Saturday, May 7, 2011

Indian film industry needs far better business managers if it has to become profitable and attract investments.....

A lot of films are waiting in the wings, ready to launch once the cricket mania ends. What will be the fate of these films? Why is it that so few films make money in India? Where are the fault lines?

Almost 90% of the films fail to recover the money spent in making them. But given the industry’s inherent association with “glamour”, more and more corporate money continues to flow into the business. Surprisingly, good management doesn’t seem to be entering the industry. Professionals from good management schools who have worked in FMCG, telecom or durables prefer to stay away from the film business. Even those few who do enter it become awestruck by the glamour and forget what they are there for.

The following are the main flaws in the film business in India:

The star salary model is flawed: Nothing that I write here is new. Everyone already knows all this. No where in the world.....and in particular, in Hollywood, which Bollywood likes to compare itself stars make so much salary for their contribution. As a % of the cost of a film, Hollywood stars make between 10-20%. A Tom Cruise or Matt Damon may make $20 million, but the film’s overall budget would easily be $100-200 million. If a film does very well, then the film star makes more money; but the real gainer from a successful film is the producer of the film, who has put in all the money and taken all the risks. This is the way it should be. One who takes the risks gets the most returns. Out here, top stars pocket away as much as 50-75% of a film’s total budget. With almost no sense of accountability. Akshay Kumar has probably delivered the biggest number of flops; yet producers continue to hire him at exorbitant costs. This is wrong.  Film stars manage to hold their own......because they have figured out that they can make more than enough money from adverts. In fact, top film stars make more from adverts than from the films they act in! What should happen is that the film star should only be paid a small sum of money as “assured” fee....the rest should depend on the success of the film.

The production/creative model is flawed: By relying almost totally on the lead male star, producers and directors have made severe compromises with real creativity. It’s been proven again and again that a big star is no guarantee for the success of a film. In fact, given the humongous salaries that top stars take, hiring them in many ways takes away from the chances of the film doing well. Producers have very little left over for the actual production of the film after paying the stars. As a result, there is hardly any focus on scripts. Or on research. Direction. Editing. Marketing. All of these important ingredients suffer. It’s very silly......but the producer continues to put all his eggs into the one basket called “film star”. It’s no surprise then that most films do poorly. If only all these ingredients got the right attention, the film’s chances would improve.

The distribution model is flawed: So many corporates who have entered the film business have had to start first by distributing films. Production takes way too long.....dates of film stars and top directors are not available for several years. The distribution least for high budget totally flawed. The distributor who is awash with corporate cash is desperate to “get into business” and is ready to acquire the rights of a film “at any cost”. So much much brute machoism....exists in corporates who are in the film business. In acquiring the rights, they surrender too much to producers. First, they have to give steep Minimum Guarantees (MG) to the producer. If the film earns less than the MG, then 100% of the loss is the distributors. If the film does great business, all that the distributor gets totally to itself is 20% above the MG. Thereafter, usually, the gains are split with the producer in some ratio. Sometimes the ratio is 50:50; often times, it’s 80% for the producer and only 20% for the distributor. Statistically, given the success:failure ratio of Indian films, distributors simply cannot make money. I believe today, this model is changing. Distributors are stopping to give MGs.....and are insisting on a far more business-like sharing of risks and rewards.

The funding/IP sharing model is flawed: It’s strange that while a corporate spends almost all the money required in making the film, it has to stay content with only a 50-75% share of the IP. The rest of the IP is taken away by the film star. So called “co-production” deals with the top film star being the co-producer are nothing but sweat equity deals for the actor. The actor puts no money in.....only nominally lowers his fees (which are not justified in the first place) but takes a large chunk of the film’s IP. If the film does well, the star gains in perpetuity; if the film does poorly, the star has still made a decent salary. How long can this continue???

The marketing model is flawed: Worldwide, I am told that marketing budgets account for almost a third of a film’s total cost. In today’s times, when film tickets are so expensive, and the hit to a family’s wallet so much, film goers wait to hear the buzz on the film before spending the money. The role of marketing is to showcase the film’s strength in a smart manner. Most film companies in India rely on “free tie-ups” with media companies.....those, who are happy to promote the film for free in return for getting some content around the film star. If a top media brand does not agree to a free tie-up, it is usually given the go-by. The producer’s focus is on cutting costs; not on ensuring the best support to the film. Also, media planning is very basic. A lot of money is spent on hoardings in Bombay......primarily because the top film star has demanded this as part of his contract.....he loves to see his mug every time he goes for a drive! As a result, film promotions are only partly effective. If instead, producers hired professional help in advising them on marketing, they would benefit more.

The real truth is that the film business is very poorly managed. There are hardly any astute managers running film companies. Very few IIM graduates; very few good professionals enter the film business. Most companies are run by the creative folk......who should focus on the creative process, but who wrongly believe that they “know” how to run a film company. That’s why the problems mentioned above have been continuing forever. The film industry needs to get its act right fast.....else, real investments will dry up. The corporate honchos who are funding the business right now are doing it largely for their own personal passion......this is clearly not sustainable.

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