Bollywood's obsession with Krrish 3, Chennai Express box office collections puts industry under spotlight

Ankita R Kanabar, Priya Adivarekar Posted online: Friday, Dec 06, 2013 at 0000 hrs
Mumbai : Besides entertaining, films are now largely about striking gold with their box office collections. Take the cases of Krrish 3, Chennai Express and others. The whole number game is getting bigger by the day. Screen unravels Bollywood’s obsession with numbers:

The race to join the Rs 100 and Rs 200 crore club is getting bigger by the day. Words like blockbuster, record breaking collections, highest grossing film among others are being bandied about every weekend. Ahead of every mega-budget film release with an A-lister, is a question — Will this film make it to the Rs 100-crore club?

The varying figures given by trade analysts and production houses are only adding to the confusion, raising doubts about its authenticity. Krrish 3 is one such film that found itself in the centre of a storm recently, when reports alleged that the film’s box-office figures were inflated. The big question now is: How are these box-office numbers arrived at?

The distribution chain

According to a leading production house, figures given out by the distribution head of any production house are obtained from the exhibitors. Since it’s all computer generated, there’s no under-the-table business anymore. But in most cases, figures given by the production houses are slightly on a higher side. Says Shyam Shroff, director, Shringar Films, “I call these collections as super-built up collections. I usually cut 20 per cent to know the actual collections and call them the carpet collections.”

Exhibitor and distributor Akshaye Rathi of Rathi Group of Cinemas says, “There’s a degree of research and speculation, and most of the

figures are a combination of the two. Some trade analysts do their ground level research, call up distributors, take the figures, verify and then publish it.”

Here’s how the entire process works: The distributors give the collections after getting them from the theatres in their territory. In all, there are 13 territories; sometimes, one distributor distributes a film among two-three territories. In smaller territories like West Bengal or Tamil Nadu, there could be 70 theatres, while the Mumbai territory may comprise of 500 cinemas. Every distributor gets daily collections based on the shows being screened, from all the cinemas in his territory. The producers then get figures from the distributors of these 13 territories.

Net, matters!

Understanding the gross and net figures is the next step. Girish Johar, head, distribution and acquisition, Sahara Motion Pictures says, “In India, traditionally, we’re concerned only about net box-office figures because the producers and distributors believe that we shouldn’t mention gross figures, as a portion of it goes to the government as entertainment tax.” Rathi simplifies it even further, “A movie ticket which costs Rs. 250, includes service charge and entertainment tax which is the gross price. Net collections are derived after deducting service charge and entertainment tax from the overall collections, which is later divided among the distributor and exhibitor, depending on the ratio that has been decided during the deal.” He also adds that the entertainment tax differs from state to state. For instance, states like Rajasthan and Himachal Pradesh do not charge entertainment tax, whereas Maharashtra has levied 45 per cent entertainment tax. In areas like Chattisgarh, the tickets that cost up to Rs 50 are tax free, and the ones that cost over and above that, charge 20 per cent tax.

Dividing the moolah

When the producer sells a film to the distributor, he already earns a particular amount, hence the net collections are shared by the exhibitor and distributor. After the multiplex vs producers stand off in 2009, a mutual understanding was reached with each party getting 50 per cent in the first week and the percentage going down every week. Shroff says, “First week, the ratio of the distributor-exhibitor share is 50:50, 42.5:57.5 in the second week, 37.5: 62.5 in the third week and so on.The reason for this is that the business keeps decreasing week by week, but the cost of the multiplex or the theatre is the same.” So, if a film has made Rs.200 crore net, then on an average, 45 per cent will go to the distributor, and 55 per cent will be the exhibitor’s share of the total net collections.

But there’s a term called ‘overflow’. “Over and above the distributor’s share will go to the producer. For instance, if a producer sold a particular film in one territory, say for Rs. 1 crore, he may give the distributor a minimum guarantee of that amount. After a week, if the sum total of the net box-office collection of the film in that distributor’s territory equals Rs. 1 crore, then he breaks even. If he made Rs.1.20 crore, then he’ll keep Rs. 20 lakhs as his profit. But, if he earns Rs. 1.5 crore, then that’s called commission mode, since he earned Rs. 30 lakhs more after his share of profit. That amount shall be shared by the producer and distributor again,” explains Johar.

But many big studios retain the distribution rights of their films. For instance, Disney UTV retained the distribution rights for Barfi! for all the territories. In such cases where the production house distributes the film, the entire net collection, after the exhibitor’s deduction, goes to them. Disney UTV even retained the distribution rights for Chennai Express for most territories.

However, there are exceptions. Some territories in which distributors have a better reach than the studios, the film is sold to the distributor for those few territories. A source from a leading studio says, “In some states like Uttar Pradesh or Madhya Pradesh, where we think the collections may not be very good, we sell the film to the sub-distributors and make our profit. Later, it depends on them as to how they want to sell it to the exhibitors.” Something of this sort may also happen if the production house feels that selling the distribution rights would be more profitable than retaining it. For instance, Teri Meri Kahaani was co-produced by Eros International, who later decided not to retain the distribution of the film. They were getting a decent amount from a distributor, which seemed a profitable deal than taking the risk of self-distribution. Though Teri Meri Kahaani was declared a flop at the box-office, the production house made a profit of about Rs.20 crore from the film.

While more often than not, the producer doesn’t suffer losses if he sells the film at a high price, there are exceptions. The revenue system differs from model-to-model. According to Rathi, Vidhu Vinod Chopra didn’t sell 3 Idiots for a fixed price, instead, he gave it to Reliance Entertainment on a commission basis. So, if 3 Idiots had tanked at the box-office, Chopra would have suffered a loss.

All said and done, despite several figures being floated around, it’s almost impossible to say exactly how much profit a producer or a distributor make from a film; it depends on the deals made between each of them, which on most counts is discreet, so it’s almost impossible to achieve accuracy when it comes to these numbers. Thus, as much as one tries to decode them, it shall continue to remain a big puzzle even as the rat race gets more bigger with time.

Number play

How the box-office calculator works in tinselville

* Gross collections (total value of tickets sold at the BO) - (Entertainment + service tax) = Net collections

*Net Collections - Exhibitor’s share (which differs from cinema to cinema) = Distributor’s share

*Lifetime collections: The sum total of the net collections of a film, from its overall run at the box-office.

The box-office break-up

If a film’s lifetime collection is Rs.100 crore gross, then the distributor- exhibitor share ratio can vary from 40:60 to 45:55 on an average, for a three-week run. Keeping the 40:60 ratio in mind, the break-up is as follows:

*Box-office collection (gross) — Rs.100 crore

*Entertainment tax deduction (overall asverage) — 30 per cent

* Box-office collection (net) — Rs. 70 crore

* Amount earned by the distributor — 40 per cent of the net amount, approximately Rs.28 crore

* Amount earned by the exhibitor — 60 per cent of the net amount, approximately Rs.42 crore

Overseas collections

Overseas markets play an important role when it comes to adding up to the box-office collections of a film, which explains why Hindi films are now tapping unexplored territories. For instance, Boss was the first film to release in territories of Panama and Peru. Jab Tak Hai Jaan’s overseas gross was $7.6 million, which was the strongest opening weekend for any film abroad. Dilwale Dulhania Le Jayenge released in Peru recently — 18 years after its release in India. Interestingly, while in India, box-office collection is calculated in net, overseas, it’s calculated in gross. “In Hollywood, they only talk about gross figures, because some countries don’t have entertainment tax. That’s the basic difference. Even the overseas collections for Hindi films abroad is calculated in gross,” says Johar. In some cases though, studios also have a parent company overseas, which tracks the box-office collection. Eros TLC in London is a parent company of Eros International, which takes care of all the overseas collections.

Satellite and music rights

Every now and then, we keep hearing news of the satellite rights of a film being sold at a huge amount. With films charging exorbitant amount for their satellite rights, obviously, this phenomenon plays a huge role in the film’s revenue, though the amount isn’t included in the box-office collection of the film. This could perhaps be a reason why some producers inflate a film’s collection. “During the negotiations of satellite deals, the channels may say that if the film crosses Rs. 75 crore at the box-office, then we’ll give you Rs.2 crore extra, or if the film crosses Rs.100 crore, then we’ll give Rs. 4 crore extra. This could be the reason why producers are tempted to inflate the figures to garner higher revenues from satellite rights. So, the game is getting complex now, which is not right,” says Johar.

Channels, which would pay huge amounts earlier, are now smarting up to the game and have included exit clauses and various negotiations in the deal. More often than not, satellite rights are acquired in packages. For instance, Ajay Devgn signed an exclusive Rs.400 crore deal with Star India, for the satellite rights of his upcoming films till 2017, and reportedly, Salman Khan signed a Rs. 500 crore deal with Star TV Network, for the broadcast rights of all his films.

When it comes to music rights, music labels are playing it safe. Bhushan Kumar, chairman & MD of T-series, whose annual music business turnover is around Rs. 400, believes that they cannot simply focus on the compositions of a film anymore; other factors like the actor’s popularity and the content is kept in mind before they buy the rights of any film music album. “In the last two years, many music companies, including us, have suffered a lot of losses because of the TRAI (Telecom Regulatory Authority of India) guidelines, which affects the money that we recover from the digital and physical music sales. Hence, T-Series is strictly focusing on acquiring quality music. Now, we listen to the compositions several times before buying the rights and that too, at a practical price. We cannot spend big bucks like seven to eight crores. In fact, even though Aashiqui 2 was one of the biggest musical hits of the last two-three years, the recovery did not match our expectations,” stated Kumar.

Although, several production houses took a different route by keeping the music rights with them and releasing it under their own label, they are now shying away from it. For Yeh Jawaani Hai Deewani, Satyagraha and Chennai Express, UTV decided to come back to T-series and has even signed a deal with them for their upcoming film, Highway. “It is only after a few downfalls that they realised it is not their cup of tea. Reliance Big Entertainment came back to us and so did UTV, Eros International among others. Our company is leading the pack with the largest catalogue of close to 2,00,000 songs. So, it was very difficult for others to survive,” stated Kumar.

Following the package deal route, Kumar believes that producing a film is more beneficial than just buying the music rights. For example, if buying the music rights for a Shah Rukh Khan film would cost Rs 6-7 crore, then producing the film will help him buy the rights only for Rs. 2 crore.

Budget manipulations

It’s not just the box-office figures that get speculated about, but also the budget of a film. In some cases, the budget of the film is manipulated to show higher profits. Rathi opines, “A lot of times, when the producers are selling the film to the distributors, the budget seems to be hiked by a little margin so that the lavishness in the production values can get them the best price from the distributors. But when it comes to showing the ultimate net collections, everyone wants to show that the recovery has been made and a whole different figure is pushed through PR mediums, where they show a slightly lower budget than the one analysed earlier.”