Pe Investment In Indian Cinema: A Costly Blunder

India's film industry, often referred to as Bollywood, is the world's largest producer of films, with 1,500 to 2,000 films made annually. However, it only grosses around $2 billion per year at the box office, a fifth of North America's gross despite a population three times larger. There are several reasons why PE investment in Indian cinema has not been as successful as expected. Firstly, India is severely under-screened, with just one screen per 96,300 residents, compared to one screen per 7,800 residents in the US. Secondly, India's movie theatres are sub-par, with more than 10,000 of the country's 13,000 screens being single-screen cinemas, which are less efficient and profitable than modern multiplex cinemas. Thirdly, India's film economy is splintered into several regional industries, with films made and distributed in over 20 different languages, resulting in higher production and marketing costs and lower profits. Fourthly, ticket prices in India are too low, with an average price of 150 to 250 rupees ($2.25 to $3.80), which is among the lowest in the world. Fifthly, taxes on the film industry are too high, with movies subject to both entertainment and service taxes. Finally, piracy is rampant and often government-supported, with illegal DVDs sold on trains and illegal downloads promoted by the government-owned internet service provider.

Lack of cinemas

The lack of cinemas in India is a significant issue that has impacted the success of the film industry. The country has a limited number of screens, especially when compared to the massive population base.

India had only 13 IMAX screens and one 4DX screen, with premium large formats being few and far between. The high costs of these premium formats, which offer enhanced visuals and audio, present a challenge for cinema owners. To equip a standard multiplex screen with premium formats, cinema owners need to invest in expensive audio and visual systems, plush seating, and decor. For example, a premium format like IMAX requires about 80 million rupees more than a regular auditorium, while 4DX demands 30 million rupees extra.

The lack of cinemas in India is also due to the high costs of real estate. As Rajesh Mishra, CEO of Indian operations at UFO Moviez, explained, the size of these screens can cover two floors of a building, significantly increasing the cost. Additionally, the projection equipment itself is costly, with an IMAX system costing around 20 million rupees.

The dearth of cinemas in India has created a "chicken and egg" situation, as described by Shobu Yarlagadda, co-founder and CEO of Arka Mediaworks. There is a lack of content from Bollywood that can utilize these premium formats, except for a few exceptions like 'Baahubali 2: The Conclusion'. Filmmakers feel there is a shortage of theatre space, and even when a film like 'Baahubali' performs well, IMAX still needs to release Hollywood content to fill the pipeline.

The lack of cinemas in India has important implications for the film industry. It has resulted in a situation where there is limited incentive for filmmakers to create content specifically for premium formats, and cinema owners are hesitant to invest in the necessary upgrades. This, in turn, affects the overall film-viewing experience for audiences, who may opt for streaming platforms or other entertainment options instead of going to theatres.

Poor infrastructure

India's film industry faces challenges due to inadequate infrastructure, particularly concerning movie theatres and screens. With just one screen per 96,300 residents, India is the most under-screened major territory globally. This lack of screens hinders the ability of India's vast movie-loving population to access films in theatres. This issue is further exacerbated by the dominance of single-screen cinemas, which comprise more than 10,000 of the country's 13,000 screens. Single-screen theatres suffer from inferior economics compared to modern multiplexes, with lower ticket prices and less efficient operations, resulting in lower capacity yields and revenues per seat.

The lack of modern multiplexes is a significant infrastructure problem that constrains the industry's growth. The issue is not just limited to the number of screens but also the quality and experience offered by these theatres. Modern multiplexes provide a superior viewing experience, with better technology, acoustics, and comfort, which enhances the overall movie-going experience for audiences.

Additionally, the regionalization of the Indian film industry further fragments the market. Films are made and distributed in over 20 different languages, catering to specific regional audiences. This linguistic politicization of the industry limits its overall strength and reach. The production and marketing costs are higher due to the need for region-specific content and talent, and profits are lower compared to a more integrated, pan-Indian film industry.

The lack of modern theatres and screens also affects the type of films produced and exhibited. Single-screen cinemas often cater to a more price-sensitive audience, leading to lower ticket prices. This pricing dynamic discourages the production and exhibition of larger-budget films, as the potential box office revenues may not justify the higher production costs. As a result, the Indian film industry often favours lower-budget films, which can be more easily monetized through the existing theatre infrastructure.

To address these infrastructure challenges, India needs to focus on building modern multiplexes that can offer a superior viewing experience and maximize revenue potential. This development should be strategically targeted at regions with higher disposable incomes and a willingness to pay for a premium movie-going experience. Additionally, the industry should explore alternative distribution channels, such as streaming platforms, to reach a wider audience, particularly in regions with limited theatre access.

In conclusion, the poor infrastructure of India's film industry, particularly the lack of modern theatres and screens, hinders its growth and limits its ability to capitalize on the country's large and passionate movie-going audience. Addressing these infrastructure issues is crucial for the industry's long-term success and for attracting PE investment.

Regionalisation of the industry

Indian cinema is composed of various film industries, each producing films in different languages, including Hindi, Telugu, Tamil, Kannada, Malayalam, Marathi, Bengali, Punjabi, Bhojpuri, and others. The term "Bollywood" is often used to refer to Indian cinema as a whole, but it specifically refers only to the Hindi-language segment, with Indian cinema encompassing a range of diverse languages and styles.

Bollywood

The Hindi-language film industry, based in Mumbai, is the largest and most powerful branch of Indian cinema. It is often referred to as "Bollywood," a term derived from the former name of the city, Bombay. Bollywood explores issues of caste and culture and has gained international visibility through films such as Raj Kapoor's "Awara." It has produced acclaimed films like "Pyaasa" and "Kaagaz Ke Phool." Hindi cinema has thrived commercially, with releases like "Aradhana," "Haathi Mere Saathi," and "Sholay."

Tollywood

The Telugu-language film industry, based in Hyderabad, is the third-largest film industry in India. It is often referred to as "Tollywood." Telugu cinema has emerged as a strong competitor to Hindi cinema in recent years. Tollygunge, the centre of the Bengali film industry in Kolkata, is sometimes used as a metonym for the Bengali language industry. The Bengali industry is notable for nurturing internationally renowned director Satyajit Ray.

Kollywood

The Tamil-language film industry, based in Chennai, is the second-largest film industry in India. It is known as "Kollywood." Tamil cinema is influenced by Dravidian politics and has a tradition of addressing social issues. Notable personalities like C.N. Annadurai and M. Karunanidhi, who worked in cinema, went on to become Chief Ministers of Tamil Nadu. Tamil films have gained international success and inspired independent filmmaking in Sri Lanka and among the Tamil diaspora.

Mollywood

The Malayalam-language film industry, based in Kochi, is the fourth-largest film industry in India, known as "Mollywood." It has been at the forefront of technological innovation in Indian filmmaking, with the first neorealist film, the first CinemaScope film, and the first 3D film in India all being produced in Malayalam. Notable films include "Newspaper Boy," "Chemmeen," and "Marana Simhasanam."

Punjabi Cinema

The Punjabi-language film industry, based in Punjab, is the fifth-largest film industry in India. It is sometimes referred to as "Pollywood." K.D. Mehra directed the first Punjabi film, "Sheela," in 1935, and the industry has since produced nearly 1,000 movies.

Other Regional Industries

In addition to the major industries mentioned above, there are several other prominent regional film industries in India:

• Marathi cinema: Based in Mumbai, Maharashtra, and recognised as the oldest film industry in India.
• Assamese-language film industry: Based in Assam and sometimes called "Jollywood."
• Bhojpuri-language films: Catering to residents of western Bihar and eastern Uttar Pradesh, with a large audience in Delhi and Mumbai due to migration.
• Chakma language films: Spoken in Tripura and Mizoram, India, and parts of Bangladesh.
• Chhattisgarhi-language film industry: Known as "Chhollywood" and based in Chhattisgarh.
• Gujarati-language film industry: Based in Gujarat and sometimes referred to as "Gollywood" or "Dhollywood."
• Odia-language film industry: Based in Bhubaneswar and Cuttack, Odisha, and known as "Ollywood."

Low ticket prices

In 2013, the average ticket price in India ranged from 239 rupees at high-end multiplexes to 56 rupees at low-end single screens. By 2019, the average ticket price at India's largest high-end cinema chain, PVR Cinemas, was 207 rupees, a decrease compared to 2013.

In 2023, the average cost of a movie ticket in India was 130 rupees, a significant recovery from the previous year when ticket prices stood at 119 rupees. This was also 22% higher than pre-pandemic levels.

The low ticket prices in Indian cinema can be contrasted with the high cost of film production. For example, the 2018 film 'Thugs of Hindostan' is considered one of the biggest box office disappointments in the history of Indian cinema. The film had an estimated budget of 300 crore rupees but only collected 151 crore rupees nett in India and 322 crore rupees gross worldwide.

High taxes

The Indian film industry is burdened by high taxes that stifle investment and growth. Movies in India are subject to both an Entertainment Tax and a Service Tax, which classifies them as both a frivolous activity and a necessary service. This double taxation is unique to the film industry and places a financial chokehold on the business.

The negative impact of high taxes is compounded by the problem of piracy, which limits revenues and discourages investment. The government-owned internet service provider, Bharat Sanchar Nigam Limited (BSNL), generates significant revenue from illegal movie downloads, and even promotes them on its website. As a result, the Indian film industry loses billions of dollars and thousands of jobs each year.

To address these issues, the government should consider reducing taxes and implementing more effective anti-piracy measures. Lower taxes would encourage investment and support the growth of the film industry, while better enforcement of intellectual property rights could help reduce piracy and protect local producers.

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