In March this year, when Ficci and PricewaterhouseCoopers brought out its annual report on the Indian entertainment & media (E&M) industry, there were many reasons to celebrate. It said the E&M industry grew 17% in 2007 over 2006 and the industry size swelled to Rs 51,300 crore in 2007 from Rs 43,800 crore in 2006. It projected that the E&M industry, the largest slices of which are TV and films, will grow at 18% cumulatively over the next five years.
But then the slowdown happened. While historically, a recession has always had a positive impact on the entertainment industry, the Indian film industry, scared by the liquidity crunch, is now thinking twice about greenlighting future projects.
Thankfully, the broadcast industry is still not facing the heat. But if adspends go down?advertising is the lifeblood of every broadcaster?then the TV industry too won?t have too many smiles around either.
A senior Star group official, who didn?t want to be named, said: ?Till about this time there is no negative impact on adspends, but the market feeling was that if Diwali sales show a ?degrowth? it would have an impact on spends from November through January.? So far the FMCG sector, among the highest spender in TV advertising, has not faced any major downturn, he said.
Caution, a byword
In Bollywood, most production houses are treading cautiously. According to Siddharth Roy Kapur, CEO, UTV Motion Pictures: ?The slowdown is already having an impact on the number of projects being made. In the last two years, because of a glut of players, a lot of movies were being made, now we will get into a more sustainable business model.?
But one aspect that pleases production houses is that talent prices, which had skyrocketed in the past two years, are gradually coming down. ?In the last two months, talent prices have come down to more sustainable levels, and that?s a positive trend for the long-run,? added Kapur.
Kishore Lulla, CEO, Eros Entertainment, said it?s the time for industry consolidation. ?In 1950, after the second world war, the film business went up?the world was in gloom but the studios consolidated and made money.? But still, it?s not that the film industry is insulated from a global meltdown. While most players agreed that the slowdown would not impact the box office, Navin Shah, CEO, Percept Picture Company, said less than 60% revenues now come from the box office. ?The rest are from satellite rights, home video, music and overseas rights. In the short-term, expect a hit of 30-40% across all rights. Most companies are likely to take a bottomline hit of 15-20%,? he said.
TV depends on ad power
In the television industry, a different story is playing out. According to Television Audience Measurement (TAM), the shampoos & conditioners category saw 65% growth in TV advertising during Jan-Jul ?08 over the same months in 2007. Analysts say advertising will not stop coming in and even the number of ads placed in the channels will remain the same at least for the top four channels?Star, Colors, Zee and Sony Entertainment Television. It is the second line of general entertainment channels, regional channels, niche channels, and news channels that will face the blows of recession.
Anooj Kapoor, business head, Sab TV, said: ?Recession will have a macro-impact. But in terms of micro-consumption, items like bread, butter, groceries, soaps and shampoos will continue to be bought by consumers. Therefore, all the branded manufacturers of these products will have to advertise because consumption will not decrease.?
While broadcasters are still not short of funds, the cost of content is hitting the roof. Balaji charged a fee of Rs 27 lakh per episode of Kyunki Saas Bhi Kabhi Bahu Thi from Star before it was yanked off the channel. Though Balaji doesn?t charge such high rates for all its properties, content isn?t cheap.
So, is a correction in prices on the cards? ?We are expecting the cost of content to remain high and there will be no impact on that. They just can?t cut salaries,? said the Star official.
Said Sab?s Kapoor: ?The cost of content will not go down. In fact, currently workers in production houses have gone on a strike, demanding more money. Therefore, the cost of content may just go up. Instead of a downward spiral there could be an upward spiral, which is completely contrary to the global trend.?
Expect dramatic changes
In Bollywood, with corporatisation setting in, a large number of films are being made. In fact, most production companies have films locked up till 2010. Said Eros? Lulla: ?We have already invested in the slate for the next two years; our plate is full till March 2010.? Percept?s Shah says things will change dramatically in the industry two quarters from now. ?Actors? fees will crash, technicians? fees will go down; all the film production units will become more viable. The liquidity crunch will lead to relatively lesser number of projects?and that?s not a bad thing for the industry,? he pointed out.
Shree Ashtavinayak Cine Vision?s managing director Dhilin Mehta admitted that borrowing costs had increased, but said that Ashtavinayak, which produced the super-hit Jab We Met, is cash-rich. ?We release multiple projects in a year. So, every year we plan to release four-five projects and the scalability may increase in the coming years?, he added.
Most players we spoke to agreed that after a phenomenal growth, the film industry is poised for consolidation. Suddenly, everyone is talking about ?quality? and ?good content?.
The way forward
Percept?s Shah said entry of foreign studios and corporatisation will make the business stronger. ?It?s a good time to make a franchisee for a film,? he pointed out. In Hollywood, 90% of revenues in 2006-07 came from franchises. Think sequels, prequels, animation, merchandising.
?By 2010, we too will earn 60-70% of our revenues from franchises,? said Shah. Percept, which has released the second installment of Hanuman, is thinking of Malamaal Weekly II. ?We are moving ahead with caution,? said Shah, ?We are putting all our energies in making good content.? Ditto UTV. Said Kapur: ?At UTV, we are circumspect about the movies we make. We are being doubly careful while taking decisions.? Eros? Lulla is looking for ?juicy? acquisitions: ?Eros plans to stay focused on cash content and distribution, and look out for juicy acquisitions, targets which have underlying cash flow. But we will be cautious in our approach and be selective.?
If there?s a sense of optimism in the film industry, it?s coming from the fact that people are still flocking multiplexes?and despite a bad Bollywood run, three latest releases, Golmaal Returns, Fashion, and Quantum of Solace, are doing well at the box office?and collections are on the rise.
Will ticket prices go through a correction as well? Said Ranjan Singh, head, marketing, PVR Pictures: ?As of now, it doesn?t look like a reduction is on the cards. Golmaal and Quantum have been doing very well and there?s a huge lineup of films in the next eight weeks.?