H. Billimoria, VC & MD, Tata Infomedia: Seeing big money in Bollywood

On a sunny December morning in Mumbai, 34-year-old Mandeep Singh, a hobby actor who has essayed bit parts in television serials meets with his Vice Chairman and Managing Director Hoshang S. Billimoria at the Prabhadevi-Mumbai office of their company, Cutting Edge Entertainment. India's best known actor Amitabh Bachchan is to begin shooting for Aitbaar (Faith), a motion pic that the company is co-producing and Singh is here to convince Billimoria that Bollywood protocol demands that he be there to welcome the man. Convincing done, he rushes off to the rundown National Exhibition Centre in one of the city's suburbs where an old mill-there are several of the kind in Mumbai-has been converted into a Potemkinesque slice of South Mumbai. At the centre, hot-shot director Vikram Bhatt is trying to get Bollywood's latest It girl Bipasha Basu to display the requisite emotion for a scene she is enacting with co-star John Abraham. Basu's emoting abilities seem handicapped by a dozen-odd artificial rainmakers-garden hoses with shower heads attached-cascading water on her for the regulation drenched dress sequence.

By now Singh's tie has discreetly disappeared and ignoring the watery charms of Ms Basu-she is the cynosure of most other male eyeballs on the set-he is engrossed in a discussion with executive producer Khusroo Bhadha. The shooting at the mill has been on for 10 days, it has to end in another seven, and Singh is keen it does-Bollywood productions are notorious for their disregard for deadlines. The meeting is interrupted by the art director who says the scene can't be shot unless an art folder can be found-Abraham is an artist in the pic and his house must have one, he insists. So, Bhadha zips off on a scooter to find one and Singh joins another colleague Girish Mallya, who is chatting up actor-turned-producer Sujit Kumar whose son Jatin is co-producing the film.

All business as usual in Bollywood-only, Singh, Billimoria, Bhadha and Mallya aren't your everyday film-people; not too long ago some of them were in the business of selling directories. The four are on the rolls of the Rs 126.8-crore Tata Infomedia, the newest corporate to enter the bad-bad world of Bollywood (See Bollywood Inc). Movie-making is the last business one would associate with a staid company that specialises in directories, hobby magazines, and children's books, and with a CEO who looks more like an academic than a movie mogul, but Billimoria shrugs off the diversification as if it were the most logical thing in the world.

The explanation: the slump in advertising hit the company's core business, operating margins fell some 6 percentage points in 2002, and for a cash-rich company (it had close to Rs 87.43 crore on its balance sheet on March 31, 2002) like Tata Infomedia, content seemed a commonsensical extension. Radio, explains Billimoria, was out because of prohibitive licence fees; TV, because the rights would pass to the broadcaster. Ergo, the company hit upon the idea of producing motion pics. ''Manufacturing is struggling,'' says Billimoria. "This is a business with great potential." And Cutting Edge Entertainment was born.

The Big Pay-off

That, Bollywood is. Over the past two years, as India Inc has struggled to grow at single-digit growth rates, Bollywood has consistently nudged 15 per cent. Estimates put out by the Federation of Indian Chambers of Commerce and Industry (FICCI)-conservative, claim Bollywood insiders-paint a healthy picture: revenues of Rs 2,498 crore in 2001, 1,013 releases (Hollywood did 739), exports of Rs 525 crore, and returns of around 25 per cent for a modest success (a blockbuster can return in excess of 100 per cent).

BOLLYWOOD INC How Indian companies are (re)discovering the movies.

Kishore Biyani: From retail stores to movie production Jeetendra Kapoor: Extending the K-factor to movies Fine, India Inc, or at least its anthropomorphic manifestations have always been interested in the movies. Shapoorji Pallonji Mistry, for instance, was the main financier of yesteryear's blockbuster Mughal-E-Azam, but corporate involvement in Bollywood is a recent happening. Circa 2003, though, there's lots of it happening. The A.V. Birla Group's Applause Entertainment will launch an Indo-UK film Anita and Me in February. Securities brokerage SSKI's iDream has already produced two movies and distributed four others, including Gurinder Chadha's Bend it Like Beckham and Mira Nair's Monsoon Wedding. Pantaloon retail's associate PSH Entertainment is already on to its second film. And for all these companies, it is just business as usual. "The risk involved in a brand-launch and a film is similar," explains Kishore Biyani, Managing Director, PSH. And the presence of these organised sector heavies, adds Amit Khanna of Reliance Entertainment-he denies the conglo is considering a foray into movies-serves as a bait for others. "The high growth of the industry and the fact that there are some 30-odd listed companies making movies is attracting newer players.'' And that, in turn, is forcing existing players to corporatise their businesses. "Companies like ours have already made strides in ushering in professional systems into the industry," says Jeetendra Kapoor, Chairman of the Rs 110-crore Balaji Telefims. "The entry of these corporates will accelerate the process." However, low-cost funds and organised processes won't necessarily translate into big bucks at the box-office. "It needs to be appreciated that film-making is a creative field," says Kapoor. "It involves a certain talent and corporates entering the field will need to partner with experienced players if they are to succeed." Touche.

The timing of Tata Infomedia's entry also seems right: Mumbai's police department believes that mob-money accounts for just 10 per cent of film finances today, down from 40 per cent a few years ago; Bollywood has been accorded industry status, making it possible for film-makers to borrow at reasonable interest rates between 16 per cent and 17 per cent, far lower than the 24-36 per cent they were used to; the West has discovered Bollywood; and lenders like Industrial Development Bank of India (See Shylock To The Stars) have shown that financing films is an economically viable proposition. "In every industry, there is an inflexion point," says Rajesh Jain, Executive Director, Corporate Finance, KPMG. "This, 2003, is it for the film industry-corporatisation has begun."

Still, risks remain. In 2002, by its own admission, Bollywood lost some Rs 300 crore on revenues of over Rs 5,000 crore. Star salaries can account for as much as 40 per cent of a film's cost (See Us And Them). Directors, actors, and other professionals involved in the business are far from professional. And the long arm of the mob remains a very real threat-reaching its old clammy hand from West Asia.

Cutting Edge's Singh insists much of this is exaggerated. "Investing in films is no more risky than investing in telecom.'' That's an opinion that is shared by private equity funds and venture capitalists (See The Coming Of The Angels). Why else would US-based GW Capital invest $5 million (Rs 25 crore) for a 27 per cent stake in distributor Shringar Films?

Making Movies Better

If Cutting Edge wants to make a go of its venture, it will need to tread a fine line between its business interests and the creative process that goes into (so traditional film-makers claim!) the making of a motion pic. "Film-making cannot be done by everyone," says producer-director Mahesh Bhatt. "There are people who like to delude themselves that they are creative-we need their money, not for them to teach us our business.''

SHYLOCK TO THE STARS How an otherwise beleagured financial institution financed films and laughed all the way to the bank.

P.P. Vora: Not a risky business The business of films is a risky proposition, but financing films is a relatively risk-free process.'' That isn't a tyro-banker's famous last words. It is the considered opinion of a conservative banker, Viney Kumar, a General Manager at Industrial Development Bank of India. Since April 2001, he has overseen the bank's film-financing activity, investing over Rs 60 crore in 20 films. Of the 20, six have been released thus far and Kumar claims a 100 per cent return on the FI's initial investment. Two years ago, Bollywood finally got the government to label it an industry. That opened the doors to cheaper finance. And IDBI was the first to launch a film-financing practice. It has thus far funded movies made by the likes of Crest Communication, Padmini Telemedia, and D. Rama Naidu. IDBI's secret: the success or failure of a film doesn't affect it; it recovers its money even before the film is released. Post production, producers sell territorial rights to distributors. It is at this stage that the financial institution steps in and demands its money. If the producer doesn't ante up, the FI, which has rights to the master print of the movie holds up the release. Ergo, the only risk IDBI suffers is, one, the film not being completed or, two, the producer being unable to sell the movie. The first the institution handles by financing only films made by reputed producers. The second should be addressed by the nascent but growing practice of producers writing financiers a completion guarantee. One final tip: Kumar never lends more than half a film's budget. The formula has worked for him so far.

Despite such opinions, there's no denying the impact a corporate can make. For instance, Cutting Edge has designed a software that maps all scenes and their requirements in terms of actors, props, costumes, and technicians. Such monitoring, claims DSP Merril Lynch's head of research, Jyotivardhan Jaipuria, can bring down costs by as much as 20 per cent. "Corporates are less wasteful than traditional producers," says Pritish Nandy, whose eponymous company funded one of 2002-03's biggest hits Kaante. Jaipuria concurs. "Companies have access to low-cost finance. They will also hopefully insist on things like bound scripts, a completion contract with the actors, etc., which will reduce risks in execution." Director Vikram Bhatt, for instance was happy to sign a 20-page contract with Cutting Edge. "An organisation like this provides security to a creative professional," he says.

That's the way things work in Hollywood where most motion pics are made by one of the six large studios-Disney, Warner, Universal, Paramount, Columbia and Twentieth Century Fox. All of them follow an integrated model, spanning everything from scripting to distribution. "These conglos are vertically integrated," explains Sunir Kheterpal, a senior manager with Rabo Bank. "They adopt a portfolio approach to reduce risk.''

That'll require companies such as Tata Infomedia to diversify into distribution and to process several motion pics simultaneously. Most corporate plays in film-making have chosen to steer clear of distribution where Komal Nahata, Editor of Film Information claims "breach of contract is a norm and distributors promise to pick up a film only to throw up their hands later". Cutting Edge sees the Rs 15 crore it is investing in Aitbaar as an educational investment-one that will help it learn the business of film-making, yet fetch a 20 per cent return. It had better learn quick: Hollywood's conglos are making their presence felt in India and it is only a matter of time before they venture into the business of producing mainstream movies. "We are looking at distribution at the moment," says Paresh Manjrekar, Manager (Sales and Marketing), Twentieth Century Fox, "but we will enter production in the next three-to-four years." Bollywood Inc., then, seems set on the path of producing movies better. As to whether they'll be better movies, we'll wait for ticket-sales to do the talking.

THE COMING OF THE ANGLES The arrival of private equity funds and VCs usually indicates that an industry has arrived. By that measure Bollywood has.

Kaleidoscope's Saathiya: Funding above board Hollywood, circa, 1900, was very much like today's Bollywood. There were no big studios. Independent producers arranged for private funding and hired accountants to monitor the financial position. Whenever finances threatened to run out, the accountant would raise an alarm. It was then up to the producer to rally around and get someone to invest some more money. The person who put in the money became known as the 'angel' in Hollywood terminology. Today, angel investors, aka venture capitalists, invest in everything from it to biotech to retail. Now, they're eyeing the movies. Kanwal Rekhi and few other techpreneurs have invested in the Bobby Bedi-promoted Kaleidoscope, which recently produced Saathiya. "As VCs, we are beginning to see film-ventures doing well with legal money," says Saurabh Srivastava, Executive Chairman, Xansa, and an investor in Kaleidoscope. Then there's $41-million (Rs 205 crore) private equity fund GW Capital that has invested $5 million (Rs 25 crore) for a 27 per cent stake in distributor Shringar Films. VC buzz has it that more money is coming Bollywood's way. Reports say Waygate Capital is raising a $100-million fund that will invest in films in India. ''Films are an interesting sub-sector of the investment landscape,'' admits Rajesh Jog, Managing Director, Waygate Capital. That they sure are.