Risk And Reward In Film-making

Fatal Attraction – the catch-phrase of the subject for a panel discussion on how films can be made more attractive for investment – caught everyone’s fancy. The crux of the debate was risk and reward and whether it is equitable so as to attract more investment from quarters other than just studios. Leading the panel, Rakesh Jariwala, Partner (Media and Entertainment) EY, felt that the industry was changing and primed for VCs and PEs to begin investing and scaling up the industry further.

“There is an appetite from within the industry to change, be more transparent, disciplined and share profits fairly,” said Jariwala, even as Vijay Singh, CEO of Fox Star Studios, said that making films was the sexiest business to be in, after taking into account the swings in fortune. Citing his studios seven years in business in India, Singh said the direction in which business models were moving was right. “Private equity and VC fund operators will come knocking. What was red is not yet green but it is definitely amber,” said Singh, sounding very optimistic about the future.

The only voice of caution came from MD and Founder of Cinema Capital Venture Fund Samir Gupta who said almost all production houses were privately held and hesitant to divest. “They don’t want to lose control. Though we did manage a few deals but the key understanding has been that there are challenges as well as lots of intangibles,” said Gupta.

Films are not an obvious asset class: very few of our films make large profits. Unlike Hollywood, where there are four times the returns, there were wafer thin profits here within a range of 10-15 per cent. For those putting in money, unless profits were in the range of 35-40 per cent it was not sustainable. “How do we get to this…where the risk return adjustment is fairer? For one, we are highly over-taxed, there is no value generation and there is always the looming threat of piracy, the combination of which makes it tougher to make money,” said Ajit Andhare, CEO of Viacom 18 Motion Pictures.

Reminding everyone that in 1975 when the iconic Sholay was released the entertainment tax was 150 per cent and that the only revenue stream was theatrical, Ramesh Sippy said, “Business is great. We do not monetise our content so as to see the right returns. On the production side too we are lop-sided, because talent takes away a chunk of the cost. What we have to do is keep improvising and always believe that we are in the best business in the world.”

This was a point which found an immediate echo in Vivek Kamath, Director, Matrix Celebrity Management. He said, every industry has its own element of risk but it's not cyclical. With a sound track record of being around for 100 years, it was, as Sippy said, a business for all seasons, Kamath said.

So what does the industry need to do? For one, the panel concluded, it needs more hits. The business model needs to shift, be more inclusive, responsible talent needs to link fees with net box- office (like some are already doing) and also bring greater transparency into the models. The digital wave will not only bring in more opportunities but will also change some things forever and the industry needs to factor that in. “Now the momentum is with the industry, it is up to the PEs and VCs to ride the wave and give scale to the industry ,” Jariwala concluded.