Now, you can invest in movies via a Cinema fund

Until now you have always paid to buy a ticket to watch a film. How would it be to make some money out of films for a change?

What if in future you can also invest in movies and have a share of the gains from their box-office success.

Soon, you will be able to do this. If you have surplus investible amount of more than Rs 1 crore and can lock-in money for 5 years or more, you can be part of the box-office success by investing in a cinema fund launched recently.

Third Eye Cinema Fund, a Sebi-registered alternative investment fund (AIF), has launched a fund that will invest in small & mid-sized films which are in the budget of INR 5 crore to 25 crore. The fund plans to collect Rs 200-250 crore in 4-5 months. TECF is looking at investing in content driven cinema focusing on small and mid-sized films which are in the budget of Rs 5-25 crore. 

This is where the opportunity lies since this segment has given maximum returns in last few years. Movies like Aashiqui-2 and English-Vinglish were box-office hits, and gave good return on investments. In addition, TECF will invest in distributing Hollywood and International Films in India. TECF will also produce and distribute regional films-Bengali, Punjabi and Marathi. Lastly, the Fund will invest in satellite, TV and other electronic rights of Bollywood films.

Money Today asked Sandeep Bhargava, chief investment advisor, Third Eye cinema Fund, about the fund.

Third Eye's investment strategy

The Fund has been structured with a philosophy to offer a unique investment vehicle for investors to participate in the growing Indian film industry. The fund with its mini studio concept aims to generate returns for investors by participating across the film industry's value chain, namely:

1.  Acquisition, production & co-production of Films for Domestic and Worldwide Distribution
2.  Production and Coproduction of Regional films
3. Distribution of Hollywood and International films
4. Syndication of Television and Ancillary Rights

Minimum investment and investment schedule

The fund requires a minimum investment of Rs 1 crore with an initial commitment of 10% and the balance in 4 tranches across the commitment period of 12-18 months

Lock-in period and exit routes

The fund has a 5 year lock-in period and it intends to distribute profits after the third year. The capital will be disbursed only after 5 year tenure of the fund. We will be looking at International JVs with the people we have partnered with and selling of the IPRs collected in 5 years

Taxation issues involved

TECF is registered as a trust & trustee would pay taxes on behalf of the beneficiaries as a representative assessee. The tax implications would be as follows:

a. Dividend: Dividend would be tax exempt in the hands of the contributors. The company distributing the tax would pay dividend distribution tax at 15%

b. Interest: Net interest income would be taxable at 30.90%

c. Exit Gains: If the gains are characterized as capital gains, then they would be taxable as below:

The risk involved

Risks associated with the fund are similar to other funds available in market. The fund mitigates the portfolio risk also by diversifying the portfolio in alternate source of investments in films through licensing, merchandising, In-Film advertising. Additionally, the fund with its strong governance, periodic reporting, auditing of the project investments mitigates the operational risk associated with the investments.

Kind of returns can one expect

Last year (December 2012- December 2013), Indian film industry covering top 50 films has made substantial returns of 30-35% which is far beyond any asset class. Given the figures, we are expecting a modest annual return of 25%.

Business opportunities in Bollywood

The Indian entertainment industry continues to grow at a faster pace than the Indian economy and the sub-sector, film entertainment, which generated revenues of approximately Rs 11,200 crore in 2012, is growing even faster. It is expected that by 2017 the film industry will generate revenues of approximately Rs 19,000 crore, representing a compounded annual growth rate of 11 per cent over the next 5 years.

These days Bollywood produces approximately 250 films every year of which only 50-70 films are backed by 5-6 big studios. This leaves us with around 200 films waiting to be marketed and distributed across India and globally. A lot of these movies are small or mid-size movies.  Several mid size films have done exceptionally well at the box office in the last few years. This provides an opportunity for new players to target this segment which is still untapped.

How is box-office collection shared between producers and exhibitors?

Distributors/Producers gets one-third of the box-office collections and the balance is shared by exhibitors & payment of taxes.
Small, medium budget movies performing well at the box office

Over the years, consumers have evolved. From the masala movies that were sought-after in the 1990s, preferences have now shifted to movies with strong content. Movies such as Queen, Vicky Donor, Kahaani are evident of the fact how Indian audiences have become more receptive to content driven cinema vis-a-vis mindless masala films. Moreover, Indian cinema is now being widely accepted globally. The success of Lunchbox in Germany and US among other countries is a point in case.

New revenues streams in Bollywood

Evolving communication and entertainment platforms have witnessed an upsurge due to changing trends.  A lot of content is now being consumed while on the move. This gives ample opportunity to tap when it comes to alternate revenue streams in the form of gaming, licensing, merchandising, mobile apps, DTH, pay-per-view, IPTV, mobile TV, In-Flight  etc.  These revenue streams are getting bigger and bigger every year.

Bollywood becoming more and more transparent

With corporatisation Bollywood is now transparent. There are no cash transactions. This has happened at every level -from production to all revenue streams. Agreements and contracts are now the norm.