The First Take

Last year, Hollywood studio Sony Pictures Entertainment received a clearance from the Foreign Investment Promotion Board (FIPB) allowing it to set up a subsidiary to invest in the Indian film industry. Typically, SPE's application was pending for a year before the FIPB before the approval came through. According to industry sources, interested parties had even lobbied against the venture, impeding its progress.

Now, future foreign direct investments (FDI) into the local film business may not have to face the same hurdles. For early this month, the union government opened up FDI in almost all sectors to the automatic approval route. That included 100 per cent FDI in the film industry as well.

 

This covers a range of activities from film financing and production to distribution, exhibition and marketing. Further, wholly-owned subsidiaries of foreign film majors have been allowed subject to certain conditions like an established track record. Also, any foreign company investing in India will have to have a minimum paid-up equity capital of $10 million if it is the single largest equity shareholder or a minimum equity capital of $5 million in other cases.

But while the government's move may be another step towards opening up the industry, will it really accelerate FDI inflows into the roughly Rs 8,700-crore film industry? An industry, moreover, that is unorganised and plagued by a star system as well as dubious financial connections.

"The policy is good as any new investment will generate employment and the competition will help raise standards. For investors too, the potential is there. But so far nothing much has happened. Investors will want to assess the market before they come in," says Supran Sen, secretary, Film Federation of India.

Most people in the industry believe the policy will not have any impact, at least in the immediate future. For one, it's not as if it is a radical improvement. Says Amit Khanna, filmmaker and managing director of software house, Plus Channel, "There were no restrictions earlier. This is part of the process of opening up."

More importantly, clearing the bureaucratic logjam is not enough; the sectoral issues need to be tackled as well. After all, despite getting industry status over a year ago, banks are still reluctant to extend loans to filmmakers in the absence of corporate structures, adequate reporting systems, completion bonds and the like.

No wonder, studios like Twentieth Century Fox aren't interested in investing in the country. Says Aditya Shastri, general manager, theatrical & home entertainment, Twentieth Century Fox India, "We are not looking at investing in Indian productions. For, at the end of the day, what matters is not permission. There are many more issues that need to be addressed before movie-making becomes an attractive industry."

Even local players like Balkrishna G Shroff, partner, Shringar Films, a leading distributor agree. He says, "I don't expect any investments to come in at least in the near future. For the way of making films in India is totally different from Hollywood. Who will invest in this kind of environment?"

Shastri feels the government needs to resolve issues like piracy and taxation, for instance. Then there are the strident extra-constitutional groups that are increasingly roadblocking legitimate business concerns. Says Shastri, "We're not asking for a quid pro quo or counter guarantees but investments have to be secure."

So the fact that anyone can get a pirated copy of a film on the day of its theatrical release and then show it with impunity across several thousand cable homes makes studios like Fox insecure. Alternatively, even if the film gets to the theatre, it may be pulled down because some interest group has raised objections.

For instance, Deepa Mehta's Fire was pulled off theatres in some cities after politicians and other groups alleged it was "debasing" Indian culture. Or there's the more recent controversy over her under-production Water, whose crew has been forced to abandon shooting in Varanasi, despite securing all the requisite government permissions and assurances.

"This makes us uncomfortable. You can't say come and buy this piece of land. Yet, when the buyer is confronted and booted out by the thug on the ground, the government can't refuse or ignore to take any action," says Shastri. Adds Sen, "This is an area of concern. Once you set up a Censor Board and give authority to that body, there should be no other authority dictating terms."

The other problem, of course, is with the way the industry itself is structured. "The Indian film industry is structured on forward selling," says an industry player. That means filmmakers sell theatrical rights upfront to finance the film's making.

So producers take on stars because funding the project becomes easier. True, all over the world, personal equity and stars drive the film business, but these issues make that vital difference in India. "There is this total reliance on forward sales, the star system prevails and there is no corporatisation. It is all inter-linked," says the above player.

That's not deterred all players. SPE, after all, set up its subsidiary, SPE India, last year. Its first venture was the distribution of the Hindi film, Pyaar Mein Kabhi Kabhi. Now, the studio is reportedly planning to produce a film. For SPE, there are synergies since Sony already had successful ventures in music (Sony Music) and television _ Sony Television Entertainment (SET) in the country apart from Columbia Tristar Films of India, which distributes the Hollywood studio's products.

Then there is Universal Music India, the erstwhile Polygram (before Seagram acquired Polygram internationally), which has already made three Hindi films so far including Hrishikesh Mukherjee's Jhooth Bole Kauwa Kaante, and has several more lined up. Albeit its case is slightly different. For the company began as an Indian company, Music India Limited, in which Polygram acquired a minority stake, gradually raising it over the last decade till it became 100 per cent.

Khanna believes investments in India by such studios are also the result of the consolidation within the global entertainment conglomerates. So internationally, there is a greater synergy between various parts of a studio today. Similarly, in India, the Hollywood studios have more than one presence so these are being integrated.

Also, there's been an Indianisation of their distribution offices here over the last few years, with new executives taking charge at places like Fox and Columbia Tristar, reinvigorating the offices. Besides, there is indirect investment into the industry everytime a SET or Star TV acquires Hindi film telecast rights for mind-boggling figures, touching Rs 2 crore. "There are a number of indirect linkages which are crystallising," says Khanna.

But fresh FDI inflows may still take a while. The policy, for instance, has not even registered with many local producers, distributors and exhibitors. Also, foreign players may not find the going easy. In distribution, for instance, Shroff points that film rights are sold territory-wise. So a foreign player will have to compete with a different distributor in each territory. Besides, the distributors have developed relationships with producers and exhibitors.

There could be investments in activities like exhibition, especially with the rise of multiplexes. But here other roadblocks emerge. For one, theatres are controlled by the state government. In a state like Maharashtra, for instance, several applications for multiplexes are still pending because of the lack of clarity in government policy. The previous Shiv Sena-Bharatiya Janata Party government had announced concessions for multiplex and theatre promoters but this was not gazzetted before the government fell. Now the new Congress-led government has still to state its policy on the same. So investments continue to be on hold.

In film financing or production, as Khanna points, it's a bit of a Catch 22 situation. "A Subhash Ghai or Yash Chopra doesn't have any problem raising money. At the same time, the average archetypal Mumbai film producer is not going to be financed by the bank or any international company till he gets his act together," says Khanna. So the next move will have to come from the industry itself.