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Indywood The Indian Film Industry September 2016
Indywood |
The Indian Film Industry
2
Indywood | The Indian Film Industry
Contents
Foreword 3
Executive Summary 5
Make in India Initiative and the Film Industry 6
India’s Film Industry 6
Industry Overview 7
Key Trends in the Indian Film Industry 10
Growth Drivers and Opportunities 15
Key Challenges in the Industry 17
Key Focus Areas for the Film Industry 21
Technological Advancements in the Film Industry 24
Skill Development in the Film Industry 32
Film Tourism in India 34
Background and Global Perspective 34
Film Tourism in India: An Overview 40
Recent initiatives to Improve Film Tourism 40
Next Steps and Initiatives 46
International Best Practices: Case Studies 50
Case Study: Film Tourism in the UK 50
Case Study: Film Tourism in New Zealand 54
Shooting of Foreign Films in India – Tax Aspects 59
Authors, Acknowledgments and Contacts 62
3
Indywood |
The Indian Film Industry
Foreword
Welcome to the Indian Film Industry Report critical to remain at the forefront of global
for the Indywood Film Carnival taking place trends. The report analyses the methods to
during September 24 – 27, 2016 in Ramoji achieve this including technology transfers,
Film City, Hyderabad. The film industry collaboration with international studios and
has been earmarked as a key sector in the development of technical skills in-country.
Make in India campaign. As part of this, Another endeavour of the Make in India
the Government of India is taking several campaign has been to develop technical
initiatives to effect growth in the sector skills for film production, post production
as well as promote foreign film shootings and VFX. Given the low labour cost, this
locally. Deloitte India’s objective with this could be a key factor in attracting foreign
publication is to provide an overview of filmmakers to the country. The report
Hemant Joshi
the film sector in India and analyse the key elucidates the current initiatives being
trends impacting the sector today. taken by the Government of India under
the Make in India campaign to improve
Our endeavour is to provide a considered availability of skill and talent in filmmaking.
point of view on key initiatives required The report also analyses other actions
going forward in the film industry to propel that can have an impact on increasing
growth and promote film tourism. In order availability of skills locally.
to do so, the report delves into the current
state of the industry to identify key focus In this report, the international best
areas and requirements to increase box practices in thriving film sectors globally
office realizations, improve occupancy and have been studied including initiatives
address the infrastructure constraints. taken by various regions to attract foreign
film shooting. The report also includes
Ashesh Jani
As the Indian film industry moves into the case studies on the UK and New Zealand,
next phase of growth, it is imperative to countries that have successfully been
keep pace with the global technological able to position themselves as key filming
advances and innovation. Historically, destinations as was witnessed by the Harry
the Indian film sector has lagged behind Potter Series and Lord of the Rings Trilogy.
in its counterparts in the deployment of
emerging technologies such as virtual Deloitte hopes that you and your
reality, augmented reality, drone shootings, colleagues find this report a useful
etc. The development and deployment stimulant in your strategic thinking.
of key technologies in Indian films will be
4
Indywood | The Indian Film Industry
Executive Summary
of the total industry. Cable and satellite
rights and online/digital aggregation
produced with between 1,500 to 2,000 revenues are the fastest growing
segments, and expected to grow at a
20 languages. In terms of revenue, the CAGR of about 15% over the period FY15
of $2.1 billion which is expected to grow is dominated by Bollywood, the Hindi
at 11% CAGR reaching $3.7 billion by 2020.
The key growth drivers for the industry revenue while regional and international
are:
• Increasing per capita income and
currently a small, but growing segment,
growing middle class
driven by rising numbers of English and
• Demand from Tier 2 and Tier 3 cities other foreign languagespeakers, as well
as rising numbers of international movies
• Diversifying into international markets
witnessing dubbed releases across the
• Releasing the potential of digitization country. Other key recent trends in the
industry include:
• Upside from ancillary revenue streams
• Entry of international studios through
•
acquisitions and collaborations
in movies
• Rise of regional cinema
produced in India, the industry gross • Digital adoption across the value chain
realization has been substantially lower
than its global counterparts. For example, • Organic and inorganic growth in
multiplexes
Canada stand at $11 billion whereas • Emergence of alternative streams of
revenue
Going forward, the industry needs to
focus on the following factors to ensure
• Low infrastructure penetration
• Film tourism
• Slow growth in average ticket price
(ATP) • Skill enhancement
• Complicated tax regime • Shortening window of release through
better planning
• Rising costs and lack of access
to funding • Updating current technology
• Piracy • Countering piracy
• Multiple layers of bureaucracy • Growth of multiplexes
• Prevailing strict censorship norms
majority of the revenue, representing 74%
5
Indywood |
The Indian Film Industry
Make in India
Initiative and the
Film Industry
Overview of the Make in India Make in India initiative. Till now, several
Campaign steps have been taken in the sector
The Make in India campaign, launched to improve investments and increase
by Prime Minister Narendra Modi in business opportunities. The following
September 2014, is aimed at enhancing steps, specific to the film segment, have
local manufacturing, fostering innovation, been initiated under the campaign:
and facilitating investments in the Indian •• A Film Facilitation Office has been
industries. The initiative is being led by established under the operatorship
the Department of Industrial Policy and of the National Film Development
Promotion (DIPP) and the Department Corporation (NFDC) for facilitation of film
of Commerce and Industry and covers shooting in India and promotion of India
25 key sectors, including media and as a destination for foreign production
entertainment. houses.
The Make in India programme endeavours •• Media and Entertainment Skills Council
to create additional employment (MESC) is being promoted by Federation
opportunities through improving business of Indian Chambers of Commerce and
opportunities and positioning India as Industry (FICCI) with financial support by
a destination for manufacturing and National Skill Development Corporation
services. The programme also aims to (NSDC) to create 1.2 million skilled
facilitate businesses and entry of new workforce by 2022 in the media and
players in India by instating clear and entertainment sector across 74 job
transparent processes, enabling Ease of profiles.
Doing Business, and simplifying laws and •• Additional film treaties are being explored
regulations. Since the inception of the by the Government of India, having
Make in India program, there has been recently entered into film treaties with
a significant increase in Foreign Direct China and South Korea, to not only avail
Investment (FDI) owing to the growing film production benefits but also widen
positive perception of India in the global the reach of Indian cinema.
scenario.
The Make in India campaign for the film
Objectives and Initiatives in the Film sector aims at driving growth and creating
Sector employment opportunities in the sector as
Media and entertainment has been well as making India one of the leading film
identified as one of the key sectors for the tourism destinations globally.
6
Indywood | The Indian Film Industry
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Indywood |
The Indian Film Industry
8
Indywood | The Indian Film Industry
India’s Film Industry
Industry Overview Historically, the film industry in India 15% over the period FY15 – FY20,
The Indian film industry is the largest has grown at a CAGR of over 10%. driven by rising demand for movies
in the world in terms of number of Currently, the film industry grosses on TV and increasing smartphone
films produced with around 1,500 to total revenue of INR 138 billion ($2.1 penetration across the country
2,000 films produced every year in billion). Going forward, the industry respectively. On the other hand,
more than 20 languages. The industry is expected to grow at 11.5% year-on- home videos have been shrinking
also had the second highest footfalls year reaching total gross realization due to increasing piracy and growing
in the world in 2015 (over 2.1 billion) of INR 238 billion ($3.7 billion) by popularity of digital platforms. Home
following China (almost 2.2 billion). 2020. The key growth drivers are video has lost share to Video on
Despite the large number of films expansion of multiplexes in smaller Demand (VOD) through Direct-to-home
and theatre admissions, the industry cities, investments by foreign studios (DTH) operators and Over-the-top
continues to remain small with respect in domestic and regional productions, (OTT) platforms.
to other global industries in terms of growing popularity of niche movies,
revenue. In India, the film industries and the emergence of digital and The Indian film industry is dominated
gross realization stands at $2.1 billion ancillary revenue streams. by Bollywood, the Hindi film industry,
versus gross realization of $11 billion contributing 43% of the revenue
in the US and Canada which produces The domestic box office contributes while regional and international films
significantly lower number of films to the majority of the revenue, contribute the remaining 50% and
(approximately 700 films).1 This is representing 74% of the total industry. 7% respectively. Within the regional
mainly due to low ticket realizations Cable and satellite rights and online/ film industry, Tamil and Telugu are
and occupancy levels, lack of quality digital aggregation revenues are the the largest segments comprising
content, and rampant piracy. fastest growing segments, and are approximately 36% of net box
expected to grow at a CAGR of about office revenues followed by Bengali,
Figure 1: Film Industry Revenues Figure 2: Category-wise Break-up of Revenue
(INR billion)
238
Anncillary
214 Revenue
CAGR Home
193 Streams
10.5% Cable & Videos
Satellite 5%
173 1%
Rights
155 13%
138
125 126
Oveaseas
Box Office
7%
Domestic
Box Office
74%
2013 2014 2015 2016 2017 2018 2019 2020
Source: Deloitte Report - Economic Contribution of the Indian Motion Picture and Television Industry
PVR Analyst Report
1
9
Indywood |
The Indian Film Industry
Kannada, and Malayalam films. Currently, realization, rising urbanization, and
international films is a small, but growing growing disposable incomes.
segment, driven by rising numbers Entry of international studios through
of English and other foreign language acquisitions and collaborations: Several
speakers, as well as rising numbers of international film studios such as Warner
international movies witnessing dubbed Bros., Disney, Fox, and Dreamworks have
releases across the country. not only set up distribution houses in India,
but have also entered into partnerships
Key Trends in the Indian Film Industry with local film production houses
through acquisitions and co-production
1. Film Production Segmen agreements. For example:
International/foreign films gaining •• Walt Disney acquired a 50% stake in UTV
share in the Indian industry: and now has a controlling stake in UTV
International films is a growing segment in Software Communications.
the Indian film industry, having increased
•• Viacom18, a JV between Viacom and
its box office share from almost 5% a few
Network 18, was the first studio model
years ago to approximately 7% today. This
based production house. Viacom18
is mainly due to:
engages in production, syndication,
•• Dubbing of international films in marketing, and worldwide film distribution.
regional languages: The number
of foreign films dubbed into Indian Additionally, a key example of collaboration
languages has doubled over the past 5 has been Fox Star joining hands with
years. These films are being dubbed into Dharma Productions in a deal worth INR
Hindi, Tamil, and Telugu which has helped 5,000 million. Fox has produced almost 30
them reach audiences beyond Tier 1 Bollywood films, as well as a few Tamil and
cities. Malayalam language films.
•• Rise of multiplexes: Multiplexes have
Local film production can leverage the
witnessed significant growth across major
experience of these international studios
Indian cities and continued penetration in
to expand their international reach and
smaller towns. Investments in multiplexes
incorporate enhanced project planning and
is mainly driven by improved per-ticket
cost controls.
Figure 3: Box Office Revenue Split by Language
International,
7%
Other
Regional,
14%
Hindi, 43%
Telugu, 17%
Tamil, 19%
Source: Deloitte Report - Economic Contribution of the Indian Motion Picture and Television Industry
10Indywood | The Indian Film Industry
Rise of regional cinema: While
mainstream Bollywood dominates the
Indian film industry, regional cinema has
been witnessing a surge in investments
from major film studios to tap the potential
of underpenetrated markets. Large
national producers such as Reliance
Entertainment, Eros, Disney, Viacom 18
Motion Pictures, Fox Star Studios as well
as independent producers like Emmay
Entertainment (Nikhil Advani), Akshay
Kumar, and Grazing Goat Productions
plan to spend 20% of their annual budgets
on regional cinema. This is not only due
to the relatively untapped nature of the
market but also because of cheaper cost
of production of regional movies. The
average cost of producing a commercial
Hindi film is INR 150 million versus a cost of
INR 40 million for a Marathi or Punjabi film.
•• South Indian film industry is very vibrant
with revenue expected to grow at a CAGR
of 12% reaching over INR 42 billion over
by 2017. This segment is dominated by
Tamil and Telugu films (90%) with 365
films released in 2015. However, the
profitability of these films has been low
with only 30% recovering production
costs.2 While big budget films continue
PVR Analyst Report
1 to account for a large share of revenue
(approximately 40%), smaller budget films
with strong content have been gaining
popularity. Further, Tamil and Telegu films
have started to gain nation-wide and
international popularity
•• Malayalam film industry has witnessed
high growth and profitability driven
by strong content and large audience
in 2015. Over 140 films were released
during the year in Malayalam. High
profitability was demonstrated by films
with good content making over INR
500 million at the box office over movie
budgets of INR 120–150 million.
•• Bengali film industry has seen a slump
in the recent years as poor content, shift
of audience to English and Hindi cinema,
and lack of infrastructure became
growing challenges in the sector. Single
screen theatres have been successively
2
Deloitte FICCI Report: The Digital March Media and
Entertainment in South India
11Indywood |
The Indian Film Industry
shutting down in the state with over
100 screens closed in the last one and a
half years.
•• Marathi film industry has re-emerged
over the last few years owing to strong
content, lower budgets, and government
support. The segment has shown
40–45% growth in 2015 reaching INR 1.5
billion in revenue. The state government
has bolstered sector growth through
mandating screening of at least one show
of a Marathi film in a multiplex.
•• Gujarati film industry is showing
indications of coming out of a long slump
due to production of urban centric films
and higher investments in the sector.
There has been a considerable jump in
box office collections reaching INR 550
million last year from INR 70 million in
2014.
•• Punjabi film industry experienced
a strong growth of 15–20% over the
previous year.
2. Marketing, Distribution and
Exhibition
Digital adoption across the value
chain: Real Image and UFO Moviez have
facilitated the digitization of movies
enabling wider distribution of films across
various regions and curbing piracy. Key
benefits of digitization can be witnessed
across the value chain:
•• Film makers: Digital printing costs 80%
less than conventional printing which
allows producers to scale up to 5 times
the number of screens than originally in
the same budget. Due to this, digitization
has enabled the penetration of content
to smaller cities and towns. In the
current scenario, over 60% of box office
collections are realized in the first week of
a movie’s release. Increased penetration,
simultaneous release across theatres,
and front-ending of revenue has resulted
in a drastic increase in number of films
12Indywood | The Indian Film Industry
generating over INR 1 billion in box office Digital cinema has also helped in
revenues. addressing piracy as well. With the advent
of digital technologies, piracy of films and
•• Distributors and exhibitors: Digitization
songs has decreased tremendously. With
of content has resulted in the reduction
digital distribution, movies are released
of costs of physical transportation and
on the same day in all places and checks
print manufacturing. Digital content
can be kept on where movies are showing
is delivered by way of satellite or hard
and how many times they are screened,
drive adding convenience and cost
resulting in reduction in the scope
effectiveness to the process. Nearly all
for piracy.
theatres have adopted digital technology
resulting in shift from large-sized
Organic and inorganic growth in
projection systems to smaller and more
multiplexes: Multiplexes have shown
efficient digital projection systems.
a growth rate of 15% in Indian cities,
Although digital projection systems have
increasing from 925 in 2009 to 2,100 in
a heavy initial investment, the running
2015. Over 2,000 single screen cinemas
costs as opposed to analog are minimal.
have been shut down or converted to
•• Consumers: Digital projection in the multiplexes in the last year mainly due
cinemas has superior quality of images to greater cost of operations (higher
which are not subject to deterioration entertainment taxes, increase in
with the passage of time. It has also given distributors’ share, and lower ticket prices),
viewers access to technologies such as non-viability of running on a standalone
VFX, animation, and 3D films. basis and low occupancy rate. Multiplexes
Figure 4: Number of Movies Grossing over INR 1 billion
3
2
2
9
6 6
5 5
2
1 1
2008 2009 2010 2011 2012 2013 2014 2015
INR 1 bn + INR 2 bn +
Source: Analyst Report - India Film Exhibition – Blockbuster year
13Indywood |
The Indian Film Industry
currently account for approximately 26% Figure 5: Number of Screens in India
market share of the screens; however,
they contribute more than 40% of box
9,710
office collections. Wider content and 9,308 9,121
8,685 8,451
programming flexibility result in higher 8,002
occupancy and hence profitability of
multiplexes. With comparison to growing
6,000
economies, India has a low penetration of
multiplexes with a potential to have almost
7,500–10,000 multiplex screens across the
nation. Going forward, the key multiplex
2,100
operators such as PVR, Inox, Cinepolis, 1,225 1,350 1,500 1630
1,075
and Carnival Cinemas have aggressive 925
expansion plans in the coming three years.3
2009 2010 2011 2012 2013 2014 2015
Industry leaders in the film exhibition
Single screens Multiplexes
segment have grown not only through
organic screen additions, but also Source: INOX Investor Presentation February 2016
through acquisition of smaller regional
multiplex chains and single screen players.
Consolidation of the multiplex segment has Table 1: Consolidation in the Multiplex Segment
resulted in the top four cinema operators
(PVR, Inox, Carnival, and Cinepolis) Acquirer Target Year Number of
controlling almost 70% of the market. Screens Acquired
PVR DT 2015 39
Emergence of alternative streams of
revenue: Other sources of revenue have Carnival Glitz 2015 30
started to make an increasing contribution
Carnival Broadway 2014 10
to the film industry realizations. In the
last few years, the window available to Inox Satyam (Delhi) 2014 38
monetize a film’s revenues at the box office
Cinepolis Fun Cinemas 2014 83
has shortened considerably. This is driving
film studios to exploit ancillary streams of Carnival Big Cinemas 2014 250
revenue such as the following:
PVR Cinemax 2012 135
•• In-cinema advertising: In 2015, the
Inox Fame Cinemas 2011 95
in-cinema advertising revenues reached
Source: Business Standard4
Figure 6: Expansion plans of the top-four multiplex operators
1,000 1,000
557
493
400
372 341
193
PVR + DT Inox Carnival Cnepolis
2015 2018E
Source: Analyst Report: India Film Exhibition – Blockbuster year
Source: Inox Investor Presentation, Feb 2016
3
http://www.business-standard.com/article/companies/coming-soon-multiplex-boom-across-india-115021101507_1.html
4
14Indywood | The Indian Film Industry
approximately INR 6.3 billion exhibiting a •• Mobile and online platforms: Revenue
28% growth over the previous year. This from new media, including mobile and
is mainly due to increased digitization of online rights, is expected to increase with
ads, shift from public sector advertising the high penetration and accessibility of
to corporate advertising, and higher ad 3G services by mobile operators. Further,
durations in multiplexes. Going forward, film production houses can reduce their
ad revenues are expected to grow at 18- dependence on theatrical performance
20% over FY16-20 and play an important by monetizing content through gaming
role in growth of revenues. on mobile and online platforms.
•• Video on Demand (VOD): While on-
Growth Drivers and Opportunities
demand services for video and audio
form a small segment of the industry Increasing per capita income and
(less than 5%), it is at the inflection growing middle class: India’s per capita
point in India. With the growing mobile income has shown a steady increase in the
and internet segment, an ecosystem last few years and is expected to reach INR
around these services has developed 100,000 (equivalent of $1,500) by FY17 on
with content providers, aggregators, the back of a growing middle class which
distribution channels, technology has grown by 150% since 2000 (versus
platforms, advertising platforms, 70% increase in Asia Pacific).5 By 2020,
payment channels and marketing the Indian average household income is
channels. expected to reach $18,500 from $8,000
Middle-class wealth up 150% in India since 2000: report
5
15Indywood |
The Indian Film Industry
currently exhibiting a 2x increase with mall development in Tier 1 cities has development of the digital channel. This
a corresponding middle class of over reached saturation point. At present, shift towards digital is expected in turn
90 million people.6 This level of median only 25% of malls are located in smaller to give a thrust to the small budgeted
household income will drive discretionary cities and retail attractiveness of Tier 1 good content films which can then be
spending on leisure and entertainment. cities has been stagnant. Smaller cities monetised through personal devices.
As a consequence, the film sector has and towns offer large and inexpensive Further, digitisation can result in creation of
huge potential in India with rapidly growing spaces for infrastructure development new release windows by enabling studios
demand and increasing footfalls. with rising disposable income making to explore release of films through various
them attractive for investments. Further, platforms with differentiated prices to
Further, India has around 500 million there are many small cities and towns that consumers. Films are now available for
unique mobile users which is likely to have an appetite for cinema consumption, home theatrical screening the day of
become 1.3 billion by 2020. Currently, but are still virgin pockets for multiplexes. release and pay-per-view, with DTH, digital
around 200 million have access to internet Over 50% of screen additions in FY15 by cable and Internet Protocol television (IPTV)
and this number is set to increase with Inox and PVR has been in Tier 2 and 3 distributors at prices as low as INR 50 per
the introduction of 4G services. The cities.7 screening.
proliferation of internet and smart phone
usage has opened up a new platform for Diversifying into international Upside from ancillary revenue
film distribution and viewing. markets: While domestic markets provide streams: : Apart from the box office
the Indian film sector with steady growth, revenues, ancillary revenue streams can
Demand from Tier 1 and Tier 2 cities: In diversifying to international markets can provide an increasing share of the film
the recent years, there has been a change provide a large upside in demand as well revenues driven by digitisation, onset of
in the outlook of investors regarding future as revenue. For example, Hollywood next generation networks and availability
prospects, with the focus shifting from the currently derives almost two-thirds of its of sophisticated devices to access media.
national to regional markets. As the Tier 1 revenue from overseas market versus Releasing the potential of these revenue
cities near saturation, growth of the film 15% overseas revenue collected by streams can provide a large upside to the
sector is expected to be driven by the Tier the Indian film industry. Since only few theatre related income. For example, Star
2 and Tier 3 cities: international markets have an established Wars grossed total revenues of $42 billion
film sector, Indian production houses while only $7.3 billion (approximately 17%)
•• Production of regional films: The
are well positioned to tap the domestic came from box office revenues. Home sales
demand for films in non-metro cities
demand in these regions. This can be entertainment, toys and merchandise and
with distinct cultures, languages and
realised through forming collaborations video games where the largest contributors
content preferences is a rapidly growing
with local studios and talent for distribution with $5.7 billion, $17 billion and $4.3 billion
segment. This represents huge markets
of dubbed movies, co-production of local
within markets and provide a variety of respectively.
and international films. For example,
opportunities to deliver localized and
Eros tied-up with three Chinese film and
regional content. While many global film Some ancillary sources of revenue that can
entertainment companies in May 2015 to
studios have already entered regional be explored in the Indian film industry are
co-produce, distribute and promote Sino-
markets and are producing regional as follows:
Indian films in both countries.8
language content, this is expected to be a
•• Merchandising: While merchandising
key growth driver going forward.
Releasing the potential of digitization: currently contributes miniscule amount
•• Addition of screens: Currently, screen Going forward, digitization is expected of revenue, it has immense potential
distribution is largely skewed to Mumbai to increase with digital becoming an with the development of Indian movie
and Delhi/Uttar Pradesh which account independent revenue stream, rather franchise and strong content. In order to
for 60% of the box office collection than part of a bundle, and the entry of drive this stream of revenue, films require
of films. However, the next wave of more international players in the film strong story lines, relatable characters,
expansion of screens is expected to be industry. Digital revenues are expected and innovative ways of engaging with
driven by the Tier 2 and Tier 3 cities as to grow significantly owing to the rapid the audience. For example, Ra.One was
6
Top 5 Emerging Markets with the Best Middle Class Potential, Media and Entertainment (M&E) Industry: The Sunrise Sector Of India
7
Analyst Report – India Film Exhibition
8
Eros International Announces Deal with Major Chinese Film and Entertainment Companies
16Indywood | The Indian Film Industry
Figure 7: Star Wars Franchise- Revenue Split used by the visual media in India in three
Miscellaneous categories, i.e., movies, TV shows and
9% Box Office advertisements. In India, the VFX segment
17% is currently in its nascent stages with low
Intellectual
Property domestic consumption; most of the work
10% comes from outsourced projects from the
Video
Home USA and the UK. However, with viewers
Entertainment becoming increasingly sophisticated, the
Games
Sales
10%
14%
domestic market is seeing bigger budget
movies and ad campaigns leading to a
rise in VFX spend. Currently, India has
nearly 300 animation and 40 VFX studios,
Source:
employing more than 10,000 professionals.
Fortune
Toys and Merchandise
News
40%
The film sector has been increasing its
usage of VFX and visual effects is expected
one of the first Indian film to be launched to play a bigger part in Indian cinema
with an overall campaign. It had over 25 going forward. This can also be seen in the
brands associated with the film covering regional films where VFX is a growing trend;
merchandising, licensing, publishing, for example, the Marathi film Mitwa used a
video games, board games and figurines. total of 325 VFX shots. In 2015, the Indian
film industry saw a number of VFX heavy
•• Licensing content for games and mobile
films such as Baahubali, Bajirao Mastani, I,
apps: Consumption of media and
Dilwale, Bombay Velvet, Bajrangi Bhaijaan,
entertainment related mobile content,
Baby, amongst others. The industry
such as songs, games and mobile
(including post-production) is expected
themes, accounts for almost 30% of
to grow rapidly in the coming 5 years.
overall VAS revenues in India. Developing
However, the VFX industry is still inhibited
bandwidth-light games and apps that
by cost constraints and skill gaps in the
engage consumers can significantly
country leading to slow adoption.
increase recall and add value to the
movie brand while bringing in additional
To tap into the growing VFX space,
revenues.
production houses in India are setting up
•• Web-based home entertainment: The their in-house VFX divisions. For example,
home movies market had been steadily Yash Raj Films (YRF) has commenced an
declining over the last few years owing independent VFX division, titled yFX, which
to relatively high pricing and piracy. This released its first film in July 2016.9
has led to large repositories of movies
being underutilised after release. With Key Challenges in the Industry
the proliferation of 4G and broadband
Low infrastructure penetration: While
services, the home entertainment can be
the Tier 1 cities and metros are reaching
revived through online delivery of movies
saturation, the Tier 2 and Tier 3 areas lack
over PCs, mobile phones and tablets. To
the required infrastructure such as malls,
fully capture this segment, there is a need
access to low-cost power, etc. This lack of
to develop effective distribution channels
availability of exhibition infrastructure is
and invest in digitising and meta-tagging
a key impediment for the growth of the
content for digital delivery.
sector. The addition of screens has not kept up
with demand with increments of only 150-200
Upcoming use of Visual Effects (VFX)
new screens per year. Further, India is severely
in movies: VFX involves the creation of
behind the globe in screen penetration with 6
live action imagery by using computer-
per million, versus 23 per million in China and
generated effects. It is being increasingly
126 per million in the US.10
Source: Yash Raj Films to have its own VFX studio yFX
9
17Indywood |
The Indian Film Industry
Single screen theatres have historically had of these taxes are applicable on program
Figure 8: Screen Penetration
low occupancy, low ticket realisations, and, production, in-film placements, grant
(per million population)
hence, low profitability. This has led to shut of various rights such as distribution
US 126 down of single screen cinemas especially rights, theatrical rights, cable and satellite
France 85 in small and rural towns which have rights, sale of airtime for advertisement
experienced a decline from approximately purposes, recording/editing of program,
Spain 82
10,000 screens in 2009 to 6,000 currently. sale/lease of program content, etc. These
UK 61 While multiplexes are being added in taxes are increasingly being disputed with
Germany 45 the Tier 2 and Tier 3 towns, the pace of authorities. Complications in taxation in the
Japan 26 additions is one-third of the pace at which film industry have arisen due to interplay
the single screen theatres are shutting of multiple indirect taxes and frequent
China 23
down. Without faster addition of screens, changes in taxation law and judicial rulings.
India 6 especially in small towns and rural areas, Further, entertainment tax varies across
Source: PVR Investor Presentation, February 2016
the growth of the film industry will be states in India and is one of the rates
stunted. India needs to have at least 20,000 levied globally. Recently, some states have
screens to fully realise the potential of films granted exemption from entertainment tax
Figure 9: ATP across Screen Types - 2015 produced in the country. for regional films to promote the sector.
239
Slow growth in average ticket price Rising costs and lack of access to
(ATP): In India, the growth in ATP has been funding: The film sector in India suffers
slow rising from INR 150–160 in 2011 to from lack of access to funding across
127 INR 175–200 in 2015, marking a CAGR of the value chain due to high tax rates and
95 approximately 4%. This growth has been complex taxation.
mainly driven by increase in multiplex
56
screens, priced at more than 100% to •• Film production is facing severe shortage
single screens and rising number of 3D of funds while costs are rising with only
movies which continue to be priced at a studios as a source of capital for most
High end Multiplexes Single Low end
Multiplexes screen screen premium of 15-20% over regular movies. films. The biggest cost inflation factor
ATP also varies regionally; for example, Tier is employment of talent, which can
Source: MOSL INOX Initiating Coverage
1 cities command an ATP of approximately charge up to 40% of a film’s budget, the
INR 200 versus INR 160 and INR 100 in Tier highest globally, wherein the cost of
Figure 10: Global ATP Comparison - 2015
2 and Tier 3 cities. Meanwhile, the ATP in talent does not exceed 15–20% of the
10.7 the US and China are $8.4 (approximately film budget. Further, marketing costs
INR 570) and $5.5 (approximately INR of films have risen to 30-50% of a film's
8.4 385) respectively. In order to improve budget depending on the size of the
performance of Indian cinemas, keeping in film, from 15-25% in 2010.12 Costs have
mind the average occupancy rate of 35%, to be controlled through lowering of
5.5 ATP will have to drive towards global rates. talent costs (hiring of younger stars and
providing share of profits rather than
Complicated tax regime: Several levies, upfront fee) and efficient marketing
2.0 central as well as state, are charged in the strategies (move towards social and
media and entertainment industry with digital platforms of marketing).
central levies being Central Excise duty,
India China US UK Customs duty and Service Tax and State While the bank support has been
Source: Business Standard11
levies being state-VAT and Entertainment extended to films after the industry status
tax. The Service Tax and state-VAT or one was accorded to the film sector in 2000,
PVR Investor Presentation, Feb 2016
10
http://www.business-standard.com/article/companies/india-s-box-office-growth-runs-into-a-screen-problem-116011801209_1.html
11
Film industry battles high costs and low revenues
12
18Indywood | The Indian Film Industry
Table 2: Entertainment Tax across States of conversion has been stalled by lack
of cash flow and access to funds by
State Entertainment Tax the single screen operators. Financing
support can be provided through tax
Andhra Pradesh 20% (15% for Telugu Films)
holidays for operators retrofitting their
Himachal Pradesh, Punjab Nil properties, allowing single screen owners
to have extra floor space index that can
Bihar 50%
then finance the retrofit, introducing
Delhi 40% a public private partnership model for
Gujarat 20% conversion of single screens and access
to government capital at lower interest
Haryana 20% rates.15
Karnataka 30% (Nil for Kannada Films)
Piracy: Despite the ongoing digitization
Kerala 30% of the film industry, piracy continues to
Maharashtra 45% (Nil for Marathi Films) be a key issue resulting in industry losses
of INR 190 billion a year. Over 150 sites
Tamil Nadu 15% (Nil for Tamil Films) thrive on piracy where content is stolen
West Bengal 30% (2% for Bengali Films) from Indian movies, quick copies are made
and distributed globally. Nearly half of
Source: Deloitte Analysis the 150 are from the US, followed by 11
from Canada, 9 from Panama and 6 from
the stringent norms for lending have to invest INR 3 billion in South Indian films
Pakistan. The top 100 sites make INR 35
resulted in difficulty in accessing capital. and TV.14
billion ($510 million) highlighting the extent
Especially affected are the small players
•• Exhibition: Several single screens in India of the issue.
and independent filmmakers which
are severely dilapidated and in need of
typically do not get access to bank finance.
maintenance. However, owing to low The problem is exacerbated for regional
Further, while several film funds have been
revenues and occupancy, investments on films. For example, Baahubali, which
founded such as Third Eye, Cinema Capital
renovation are not feasible. This has been had one of the highest budgets in the
Venture Fund, Vistaar Religare Film Fund,
witnessed in the Bengali film industry film industry, was pirated on the day
and Dar Capital, their success has been
which is suffering from lack of profitable of its release. About 1.6 million people
intermittent. This is mainly as investments
and sustainable exhibition infrastructure downloaded the movie and another 1
are made in smaller productions which
resulting in shut down of several theatres. million people watched it illegally through
carry higher risk.13 With the growing focus
1,500 links. Additionally, the Telugu film
on content, improvement in scale, and
The conversion of single screen cinemas industry lost about INR 3.6 billion in 2015
corporatization of the industry, film funds
to multiplexes is essential not only to due to online piracy through 18 million
to investing in Indian content may gain
increase the number of screens in India downloads or web streaming.16
prominence going forward. For example,
but also to improve the profitability of the
Bend It Media fund, with a corpus of INR
sector. However, retrofitting or turning
1.8 billion, has been launched to invest in
single screens into two or three screen
Hollywood, Indian films and TV. Cinema
multiplexes costs INR 4-7.5 million at the
Capital has been instated to invest INR 1.7
low-end to INR 10 million (non-metro)– 25
billion in Bollywood films and Indus Media
million (metro) per screen for three or
Cinema fund has been recently created
more screen multiplexes. This process
13
India film funding: Bollywood bets
14
This is for reel
15
India's box office growth runs into a screen problem
16
How online piracy ‘industry’ is a box-office wrecker
19Indywood |
The Indian Film Industry
Multiple layers of bureaucracy: There is Prevailing strict censorship norms: was released within 48 hours of the Court's
no single window to provide all clearances The censoring of films by the Central decision.18
needed to shoot in India. Producers Board of Film Certification (CBFC) prior to
need to approach several institutions to public screening in India is mandatory for Further, several Hollywood films releasing
understand the required permissions. filmmakers as per the provisions of the in India are subject to edits prior to public
At times filmmakers need to obtain over Cinematograph Act, 1952. In this process, screening. This leads to delays in public
70 permissions and licenses for a shoot films are viewed before public screening viewing and often discourages viewers in
in the country without any pre-defined by CBFC which in turn takes a decision watching the movies in a cinema resulting
turnaround time.17 For example: of whether or not it should be screened in challenges to release Hollywood films
publicly as is, with restricted access, or in India. As a key growth segment in the
•• Central clearances: Shooting of foreign
with certain cuts and alterations. This has Indian film sector, Hollywood films should
feature films in India requires the prior
been a major impediment for the Indian be subject to minimal censorship and
approval of the Ministry of Information
film industry not only due to the extended delays to capture the growing audience and
and Broadcasting (MIB) whereas in the
time to monetization but also due to risk of potential of this segment.
case of a documentary, approval of
reduction of good content.
the Ministry of External Affairs (MEA) is
required. The script of the film has to
As larger sections of the audience have
be approved by the MIB which is a time
become more receptive to films which
consuming process; the Ministry may also
tackle serious issues, filmmakers have
depute a liaison officer to facilitate the
become more experimental as they seek to
shooting.
make better content and progressive films.
•• Location specific permissions: However, constant battles for certification
Film makers require approvals from without edits with CBFC are a dampener
authorities in specific locations prior to to the industry. For example, the CBFC
shooting. demanded 89 edits in the recent movie,
•• Other approvals: Filmmakers also Udta Punjab, a film on the growing problem
need to adhere to certain local laws of drug addiction in Punjab. The ensuing
of the region where shooting is to legal battle has become a precedent for
take place in India. The regulators the industry and CBFC, as the Bombay High
may be various Municipalities and Court ruled in favour of Udta Punjab which
Municipal Corporations, associations of
cinematographer, make-up, hair-dresser,
etc., and state legislations.
Often, foreign producers are faced Table 3: Approvals Required for Film Shooting
with unclear rules and regulations in
Location Relevant Authority
terms of obtaining permissions making
the process inefficient and expensive. Sensitive areas of Jammu and Kashmir,
Ministry of Home Affairs
However, the Indian film sector, along North-east India or border belts
with the Government of India and various
City/town/village District Magistrate and Police authorities
state governments, is revamping its
approvals process as well as looking to Forest State Forest Department
incentivise local film making through
Historical Site Archaeological Survey of India
the establishment of an India Film
Commissions and the Film Facilitation Defence Area Ministry of Defence
Office. Both these initiatives have been Airport Airport Director
recently announced as part of the Make in
India campaign in the film sector. Railway station/Train Railway Board and State Railway Zone
Deloitte Report: Single window clearance: Making India easier for filmmakers Way forward for Indian Film Commission
17
Udta Punjab, and Bollywood's battle with the censors
18
20Indywood | The Indian Film Industry
Key Focus Areas for
cost Sony Entertainment $150 million. This
further percolated into generation of $44
million in wages to New York residents, $4.5
million in taxes to the state, $1.9 million
the Film Industry
for catering, $4 million for site fees and
$5.7 million for hotels. Similarly, the recent
production of Teenage Mutant Ninja Turtles
by Paramount Pictures and Nickelodeon
Movies was completed over 70 days in New
York State resulting in a spend of over $55
Film tourism: A key untapped area in
million in local economies, including $30
the Indian film sectors is promoting film
million in wages and $3.2 million in taxes
tourism and encouraging global players
paid to the state.19
to shoot and produce films locally (i.e., in
India). India can offer various benefits to
Skill enhancement: Approximately
film makers such as scenic and diverse
160,800 people are required by the film
locations, cost-efficiency benefits, skilled
industry to produce 1,600 films in a year
yet inexpensive manpower, and local talent.
corresponding to a crew of 100-150 people
Further, film tourism can result in a number
per film. On the basis of an increase in the
of benefits to the country as well including:
number of films expected to be released
•• Promotion of tourism industry in the next few years, the resource
requirement in the industry is expected to
•• Boost to local film production
grow at 12% year on year reaching almost
•• Creation of employment 250,000 by 2017. Majority of the resource
requirement is for set crafts, acting and
•• Transfer of technology
voiceover professionals and support staff.20
•• Inflow of foreign currency
Although close to 200,000 people are
For example, in 2014, the production of employed by the film industry in India,
The Amazing Spider-Man 2 in New York close to 90% of the workforce has been
Figure 11: Employment in the Film Industry, 2013-17 Figure 12: Split of Demand for Skill
Direction Others
248,600 Hair & Dance
2% 4%
222,900 Grip makeup 3%
3% Set Crafts
199,900 3%
20%
179,300 Camera
160,800 3%
Sound
4% Acting /
Costume
Voiceover
4%
19%
Post
production Support
7% Staff
Lighting (Drivers,
7% Spot Boys)
Production
2013 2014 2015 2016 2017 10% 11%
Source: MESC Report: Skills Gap Study for the Media and Entertainment Sector
Benefits Of Film Tourism In Media By LA India Film Council Launched
19
MESC Report: Skills Gap Study for the Media and Entertainment Sector
20
21Indywood |
The Indian Film Industry
trained on the job rather than through traditional means of finance in the form to increased competition for acquiring
formal trainings resulting in non- of film incentives, brand finance, pre-sale movie rights and a new revenue stream
standardised skill sets.21 Even candidates based bridge finance and revenues through for film producers along with a channel to
recruited from media schools lack technical alternative sources pre-release amongst monetise older and archived films.23
and practical training on how to apply others.22
theoretical concepts to live situations. Countering piracy: Piracy is a key issue
With the increasingly technical nature of Updating current technology: The Indian plaguing the Indian film industry with large
the industry, technicians will require to film industry is behind the global industry revenues being lost annually. Despite
be formally trained in new and evolving in terms of adoption of new technologies various efforts to arrest piracy, this remains
technologies for Indian films to move to and trends. Going forward, greater focus a key issue requiring proactive measures
the next level. While film schools such as should be updating existing technology and being implemented by state governments
embracing emerging technologies which are
Satyajit Ray Film and Television Institute, through initiatives such as spreading
being deployed globally.
Kolkata and Film and Television Institute awareness against piracy and the formation
of India, Pune exist, a concerted effort by of anti-piracy cells as have been created
In the production segment, keeping up with
the government and industry is required to by Tamil Nadu and Maharashtra. Further,
new and emerging technologies can help
develop skill in India. since almost 67% of website services
the industry in unlocking new revenues,
offering pirated version of Indian films are
catering to the wider international markets,
Further development of formal training located abroad, the film industry is unable
and adopting methods to prevent piracy.
schools and high skill course will be to take action. In order to counter this, state
For example, uptake in production of
imperative for the Indian film sector to governments need to consider tie ups and
3D movies in Hollywood has generated
come on par with the global industry. bilateral agreement with the US. Such an
higher returns for studios by allowing
Collaboration with foreign film schools to agreement is being negotiated by the anti-
theatres to charge a premium to audiences
set up specific courses in various aspects piracy wing of the Telugu Film Chamber of
and helped curb piracy by maintaining
of film making can be explored. Commerce (TFCC) and the CID of Telangana
exclusive distribution to technology -
police to coordinate with the authorities in
enabled theatres. 3D films usually generate
Shortening window of release through the US and Europe.24
about 66% higher revenues than 2D films
better planning: Due to increasing resulting in more investments. The Indian
digitization and expanding reach of movies, film sector is considerably behind in Adopting emerging encryption
the window available to a film to monetize production of 3D films with few successful technologies to safeguard the film content
revenues at the box office has sharply films made in 3D. The first 3D film was in all stages of release and distribution is
reduced. During the opening weekend, made in India in 1984 called Chota Chetan. becoming imperative. Digital Compliant
distributors flood the market with prints Following this, over 40 other 3D films have Digital Cinema Initiatives, LLC (DCI) was
in order to ramp up high revenues. In been developed which is significantly created in March, 2002, and is a joint
the current scenario, over 60% of box behind the global trend. venture of Disney, Fox, Paramount, Sony
office collections are realized in the first Pictures Entertainment, Universal and
week of a movie’s release. As a result, Further, adoption of emerging technologies Warner Bros. Studios to establish and
focus needs to shift towards shortening and platforms for distribution can unlock document voluntary specifications for an
of release windows and quick reach to new revenue channels. For example, the open architecture for digital cinema. A
audience across the nation to monetise pay-per-view (PPV) market is an emerging secured DCI Compliant distribution model
film investments. source of revenue for the Indian film can be established to ensure that the film
industry. Growth in PPV market is directly content is safeguarded at every stage of
Further, Indian films face a long lead time linked to the growth in the direct-to-home its release process including certification,
in planning and execution of films. Better (DTH) segment. Through DTH service supplies to global distributors and Indian
planning and management of film projects providers PPV films are available for a price digital operators.25
can help in bringing cost efficiencies and of $0.5 – 1. With all four metros and many
savings to the project as well as improving others cities moving towards digitisation Along with stricter legislation and
the bankability of the film. Planning at and DTH services, the demand for PPV repercussions for users of pirated
an early stage can also facilitate non- films is expected to increase. This will lead content, there is also a need to create
21
Cinema is to be learnt
22
Film financing in India
23
IBEF Report: Corporatization of the Indian Film Industry
24
Telangana govt mulls deal with USA to curb film piracy
25
Guild Initiative To Curb Piracy Of Upcoming Film Dishoom
22Indywood | The Indian Film Industry
public awareness on the damage done by Table 4: Comparison of Multiplexes to Single Screen Cinemas28
piracy and bust the common perception
that piracy is a victimless crime. State Multiplex Single Screen
governments and movie guilds should Number of screens 2,100 6,000
undertake initiatives to launch large scale
campaigns and create awareness is all Seats per screen 250 750
segments of society. Shows per day 5.5 5.0
The following initiatives have been Occupancy rate (%) 27% 19.5%
proposed by the MIB to counter piracy:26 Footfalls (million) 271 1888
•• Dissemination of multi-media campaigns Average ticket prices 183 75
on piracy
Contribution to box office
40% 60%
•• Training programmes and workshops to revenue
sensitize police, judicial, administrative
Growth in revenue since 2010 20% 2%
officials, multiplex and cinema hall
owners about the Copyright Act
higher occupancy rate to break even. Along addition of multiplexes in the country in a
•• Research on the effects of piracy and
with higher revenue share to distributors, cost effective manner. Such retrofits cost
formulation and implementation of
low ticket prices, advertising revenue about INR 400,000–750,000 at the lower
public-private strategies to combat piracy
potential and limited food and beverage end and can be encouraged through tax
•• Formation of a dedicated web portal income make economics of single screen holidays/subsidies or allowing single screen
challenging. Multiplexes, on the other hand, owners to have extra floor space index to
•• Engaging with the Human Resource
have improved economics due to higher assist in financing. Conversion of 75% of
Department (HRD) to include anti-piracy
ticket prices, advertising revenue potential the existing 6,000 single screens into two
awareness material in the curriculum of
and food and beverage sales. screen multiplexes can unlock revenues
the schools and colleges
of INR 40 – 50 billion for the film industry
Retrofitting of existing single screen through higher ATPs, occupancy rate
Growth of Multiplexes: India has a
cinemas into two or three screen and advertising and food and beverage
multiplex density of 6 multiplex screens per
multiplexes can lead to a significant revenues.29
million people which is significantly lower
than that of developed countries. Further,
multiplexes account for only 15% of the
total market share while the remaining is
still controlled by single screen cinemas. In
comparison, 90% of the screens in the US
are multiplexes. In India, multiplexes are
expected to gain significant market share
going forward with expanding presence
in Tier 2 and Tier 3 regions as well as the
steady decline in single screen cinemas
due to unfavourable economics. Further,
India has a potential for 7,500 to 10,000
multiplex screens compared to the 2,100
currently established.27 Given this, the
share of multiplexes in total screens is
expected to increase to 25% by 2018.28
A typical single screen theatre houses 700-
1,000 seats compared with 100-250 seats
per screen for a multiplex, hence, requiring
26
India at Cannes
27
Coming soon: Multiplex boom across India
28
PVR Ltd. – Analyst Reports
29
India's box office growth runs into a screen problem
23Indywood |
The Indian Film Industry
Technological Advancements
in the Film Industry
Global Scenario and Emerging etc. The world of cinema has remained
Technologies ceaselessly dedicated to technological
advances throughout time. With the
In the 120 years since its origin, the global
recent proliferation of digital platforms
movie industry has continuously developed
and grown through technological advances. and computer-based innovations, the
Both mechanical and digital innovationw s film industry is continuously pushing the
have influenced everything from equipment technological boundary even further. For
to exhibition, changing how films are made, example, 24 frames per second has been
edited, distributed, and consumed. The film an industry standard, however, due to
sector has seen a flurry of technological major advances in filming technologies, The
advancements that have revolutionised Hobbit was the first movie made with 48
the industry time and again such as 3D, frames per second resulting in making of a
green screens, IMAX, Computer Generated more immersive and visually stunning film
Images (CGI), digital filming and distribution, than ever before.
24Indywood | The Indian Film Industry
Figure 13: Evolution of the Film Industry
1925
Development of
non-fiction films
in Soviet Russia
such as Battleship 2002
Potemkin and The Blue-ray discs
1982
Man with the Movie announced
Compact Disc
1907 Camera commercially Russian Ark, the
Invention of The released first single take
1926-27
Dolly, i.e., placing film, 96-min long
Move from silent 1986
camera on wheels shot, using the
to sound films and 1969 First permanent
to move along steadicam
black and white to Start of recording IMAX 3D theatre
tracks for getting colour onto memory 2006
built in Vancouver,
sweeping shots cards and internal Disney buys Pixar
Standardization Canada
1908 of the Hollywood storage for $7.4 bn
Steve Jobs
First movie to have studio system 1970 acquires Graphics 2007
a score specifically The Jazz Singer first Tiger Child, Group division of RED One Camera
written for it (The film with recorded 1946 first IMAX film Lucasfilm - became enabling high
Assassination of the dialogue and first First Film Festival in demonstrated in Pixar Animation quality digital films
Duke of Guise) musical Cannes Osaka, Japan Studios for $10 mn shoots
1900-20 1920-40 1940-60 1960-80 1980-2000 2000-15
1929 1960 1973 1995 2009
On with the Show French New Computer– DVD technology Nicon D90, first
first feature film in Wave films using Generated Imagery released DSLR to film at 24
colour and sound lightweight / (CGI)used in film Toy Story frames per second
portable shooting Westworld revolutionizes in HD video
1932
equipment animated films with Avatar, first full
First film festival in 1975
Venice Steven Sasson box office earnings length movie with
invents the digital of $192 mn photo-realistic 3D
1939 characters and
camera 1997
Wizard of Oz first featuring a fully CG
film the using The introduction of
3D photo-realistic
Technicolour HDCAM recorders
world
and 1920x1080
1940 pixel digital video 2011
The Thief of Bagdad, cameras based on HMZ–T1 Sony
first film to use CCD technology personal HD & 3D
Blue-Screen effect viewer invented
Fantasia first film
The Hobbit released
with surround
with 48 frames per
sound
second
Source: Public Report - The Evolution & Future of the Film Industry
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