BlackRock-Backed Bollywood Studio Scripts Chinese Crossover

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Eros International Plc, a producer and distributor of Indian films, is seeking to emulate its Hollywood peers to boost earnings. It is looking at China, the world’s second-biggest market for movies.

The company plans to make as many as four films with two Chinese studios over the next three years, Chief Executive Officer Jyoti Deshpande, 44, said in an interview in Mumbai. Eros has signed agreements with Chinese Film Corp., Shanghai Film Group Corp. and Fudan University to promote, co-produce and distribute their films in both nations, she said.

Eros, which counts BlackRock Inc. and Temasek Holdings among its investors, is seeking to tap demand for content in the world’s two most-populous nations and gain a foothold in China’s $4.8 billion movie market. With 34 percent growth in ticket sales in 2014, China is forecast to become the world’s biggest market in five years.

With at least 5,000 film screens in India and 20,000 in China, a successful film can “conservatively garner” box office collections of $200 million from just these these two markets alone, Deshpande said. Television rights, digital and other licensing avenues could give further top-up. “It is a really serious opportunity for both partners.”

Deshpande has a three-pronged strategy for success in China: co-produce content, remake films featuring stars from both countries and distribute dubbed movies that may have an appeal in the other market. The partnerships will help Eros generate a 10-fold increase in EBITDA earnings, she said.

Stars, Locations

Many Hollywood studios are increasingly incorporating Chinese stars and locations in their films for better collections at the box office.

Last year, Paramount Pictures Corp.’s “Transformers” raked in $320 million in China, exceeding the $245 million in North America, according to data compiled by Bloomberg Intelligence. This year, Universal Studios Inc.’s “Furious 7” collected $389 million from China versus $345 million at home.

Foreign films, mainly from Hollywood, accounted for about 45 percent of total Chinese box office on a strict quota of 34 movies, with the rest coming from over 600 local Chinese films, according to Geetha Ranganathan, an analyst at Bloomberg Intelligence.

Under pacts signed last week, Eros will co-produce and distribute films in both China and India. The budgets for each of the movies range between $18 million and $40 million, Deshpande said.

Chinese Pilgrim

The first movie, made in collaboration with state-owned Chinese Film Corp., is on the seventh century monk and pilgrim, Tang Xuan Zang, who traveled to India looking for Buddhist texts and scriptures. The film is expected to be released by March 2017, she said.

The Chinese studio partners may invest as much as 80 percent and Eros will pool in the rest, she said. Eros spends $250 million annually making movies in Hindi and regional Indian languages such as Tamil, Malayalam and Telugu.

Eros now can also re-make films or content over which Fudan University holds proprietary rights. The company will need to deal with bureaucracy with respect to selection of foreign movies, release dates and censorship of content, Ranganathan said.

Eros had cash and equivalents of $145.4 million and earned an annual profit of about $30 million, data compiled by Bloomberg show.

Eros shares have advanced 17 percent in the past year to $18.29 on the New York Stock Exchange, while those of its India unit, Eros International Media Ltd., have more than doubled, versus a 12 percent gain in the benchmark S&P BSE Sensex. They advanced 3.5 percent to 447.80 rupees in Mumbai on Wednesday.

‘Good Example’

The China deals have encouraged Eros to scout for potential partners in South Korea, Japan and South America too.

With consumers increasingly accessing content on mobile devices, Deshpande said her company wants to expand its digital services such as Eros Now -- a paid Internet streaming service modeled on the lines of Netflix Inc.

“The trend of multichannels and digitization pushing up prices has just begun,” Christian Granquist, who oversees about $4 billion in investment as chief portfolio manager at Svenska Handelsbanken AB, said in an e-mail. “Eros, having a high market share of content production in Bollywood, is a good example of one of our investments.”

Handelsbanken held 2.9 percent in the listed Indian unit of Eros as of April 30, according to data compiled by Bloomberg.

The Chinese opportunity is a bit difficult to assess right away, said Karan Mittal, an analyst at ICICI Securities Ltd. “There’s no clarity on the customer segment it would be catering to, as well as other logistical and operational issues,” he said.

Deshpande says she is confident that the studio and its overseas partners will create content that will find a universal audience.

“If you take away the barrier of language, cinema is a visual medium,” Deshpande said. “The only element we require is for the content to be relevant.”

(Updates share prices in 14th paragraph.)
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