Meltdown and AFTER

Films: Looking beyond the box-office

Its been a challenging year for the film industry,for the second year in a row. There have been few hits,and many misses at the box-office. Though the outlook is not as grim as 2009,when the industry de-grew to Rs 8,900 crore from Rs 10,400 crore in 2008,the failure of big-ticket films like Kites,Raavan,Action Replayy and Guzaarish at the box-office is likely to impact growth rates. After the financial meltdown of 2008 when liquidity became tight,the industry was forced to go into correction mode. Budgets were downsized,producers took their time to green-light projects and actors finally agreed to a paycut. In 2009,the two-month strike hit the industry hard,with releases bunched up towards the end of the year,and eating into each others revenues. In 2010,the industry has seen some of the benefits of the corrections it undertook,but a cause for concern is the low ratio of hits to flops at the box-office. But the industry can take heart from the overwhelming trend of the yearfilms are becoming less dependent on the box-office with satellite,music and other rights being sold off pre-release,thus recovering costs and de-risking the business. For instance,Guzaarish,a flop at the box-office,had recovered 50 per cent of the costs pre-release because its satellite and other rights were sold prior to the launch. Says Siddharth Roy Kapur,CEO,UTV Motion Pictures: The number of successes at the box-office is still low compared to the number of movies the industry releases every year,but now theatricals contribute 50 per cent of revenues,the rest coming from satellite,music,home video and other rights. So before a film is released,at least 50 per cent of the costs are being recovered,especially in big banner films. UTV which has had a pretty good year with big Raajneeti and small Udaan,Peepli Live,I Hate Luv Storys films doing well at the box-office,has its slate for the next 12-18 months ready and has already begun selling satellite rights for some of the films. We have in fact sold satellite rights of some films which are still to go into production, says Kapur.

The big studios consolidated,while others like Studio 18 disbanded. Eros Entertainment,which saw hits like Housefull,Golmaal 3,Dabangg overseas saw one of the best overseas revenues from Rajnikanths Endhiran. The dependence on theatrical is going down, says Kamal Jain,CFO,Eros International,nowadays 40-50 per cent of the costs are being substantiated from satellite,music and new media. According to him,its been a game-changing year for Bollywood,with the industry expanding to the regional markets like never before. We are already in Tamil,Marathi,Punjabi and spreading ourselves across Bengali,Telugu and Bhojpuri, he adds.

Rajesh Jain,head,media and entertainment,KPMG,points out that by and large there has not been that much of success stories in the film industry this year but that the industry is trying to do the best it can to grow through better production,distribution and marketing strategies. Its been a challenging year, he adds,but revenues will be better than last year when the sector de-grew.

According to Tushar Dhingra,COO,BIG Cinemas,the exhibition sector performed better this year with higher occupancies compared to last year when two months of strike impacted growth. He says the slew of 3D releases this year brought in new audiences to the theatres. 3D as a technology is not yet replicable at home. It gives a far richer experience at theatres that cant be pirated and is attracting a new audience, he adds.

There are areas of concern,of course,not least the cost structure. Analysts said some of the benefits of the cost-cutting are already showing results but Kapur points out that there needs to be more sanity on costs. He is also worried about the ballooning cost of marketing a film; and piracy,which is eating away a significant portion of revenues.

Radio: An eye on new media

The private FM radio industry,pegged around Rs 800 crore in 2009,was affected by the economic slowdown. But the last quarter of 2009 saw the segment returning to modest growth,and the trend continued in 2010. According to Apurva Purohit,CEO,Radio City,the segment should register 12-18 per cent growth for the year. From April onwards,at least 20 per cent new advertisers tried the medium. At Radio City,the inventory has been full for the last six months. The biggest highlight of the year for the radio industry has of course been the copyright judgement with the players now having to shell out 2 per cent of net revenues as per station as royalty fees. Earlier,we were paying a flat rate wherever the station,and this was impacting our bottomline, says Purohit,but from August this year,we are paying 2 per cent of net revenues this will add to profitability of radio as also create an enthusiasm in the medium. According to Jain,the regulatory tilt towards radio should help the medium grow. Purohit admits that the royalty solution has laid a good ground for FM phase-3,and says that if multiple frequencies are allowed,it will help radio expand to new markets and increase profitability. Insiders admit that the cost structure is still too high and unviable in smaller cities. But the players,coming out of the recession,are trying to consolidate and looking at different growth avenues like mobile and internet radio. For instance,Radio Citys internet radio station has 14 lakh listeners. According to analysts,alternate revenue streams like activations can contribute almost 20-25 per cent of revenues and digital can touch up to 15 per cent.

Music: New beats

The Rs 800 crore music industry is briskly adapting to the new reality of increasing digital downloads and decreasing physical sales. Says Sanujeet Bhujabal,marketing director,Sony Music,Though we are seeing growth of music on the digital platforms we are seeing a big decline in the physical format sales which has been sliding on a year to year basis. According to the KPMG report,while physical formats such as audio cassettes and compact discs accounted for nearly 67 per cent of revenues in 2008,it came down to 57 per cent in 2009 and sliding. The music players are looking at the 3G rollout for growth. We see a big potential for music revenue growth coming from the 3G rollout. The other is the success of an online portal which gives a consumer an interface to search and get music. The year has seen traditional sounds and lyrics getting a nod from listeners with songs like Mora piya,Munni badnaam and Iktara from Wake Up Sid ending up being downloaded the most. So,does Bollywood still contribute about 65 per cent to the music industrys revenues? Bollywood contributes a lions share to the music industrys revenue pie,but we are seeing a fragmentation happening with regional music content now contributing a larger pie, says Bhujabal. This is happening thanks to the mobile revolution which has ensured that mobile handsets cover almost 60 per cent of the Indian population which means that local repertoire and music is getting a platform or getting a chance to be experienced all over. We see the revenue profile of regional music whether it is from films,non-film albums or devotional to continue to grow further and possibly may have a higher share of the total music pie than what is seen now,vis-à-vis Bollywood, he adds. The decline of physical sales apart,the verdict on royalties will not help the industry to grow its bottomline.

While scripting the entertainment report for 2009,Jain had predicted that the industry will grow at 11 per cent in 2010. But with most of the sectors bouncing back post-recession,Jain says the growth rate will be higher than what we predicted. Overall,he adds,theres a positive impact on the Mamp;E sector. Music,to everyones ears?