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Film industry: Getting its act together! - Views on News from Equitymaster
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  • Sep 11, 2006

    Film industry: Getting its act together!

    The Indian film industry is one of the oldest segments of the Indian entertainment industry. Today, India has the world's biggest movie industry that churns out around 1000 movies each year. The Indian film industry is finally witnessing marked improvements on all fronts -from the technology used in making films, to the theme of the movies, exhibition, finance, marketing, and even in its business environment. There is no doubt that the Indian film industry is finally getting corporatised.

    The Indian film industry stands today at an estimated Rs 68 bn and projected to reach around Rs 153 bn by 2010 translating into a healthy CAGR of 18%. Thus, the future of the industry looks bright. In this write up - let us have a look at the growth prospects of the industry and its revenue structure.

    (Source: industry estimates.)

    The Indian film industry does not have the 'studio system' as prevalent in the developed economies like the US. It is characterized by presence of privately held and family owned film production companies like Rajshri Productions, Yash Raj Films, Mukta Arts, Tips Films and many more. There are various sources from where the industry generates revenues. These sources includes:

    • The Domestic box office revenues.

    • Overseas box office revenues.

    • Ancillary revenues.

    • Home video revenues.

    Revenue Structure
    (Rs m) FY04 FY05E FY06F FY07F FY08F FY09F FY10F
    Domestic 78% 76% 75% 69% 69% 68% 66%
    Overseas 8% 9% 9% 9% 9% 9% 10%
    Ancillary 8% 9% 9% 9% 9% 9% 10%
    Home 6% 6% 7% 13% 13% 14% 14%
    (Source:Industry estimates.)

    Domestic box office collections which today stand at 78% of the total revenues of the industry, will continue to corner a large portion of the Indian film industry revenue pie. However, it is projected to lose some of its share to the emerging home video and overseas box office collections. Ancillary revenues earned by film producers by selling their digital rights to mobile companies, satellite rights to television broadcasters and television distributors (cable companies and DTH players) are estimated to increase by 20% per annum on a cumulative basis and are expected to garner a share of a little over 10% of the overall pie by 2010.

    But when we talk in terms of growth rates among the various segments, the home video segment shows the maximum potential. With fast declining prices of VCD/DVD players and rising income levels, it is estimated that this segment is going to grow at a rapid pace of 25% CAGR over the next five years.

    With discretionary income levels in India on an upward trend, it is no surprise that the Indian film industry is expected to notch good growth rates over the medium to long term. Sensing this, a lot of media companies have started venturing into film production. For these companies, it is the next logical step as it helps them in diversifying their revenue sources. Already content providers like Balaji Telefilms and UTV have started doing this on a regular basis. Multiplex owners and companies which are involved in post production work have also jumped into the fray in an effort to make themselves completely integrated players and take advantage of the resultant economic benefits. Thus, a move towards the studio system kind of a model for the Indian film industry cannot be ruled out. For viewers, this is likely to result into a better viewing experience and investors in these kind of companies will thus be able to take more informed decisions on account of increased transparency and efficiency. As mentioned earlier, with disposable income on the rise, investing in a company with strong forward and backward linkages to the Indian film industry may not be a bad proposition at all.



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