a much hyped film like Yaadein flops.

All this means that there has to be a retake on how films need to be made. And that introspection has led to the renaissance of the small budget rapidly finished house of filmmaking.

Tell us what you think about this feature


Astrology | Auto | Contests | E-cards | Food | Health | Home & Decor | Jobs | Lifestyle | Matrimonial
Money | Movies | Net Guide | Product Watch | Romance | Tech.Edu | Technology | Teenstation | Travel | Women
News | Cricket | Sports | NewsLinks
Shopping | Books | Music
Personal Homepages | Free Email | Free Messenger | Chat

(c) 2002 rediff.com India Limited. All Rights Reserved.