The E&M industry has reached an estimated Rs 51,300 crore in 2007, up from Rs 43,800 crore in 2006, according to a Ficci PricewaterhouseCoopers 2008 report on Indian entertainment and media industry for 2007. According to Timmy Kandhari, executive director of PwC, Considering the large base of the industry, this growth rate has been encouraging and a little above our estimated projection. The report projects the Indian E&M Industry to grow by 18% cumulatively over the next five years and cross the trillion mark by 2012. Cinema funds made recent splashes in the news as another emerging alternate investment source. Reliance Entertainment made a move into this industry and so have private equity players. While media and entertainment funds are rather limited in the mutual fund arena, with Reliance and Sundaram being the only players currently there, in time, this area too is bound to pick up and catch on. There is increasing interest within this sector currently and activity is building up as well. JP Morgan and ICICI ventures have invested in PVR pictures and more such deals maybe seen in the future. The other style of investing within this sector is so far project-specific, where one may draw a comparison to the real estate sector. While company-specific investments are not too many yet, more investments are made via SPVs. Since there are not too many companies within the cinema sector, regular PE funds have so far stayed away. Though certain deals like Temasek investing into IES Media and DE Shaw, who have invested in Amar Ujala Publications, have occurred, the entertainment and media world as a whole is being looked at as an investment option currently as far as large investments go, explains Arun Natrajan, CEO, Venture Intelligence.
Bollywood, once rumoured to be financed by underworld dons and mafias, with most production houses and actors being putty in their hands, has since then made giant leaps forward. Now-a-days financers come in the form of businessmen, actors, producers, private equity, cinema funds, theatres, banks and many other respectable sources. The phone threats and hidden guns have been replaced by fashionable suits, legal paper work, contracts and high profile deals. This leads to more opportunities for investors who wish to further diversify their portfolios and invest in this cinematic world, where returns are high and risks very different from those faced in the ordinary investors life.
Private bankers also have a good feeling about products like cinema funds and this industry, as the common sentiment they seem to share is that, Investing in such vehicles, which pretty much guarantee your investment returned and whatever else you make over and above that is based on movie selection, marketing and success, are the type of products that investors these days have an eye out for. Cinema funds that are one of the newest phenomena around, is an investment vehicle, for those sophisticated investors who wish to cash in on the success made by movies. Currently, these funds operate as venture capital (VC) funds and at the moment there are two such funds already in the market.
These funds are regulated by Sebi and have to be approved by them. The Religare-Vistaar Fund is one of the funds that have been launched. They hope to raise Rs 200 crore and have already signed 8 movie deals worth an approximate Rs 70 crore. While this fund has a high minimum entry level investment of Rs 2 crore, the ambitious Cinema Capital Venture Fund (CCVF) marketed by ICICI is hoping to raise anywhere between Rs 500-700 crore, with a minimum investment of Rs 10 lakh. While these funds are currently at their nascent stages, one cannot be sure to comment on how they will do in the next 5 years, which is their minimum lock-in period. However, both fund managers are very optimistic and are hoping to garner returns in the range of 35-40% compounded annually. Yes, these figures are straight from the horses mouth, even though purely speculative in nature, given the fact that an average movie will make returns within that range, it is not all that surprising that the optimism within this industry is rather high.
The stark difference between these funds in India and overseas is, that while overseas one has huge production houses, which form the main investment vehicle for film makers, such funds are usually created to promote and support upcoming and emerging film makers. Cinema funds here are going to work on a venture-specific basis. The money raised is going to be handled by the team of fund managers and industry experts who together will analyse and decide which movies they would like to finance and be a part of. Once zeroed in on the projects they like, these funds will then unlike financers not only financially back the movie, but will also lend their experts to help the selected projects in all stages. Thus the working here is more like a private equity fund. Once the project is completed and the various rights of the movie have been sold, they will take their share of the profits and exit. However, since there are no rigid specifications within investments made by these funds, they have the option of getting fully involved and being the main backers of a film, or in some instances being one of the financial backers or investors in the movie, and in yet other cases only choose to invest in a small part of the project without getting too involved. The latter is the most likely trend to follow for investments made in international and crossover cinema.
Another form of investments being made within this industry these days are via private equity firms. There is yet to be a specific cinema or entertainment fund to be launched from PE quarters, mainly due to the lack of professional production houses unlike in Hollywood, where there is Fox, Warner Brothers, Columbus and the likes. However, there has been increasing activity seen by PE players, who are willing to financially back and support certain movies and projects.
Recently, movies like Taare Zameen Par, Jaane Tu Ya Jaane Na and Contract, all of which were co-produced by PVR Pictures have indirect PE backing. This is as PVR Pictures themselves have received PE funding from the likes of ICICI Ventures and JP Morgan. Pyramid Saimira Theatre Ltd, K Sera Sera Productions, Inox Leisure Ltd, PVR Limited, UTV software communications Ltd, are some of the companies that have already gone public and their activity should be tracked by investors planning to enter this segment. As per an Indian Media Market Report 2007 by Heernet Ventures, some of the major players within this segment are Adlabs Films, Balaji Telefilms, K Sera Sera, Mukta Arts, UTV software communications, Inox, PVR, Pyramid Saimira and Shrinagar Cinemas. Reliance BIG Entertainment has been investing and signing contracts with film makers around the world. Having signed deals with Hollywood bigwigs like Steven Spielberg, Nicolas Cages Saturn Productions, Jim Carreys JC 23 Entertainment, George Clooneys Smokehouse Productions, Chris Columbuss 1492 Pictures, Tom Hankss Playtone Productions, Brad Pitts Plan B Entertainment and Jay Roachs Everyman Pictures, the Reliance camp is looking excited and are expecting a host of releases over the next 2 years. They are also rumoured to be looking to raise $500million from PE funds like Kohlberg Kravis Roberts & Company (KKR), billionaire investor Carl Icahn, Japans Softbank and Abu Dhabi Investment Authority for divestment of 10% of their equity. Speaking about private investments within the Bollywood world, producer Ritesh Sidhwani says, We have signed a deal with BIG entertainment for six movies, the first of which is just releasing. This is a very noteworthy move within the cinema industry and hopefully this will lead to more interest in Bollywood from the corporate world. Having the financial backing of Reliance is always a boost and if our movies do as well as we hope, the industry too will benefit as a whole.
Nitin Sood, CFO, PVR cinemas tells us, The cinema industry is growing rapidly. It is currently growing at the rate of 13 or 14% and is expected to hit 15% and beyond soon. Multiplexes have been one of the driving forces for the same as they have changed the way cinema is being viewed. These days fewer people are opting for stand-alone theatres, with multiplexes redefining the way cinema is viewed, especially in urban India. He adds, With more money being pumped into the industry through PE, public fund raising, private investors and corporate organisations, the industry is bound to grow; there will be more movies made each year, more revenues generated and an overall increase in growth. In India, movies and cricket are followed like a religion. In the film world our local industry is one of the strongest, with us making more movies then most other countries across the globe. As far as the future goes, Nitin feels, Over the next 3 to 4 years, revenues will cross that of most other nations which create cinema, barring Hollywood, due to the purchasing power parity there. In the next 5 years I am sure the Indian film industry will be amongst the top three revenue generating film industries in the world. Commenting on cinema funds and private equity investments within the sector he feels, The emerging investment avenues for people to invest in this industry and for the industry itself are very good for us. This provides a good legitimate way to invest in movies and its a lovely concept. This gives people who have the interest and risk appetite for cinema to finally invest in the same, which will boost the overall industry growth. We do hope that private funding and public listings like UTI will also go far to build this industry. We want to be a full-fledged production house and produce and co-produce many more movies in the future. Our long-term plans are to hopefully reach levels of those like Fox and Warner Bros. Though focussing on the now as long as industry talent is growing in all areas from directors, stars, cinematographers, etc, the industry is looking increasingly promising for now and more so for the long-term.
Nitin concludes by saying, The next five years should be a very interesting period for the cinema industry in India.And as the business grows, so would cinema funds, creating an interesting anchor to grow your wealth.