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Credit crisis puts new twist in Bollywood tale

The financial crisis is forcing cutbacks, consolidation and greater efficiency in a business known for its love of excess, the Indian film industry. Several productions have been shelved, marketing budgets slashed and stars asked to renegotiate pay packages.

india Updated: Nov 25, 2008 11:46 IST
Rina Chandran

The financial crisis is forcing cutbacks, consolidation and greater efficiency in a business known for its love of excess, the Indian film industry.

In Mumbai, home to Bollywood, as India's movie industry is known, several productions have been shelved, marketing budgets slashed and stars asked to renegotiate pay packages.

"Fewer movies will be made and released in the coming months," said Siddharth Roy Kapur, chief executive of UTV Motion Pictures, a unit of UTV Software Communications, which has done "a very sharp review" of its investment plans to cut costs, and is consolidating its television broadcast business.

"We are going to see a rationalisation of costs across the board. We all want to make money, so we need to be prudent -- even the stars understand that."

The filmed entertainment business in India is forecast to grow at the fastest rate of any country in the Asia-Pacific region, expanding at about 15 percent a year to nearly $4 billion by 2012, PricewaterhouseCoopers (PwC) predicts.

The industry, the world's most prolific, churns out about 1,000 movies a year, mostly racy thrillers and lavish musicals, but profit margins are thin because of low ticket prices, the high cost of production and distribution, and rampant piracy.

"Costs had gotten completely out of whack in the last couple of years as money was not a constraint," said Vijay Singh, chief executive of Fox Star Studios, a joint venture of News Corp's Twentieth Century Fox and broadcaster Star.

Scripts were bought at high prices, big stars were signed on for multi-film packages for millions of dollars, and distribution became pricey, sending production costs through the roof.

"Now, it's coming back to bite them," Singh said.

A BLOODBATH

The industry has, in recent years, been moving from a family-based to a more corporate structure in finance, production and distribution, modeling itself along Hollywood.

That has brought more investors, including Hollywood studios. UTV Motion Pictures has co-production deals with Walt Disney, Fox Searchlight and Will Smith's Overbrook Entertainment.

Reliance Entertainment, a unit of the Anil Dhirubhai Ambani Group, earlier this year signed deals with eight Hollywood production houses, including those of George Clooney, Tom Hanks and Brad Pitt, to develop and co-finance films.

It recently also struck an estimated $1.5 billion deal with Steven Spielberg for a new studio to produce 30-35 films.

These deals may now face the heat of limited funding options, with turbulent markets and banks wary of lending.

Also, several big-budget Bollywood flicks tanked at the box-office this year, hitting production houses that get nearly 80 percent of their revenues from ticket sales in movie-mad India.

That may force faster consolidation in an industry that despite the recent trends still has dozens of small, family-owned independent producers and only a handful of large Hollywood-style studios.

"Everyone is feeling the pressure," said Smita Jha, entertainment analyst at PwC.

"It's hard to change business plans overnight, but this is a good trigger to re-examine them and make some tough decisions."

At Percept Picture Co, the mandate is to cut spending and focus carefully on projects that have a better chance of breaking through the clutter, said managing director Shailendra Singh.

"We can't now afford to experiment or make films that the audiences may not approve of," he said.

"They are going to be careful of the money they spend on entertainment. If I make a bad film, my consumer will think twice before he spends 300 rupees ($6)," he said, referring to the price of a ticket in multiplexes, which is higher than average.

Every part of the Bollywood machine will be subject to more rigorous checks and balances, Kapur said, "which is a good thing, and the script will be the centre of focus, as it should be."

Eventually, the industry will be made up of a few large studios with sustainable business models, said Fox Star's Singh.

"It will be survival of the fittest, and that is healthy," he said. "But we will see a bit of a bloodbath first."

($1=49 rupees)

(Additional reporting by Shilpa Jamkhandikar; Editing by Simon Denyer and Jerry Norton)