Vanita Kohli-Khandekar: Adlabs comes of age

Under the Reliance ADAG umbrella, Adlabs morphs into an end-to-end film services firm

In 2005, Reliance Capital acquired a small film processing and multiplex firm. It paid a record Rs 360 crore for a majority stake in Adlabs, the firm that Manmohan Shetty, who recently co-produced Rajneeti, had built from scratch.

Then it went on to change everything that the firm did from its name to the businesses it was in. Reliance MediaWorks (RMW), as Adlabs is now called, has grown from a Rs 87-crore firm in March 2005 to a (consolidated) Rs 754-crore company in topline in March 2010. It is now the largest part of Reliance ADAG’s somewhat confusing foray into the $17-billion Indian media and entertainment space. The others are gaming, film production, radio and OOH media. 

THE BUSINESS OF ENTERTAINMENT THE RELIANCE ADAG MEDIA & ENTERTAINMENT PICTURE
Company	Businesses	2009-10 revenues (Rs crore)
Reliance MediaWorks (formerly Adlabs)	Film post and media services,  exhibition and TV content	754
Reliance Broadcast Network	Radio, OOH, digital and BTL	180
Big Pictures (unlisted)	Film production & distribution	NA
New Media (unlisted)	Zapak (gaming) & social media	NA

 

Even though everything changed, it is the kernel of what Shetty had built that has been used to create RMW. Almost all Hindi films, about 140 of them, used to go through Adlabs. “We leveraged the same client base,” says CEO Anil Arjun.

RMW offers a bouquet of services that hovers around the creation and release of film-making promos/trailors, image correction, restoration, subtitling, digital imaging, post-production, special effects, equipment rental and so on. And it is still adding — there is a 200,000 square feet studio (for shooting) being built next to its office in Filmcity, Mumbai. It will take the total area over which RMW offers services to 340,000 square feet.

Each of these services is a fragmented, easy-to-enter, difficult-to-scale-up-in business. And each is different — in the capital needed, skills, people and time-intensity. That changes the level at which economies of scale operate in each business. For instance, digital imaging needs skilled people and the metric is man-hours of work and what it is priced at. Obviously, the margins are better. In film processing, the number of feet of film you process is what matters — it is a volume game.

So, there are thousands of one-man outfits in Mumbai offering either equipment rental or digital imaging. Then there are large firms such as Century Communication or Prime Focus that offer many of these services — post-production, rental and special effects. But it is rare that the whole bouquet is combined. That, says Arjun, is what RMW is trying with a bulk of its facilities on one campus — the 290,000 square feet one at Filmcity (the other being in Airoli on the outskirts of Mumbai). Except for Ramoji Film City on the outskirts of Hyderabad, the world’s largest such facility in the world, there aren’t many firms offering what the IT guys would call end-to-end solutions.

Interestingly, just like film processing, most of these services are fee-based and completely delinked from the fate of the film. It’s in exhibition that the risk comes in.

When Reliance took over, Adlabs had about 32 screens only in Maharashtra. This has now gone to over 530 screens in India, Malaysia, the US, the Netherlands and Nepal. So, while the topline contribution is huge — over 60 per cent of RMW’s revenues now come from exhibition — it is also the one that keeps the company at a net loss (Rs 148 crore), as it goes through its growth phase. The film services part, however, is pretty profitable (Rs 32 crore). The third part of RMW’s business, film distribution and TV content (where it acquired Siddarth Basu’s Synergy), is also profitable.

With a large capacity in its kitty, the next step is the international markets for these services, in both film and TV. Arjun reckons that three big trends will drive this business. One is the whole area of image correction as people try to fit content into different screens. Two, the shift from standard definition to high definition. This creates a lot of work for companies such as RMW. Three is the whole shift from standard 2D to 3D. You can already see that in the pace of digitisation in the exhibition business globally. In 2009, there was an over 300 per cent jump in 3D digitisation of theatres as against 2008.

To catch the demand these three trends will create, RMW recently acquired iLab, one of the two film-processing firms in the UK. This is in addition to its 2008 acquisition of Lowry Digital, a Burbank (USA)-based firm. The idea is to have these front the marketing for RMW’s services which are then done through an optic fibre link between India and Burbank. RMW also signed an MoU with Japan’s largest lab and post-production company, Imagica. It will use RMW’s back-end and sell its services to Japanese broadcasters and studios.