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Anand Gangadharan

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Earlier this year, when the cinemas were still operational, one of my friends who is a lawyer had filed a suit in the Delhi High Court against a Bollywood biopic that was produced by a large production house.  The Production house had consulted her during the making of the movie but did not credit her for the same in the title card. She ultimately won the case and the Court directed the production house to add her name to the Credits in all the prints. While the addition was carried out in India, she asked me to check whether her name was added to the credits in the International prints. I was sure that it is logistically impossible to do this for a physical hard drive print, in the international market. I still headed to the cinema and met the manager who showed me the physical hard drive of the movie and mentioned the reason why any additions cannot be made to already censored movies due to logistical issues. This reminded me of the days when I saw the representatives of the movie distributors, who would carry film reels in their scooters from one theatre to another as one print was shared by many theatres prior to 2005, when Digital Cinema made its foray into India.

Sometime in the aftermath of the Y2K euphoria, a silent revolution in movie exhibition was taking place in the United States of America, today we know this medium as Digital Cinema.

Though the idea was mooted way back in 1972, by eminent Computer Scientist Nasir Ahmed, the high costs of storing and compressing  data took another 26 years, before the first full length feature Digital Cinema was made in the year 1998 and exhibited in five theatres in the US with the help of Texas Instruments.

By the end of the year 2000, there were around 30 theatres in the world which had adapted this technology, however it took another 3 to 4 years and many technological improvements and enhancements for this technology to go Global.

As on this day, there are close to 200,000 digital screens worldwide, half of them in the Asia-Pacific region. India has close to 10000 screens, out of which 30% constitute multiplex screens and the rest being single screens.

While large multiplex chains have their own projection equipment, the economics of changing the projection equipment to digital ones was not economically viable for the single screens and smaller multiplex chains. To fill this gap, producers encouraged owners of these theatres to install digital projectors, for which the producers paid a Virtual Print Fee (VPF), which costed a fraction of the cost of film prints. Digital Service provider companies like Qube and UFO acquired these equipment either on their own or jointly with the theatre owners and installed them in these cinemas for which they charged a fee termed as a Virtual Print Fee from the producers. This Fee took care of cost of projector, periodical maintenance and upgrades, mastering, duplication and delivery of the Prints and Key Delivery Management. Virtual Print Fee is shared by the theatre owners and Digital Service Providers.

Digital medium is not only for the feature films, but also applicable to in-cinema advertising. The advertising revenue for Multiplexes is around 15% of their Gross Revenue.

Since 70% of screens depend on Digital Service providers (DSPs) for distribution of prints either physically or via satellite, they play a very significant role in the Indian movie industry. Their income is mainly from Virtual Print Fee and Advertisements.

Computerization and online ticket bookings to a large extent have made earnings more transparent. However still a lot of theatres depend on walk in customers and pre-printed tickets. There is a lot of room for illegal sale of tickets and leakage in revenue. DSPs have started installing a software called ‘icount’ where high resolution cameras are installed in the theatres. These capture the pictures of the audience and send it to a computer where Intelligent Machine Vision algorithms count the audience in each theatre. This visual count is later tabulated with the number of tickets sold and discrepancies are reported.

This also helps curtail unscheduled shows, illegal movie recordings and helps monitoring of different screens from a central location.

Since its been almost a decade or more since the producers are paying the VPF, they feel that they have been paying for these projectors beyond the cost of the equipment. The DSPs however argue that what they charge is hardly 15% of what a film print costs, whereas the international VPF is nearly 85% of the cost of film prints as there is a sunset clause (a clause that stops the producers from paying VPF once the cost of the equipment has been paid for). Due to this, the era of VPF is coming to an end in the UK markets by the end of 2020. Since the cost of VPF in India is still a fraction of that in the International markets, they may stay on for a while but will gradually reduce over a period of time.

The argument by DSPs is that their business model is typically like the Cab operators, where in if the passenger feels he has paid enough to own a car, he cannot ask for ownership transfer of the car.

With Samsung soon spreading its wings across the world with their ‘ONYX’ technology, projectors will soon become extinct and they may collaborate with DSPs on a revenue sharing basis once there is a sizeable market. These innovations have made cinemas go projector less after 120 years, thus making  the future of Digital Cinema exciting.

Trivia: – The first commercially released feature film in digital format is “The Last Broadcast” which released in the year 1998 in the US.

Long before the multiplex era, all that existed were single screens. Single screens ranged anywhere from 300 seats up to 1,300 seats from small screen to large 70mm screens. The world of movie distribution has seen huge changes in terms of logistics and transparency.

Also read about dramatic changes brought in by emergence of OTT platforms.

Distributors had two ways to deal with the theatre owners, outright rent for a specified number of shows per week or a revenue sharing basis where the distributor took 70-75% of the total net collections (after taxes).

Moreover, since the movies came in film rolls, they had access to limited number of prints for multiple screens spread across the length and breadth of the region for which the distribution was undertaken.

Theatres sharing the prints would strategically space the shows in a manner in which the film rolls could be transported from one screen to another which was a logistical nightmare. Any glitch would end up in interruption of the movie screening much to the ire of the audience, even worse would be rolls jumbled up practically hampering the experience of the movie watching audience.

Digital era has changed all this and with the advent of multiplexes, movie prints and distribution have become logistically simpler. All you need is a hard drive or a satellite feed that can be decrypted with the help of a KDM (Key Delivery Message), for specific theatres and number of shows.

Distribution is by and large still an unorganized sector in large parts of India. Ticket collections have however, become more transparent in the last decade or so, mainly thanks to consolidation by large multiplex chains. As for single screens, doubts still exist on transparency.

Types of Movie Distribution:

Outright Purchase

A distributor signs an agreement with the producer for a fixed amount for a certain geographical area. The price is arrived at taking into consideration, the population, number of screens and the budget of the movie. Once the distributor has bought the rights, the onus of promoting the movie by way of propaganda is entirely the distributors responsibility. The distributor has to book the theatres well in advance for a specified period and number of shows. Generally, a big budget movie with bigger stars would command a higher price considering the viability of releasing the movie in larger number of screens during the first week of the release. Any profit or loss, would be absorbed by the distributors. In this method, If the movie ends up with a good theatrical run, the distributors end up making more money than the producers.

Price at which a territory sold to the distributor8 crores
Print, publicity and rental costs6 crores
Total cost incurred by the distributor 14 crores
Financials – Outright Purchase Method

If the net proceeds (after deduction for taxes) from the theatres exceeds 14 Crores, the distributor makes a profit. Similarly, he will absorb the loss. Sometimes, the theatre rentals are substituted with sharing of the proceeds between the theatre owners and the distributors. 

Minimum Guarantee

In this method, producer gives the rights of distribution for an agreed amount. In case, the distributors profit share crosses this amount, the producer and the distributor will share the profits made over and above the agreed amount. In case of a good run, producers and distributors both make money. This is typically used by huge production houses. Price at which a territory sold to the distributor, say 10 crores . In case the proceeds exceed 10 crores, the distributor and producer share the profits at an agreed percentage.

Distribution

This is a method where the burden is totally on the producer. In this case, a distributor pays a fixed amount of money (refundable) to the producer to screen the movies in a certain geographical area. On screening the movies, the net collections from the theatres are given back to the producer. The producer gives an agreed amount of commission on the collections. At the end of the theatrical run, the advance is returned to the distributor. This method is usually adopted for small budget movies, with limited prints and small number of screens. The commission to the distributor differs based on the collections. If the collection exceeds the advance amount initially paid, the commission would also be higher. Based on the response to the movie, the producer has the liberty to change the method of distribution for other geographical areas.

Advance paid by distributor to the producer for a territory  2 crores
Net proceeds collected by the distributor 4 crores
Commission paid by producer to the distributor  (10% of net proceeds)0.4 crore
Producer will refund the commission along with the advance to the distributor2.4 crores
Financials – Distribution Method

In case the net proceeds are less than 2 crores, the distributor gets back the advance in full either without interest or a minimum rate of interest. In this case, the distributor is more like a financier.

Covid-19 and Entertainment:

COVID-19 has made a mess of 2020 and has been cruel to a lot of them. However, for a select few this has come as a blessing in disguise. I am not talking about Mukesh Ambani or Aditya Puri, but the producers of some inferior Cinema that have gone on to make good profits at the cost of unaware OTTs and the ‘Work from Home’ poor souls, who switched on their respective gadgets for a break to catch on these movies.

Direct release on the small screen is not new to Indian Cinema, a quarter century ago Mahesh Bhatt started the trend with ‘Phir Teri Kahani Yaad Aayee’ which was directly released on Zee TV, after it struggled to get a theatrical release.

Phir Teri Kahani Yaad Aaye
First Indian movie marketed as made for small screen

In 2013, Kamal Haasan tried a different strategy, he wanted a simultaneous theatrical as well as Direct to Home release for Vishwaroopam. Theatre owners subsequently threatened to drop the film from the theatres altogether fearing reduced foot falls and this plan was shelved, thus releasing only in the theatres not before it went through a different struggle with a few protest groups.

Cut to 2020, with the advent of COVID-19, the avenues of entertainment slowly started dwindling with malls, theatres, airports shut and with travel curbs confining people between the four walls of their dwelling places.

A few of them saw an opportunity here to get rid of their stock on which there was an Investment, thus beginning the trend of direct OTT releases due to the impact of Covid-19 which bought them sizeable profits. There was no noise from March until mid-April, when producers were hopeful of a return to normal life soon. Lockdown after lockdown only made matters worse and the pandemic only grew stronger with time spreading across major cities, thus making return to normal life a long-drawn process.

Amazon was quick to act with 2D Studios (owned by Actor Surya), for a release of their venture ‘Ponmagal Vandhal’ starring Jyotika. Presumably made on a budget of 4.5 Crores (one look at the movie and one needs to search for every penny spent beyond 2.5 crores), this was picked up by Amazon for a whopping 9 crores.

In the days that followed, a slew of movies started hitting the OTT space, with bigger productions like Gulabo Sitabo, which was made on a budget of 45 crores and sold at a profit of around 20 crores to Amazon again. With Disney+Hotstar coming into this space with a splash, breaching the 100-crore barrier and having picked up some huge productions, the game is getting even bigger.

Who were the losers in this gamble? Theatres (Food & Beverage sales rather than ticket sales for obvious reasons) and the Government which is losing on the revenue from GST on the ticket sales. So far going by the quality of the movies that have come on air, OTTs are the new distributors in distress.

There could be much better movies from smaller production houses and rookie directors, that find it hard to get a theatrical release. What could have been a blessing in disguise for such movies, looks like a blank here too considering even OTT’s are looking out for bigger productions and bigger names. A small movie like ‘Choked’ is a very good example.

With stakes this high, we can soon see the ‘pay-per-view’ model becoming more prevalent. This model which mostly started off for professional Boxing, soon branched out to Wrestling and other sports. Soon even movies followed this path with a similar model known as ‘Video on demand’. However, keeping the prices competitive is the key here to ward off any kind of piracy.

Currently, India has 22 OTTs catering to different viewers, right from movies, web series, soap operas, and some specifically for adult and regional content. If you think this space is getting saturated, remember in 1990 all we had was one channel and today we have close to a thousand. This was probably the biggest positive outcome of the 1990 Gulf War.

There is no dearth of excitement online – a fan celebrating FDFS

Let’s see how this game evolves in the days to come, with the theatres all set to open doors with 50% capacity.

Trivia: Streaming media became practical only because

of data compression. A breakthrough in this technology was first proposed in 1972 by Bangalore born Nasir Ahmed along with Chennai born K.R. Rao and T. Natarajan.

In the late 90’s when the Khan trio was making waves at the Box Office, there was one veteran who was dishing out a movie every second month and sometimes more than one in a month, a  trend which continued for over a decade. Mithun Chakraborty did intrigue me then, days when there was no google to check the economics behind this. The material relied on were mostly found in saloons.

“MITHUNOMICS” as I refer to, was possible in that era and practically impossible in the current Multiplex generation.

This went on to prove that one does not need a big star or a big banner to reap in profits while not making any noise at the Box Office.

First things first, Mithun slowly drifted away from Mumbai to Ooty down south, where in he had invested in a few businesses that included hotels and educational institutions.

A three-time national award winner would not want to let go of his acting intentions just because he moved out of Mumbai. This is where Mithun, the businessman played his cards well.

Ooty is a seasonal tourist place. However, during the lean season, tourism starts dwindling and the cascading effect is directly on the Hospitality industry.

Mithun decided to use this lean period to his advantage. He gave probably a 60 day call sheet to the producers, the leading lady would invariably be  Gautami, Shantipriya, Rambha, Ramya Krishnan, thus glorifying the resume of these actresses of having acted in a Bollywood movie. When the budget was slightly higher, an Ayesha Jhulka or a Pooja Batra would step in.

The Directors were mostly from South (TLV Prasad, Rama Rao, K. Bapaiah).

Charanon ki Saugandh
K Bapaiah directed this 1988 flick

A large part of the production cost is the fee of the lead artistes. Mithun had the equipments to shoot a movie and also capitalized on his hotel properties in Ooty, where the elite in the film crew stayed on. These were provided at discounted rates. So, in effect he was cashing in on both “Income from Profession” as well as “Income from Business”.

This tight schedule would minimize the interest rates and limited logistical issues in Ooty, helped in wrapping up the movie in quick time.

The movies were all formulaic, a dozen fights, 5 songs (including a mandatory item song), revenge, triumph of good over evil and finally all’s well that ends well. He sported the same look in all the movies. He went on to reject directors like Maniratnam, as he wanted to retain his look for the dish he was serving at such alarming frequency.

Rangbaaz
TLV Prasad movie

A low budget movie with Mithun could be easily wrapped up under a budget of 70-80 lakhs (50% being his fee and the balance comprising of fee for the others and other production costs). So who were his audiences? Like every dish has its own connoisseur, a Mithun movie had its own set of audience at B & C Centres, a term mostly referred to audiences in Rural India and small towns. The movies were released in these centres and in single screens in the Urban centres.

Distribution centres in India are divided into six territories: Bombay circuit, Eastern circuit, Delhi-U.P. circuit, C.P.-C.I.-Rajasthan circuit, Punjab circuit and the South circuit.

Mithun movies sold for anywhere between 20 to 25 lakhs in each of these territories with a size-able amount of prints being circulated. The movies could see an average occupancy of 75-80% over a 2 to 3 week run. So even a flop movie could bring back the investment and the money would be pumped back in to an other Mithun movie only. The Return on Investment here was far higher than any other bankable star back then. No wonder this made him the highest tax payer at that time.

Every innovation has a shelf life, alas this too had. The digital era and the dwindling single screens spelt doom for this kind of an experiment. The Satellite and digital rights of these movies have further raked in the money much after their shelf life. Even to this day you see these movies while channel surfing.

Key Management lessons from Mithunomics :

  1. Don’t be afraid to create your own niche
  2. Look for diversification of your Income Stream
  3. Create captive customers

Trivia: Ooty was once house to Hindustan Photo films that manufactured photographic films among other related material that once employed over 5,000 people. This too was victim of the Digital Era.

After pondering for a couple of weeks, on what topic to kick start this new column, I finally decided to take you through the economics of movie making on a ‘First Copy’ basis. This concept is unique to the Indian Film Industry.

This is probably the biggest gamble a producer takes, when he ventures into making a movie on a first copy basis. On the other hand, the producer is saved from micro management of the shoot and crew on a day to day basis.

In this method of film making, a producer hands over a fixed amount to a studio (usually owned by the chosen director), who takes center stage, and the studio would be responsible for every penny spent and the responsibility vests on the studio to make sure that the budget (including the director’s own remuneration) does not exceed the fixed amount as inked out in the contract.

The final outcome and quality of the movie is what makes all the difference. A lot of corporates have adopted this methodology, and quite a few have folded up or have stopped making movies altogether.

Directors feel that this increases their creative freedom as there is no frequent interference from the producer or the Production house.

A very recent occurrence is a very good example of how this mechanism can end up in a mess.

The Tamil remake rights of the blockbuster Telugu movie Arjun Reddy was bought by “E4 Entertainment” owned by Mukesh Mehta for around 2 Crores. The production house decided to launch Dhruv Vikram (Son of Chiyaan Vikram) and the chosen director was none other than the National Award winning Bala who made Vikram a star to reckon with. E4 Entertainment signed up a Contract with B Studios (owned by Director Bala) to direct the movie on a First Copy basis for an agreed sum of 12 crores. On completion of the project, when the ‘First Copy’ of this movie titled ‘VARMAA’ was handed over to E4 Entertainment, to their utter shock all they saw was a final product with a run time of two hours (the original had a run time of close to 3 hours). As per the producers, the filming cost apparently could not have exceeded 3 crores, thus the director making nearly 9 crores in this deal.

With a stubborn director who was not ready to tamper with his creativity, the whole project was scrapped and E4 Entertainment went on to make this movie all over again with Dhruv Vikram helmed by a new director and an altogether new crew with an altogether new title ‘ADITHYA VARMA’. However, when the movie released, it tanked at the Box Office. This is the first such instance in the history of Indian Cinema, where the same movie was made twice in the same language. Now the production house, is apparently in talks with OTT platforms to release the first version.

Arjyn Reddy 
Adithya Varma
Varmaa
Poster boys for “First Copy” mess

 Acclaimed actor Aravinnd Iyer, of Kirik Party and Kahi fame, sums up this mechanism;

 “Films are an expensive art form and the business implications play a huge part in green lighting a project. The more number of revenue streams your project caters to (theatre, satellite, OTT, remake, dubbing, music) better the chance of your project being sanctioned.

50 % – 60% of overall budget is spent in production. Around 20% -25% in post-production. 5% – 10% for pre-production. 10% – 20% of the budget is spent on remunerations. These percentages vary completely once a star actor or director, or a big banner is involved.

Collaborations like these play a huge role in reducing the overall cost of making a film. The digital format has made it easy to shoot movies, however it has hugely impacted the process and planning of film making. Most productions bleed for this very reason.”