Film financing in India is finally coming of age. As the film industry repositions itself from being a private community dominated by a privileged few to an organised and corporatised industry with entry barriers lowered, it is realising that a change in its manner of operations is essential. Stepped up exposure to various organised finance players such as banks, film funds, private equity and capital markets (including foreign stock exchange listings) are causing a large number of industry players to restructure themselves and migrate from a family-run concern to a corporate player.
These developments have paved the way for independent financiers to make their mark in the Indian film industry?film funds. Globally, film funds are a major source of funding films with various investment models to invest in a film project and are viewed as a non-correlated asset class that has outperformed other non-correlated asset class in the world. In India, the advent of film funds is very recent and has potential to benefit all the stakeholders and the funds act as an attractive alternative asset class. Currently, there are two onshore venture funds: Cinema Capital Venture Fund and Vistaar Religare Film Fund, which are registered with the Securities and Exchange Board of India as domestic venture capital funds. Together, they have a corpus of about Rs 3,500 million. While these funds have been set up recently, they have indicated a potential return in the range of 25% to 35% to the investors. There have been a few more announcements but no clear trail on their foray is visible yet.
From film producers? perspective, the film funds offer the freedom to focus on the creative process, including identifying the best talent (i.e., directors, scriptwriters and actors), without being tied down to a large film production house or carrying the burden of financial and business-related aspects. All in all, the players who are not looking at aligning themselves to established studios, the film funds offer an attractive alternate proposition?intelligent money. Since the formal ?industry? status was accorded, the banks have been extending support to this sector. They have stringent norms for lending and as a result small players and independent filmmakers typically do not get access to bank finance. In such a scenario, the entry of dedicated film funds is expected to be a boon for production of quality independent films in India.
Film funds are gradually gaining popularity both as an alternative mode of funding for films as well as an alternative investment option. Investment in film assets continues to be perceived as a high risk investment, largely on account of the underdeveloped and nascent state of the film finance industry. Once the investors have some amount of experience with these funds, film funds are likely to gain popularity as an attractive investment option. If we look at Hollywood, today, the projects for increasing 3D and digital screens are being partly financed by funds raised for this purpose. In the Indian context, where the growth in terms of occupancy and ticket size is going to be significant, several opportunities would emerge.
Let?s look at film finance in a slightly different context now: the single most important aspect that will really transform the way film industry works is ?planning?. Unlike our western counterpart, we are not as organised?we make up for our planning and organisational skills by putting cheap labour to work. However, as India moves up the prosperity chain and the costs-benefits start neutralising, the industry players will realise that planning?which will bring along the much-needed ?financial planning and discipline??will be the most important asset in the armoury of a quality production house. Besides cost efficiencies and savings, planning at an early stage could bring along non-traditional means of finance in the form of film incentives, brand finance, pre-sale based bridge finance, etc, in addition to structured finance options.
Lastly, the support of the state government is much desired. Mumbai?the land where dream merchants reside?is loved by the film fraternity because they love the spirit of Mumbai. Despite the infrastructure and operational difficulties that the film fraternity faces, they yet remain loyal to this swapna nagari. It is time that the state government took cue from the steps taken by the federal/state governments across the world?MDA in Singapore, State of California, to name a few?and work towards incentivising the film industry through a well-defined plan that will really help industry parallel its western counterpart and showcase Indian creative talents to the world.
The author is the segment expert for films at Ernst & Young?s media & entertainment practice. Views are personal