Indian film production companies are attracting investors for funds

In March, Abundantia Entertainment, a production house -cum-studio, raised an undisclosed amount from strategic investors RW Media and Callista Capital. The two entities together picked up a 49 per cent stake in Abundantia, promoted by Vikram Malhotra, former Chief Operating Officer of Viacom 18 Motion Pictures. RW Media is a Mumbai-based media and television production company owned by investment banker Ashok Wadhwa while Callista Capital is a Singapore-based private equity firm.

It marked the first time an Indian content production company had got private equity funding. In fact, this year has also seen the emergence of three content funds in the country. Indus Media Capital announced a $50 million fund in June this year, founded by former Reliance Entertainment Chief Financial Officer Venkat Devarajan along with Naveen Chathappuram and Charles Leslie both of whom have decades of film financing experience in Hollywood.

Similarly, Gurinder Chadha of Bend It Like Beckham fame along with Hollywood film financier A.V.T Shankardass (who has financed films such as Captain America and Man of Steel) and Elisa Alvares, who was earlier with the Future Film Group in the UK, have launched a $30 million fund in India, Bend It Media.

"We are an offshore-based fund focusing on the diaspora audience," says Shankardass, Managing Director, Bend It Media. While both these funds plan to invest in Indian as well as Hollywood content, film distributor Rakesh Sippy has recently launched a Rs 200 crore film distribution-cum-production fund, HBS Raksha Movies Fund, that would invest only in Bollywood films.

Over the years, the investor community has shied away from funding Indian content production companies, unconvinced about their business model. While they still remain wary, they are definitely seeing these companies in a new light. So, what has changed? Film funds are not new in India. Funds like Religare-Vistaar died a slow death after investing in big budget films such as Mausam and Victory, which flopped miserably. "The content industry was ridden with issues like poor governance, lack of scale, opaque cash dealings and so on," points out Jagat Dave, Managing Director of the Ashok Wadhwa-promoted investment bank Ambit Corporate Finance. But with the corporatisation of the industry many of these concerns have been addressed.

The credit for corporatisation goes to the film studios such as UTV and Eros. A studio creates content and also distributes and markets it. It often acquires the content from a production company or even co-produces it. Some 10 years ago, filmmaking was completely passion driven, where a producer often went horribly over budget to produce a great film, and even if the film did well at the box office, profits were a distant dream. "A large part of the industry was run by individuals. So, the scale and the capability was never institutionalised," says Malhotra, CEO and Managing Director, Abundantia Entertainment. The corporatised studios have tried to change that by bringing in financial discipline and also opting for a slate of releases, consisting of some big films and some small films, to de-risk their business and also to build scale. "If they did 10 to 12 movies across genres if one or two didn't work, the others did. So, larger studios decided to have a slate, they were corporatised, they were making money and they used that leverage to scale up," explains Dave of Ambit.

Along with the likes of Chennai Express or Dabangg, the studios also invested in smaller budget, content-driven films like a Queen or Kahaani. While the big budget, star-studded films Chennai Express got the studios the glamour quotient and revenue, the smaller budget films actually got them handsome returns. Films like Vicky Donor and The Lunchbox were made on shoestring budgets of a couple of crores, but they got the studios revenues upwards of Rs 20 crore. Projects such as these helped the studios even out the losses they made on flops such as Himmatwala or a Joker.

The learning curve of the studios has helped the content production companies, says Madhu Mantena, Co-founder, Phantom Films, a film production company, who has been in the market scouting for strategic investment. "We are consistently trying to come out with good, marketable films at good costs and get decent RoIs (returns on investment)," he says.

In fact, Malhotra says he is clear that Abundantia would operate as a hybrid motion pictures company, that wouldn't be involved in acquiring and trading films, but would be involved in developing and nurturing content, producing it and marketing it as well. For instance, Abunduntia is currently working with film director Neeraj Pandey on his upcoming film Baby, starring Akshay Kumar. Here, Malhotra's team has been involved in the process of seeing the script evolve, casting the film and even working on the ensemble. "By doing so, we are able to avoid paying premiums attached to acquisitions of films, we know the nature of content we are backing, we filter out what typically wouldn't work in a film at an early stage. It allows us to keep the hit ratio very high," explains Malhotra.

Taking all these aspects into consideration, along with the high levels of corporate governance and a great team, it makes Abundantia a compelling property for the investor community, says entertainment lawyer, Ameet B. Naik, Managing Partner, Naik Naik & Co. "If you have someone like Ashok Wadhwa who is a businessman and understands finance and Vikram Malhotra who has a corporate background and understands filmmaking very well coming together, it will be a successful model in the times to come," says Naik, who is optimistic that the Indian content industry will see more such investor-led deals in the times to come. "Filmmakers are increasingly seeing the element of dhanda (business), as there is money to be made and there is RoI also," says Naik.

The film business is also seeing the rise of younger generation entrepreneurs, who are not only into making good content but are also keen to work in a more corporatised set up. The entire idea of setting up a film fund was to corporatise the business, points out Sippy of HBS Raksha Movies Fund. His father, Ramesh Sippy, has been distributing Bollywood films in and around Mumbai for decades. "The idea was to escalate the business. We already have the knowledge, the expertise as well as contacts, so now all that we are doing is capitalise on it and build a more structured business."

The other big reason for investors/funds looking at content production companies in a different light is the emergence of multiple platforms to monetise content. "Earlier you had traditional music rights and box office collections. Now you have cable and satellite rights, digital rights, online streaming, value added services on DTH and cable. That also aids for better economics for all the players," points out Dave of Ambit.

EYEING REGIONAL CONTENT

Two out of the three recently set up content funds are looking at funding regional films, especially south Indian films. Devarajan of Indus Media Capital says that the acquisition costs of a Malayalam or Tamil film is far lower than Bollywood. "In the south, unlike Bollywood, we get good opportunities at a low cost. A movie can be made in Rs 4 crore to Rs 5 crore, and the same time it is sellable. In Hindi, if you make a film within Rs 1 crore to Rs 2 crore we will not even get a release. South India gives us an opportunity for a sellable cost effective product."

Devarajan's partner, Chathappuram clarifies that they are not averse to Bollywood. Instead, their plan is to enter Bollywood by selling the intellectual property of films made in the south. After all, a large proportion of the Bollywood blockbusters are remakes of South Indian films. "A film like Dushyant was made for Rs 5 crore and in Kerala itself it made Rs 75 crore. The Telegu version is a hit. So, the idea is to take a small product and nurture it and monetise the lifecycle of it."

Similarly, Sippy's family distribution business Raksha Films has made maximum money by distributing films such as Singham which are remakes of south Indian films. "I will look forward to investing in remakes of south Indian films, as these kind of films invariably have a high hit ratio. Eventually, regional films are also something I am keen to look at," says Sippy.

TELEVISION CONTENT

Private equity companies such as Providence Equity Partners or Relativity have made substantial investments in global entertainment companies such as The Chernin Group (a global company run by media baron Peter Chernin) which invests not only in films but also television content. The new content funds in India like Indus Media Capital or Bend It Media are open to investing in TV content, but not in the Indian soap operas or reality shows. The intent clearly is to invest in content that appeals to the diaspora audience.

Indian TV is not under the consideration of global investors because local production houses don't own the intellectual property (IP) rights of the content. This is unlike popular international sitcoms, such as Friends, where the IP is owned by the production house. The Indian producers work for a fee with a broadcaster who has full ownership of the IP. So, Ekta Kapoor of Balaji Films may have produced the country's most popular soap opera, Kyunki Saas Bhi Kabhi Bahu Thi, but the IP rights of the show is with Star India. "People will not buy into a TV content company in India as there is no IP, the strategic value is low. Globally formats are owned by production houses, who can syndicate it in different geographies, languages and get scale," explains Dave of Ambit.

The only TV content company in India that has got private equity funding is the local arm of Endemol, which has got investment from Peter Chernin's CA Media. Vivek Raicha, Head of Investments, CA Media India, says the only reason why his fund considered Endemol was because it was able to retain the IP of its content. The makers of popular reality shows, such as Bigg Boss and Khatron Ke Khiladi, the production house produces shows in multiple languages and Raicha says that it has been able to do so only because it owns the IP of the formats. "IP provides you leverage with the distribution of content."

TV content companies in India are unable to hold the IP of their content because they are individual-run boutiques and don't have adequate financial muscle. Even the largest production company in India, Balaji Films, has a revenue of just Rs 200 crore. Ekta Kapoor may be large in that business but she negotiates with broadcasters who are much larger.

Indian content makers are going all out to put systems in place. Are we going to see more investment coming into Indian content companies in the months to come? While many agree that the industry is beginning to attract investors, they also feel that a lot will depend on the kind of experience some of the early birds, such as Abundantia Entertainment, have with their investments. "They have to demonstrate that this business if run the right way can make money," sums up Dave of Ambit.

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HOLLYWOOD VS BOLLYWOOD

It makes more sense to invest in Hollywood films rather than Bollywood ones

Why is Hollywood a better investment bet than Bollywood? A large part of the money raised by both Indus Media Capital and Bend It Media would be going into Hollywood projects. Hollywood has a 100-year-old system in place which makes investments less riskier, points out Naveen Chathappuram of Indus Media Capital.

The highlight of this system is a tripartite agreement that a financier has with a completion services company and the producer. If the producer is not able to complete the film, the completion services company steps in as a guarantor and underwrites the risk of the financier and takes over the production of the film. "These kind of bonding deals are unlikely to happen in India as the producers don't allow their films to be taken over," remarks Ameet B. Naik of Naik Naik & Co.

Apart from the mandatory completion bond that every filmmaker needs to sign, Hollywood has certain best practices which brings in a high degree of efficiencies. For instance, a Spielberg film usually shoots for 60 days, whereas a bigger budget Indian film shoots for 150 to 200 days. "An Indian film usually preps (rehearsals, mock shoots) for two weeks before the film and then they prep during the course of the shoot. However, in Hollywood, if the shoot is for 40 days you will prep for 80 days before that," explains Chathappuram. "You orchestrate everything that will happen during the shoot, so the actual process of shoot is just executing what you have in mind." Clearly, it will be a while before Bollywood can match the professionalism of Hollywood.

(Additional Reporting by Arunima Mishra. Follow her on twitter @Mishra_Arunima)