International Business: INDIA
BLOODSHED AND TERROR IN BOLLYWOOD--A TRUE STORY
And hoodlums are just one problem facing India's movie biz
It had all the ingredients of a Hindi movie blockbuster--religion, glamour, underworld dons, and a rags-to-riches hero--except it was for real. On Aug. 12, Gulshan Kumar, a film producer and millionaire businessman, was assassinated as he was leaving a temple north of Bombay. According to police, he was a victim of extortion by the local mafia led by underworld don Dawood Ibra-him, and he refused to pay. Kumar is the third film personality this year to be killed by an increasingly powerful underworld. His murder has sent producers, financiers, and stars of India's $750 million-a-year film industry scurrying into hiding.
The murders have highlighted the range of problems facing one of India's most dynamic sectors. "Bollywood" produces some 750 films annually, making it one of the major movie industries of the world. But India's tinseltown is increasingly hobbled by bloody relations with mob lenders, runaway production costs, high taxes, and threats from video piracy. "The industry is scared," says Amit Khanna, founder of Plus Channel Ltd., which produces films, music, and TV programs in Bombay.
The most pressing issue is the industry's links to loan sharks and mobsters, who have bankrolled about 60% of Bollywood's production with loans carrying interest rates of around 40%. As a hodgepodge of small independent operators, the industry has found it difficult to find cheaper, legitimate sources of funding. The Indian government's list of officially recognized industries includes steelmaking and textile weaving, but not filmmaking. An industry that wins this recognition requires a license to operate but gets access to cheaper electric rates and institutional lending at 18%. The risky nature of films has made banks reluctant to make loans, leaving the field wide open to the underworld. For the dons, filmmaking became a good place to invest undeclared income and fraternize with starlets.
Oddly, filmmakers have not used the recent violence as an opportunity to press for government recognition. That's because with recognition comes the responsibility to adhere to labor laws, which the industry is not inclined to do. Says G.P. Sippy, the veteran producer and former president of the Film Federation of India: "Unlike in the U.S., where people do specified jobs, in India one person does three different jobs. It is very difficult to organize labor."
To compound the industry's woes, the cost of filmmaking is exploding. A star-studded, big-budget film that cost $1 million to produce three years ago now costs twice as much, because Indians increasingly exposed to TV with Western programs are demanding better quality and more exotic locales. Even filmmakers such as Prakash Jha, who makes low-budget art films such as Death by Hanging that have won critical acclaim outside India, find that costs have shot up twentyfold in the past six years, to $200,000 per film.
PIRATES, TOO. Yet once a film gets made, it has an 80% chance of flopping at the box office. When that happens, the distributors and cinema owners, who have paid big up-front guarantees to the producers, lose their money. To top it off, grumble distributors, state governments levy taxes on tickets, up to 150% in some states, higher than anywhere in the world.
Ticket prices in major cities have risen tenfold in 10 years, to up to $3--high for a country where movies are normally cheap. The Indian audience is unwilling to be the guinea pig for new, less expensive screen talent. So the demand for superstars is high, with 500 producers chasing the top 25 Indian stars and paying top dollar.
Video piracy is another problem. Cable operators easily and illegally get new films days after their release, killing the film in the theaters. So producers have to go to great lengths to protect copyrights. When Rajshri Productions released its family hit Hum Aap Ke Hain Kaun? ("Who Am I to You?") in 1994, employees kept a 24-hour vigil on the film reels, even sleeping in projection rooms in cinemas throughout India. Since they could only see the movie in theaters, audiences came in droves, making the film a record-breaking $35 million hit at the box office.
One way of raising funds is to go public. In 1995, film idol Amitabh Bachchan launched his own $14 million entertainment conglomerate to make and market movies, TV shows, music, and merchandise. Bachchan had hoped to use his famous name to issue shares. But his company is way below projected earnings.
So far, only one movie company has listed, and it has done poorly. G. Venkateswaran, founder of GV Films Ltd. in the southern city of Madras, which runs cinemas as well as producing and distributing films, raised $1.6 million in a share offer in 1989. But despite two recent blockbusters, GV Films has seen its share price fall from 27 cents to under a penny today, leaving it with a market capitalization of $400,000 on annual earnings of $34,000. Venkateswaran, an accountant, says the market doesn't yet recognize the intrinsic value of such companies.
But Hollywood might. Rupert Murdoch is making inroads into the Indian entertainment industry. Apart from owning a 50% stake in Zee TV, India's most popular satellite cable channel, he also has a 30% ownership in Bombay-based UTV, which produces TV programs and recently made a Bollywood romance, Dil Ke Jharoke Mein ("In the Window of the Heart"), for just $700,000. The film flopped, but UTV claims it recovered costs.
Warner Bros. Inc. may get involved. The company had planned to build multiplexes in India but got discouraged in 1996 by high real estate prices, cumbersome permission requirements, and the high tax on tickets. Yet, says Ivan Cheah, Warner Bros. senior vice-president for Asia, the company is "still very keen" in the industry. "It's the question of finding the right opportunity," he says.
The opportunity may come soon. Already some Bombay producers are looking for help from Los Angeles, in the hope that strong connections with established U.S. studios will make it easier to land badly needed bank loans and insurance coverage. "In three to five years, film production [in India] will be controlled by the multinationals," predicts Ajay Sekri, accountant to top producers and stars. Bollywood, then, may slowly give way to Hollywood.By Manjeet Kripalani in Bombay