"Hello, friends!" "About four years ago," the film Race 3 was released with Bollywood actor Salman Khan in it. This film received terrible reviews from the audicence and critics alike. It is considered a huge flop. "But do you know, despite this, this film was a financial hit?" "This film was made on a budget of ₹1.8 billion," and it earned more than ₹3 billion. "On the other hand, there's a stark contrast" "the Bollywood film Mera Naam Joker, 1970."
"The director, producer, and actor of the film was Raj
Kapoor," a huge celebrity of his
time. This film is considered a cult
classic nowadays. One of the best films
of its time. "Even so, this film
lost so much money," that it put
Raj Kapoor in a financial crisis. If
anyone earned profits from this film it
was a company based in the Soviet Union.
"This is the reason why some hit films turn out to flop for some
people," and flops films become a
financially hit film. "Come, in
this Blog, let us understand" the Business Model of Bollywood Films. """How are films
distributed?""" """This
secret is lost to us, Sir."""
"""People aren't going to the theatres as
much.""" """I
think nobody on this planet can judge what people like.""" """I just spent a lot of money
on marketing, and it's a whole business.""" """Right now, truly content is
skin.""" """We'll
be swimming in money!""" """When
you say a South Indian film is successful," "I think it's an Indian film which is
succeeding.""" "Friends,
the Indian film industry is the world's largest film producer." "The number of films made in
India," is unmatched by any other
place in the world. "Every year,
about 1,500 to 2,000 films are made in India" in 20 different languages. "The Hindi film industry that's known as
Bollywood," had been the most
popular film industry in India for a long time.
"Even though, only about 16% of the Indian films are made in
Bollywood." Out of the total films
being made in India. "But the
market share of Bollywood in terms of revenue," was the highest. "About 45% of the collections from the
films," were by the Bollywood
films. I am using past tense because
this was the scenario before the pandemic.
"Today, the number 1 film industry in India is the" Telegu film industry.
Their share in the domestic box office this year is at 28%. And Bollywood's share has fallen to 27%. "Overall, the South Indian language film
industries," "have increased
their market share from 36% in 2019,"
to 59% by 2020-21. "Bollywood
is slowly losing its dominance," "but
the business model on which all these films work," is the same for all of them. "To understand how a film earns
money," "first, we need to
understand" how a film is made. The process of making a film can be divided into four stages. "In the stage of Development," the story of the film is developed. The script and dialogues of the film are
prepared. "Then in the
Pre-Production stage," the main
cast and the supporting cast as selected.
The actors who will work in the film.
"During this stage, a crew is hired as well." "The shooting equipment is
arranged," whether it'll be rented
from somewhere. The shooting locations
are selected. And the travel and
accommodations are arranged. "And
if the film needs any permission for filming," the permits and insurance are secured at this
stage. "And then comes the third
stage, Production." The film is
actually shot at this stage. "Once
the shooting of the film is over," it
goes into editing. "This editing is
known as the Post-Production stage,"
wherein the film is finally compiled.
"In each of the stages of this entire process," a lot of money has to be spent. "Apart from the salaries of the
actors," "the writers need to
be paid," "at least in some
films,"
"the crew needs to be paid," "the expenses of renting or buying the
filming equipment," the expense of
getting the requisite permits. "Overall,
there's a huge expenditure." It is
very rare that a single individual has this kind of money. The budget of an average mainstream Bollywood
film is around ₹500 million. "The upcoming film Brahmastra," has an estimated budget of more than ₹3
billion. Even the most successful Bollywood
actors like Ranbir Kapoor or Akshay
Kumar wouldn't have the money to spend
on one film. "That's why the task
of managing expenditures is undertaken by huge corporations," known as Production Companies. Brahmastra is among the most expensive
Bollywood films. "That's why it's
not produced by only 1 production house,"
multiple production companies are spending money to make this film. "Dharma Productions, Prime Focus, and
Star Studios." "The
individuals who pay their own money to pay the expenses of the film," are known as the Producers. "If you remember the brilliant comedy
film released in 2007, Bheja Fry," was
actually one of the lowest-budget Bollywood films of all time. The total cost of making this film is
estimated to be around ₹7 million. ₹7
million can easily be paid by a rich person.
That's why there was only one individual producer for this film. Sunil Doshi.
The only producer of Bheja Fry.
"Friends, the film producers are like
entrepreneurs," their task is very
risky. They invest their money to bear
the expenses of making a film. "If
the film turns out to be a hit," they
will earn a good return on the money they spend. "But if the film turns out to be a
flop," they lose their money. "And as you know," most of the films are flops. It is very rare that a film is a hit. The producers basically invest their money to
make a film. "The money they invest
in a film," is known as the budget. And they hope that the film is a hit so that
they can make a profit. The actual task
of making the film is of the Director. "Shooting,
editing, post-production," to
maintain an overview of all the various activities and to actually make the
film. "In most cases, the directors
are like the actors." They are
employed on salary. They are paid a
salary per film. Especially in films
with a small budget. "For the
big-shot directors," "such as
Steven Spielberg," they often work
on the basis of profit-sharing. "But
in our business model, the directors and actors play almost no role." "Once the film is made," "it is loaded onto a small hard
disk," and the producers take this
film to the Distributors. "The distributors has to ensure that the
films reach cinema halls," as well
as the OTT platforms. "Often, the
distributors are responsible for marketing the films as well."
So they spend their money on the promotion and advertisement
of the film. "The distributors make
money by selling the satellite rights to the film," and the digital streaming rights. "The TV channel on which the film is
telecasted for the first time," has
to pay the distributor to buy this right.
So that the film is telecast on TV for the first time only on that TV
Channel. "When this is done," it is known as the World Television Premiere. You might have noticed this. The distributors sell the film to the OTT
platforms as well. And the OTT platforms
pay the distributor for this. You can
take the example of the latest film Bhool Bhulaiya 2. "It was produced by T Series," and distributed by the company AA Films. "Often, before the film is
released," the distribution
companies enter into deals with the OTT platforms. "They sell the film at a mutually
determined amount," and set a date
after which they can release the film on their OTT platform. "In the case of this specific
film," this film was a Super Hit. "Even after 2-3 weeks," this film continued to be in the cinema
halls. "But since the deal was
already struck between the distributor and Netflix," "and the distributor has sold the film
to Netflix for ₹300 million," "and
they had agreed on the date after which the film could be released in
Netflix," "regardless of the
fact that the film was still in theatres, " "Netflix released the film on their
platform," because Netflix was
protecting its revenue. They would get
the benefits when they release the films
on their platform as soon as possible. "The
collections of the film from the cinema halls," are negatively impacted by this. But this is a risk borne by the distributor.
The film could have been a flop. "In that circumstance, a quicker release
in OTT platforms would have been a wiser decision." "Friends, often for major films," the production company and the distribution
company of the film are the same. The large production houses "such as Yash Raj Films, Dharma Film
Productions," "UTV Motion
Pictures," "Fox Star Studios,
Reliance Entertainment," they are
distribution companies as well. "If
the producer and distributor of the film are the same," the production company maintains separate
budgets for production and for marketing
and distribution. "Next, when the
films are shown in the cinemas," you
need to purchase tickets to watch it. "The
ticket counter from where you get the tickets," is known as the Box Office. "And the revenue of a film by selling
the tickets," is known as its Box
Office Collection. This amount is
collected by the theatre owners. The
owners of the cinema halls. "On
this revenue, the theatres have to pay GST to the government." "GST at the rate of 18% if the price of
the ticket is more than ₹100," or
at 12% if it is less than ₹100. After
paying GST the remaining amount is known
as the Net Collection of the film. "If
the Net Collection of a film is more than its Budget," the film can be considered profitable. "Before GST was introduced, the State
Governments charged an Entertainment Tax."
It used to vary from State to State.
"When a film was declared Tax Free in a state," it meant that the Entertainment Tax on that
film had been waived off. It reduced the
cost of the tickets. "As I said,
now the GST is levied at either 12% or 18%." The GST is then shared by the Central and
State governments. "So now when a
state declares a film tax free," only
the SGST component of GST is waived off.
You still need to pay the CGST. So now the exemption can either be 6% or 9%. Depending on the price of the ticket. "Basically, this is the involvement of
the government" in the business
model of films. You can say that it is
the government's way of regulating the film industry. "But since the introduction of OTT
platforms such as Netflix," they
are providing free entertainment online.
So the government is unable to charge tax on it. This aspect is quite similar to crypto. when crypto was newly introduced it was outside the purview of the
government's regulation. Although now
the government has introduced Crypto Tax as well. To ensure that there are no avenues on which
they aren't levying taxes. "Friends,
this reminds me," did you know that
the PNP coin claims to be the world's first regulated cryptocurrency? A cryptocurrency which follows all government
regulations. "It was launched in
May 2021," by the Helios Wealth
Management. A Hong Kong-based company. "To purchase this, you would need to
submit your KYC first." "Only
after that, a wallet address is issued to you." This makes illegal transactions quite
difficult.
They claim to be the first cryptocurrency to offer a physical card and physical coins
to its users. Within 2 months of
becoming eligible. "They are for
those customers who purchase at least 1,000 tokens." "Today, the cost of 1 PNP is at 7 Hong Kong Dollars." Around ₹70.
They have grown exponentially. "At
the time of the launch, 1 PNP coin was valued at 1 HKD." Another interesting fact about this crypto is
that there is a maximum limit to the
investment made by an individual. "No
one can invest more than ₹300,000."
"Their target for the next year is to," "reach 1% of the growth of
Bitcoin," and to focus on community
growth. They have launched their
regulated exchange as well. Helios DAX. "If you're interested, you can go check
them out." The link is in the
description below. "Here, I'd like
to thank them for sponsoring this Blog." Now let's get back to the topic. "Friends, it is interesting to see" the deal between the producer and distributor when they aren't the same entity.
There can be 3 basic ways of profit-sharing between them. First: Minimum Guarantee Royalty. "The distributor pays a minimum
guaranteed amount to the producer,"
it is a fixed amount to be paid irrespective
of whether the film is a hit or a flop. "If
the film is a hit," a certain
percentage of the profits is to be paid to the producer as well. As Royalty payments. "In this case, the risk is shared
between the producer and the distributor."
The second way is when the producer completely sells off the film to the
distributor. And then it is up to the
distributor to decide what they want to do with the film. "If the film rakes in a profit, the
distributor will earn more," "and
if the film turns out to be a loss, it will be borne by the distributor." "In this case, the producer is
safe." There is no risk taken by
the producer. "The producer walks
away with their fixed amount of profit,"
by selling the film to the distributor.
The rest is up to the distributor.
This is what happened in the case of the film Mera Naam Joker. "Raj Kapoor's one of the best
films," "In India, this film
was produced and distributed by RK Films."
Raj Kapoor's production house. Raj Kapoor invested all his money in making
this film. He mortgaged his house as
well. "But despite working so hard
on it," this film turned out to be
a big flop. The budget for this film was
₹10 million at the time. But its Net
Collections was only ₹8 million. What
can be done to cover the losses? "Raj
Kapoor decided that the distribution rights of the film outside India," "in Russia, which was then the Soviet
Union," should be sold off
completely to a distribution company based there. "No need for complicated deals," he sold off the rights for ₹1.5 million. "Because from Raj Kapoor's perspective,
he had already taken a huge risk," and
now he wanted a sure-shot amount. "When
the film was released in the Soviet Union in 1972," it became a Blockbuster there. "In 1972, the total collections of this
film in the Soviet Union alone," was
₹168.1 million. "If you adjust this
amount for inflation," this amount
would stand at ₹1.007 billion now. The
distributor in the Soviet Union raked in a lot of profit. "But because of the way the deal was
structured," "by shifting the
risk to the distributor," Raj Kapoor
did not get any part of the profit.
He had to incur losses because of this film. Isn't this business model surprising? The third way is the most common. the producers give the films to the
distributors and then work on
commission. Such that the distributors
would be given a commission from the overall profits. "Here, the risk is borne by the producer
alone." And the distributor doesn't
have to bear much risk. "It means
that in this case, the money spent on marketing and distribution" is spent by the producer. "Once you've understood this, we can
move on to the next step of the process."
The distributors approach the sub-distributors in the various regions of
the country. "The country has been
divided into multiple areas," known
as the Distribution Circuits. "For
Hindi films, there are 11 such Circuits."
"The sub-distributors then enter into arrangements," "to show the films in cinema
halls," and for screening. It is the sub-distributors who actually deal
with the Exhibitors. Who are the
Exhibitors?
They are the cinema halls or the companies that own the
cinema halls. The sub-distributor and
the cinema halls strike a deal on the
revenue sharing. The deal basically
depends on the number of screens given to the film. "There are mainly 2 types of cinema
halls in the country," "Single
Screen Theatre," here the deal
between the two is usually in the ratio of 25% to 75%. "Of the profits from the sale of the
tickets," "25% of it would be
given to the exhibitors," and 75%
to the sub-distributors. And a
significant portion of the sub-distributor's revenue is then paid to the distributors and the
producers. "In some cases, this
ratio can be 30:70 or 20:80 as well."
The second type of cinema hall in the country is the one found in malls. known as the Multiplexes. "For these, the ratio of profit sharing
between the exhibitors and sub-distributor is different." It keeps on changing each week. "In the first week, it is usually in the
ratio of 50:50." "And with the
passing of each week," the share of
the distributor keeps decreasing. "60:40
in the second week," 70:30 in the
third.
"But this isn't worrisome for the producers and
distributors," because most of the
films earn the majority of its profits
in the first week. Especially the flop
films. "To cite an example," Akshay Kumar's recent release Samarat
Prithviraj. It was a high-budget film. Its estimated budget was around ₹3 billion. The producer and distributor of the film was
YRF. "In the first week, this film
earned ₹550 million." But the total
collection of this film is around ₹860 million.
Most of the earning potential of the film was reached in the first week. "From the second week onwards, the
earnings keep decreasing." It is
the same for most films. A majorly flop
film with the loss of more than ₹2 billion. "And as you know, " this loss will have to be borne by Yash Raj
Films. "In big films with top-level
actors," "whether the film
would be a hit or a flop," often
depends on the image of the actor. So
there are times were the actors enter
into profit-sharing deals with the producers and the distributors.
A way in which the actors become one of the producers as
well. So that the risk of investing in
the film "doesn't have to be borne
by the producers alone," the actor
shares the risk too. "It's said
that Aamir Khan, works on a zero salary."
"He doesn't charge a salary,"
"He enters into a profit-sharing agreement," "where if the film is a hit," he gets 50% to 80% of the profit. "But if the film is a flop," he wouldn't get any money and will have to incur losses. Many actors work on the model on part salary
and part profits. "Such as Salman
Khan, one of the highest-paid actors."
It's said that he charges ₹700 million per movie as a salary. "But for his film Sultan," he had entered a profit-sharing deal for that
film.
The gross collection of the film Sultan was ₹5 billion. Of which ₹1.06 billion was the Entertainment
Tax. The Net Collection was ₹3.94
billion. This film was produced and
distributed by YRF. "10%-20% of the
Net Collection went to YRF," "if
we assume 20%," 20% of ₹3.94
billion = ₹790 million. "Of this,
YRF had spent approximately ₹200 million on marketing the film." "Deducting that, we're left with ₹590
million." "This ₹590 million
was earned as profit by YRF," as
the distributor of the film. The profit
they earned as the producer of the film is separately calculated. ₹3.94 billion less ₹790 million = ₹3.15
billion. "Of which, it is estimated
that ₹1.57 billion was the exhibitors' share." "₹3.15 billion less ₹1.57 billion, =
₹1.58 billion." The production cost
of YRF was ₹700 million. So the net
profit remaining with them was ₹880 million.
"Form the deals of selling other rights to the film,"
"they had earned an additional ₹200 million," so their total earnings stood at ₹1.08
billion. They had earned ₹590 million
from distribution as well. So the total
earnings of YRF from this film was ₹1.67
billion. "As suggested by
reports," "the profit-sharing
deal struck between Salman Khan and YRF,"
was of 50% profit sharing. So 50%
of the profits earned by YRF would go to Salman Khan. "In this case, ₹835 million." It can be estimated that Salman Khan earned this amount from this specific film. because he had entered into a profit-sharing
deal. "It turned out to be more
than his normal salary," because
this film was a super hit. "Friends,
this is the workings of the Business Model of Films." I hope you've clearly understood everything. "If you want to understand other
Business Models in detail," "such
as the IPL or the T20 World Cup," "or
of Amazon or Tesla," "I've
explained all these Business Models in multiple blog." You can watch the series of all these blogs
by clicking on the playlist here. Let's
meet in the next blog. Thank you very
much!