Indian Film Production Industry & its relationship

with finance

Team: Ahmed Kamal, Usman Ali, Rituraj Bhuyan

Abstract

The film industry in India has evolved over the years by

selling one commodity i.e. movies. In the term paper, we

research this industry from a financial perspective. Firstly,

we do a literature review of the history of the film

industry, what are the components of this industry, what

are its it’s regional & global audience & how much does

it contribute to the economy. After that we do a detailed

research focusing on a publicly listed production

company’s Eros International Media Ltd. to find out what

is making this industry more profitable & what is the

future of this industry from a financial standpoint. For

example, what are the new markets for this industry, how

producers are increasing their international marketability,

its sources of funding, who are the various investors, what

are the challenges etc. That is we analyses the data and

make conclusions about what it should do moving

forward.

Indian Film Industry

Indian film industry is a multi-lingual film industry. The

industry is supported mainly by the Indian audience in

India & also in countries where there are increasing

number of expatriate Indians. The biggest film industry is

the Hindi film industry which is mostly concentrated in

Mumbai (Bombay) and is referred to as Bollywood an

amalgamation of Bombay & Hollywood. The other

largest film industry is the Tamil cinema industry located

in Chennai & Telegu cinema located in Hyderabad. The

remaining film industries are spread across India in states

like Punjab, Bengal, Maharashtra, Orissa, Kerala &

Karnataka. Over the past few years, regional films have

been growing popularity with releases in India & abroad.

History of Indian Cinema

The screening of the Lumiere moving pictures in London

made cinema became a sensation across Europe & by

July1896 Lumiere film was shown in Bombay. It was the

first moving picture shown in India. The first full length

motion picture called Raja Harischandra was produced by

Dadasaheb Phalke in 1913. The film marked a start of the

Indian cinema. In 1931, India’s first talkie Alam Ara was

released which was dubbed in Hindi & Urdu. In 1930’s &

1940’s talkies depicting social difference of caste, class &

relationship between sexes were released. Some

organizations like All India Progressive Writers

Association and the Indian People's Theatre Association

(IPTA) are formed during this era. During the 1950’s

Calcutta became a major place for Indian cinema. In the

1960’s main genres shown in cinema were romantic &

Indian nationalism. In the 1970’s numerous film societies

were formed across India. In the 1980’s film’s took a

stand on social issues. In 1990’s video, television & cable

resulted in the troubles for the film industry where

commercial films are at risk of failing more often.

From the 2000 & beyond the genres started changing. The

genres from 2000 and beyond are shown in a pie chart.

Indian cinema has been recognized at the American

Academy Awards. Three Indian films, Mother India

(1957), Salaam Bombay (1988) and Lagaan (2001) were

nominated for the Academy Award for Best Foreign

Language Film.

Action45%

Romantic31%

Historical13%

Thriller/Horror11%

Components of the Film Industry

1. Production Companies: Since our focus is on the

production companies, therefore production is an

important part of the industry. Some of the big

production companies are as follows.

a. UTV Motion Pictures Ltd: Is a production

company founded in 2004 by Ronnie Screwvala

and is owned by the Walt Disney Company. It is

involved in film production, distribution, licencing

& merchandizing. Some of the films produced are

Swades, Life in aMetro, Jodha Akbar, Chennai

Express, 2 States.

b. Eros International Media Ltd: One of the biggest

production houses in the country. It is a Mumbai

based production and distribution company which

was founded in 1973 by Arjan Lulla. It is a public

limited company with a network in 50 countries.

Some of the movies produced are Love Aaj Kal,

Om Shanti Om, and Student of the Year.

c. Yash Raj Films: is a private production house

which was set up by Yash Chopra in 1970. It is one

of the prestigious production companies. This

company has given some of the best movies like

Mohabbatein, Veer Zara, Silsila, Deewar.

d. Dharma Productions: This was set up by

producer director Yash Johar in 1976 and is now

headed by Karan Johar.

e. Balaji Motion Pictures: One of the biggest

productions companies and is a subsidiary of the

leading television production house Balaji

Telefilms. This house is owned by Ekta Kapoor &

established by Jeetendra in 2001.

f. Red Chillies Entertainment: It is private limited

company founded by superstar Shahrukh Khan and

his wife Gauri in 2002. The company owns a stake

in the IPL team Kolkata Knight Riders. Some of

the greatest hits are Main Hoo Na, Ra One etc.

g. Reliance Big Entertainment: This is a subsidiary

of the Reliance Group which entered into film

production in 2005. The company has launched TV

channels & radio stations in addition to films likes

Kites etc.

h. Rajashri Productions: The film production was

known for giving family based entertainers in

Bollywood.

Film Kraft Productions, Aamir Khan Productions, Mukta

Arts, Hari Om Entertainment are some of the other

production houses.

Other Components of the Film Industry include

• Directors, Actors

• Buyers Involved

• Distributors

• Exhibitors

• Satellite Rights

• Music Rights

Thus we have seen the components of the film industry.

Regional Films in India

Cinema is India is mainly dominated by Hindi language

films which generally makes significant portion of the

box office collections. However, regional films have been

growing in popularity both in India & abroad. Within the

regional segment, South Indian movies account for a large

number of film releases with the five states Andhra

Pradesh, Telengana, Karnataka, Tamil Nadu & Kerala

accounting for most number of films. Bengali, Bhojpuri,

Marathi & Punjabi are some of the regional markets.

Diagram shows the Market Share of the various language

categories.

Global Audience

There has been a global demand for Bollywood content

particularly among the South Asian diaspora.

The movies which are dubbed in more than 25 languages

have a significant demand in Europe & South East Asia is

making the movies increase their international footprint.

The bar chart shows the target population in various countries where

movies are in demand.

The Turn around Industry Status

Before 2001 the filmmakers were hugely dependent on

underworld & filmmakers for finance. However, now

after the major policy initiatives by the Government of

India “industry” status is given which has allowed

filmmakers to access institutional finance. Various banks

are pumping money into the movie making business.

Other than that various individual investors & capital

investors have also started investing in this industry.

Now we will describe a big production house in India

called Eros International Media Ltd. We analyse the

company & its business, its financials, its risk factors &

growth. Taking this company as an example we can now

conclude in which direction the production industry is

going.

Eros International Media Limited

• Eros International Media Limited is a part of the Eros

International PLC, the holding company of the Eros

Group. This company was founded by Arjan Lulla

way back in 1977. It is a leading global company in

the film production industry. Eros co-produce,

distribute and Indian language films in various

formats including theatrical, television & digital

formats. 200+ new releases over the last 3 fiscal years

Some of the salient features of Eros International

Media Ltd include

Content library of 2,000+ films

Film content across Hindi & regional languages

Subtitled content in 25+ different languages

Multi-channel global distribution in 50+ countries.

Vision of Eros International Media Ltd

It is our vision to build on the market leadership position

within the filmed entertainment arena & expand within

the rapidly growing Indian media & entertainment sector

by capitalizing on our library, distribution network &

strong balance sheet.” Kishore Lulla

Executive Director.

Leading Theatrical Market Share

Eros International Media participated in 3 of the top 10

releases each year. 7of the top 15 Hindi Films in 2015 are

Eros Films

Diagram shows popular Eros film Bajrangi Bhaijaan topping the charts.

Multi-Platform Content Monetization Model

Content can be monetized in many different ways & Eros

has become a leading player in the multi-platform content

monetization model. Some of the sources of content

monetization are as follows.

1. Theatrical:

2. TV Syndication

3. Digital

4. SVOD/VOD

5. Music Publishing

6. Ancilliary

Diagram shows the multi-platform content monetization model of Eros.

Eros Now

Eros Now is the new Netflix of Bollywood. Eros

Now has now a subscription based on-demand

entertainment portal with over 14 million registered

users. The subscribers have access to numerous

content offerings including movies, music videos,

TV episodes and original videos. Eros Now is now

available on any internet enabled devices tablets etc.

Diagram shows the Netflix portal

Diagram shows the Eros Now Portal

Eros Now is positioned to capitalize the growing internet

penetration in the market. Also, it has given users the

promise of endless entertainment.

Risk Factors & Remedies

The film production industry like any other industry is not

without any risk. Some of the risk involved is as given

below.

1. Risk of flop movies: Risk does arise when a movie

flops. Numerous Eros movies have gone through this

bad phase. In case of flop movies remedy is to

increase the digital content to monetize for the loss in

revenue.

2. Competition from other production companies:

As we have seen that there are many other production

companies competing for hiring or making contract

with top notch actors and actresses. In such a case

make long term contracts with famous actors,

directors and music directors.

3. Political Risk: In some of the films produced in

India there were lot of political controversies. For

example movie like Madras Café did create a lot of

controversy & the movie was not screened in Tamil

Nadu. The remedy for such a risk is to use less

politically sensitive content.

4. Media Speculations & Impact on Stock:

Sometimes media speculation can bring the stock

price down. In such a situation use give a

confirmation statement in the media that actual

performance is much better than speculated.

Financial Analysis

Now we analyses the financial health of Eros

International Media to find out more about the financial

of the film production industry in particular.

Some of the salient features of Eros International are

as follows

1. Strong track record of revenues

2. Strong track record of EBIT & PAT growth

3. Multi-channel distribution maximizes sources of

revenue

4. Good Balance Sheet

5. Impressive films line up for 2016 & 2017

Revenues.

Bar chart shows revenue in an upward trend

EBIT

Bar chart shows EBIT in an upward trend

PAT

Bar chart shows PAT in an upward trend

Diversified Revenue Streams

Pie chart shows the Diversified Revenue streams

Good Balance Sheet

If we analyse the balance sheet as of March31, 2015

Cash 1735

Total Debt 4875

Net Debt 3140

Shareholders Equity 14822

Net Debt/Equity =0.21, Net Debt/EBIT =0.87

Strong liquidity ratios.

Impressive slate of films lined up for 2016 & 2017

Eros International has already lined up an impressive

slate of films for the year 16 & 17. Some of the film

names released are as follows.

1. Housefull3

2. Shiva

3. Untitled

4. Farzi

5. Banjo Rabta

6. Juagaadu etc.

Thus, we can see the 16 & 17 are going to be profit

making years for Eros.

The projected revenues, EBIT, PAT are shown below

Shareholders

Shareholders of Promoter & Promoter Group holds

more than 75% of the shares.

Some of the other shareholders other than promoters are

1. Indus Capital Advisers (3.7%)

2. IDFC Sterling Equity Fund (1.6%)

3. Kamal Kara (1.25%)

4. Rising India Focus Fund Limited (1.11%)

5. India Max Investment Fund (.70%)

6. Mirae Asset Global Investments (0.55%)

7. Citigroup Global Markets (.53%)

Stock

The Stock of Eros International Media has seen an

upward trend with a little downward effect recently.

However, overall it’s in the upward trend.

Diagram shows Stock price from 2011 to 2015

Dividend Policy

With a view to strengthen the financial position of the

company Eros International Media Ltd. normally does

not give dividends. The industry is such that it requires

a lot of liquid cash for production purposes as well as

investing in overseas. So, all of the retained earnings

are used for these purposes. Hit movies bring a lot of

profit but if the movie gets flopped then the company

has to bear its losses. The preference of our major

shareholders is capital gain rather than dividend yield.

Comparison with other production companies

Eros International Media has performed better than its

competitors in the home market and has also done well

abroad.

Market Share in US.

Market Share in UK

Therefore, we can see that Eros market share in US, UK

is better than Yash Raj Films, UTV, Reliance & others.

Future opportunities in the Indian film production

industry

Eros International has shown that production industry is a

profitable industry. If we take Eros International as a

model for the production industry we can say that

production industry in India has opportunities for

tremendous growth.

Most of the production houses are still private production

houses which mean making Hollywood level films

becomes a challenge. Once more companies become

publicly traded companies in this industry we can have

giant production companies like Walt Disney making

high budget films.

Although there is a perception that theatrical market in

India is saturated, the theatrical market in India is still an

underpenetrated market. If we compare theatre screens

per million population of US & India, we can see US has

125 screens per 1 million & India has only 7 screens per

million. Germany has 57 screens/million, UK has 67

screens/million & France has 85 screens/ million which

indicates that the theatrical market is underpenetrated.

There is a substantial room for ticket price increase. The

average admission price in India is around 50 cents

compared to other countries where ticket prices are 10

US$ and above. Therefore there is a room for increasing

revenues in this area.

The growing Indian TV market should also help increase

revenues for production companies. The TV household

penetration went up from 61% to 71% in the recent

years.Apart from theatre & TV digital market is the

fastest growing as internet users are increasing day by

day.

There is a large scope for films to earn revenues globally

as South Asia diaspora around the world is increasing

rapidly. So within the global community production

companies do have a reasonable market.

Co-production is an area where production companies are

focusing on recently. There is a huger opportunity in this

area. International film studios such as Warner Bros.,

Disney, Fox and DreamWorks have made collaborations

with local film production companies to develop movies

in India. Walt Disney has a 50% stake in UTV. Therefore,

there is an opportunity for big production companies to

merge or to get involved in a joint venture with

Hollywood production houses to increase market share in

overseas markets.

References

http://www.newsonair.com/100-YEARS-OF-INDIAN-

CINEMA.asp

http://www.southdreamz.com/resources/75-years-of-

tamil-film-industry/

http://www.worldblaze.in/top-10-biggest-production-

houses-in-bollywood/

http://www.statista.com/statistics/259315/bollywoods-

target-audience-size-by-region/

http://www.erosintl.com/

http://www.erosnow.com/

http://www.moneycontrol.com/

http://timesofindia.indiatimes.com/city/chennai/Tamil-

Nadu-theatres-refuse-to-screen-Madras-

Cafe/articleshow/22017706.cms