U.S. companies eye India's entertainment industry, expect billion-dollar growth
By Rimin Dutt
Published: Thursday, April 15, 2004
Bollywood´s recent movie "Ab Tak Chappan" was co-produced by Ram Gopal Varma´s Varma Corp. and U.S.-based K Sera Sera Productions. More and more American businesses are venturing into India´s entertainment industry including movies, music and animation.
India's entertainment industry is slated to grow from $4.3 billion in 2003 to $9.4 billion in 2008, according to a report by Ernst & Young LLP.
The industry, growing at a rate of 15 percent, outperformed the Indian economy in 2003, which grew at 8 percent.
"An increase in television viewership and improved realizations from television subscriptions and film exhibition were the primary drivers for this growth," said the report.
"With the country's gross domestic product expected to grow at healthy 8 percent, increasing consumer spending, growing penetration of television, expanding international markets for Indian entertainment and the Indian government's progressive policy measures, the future holds significant opportunities for this industry," said Farokh Balsara, Ernst & Young's India head for media and entertainment.
Distribution of entertainment content across different media was a major propeller of growth for the industry, according to the report.
Introduction of direct to home services; the multiplex boom, experimentation with digital cinema to expedite film exhibition in semi-urban or rural markets and FM radio also contributed to industry growth, the report said.
India's film industry, "Bollywood" is the most popular entertainment medium. The government of India granted industry status to Bollywood in 2001, allowing producers to obtain institutional financing for films.
The total revenues of the film industry in 2003 were $1 billion, and are expected to grow to $2.2 billion by 2008, according to the report.
And the industry is already attracting money from foreign investors.
Ash Pamani, a New York-based businessman started Bollywood ventures last year. He teamed with movie producer and director Ram Gopal Varma's Varma Corp. to co-produce films.
His company, K Sera Sera Productions, manages the business and marketing side of the films, including financing the films. Pamani, through his experience sought to infuse corporate discipline into Bollywood filmmaking.
"In some Indian films, the script was written on the sets," said Pamani, chairman of K Sera Sera. "Our company is very corporate. We work on corporate timelines."
Corporate discipline in filmmaking includes doing pre-production homework such as writing a detailed script and budgeting, said Pamani.
The team has produced 'Darna Mana Hai' and 'Ab tak Chappan' and is currently working on six new movies including 'Darna Zaroori Hai' and 'Vaastu Shastra.'
California-based marketing company International Sports and Media Group Inc. has also tapped Bollywood to provide financing and sponsorship opportunities to filmmakers and artists.
In the next couple of years, the company is looking to finance up to three projects worth $2 million to $5 million each.
Bollywood is a prolific market, said Yan Skwara, president and chief executive officer of International Sports.
Indian production studios have also caught the attention of foreign animation studios that can produce animation in India at a fraction of their domestic costs.
Skilled engineering resources in India and low cost technology allow a typical 22-minute animation episode to be produced at $150,000 versus $350,000 in the United States, said Neal Shenoy, principal, Mediabridge Entertainment. Mediabridge is involved in co-productions between the U.S., Europe and India.
Mediabridge is co-producing an American series adapted from Indian folklore, "Tales from Panchantra."
"There is rich content in Indian mythology, literature, comic books, film and T.V. programs," said Shenoy. "We do our own research on what content will be relevant to a larger marketplace and then look into the possibility of co-producing it.
Indian production house United Television Ltd. was also recently awarded a co-production contract with Disney Asia for an animation series, "Legends of the Ring of Fire."
Co-production is the way to go for the film industry, according to Shenoy.
India's television market is the third largest in the world after China and the United States. Of the total households, 44 million receive cable television services.
Cable television reaches around 50 percent of the total television households, and 20 percent of the total households in the country.
Revenues from television are expected to grow at a rate of 17 percent over the next 5 years to about $6.4 billion by 2008, said the report. A significant portion of the growth is expected to come from subscription offers.
"With the emergence of new distribution platforms like 'direct to home,' consumers will finally have a choice of service providers," said the report. "Existing cable networks will expand their services to provide value-added services such as pay-per-view, Internet over cable, to retain market share and compete with emerging platforms."
However, to do so, the infrastructure will have to be upgraded as most of the cable networks were installed in the mid 1990s and have limited capability to provide the advanced services, the report said.
The Indian music industry stabilized in 2003, according to the report. The revenues for 2003 were at $230 million, of which 40 percent is considered to be pirated by the industry. Compared to that, the global music industry shrank to $28.2 billion in 2003, down 9 percent versus 2002.
"The sale of cassette players, compact discs, continues to be under pressure due to the opening up of private FM radio stations during the last 2 years especially in the urban markets, couple with the impact of high copyright prices and piracy," the report said.
FM radio in India is in nascent stage, and the revenues from radio are expected to rise at 30 percent annually, according to the report.
Advertisers spent approximately $240 million on radio in 2003, which was less than 2 percent of the total $2.1 billion spent on advertising in India.
"The potential of radio cannot be undermined because its strength I sin the very nature of the medium," said the report.
Indian radio network covers 97 percent of the country's population through 24 languages and 146 dialects.
The vast coverage provided by the medium can help broadcasters target audience in a superior way compared to any other media, according to the report. Its growth will depend on the license structure and legislative framework for the industry.
Live entertainment in India has grown by 60 percent from 2002 and is expected to sustain this growth over the foreseeable future, according to the report.
Live entertainment includes corporate events, sports, arts and theatre, contests, festivals and personal events. Most of these events are organized by smaller companies.
"Many event managers believe the 'next big thing' for this segment will be sports-based events, celebrity management and conventions and seminars - both on a national and international scale," the report said.
The segment's growth will be dependent on rationalization of the entertainment taxes, which are as high as 50 percent in certain states, and the development of a single window to obtain permissions or licenses from different government departments, said the report.
Currently 15 to 20 permissions are required to host an event.
"The Indian entertainment Industry is in an enviable position - it operates within a robust macro economic framework and the Indian creative product is fast becoming a global power-brand," concluded the report. "The domestic scenario is bursting with prospects and the industry seems ideally positioned to capitalize on them."
