Design of new financial instrument for film production

Abstract

Indian Films Industry is major source of entertainment for Indians and is largest in the world in terms of number of films produced as well as number of theatrical admissions. The filmed entertainment sector had grown by over 15 percent between 2006 and 20081 . In 2009 the industry is estimated to have declined by nearly 14 percent to INR 89.3 billion* from INR 104.4 billion in 2008 due to lower collection from multiplexes. However the growth rate from 2010 to 2014 is expected to be CAGR of 8.9 percent to reach INR 136.7 billion. The number of tickets sold in Indian film industry is roughly doubled of Hollywood industry2 but the revenues are much less compare to US due to gap in ticket pricing. Moreover poor monetization and inefficiency across chains has resulted suboptimal revenues to film makers. Year 2009 was a learning period for film industry. In 2009, the number of successful films was less compare to 2008, even though the number of films produced was higher. Moreover, the strike by multiplexes in 2009 had negative effect on the revenue due to simultaneous release of many movies together. This created paucity of funds for producers for their in-production films which will result in less number of movies release in subsequent year 2 to 3 years since Bollywood movie takes on an average takes 10-16 months to produce. Besides that, television broadcasters are increasingly acquiring films right post theatrical release which makes it difficult for the producers to pre sell the rights and raise fund. Due to poor profitability of films, industry is trying to follow more efficient approach in maintaining cost discipline while producing films. The new trend of profit sharing model has emerged in which actors take small upfront fees and share of profit from the traditional model in which actors take money based on success of past releases. This model work better for film economics as it need less money and tied remunerations to commercial success of the film which reduces risk of the film. The producers are reducing cost by shooting near home rather than going at exotic places.