CAN THE INDIAN FILM INDUSTRY GO GLOBAL?

UNCLAS SECTION 01 OF 03 MUMBAI 000052

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD SCUL IN
SUBJECT: CAN THE INDIAN FILM INDUSTRY GO GLOBAL?

MUMBAI 00000052 001.2 OF 003



1. SUMMARY: The Indian film industry - centered around the
Hindi-language industry in Mumbai, known as "Bollywood" - is the
world's largest. Nevertheless, with modest revenues and low
profitability, the industry's impact is more cultural than
economic. In the last decade, however, the Mumbai-based
entertainment industry has began to corporatize,
professionalize, and seek broader - including more global -
audiences. With rising incomes and extensive room for
expansion, industry representative and analysts agree that the
film and entertainment sector has tremendous growth potential.
While few expect Indian films to catch on globally, Indian
entertainment companies are aiming to develop content and
partnerships to tap both domestic and international audiences.
This cable explores the changing dynamics of the Indian film
industry and its global ambitions; a subsequent cable looks at
the potential for "Hollywood-Bollywood" partnerships in this
sector. END SUMMARY



SMALL INDUSTRY WITH A BIG NAME




2. India is home to the world's largest film industry, with
Bollywood - shorthand for the Hindi-language film industry based
in Mumbai - at its center. While the Indian film industry has
always been diverse - many of the world's best known "art house"
directors come from India - the industry was built on three hour
action and romance films, with numerous dance and musical
numbers. The Indian film industry produces roughly twice the
number of movies as the American film industry, and sells 2.5
times the number of box office tickets as the U.S market.
However, the Indian film industry's domestic box office revenues
have been modest; in 2008 Indian films earned only USD 1.6
billion compared to Hollywood's USD 9.7 billion. (Note: Ticket
prices in India are considerably less expensive than those in
the U.S. or Europe, one reason profits are lower. End Note.)




3. Aashish Singh, Vice President of Yash Raj Studios, one of the
oldest production studios in India, pointed out that despite its
fame, Indian films produce little fortune; the market for Indian
films is highly fragmented, and only a few films make any money.
According to film producer G.K. Desai, only one in every 10
Hindi movies is successful. Siddharth Roy Kapur, the CEO of UTV
Motion Pictures, concurred, and averred that only five percent
of Hindi movies released in 2009 made a profit. Nevertheless,
Kapur says, people continue to make films because of the
attraction and glamour of Indian cinema, and the long-term
revenue potential of video and cable releases.




4. With over 22 national languages, local and vernacular-based
industries compete in a highly regionalized market. Of the 1000
films produced annually, Bollywood produces about 200, the rest
coming from regional or non-Hindi productions. However, in
terms of reach and revenue, as well as its stable of
nationally-recognized stars, Bollywood films dominate the
industry. Jehil Thakkar, Head of Media and Entertainment for
KPMG, says that Bollywood accounts for 46 percent of the total
Indian film industry revenues film industry experts noted,
however, that South Indian cinema - Tamil, Malayalam, Telegu,
and Kannada language films - perform better at the box office,
with four of every ten films becoming profitable. Contrary to
popular belief, many in the industry admit that the South Indian
film industry is better developed than the better known Hindi
language film industry. According to Desai the southern film
industry is more organized than Bollywood, and Kapur admitted
that the technical talent and the quality of South Indian films
is far superior to Bollywood films



THE JOURNEY FROM "BLACK MONEY" TO MODERN CORPORATIZATION




5. In recent decades, the Bollywood film industry has been
associated with the notorious Mumbai underworld, at the nexus of
gangsters, money, and politics. According to Thakkar, this
association stemmed from the financing needs of the industry;
until 2000, by government fiat, the film industry was ineligible
for bank credit, private equity, and other means of legitimate
commercial financing. As a consequence, films were financed by
ad hoc collections of investors, many of whom were from the

MUMBAI 00000052 002.2 OF 003


construction and trade industries, who charged interest rates as
high as 60-100 percent. The industry also welcomed funds from
gangsters and politicians, looking for ways to launder their
ill-gotten gains, known in India as "black money." After the
government added the film industry to the list of legitimate
industries, the corporatization of Bollywood - and the wider
entertainment industry - began. Most of the major entertainment
firms have evolved into a broad range of content lines,
including films, TV, and music, much like the U.S. counterparts.
Today, even leading film stars, like Amitabh Bachchan, have
issued IPOs and listed their own production companies on the
stock exchanges. However, Sanjeev Lamba, the CEO of Reliance
Big Pictures which runs Anil Ambani's Reliance ADA group's movie
business, lamented that the Indian film industry is still 60-70
years behind Hollywood in terms of corporatization.




6. Following the Hollywood model, many film and entertainment
companies are moving away from an actor/star-based system to a
system more reliant on the production company's brand, and its
stable of producers and directors, says Kapur. In doing so,
studios can lessen their dependence on actors -- who often
command fees for as much as 50 percent of the film's budget
(compared to 10-15 percent in the U.S.)-- and increase their
chances of profitability for each film. Kapur blames excessive
competition and multiple avenues and sources of financing for
much of the industry's problem because there is too much money
and too many people chasing limited amount of talent. Akshaye
Widhani, Vice President of Yash Raj Films, believes that there
is currently a "price bubble" in the film industry. The entry
of foreign studios and availability of multiple financing
options have built up unrealistic expectations, especially with
regard to actors' salaries, he complained. Widhani believes
that costs have to decrease by 40 percent for the film business
to sustain itself in the long term. However, actor's
expectations will become more realistic only after one of the
major production studios fails or declares bankruptcy, he
admitted.



ROOM TO GROW




7. Industry representatives and analysts agree that the Indian
film industry offers great opportunities for domestic growth.
KPMG expects revenues from Indian cinema to grow from USD 2.3
billion in 2008 to USD 3.6 billion by 2013. Thakkar told
EconOffs that screen penetration and consumer spending is still
extremely low in India, with both on the rise. The largest
theatre chain in India has less than 200 screens; the world's
largest movie exhibitor owns over 6,600 screens. With 12
screens per million people in India, compared to 117 screens per
million in the U.S., there is considerable room for growth.
Additionally, according to KPMG, consumer discretionary spending
is expected to increase from 39 percent to 70 percent of total
household spending by 2025. With flat growth projections for
the U.S. and European film markets, India is an attractive
destination market for both foreign and domestic firms.



CAN BOLLYWOOD GO GLOBAL?




8. Indian entertainment companies are increasingly interested in
developing and co-producing Hollywood films intended for Western
audiences. Indian film companies are also making inroads in
Hollywood. UTV Motion Pictures co-produced two films with Fox
Searchlight, "The Namesake" and "I Think I Love My Wife" and one
with 20th Century Fox, M. Night Shyamalan's "The Happening,"
which grossed over USD 170 million worldwide. Kapur explained
that the UTV-Hollywood co-production collaborations for
Hollywood movies were "tactical" and driven by the script of the
films. Kapur says that UTV has had more traction with the
Western market through film festivals. In fact, UTV just worked
with Aamir Khan Productions to gain entry to the Sundance Film
Festival that has recently premiered its first Indian film,
"Peepli Live." Additionally, Apoorva Mehta, CEO Dharma
Productions, says that they will premier their new movie "My
Name Is Khan" at the Berlin Film Festival which will give the
movie global attention. (Note: In the last three years, major
U.S. studios have signed agreements to co-produce Bollywood
films with established Indian directors and production houses.
Unfortunately, all of the joint co-productions released have

MUMBAI 00000052 003.2 OF 003


been unsuccessful so far at the box office. See septel. End
Note.)




9. The most aggressive Indian player in Hollywood is Anil
Ambani's Reliance Big Pictures, which has invested USD 325
million for a 50 percent stake in Steven Spielberg's Dreamworks.
The group has also forged development partnerships with several
U.S. production houses owned by Nicholas Cage, Jim Carrey, Tom
Hanks, Brad Pitt, Julia Roberts and George Clooney. Reliance
Big Pictures' COO, Jawahar Sharma, explained that global
ambition, rather than strategy, drove the group's decision to
tap Hollywood. All of the Reliance ADA group business
operations are globally-oriented and the film business is no
exception, he continued. The group has also acquired movie
theatres in the U.S. in areas populated by Indian diasporic
communities to showcase Bollywood and regional Indian films.
Yash Raj Studios' Singh also believes that Reliance ADA's
initiatives in the U.S. are strategic, rather than
profit-seeking, in nature.



THE ELUSIVE CROSSOVER FILM




10. KPMG's Thakkar noted that the Indian film industry has not
yet been able to create universally appealing content for a
global audience. The genre of Indian film is extremely
different from a Hollywood movie; it is longer, has many song
and dance numbers, and is considered too dramatic to appeal to
Western audiences. While commercial Indian films have had some
success in parts of the former Soviet Union and Africa, and a
few Indian art house productions have been profitable, overall,
Indian films are still reliant on Indian diasporic audiences for
global revenues. Some new directors who are exposed to Western
film making are making Indian movies in keeping with Western
sensibilities to draw wider audiences in world cinema. However,
overall, no industry participants predicted that films popular
with Indian audiences would find true global audiences;
recognizing this, Indian entertainment companies hope to develop
content separate from the Indian audience that would appeal to
viewers outside India.




11. (U) Reliance ADA's Lamba said that there has never been a
"genuine" crossover film which has fared well in both
international and local markets. Indian films pitched to an
international audience rarely do well locally, he added. In
contrast, using a foreign language film script to make a
Bollywood movie with Indian stars has great potential, he said.
Yash Raj Studios' Singh explained that crossover films need to
appeal to a universal audience and cultural tastes and
preferences are always difficult to predict.




12. COMMENT: The film industry in India is beginning to share
the global ambitions of other Indian companies and industries.
As a first step, many newly-professionalized companies are
cautiously getting a feel for global markets and opportunities.
Larger entities with deeper pockets - such as Reliance Big
Pictures - have moved more boldly, but most of the other
artists, technicians and film houses are looking for smaller
parts and opportunities to expand beyond India, while
maintaining a foothold in their core domestic market. Although
visibility for the Indian film industry has increased vis-`-vis
movies like "Slumdog Millionaire," the reality is the industry
is just beginning to corporatize and understand the Western
market. Though many players are attracted to the glamour of the
industry, the standard Indian movie rarely makes a profit and is
unlikely ever to appeal to Western audiences. The film industry
is well-aware of this trend, and seeks to find other avenues for
entering the Western market and improve their own profitability
within the South Asian diaspora. End Comment.
FOLMSBEE