Indywood The Indian Film Industry - Deloitte
IndywoodThe Indian Film IndustrySeptember 2016
Indywood The Indian Film Industry2
Indywood The Indian Film IndustryContentsForeword3Executive Summary5Make in India Initiative and the Film Industry6India’s Film Industry6Industry Overview7Key Trends in the Indian Film Industry10Growth Drivers and Opportunities15Key Challenges in the Industry17Key Focus Areas for the Film Industry21Technological Advancements in the Film Industry24Skill Development in the Film Industry32Film Tourism in India34Background and Global Perspective34Film Tourism in India: An Overview40Recent initiatives to Improve Film Tourism40Next Steps and Initiatives46International Best Practices: Case Studies50Case Study: Film Tourism in the UK50Case Study: Film Tourism in New Zealand54Shooting of Foreign Films in India – Tax Aspects59Authors, Acknowledgments and Contacts623
Indywood The Indian Film IndustryForewordWelcome to the Indian Film Industry Reportfor the Indywood Film Carnival taking placeduring September 24 – 27, 2016 in RamojiFilm City, Hyderabad. The film industryhas been earmarked as a key sector in theMake in India campaign. As part of this,the Government of India is taking severalinitiatives to effect growth in the sectoras well as promote foreign film shootingslocally. Deloitte India’s objective with thispublication is to provide an overview ofthe film sector in India and analyse the keytrends impacting the sector today.Our endeavour is to provide a consideredpoint of view on key initiatives requiredgoing forward in the film industry to propelgrowth and promote film tourism. In orderto do so, the report delves into the currentstate of the industry to identify key focusareas and requirements to increase boxoffice realizations, improve occupancy andaddress the infrastructure constraints.As the Indian film industry moves into thenext phase of growth, it is imperative tokeep pace with the global technologicaladvances and innovation. Historically,the Indian film sector has lagged behindin its counterparts in the deployment ofemerging technologies such as virtualreality, augmented reality, drone shootings,etc. The development and deploymentof key technologies in Indian films will be4critical to remain at the forefront of globaltrends. The report analyses the methods toachieve this including technology transfers,collaboration with international studios anddevelopment of technical skills in-country.Another endeavour of the Make in Indiacampaign has been to develop technicalskills for film production, post productionand VFX. Given the low labour cost, thiscould be a key factor in attracting foreignfilmmakers to the country. The reportelucidates the current initiatives beingtaken by the Government of India underthe Make in India campaign to improveavailability of skill and talent in filmmaking.The report also analyses other actionsthat can have an impact on increasingavailability of skills locally.In this report, the international bestpractices in thriving film sectors globallyhave been studied including initiativestaken by various regions to attract foreignfilm shooting. The report also includescase studies on the UK and New Zealand,countries that have successfully beenable to position themselves as key filmingdestinations as was witnessed by the HarryPotter Series and Lord of the Rings Trilogy.Deloitte hopes that you and yourcolleagues find this report a usefulstimulant in your strategic thinking.Hemant JoshiAshesh Jani
Indywood The Indian Film IndustryExecutive Summaryproduced with between 1,500 to 2,00020 languages. In terms of revenue, theof 2.1 billion which is expected to growat 11% CAGR reaching 3.7 billion by 2020.The key growth drivers for the industryare: Increasing per capita income andgrowing middle class Demand from Tier 2 and Tier 3 cities Diversifying into international markets Releasing the potential of digitization Upside from ancillary revenue streams in moviesof the total industry. Cable and satelliterights and online/digital aggregationrevenues are the fastest growingsegments, and expected to grow at aCAGR of about 15% over the period FY15is dominated by Bollywood, the Hindirevenue while regional and internationalcurrently a small, but growing segment,driven by rising numbers of English andother foreign languagespeakers, as wellas rising numbers of international movieswitnessing dubbed releases across thecountry. Other key recent trends in theindustry include: Entry of international studios throughacquisitions and collaborations Rise of regional cinemaproduced in India, the industry grossrealization has been substantially lowerthan its global counterparts. For example, Digital adoption across the value chainCanada stand at 11 billion whereas Emergence of alternative streams ofrevenue Organic and inorganic growth inmultiplexesGoing forward, the industry needs tofocus on the following factors to ensure Low infrastructure penetration Slow growth in average ticket price(ATP) Complicated tax regime Rising costs and lack of accessto funding Film tourism Skill enhancement Shortening window of release throughbetter planning Updating current technology Piracy Countering piracy Multiple layers of bureaucracy Growth of multiplexes Prevailing strict censorship normsmajority of the revenue, representing 74%5
Indywood The Indian Film IndustryMake in IndiaInitiative and theFilm IndustryOverview of the Make in IndiaCampaignThe Make in India campaign, launchedby Prime Minister Narendra Modi inSeptember 2014, is aimed at enhancinglocal manufacturing, fostering innovation,and facilitating investments in the Indianindustries. The initiative is being led bythe Department of Industrial Policy andPromotion (DIPP) and the Departmentof Commerce and Industry and covers25 key sectors, including media andentertainment.Make in India initiative. Till now, severalsteps have been taken in the sectorto improve investments and increasebusiness opportunities. The followingsteps, specific to the film segment, havebeen initiated under the campaign:The Make in India programme endeavoursto create additional employmentopportunities through improving businessopportunities and positioning India asa destination for manufacturing andservices. The programme also aims tofacilitate businesses and entry of newplayers in India by instating clear andtransparent processes, enabling Ease ofDoing Business, and simplifying laws andregulations. Since the inception of theMake in India program, there has beena significant increase in Foreign DirectInvestment (FDI) owing to the growingpositive perception of India in the globalscenario. Media and Entertainment Skills Council(MESC) is being promoted by Federationof Indian Chambers of Commerce andIndustry (FICCI) with financial support byNational Skill Development Corporation(NSDC) to create 1.2 million skilledworkforce by 2022 in the media andentertainment sector across 74 jobprofiles.Objectives and Initiatives in the FilmSectorMedia and entertainment has beenidentified as one of the key sectors for the6 A Film Facilitation Office has beenestablished under the operatorshipof the National Film DevelopmentCorporation (NFDC) for facilitation of filmshooting in India and promotion of Indiaas a destination for foreign productionhouses. Additional film treaties are being exploredby the Government of India, havingrecently entered into film treaties withChina and South Korea, to not only availfilm production benefits but also widenthe reach of Indian cinema.The Make in India campaign for the filmsector aims at driving growth and creatingemployment opportunities in the sector aswell as making India one of the leading filmtourism destinations globally.
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Indywood The Indian Film IndustryIndia’s Film IndustryIndustry OverviewThe Indian film industry is the largestin the world in terms of number offilms produced with around 1,500 to2,000 films produced every year inmore than 20 languages. The industryalso had the second highest footfallsin the world in 2015 (over 2.1 billion)following China (almost 2.2 billion).Despite the large number of filmsand theatre admissions, the industrycontinues to remain small with respectto other global industries in terms ofrevenue. In India, the film industriesgross realization stands at 2.1 billionversus gross realization of 11 billionin the US and Canada which producessignificantly lower number of films(approximately 700 films).1 This ismainly due to low ticket realizationsand occupancy levels, lack of qualitycontent, and rampant piracy.Historically, the film industry in Indiahas grown at a CAGR of over 10%.Currently, the film industry grossestotal revenue of INR 138 billion ( 2.1billion). Going forward, the industryis expected to grow at 11.5% year-onyear reaching total gross realizationof INR 238 billion ( 3.7 billion) by2020. The key growth drivers areexpansion of multiplexes in smallercities, investments by foreign studiosin domestic and regional productions,growing popularity of niche movies,and the emergence of digital andancillary revenue streams.The domestic box office contributesto the majority of the revenue,representing 74% of the total industry.Cable and satellite rights and online/digital aggregation revenues are thefastest growing segments, and areexpected to grow at a CAGR of aboutFigure 1: Film Industry Revenues(INR billion)15% over the period FY15 – FY20,driven by rising demand for movieson TV and increasing smartphonepenetration across the countryrespectively. On the other hand,home videos have been shrinkingdue to increasing piracy and growingpopularity of digital platforms. Homevideo has lost share to Video onDemand (VOD) through Direct-to-home(DTH) operators and Over-the-top(OTT) platforms.The Indian film industry is dominatedby Bollywood, the Hindi film industry,contributing 43% of the revenuewhile regional and international filmscontribute the remaining 50% and7% respectively. Within the regionalfilm industry, Tamil and Telugu arethe largest segments comprisingapproximately 36% of net boxoffice revenues followed by Bengali,Figure 2: Category-wise Break-up of Revenue238214CAGR10.5%193Cable illaryRevenueStreams5%OveaseasBox Office7%DomesticBox Office74%20132014201520162017201820192020Source: Deloitte Report - Economic Contribution of the Indian Motion Picture and Television IndustryPVR Analyst Report19
Indywood The Indian Film IndustryKannada, and Malayalam films. Currently,international films is a small, but growingsegment, driven by rising numbersof English and other foreign languagespeakers, as well as rising numbers ofinternational movies witnessing dubbedreleases across the country.Key Trends in the Indian Film Industry1. Film Production SegmenInternational/foreign films gainingshare in the Indian industry:International films is a growing segment inthe Indian film industry, having increasedits box office share from almost 5% a fewyears ago to approximately 7% today. Thisis mainly due to: Dubbing of international films inregional languages: The numberof foreign films dubbed into Indianlanguages has doubled over the past 5years. These films are being dubbed intoHindi, Tamil, and Telugu which has helpedthem reach audiences beyond Tier 1cities. Rise of multiplexes: Multiplexes havewitnessed significant growth across majorIndian cities and continued penetration insmaller towns. Investments in multiplexesis mainly driven by improved per-ticketrealization, rising urbanization, andgrowing disposable incomes.Entry of international studios throughacquisitions and collaborations: Severalinternational film studios such as WarnerBros., Disney, Fox, and Dreamworks havenot only set up distribution houses in India,but have also entered into partnershipswith local film production housesthrough acquisitions and co-productionagreements. For example: Walt Disney acquired a 50% stake in UTVand now has a controlling stake in UTVSoftware Communications. Viacom18, a JV between Viacom andNetwork 18, was the first studio modelbased production house. Viacom18engages in production, syndication,marketing, and worldwide film distribution.Additionally, a key example of collaborationhas been Fox Star joining hands withDharma Productions in a deal worth INR5,000 million. Fox has produced almost 30Bollywood films, as well as a few Tamil andMalayalam language films.Local film production can leverage theexperience of these international studiosto expand their international reach andincorporate enhanced project planning andcost controls.Figure 3: Box Office Revenue Split by LanguageInternational,7%OtherRegional,14%Hindi, 43%Telugu, 17%Tamil, 19%Source: Deloitte Report - Economic Contribution of the Indian Motion Picture and Television Industry10
Indywood The Indian Film IndustryRise of regional cinema: Whilemainstream Bollywood dominates theIndian film industry, regional cinema hasbeen witnessing a surge in investmentsfrom major film studios to tap the potentialof underpenetrated markets. Largenational producers such as RelianceEntertainment, Eros, Disney, Viacom 18Motion Pictures, Fox Star Studios as wellas independent producers like EmmayEntertainment (Nikhil Advani), AkshayKumar, and Grazing Goat Productionsplan to spend 20% of their annual budgetson regional cinema. This is not only dueto the relatively untapped nature of themarket but also because of cheaper costof production of regional movies. Theaverage cost of producing a commercialHindi film is INR 150 million versus a cost ofINR 40 million for a Marathi or Punjabi film.PVR Analyst Report1 South Indian film industry is very vibrantwith revenue expected to grow at a CAGRof 12% reaching over INR 42 billion overby 2017. This segment is dominated byTamil and Telugu films (90%) with 365films released in 2015. However, theprofitability of these films has been lowwith only 30% recovering productioncosts.2 While big budget films continueto account for a large share of revenue(approximately 40%), smaller budget filmswith strong content have been gainingpopularity. Further, Tamil and Telegu filmshave started to gain nation-wide andinternational popularity Malayalam film industry has witnessedhigh growth and profitability drivenby strong content and large audiencein 2015. Over 140 films were releasedduring the year in Malayalam. Highprofitability was demonstrated by filmswith good content making over INR500 million at the box office over moviebudgets of INR 120–150 million. Bengali film industry has seen a slumpin the recent years as poor content, shiftof audience to English and Hindi cinema,and lack of infrastructure becamegrowing challenges in the sector. Singlescreen theatres have been successively2Deloitte FICCI Report: The Digital March Media andEntertainment in South India11
Indywood The Indian Film Industryshutting down in the state with over100 screens closed in the last one and ahalf years. Marathi film industry has re-emergedover the last few years owing to strongcontent, lower budgets, and governmentsupport. The segment has shown40–45% growth in 2015 reaching INR 1.5billion in revenue. The state governmenthas bolstered sector growth throughmandating screening of at least one showof a Marathi film in a multiplex. Gujarati film industry is showingindications of coming out of a long slumpdue to production of urban centric filmsand higher investments in the sector.There has been a considerable jump inbox office collections reaching INR 550million last year from INR 70 million in2014. Punjabi film industry experienceda strong growth of 15–20% over theprevious year.2. Marketing, Distribution andExhibitionDigital adoption across the valuechain: Real Image and UFO Moviez havefacilitated the digitization of moviesenabling wider distribution of films acrossvarious regions and curbing piracy. Keybenefits of digitization can be witnessedacross the value chain: Film makers: Digital printing costs 80%less than conventional printing whichallows producers to scale up to 5 timesthe number of screens than originally inthe same budget. Due to this, digitizationhas enabled the penetration of contentto smaller cities and towns. In thecurrent scenario, over 60% of box officecollections are realized in the first week ofa movie’s release. Increased penetration,simultaneous release across theatres,and front-ending of revenue has resultedin a drastic increase in number of films12
Indywood The Indian Film Industrygenerating over INR 1 billion in box officerevenues. Distributors and exhibitors: Digitizationof content has resulted in the reductionof costs of physical transportation andprint manufacturing. Digital contentis delivered by way of satellite or harddrive adding convenience and costeffectiveness to the process. Nearly alltheatres have adopted digital technologyresulting in shift from large-sizedprojection systems to smaller and moreefficient digital projection systems.Although digital projection systems havea heavy initial investment, the runningcosts as opposed to analog are minimal. Consumers: Digital projection in thecinemas has superior quality of imageswhich are not subject to deteriorationwith the passage of time. It has also givenviewers access to technologies such asVFX, animation, and 3D films.Digital cinema has also helped inaddressing piracy as well. With the adventof digital technologies, piracy of films andsongs has decreased tremendously. Withdigital distribution, movies are releasedon the same day in all places and checkscan be kept on where movies are showingand how many times they are screened,resulting in reduction in the scopefor piracy.Organic and inorganic growth inmultiplexes: Multiplexes have showna growth rate of 15% in Indian cities,increasing from 925 in 2009 to 2,100 in2015. Over 2,000 single screen cinemashave been shut down or converted tomultiplexes in the last year mainly dueto greater cost of operations (higherentertainment taxes, increase indistributors’ share, and lower ticket prices),non-viability of running on a standalonebasis and low occupancy rate. MultiplexesFigure 4: Number of Movies Grossing over INR 1 billion23295120081200966201320145220102011INR 1 bn 20122015INR 2 bn Source: Analyst Report - India Film Exhibition – Blockbuster year13
Indywood The Indian Film Industrycurrently account for approximately 26%market share of the screens; however,they contribute more than 40% of boxoffice collections. Wider content andprogramming flexibility result in higheroccupancy and hence profitability ofmultiplexes. With comparison to growingeconomies, India has a low penetration ofmultiplexes with a potential to have almost7,500–10,000 multiplex screens across thenation. Going forward, the key multiplexoperators such as PVR, Inox, Cinepolis,and Carnival Cinemas have aggressiveexpansion plans in the coming three years.3Industry leaders in the film exhibitionsegment have grown not only throughorganic screen additions, but alsothrough acquisition of smaller regionalmultiplex chains and single screen players.Consolidation of the multiplex segment hasresulted in the top four cinema operators(PVR, Inox, Carnival, and Cinepolis)controlling almost 70% of the market.Emergence of alternative streams ofrevenue: Other sources of revenue havestarted to make an increasing contributionto the film industry realizations. In thelast few years, the window available tomonetize a film’s revenues at the box officehas shortened considerably. This is drivingfilm studios to exploit ancillary streams ofrevenue such as the following: In-cinema advertising: In 2015, thein-cinema advertising revenues reachedFigure 5: Number of Screens in 501,2251,07520102011Single urce: INOX Investor Presentation Febru
Case Study: Film Tourism in the UK 50 Case Study: Film Tourism in New Zealand 54 Shooting of Foreign Films in India – Tax Aspects 59 Authors, Acknowledgments and Contacts 62 Contents. Indywood The Indian Film Industry 4 Foreword Welcome to the Indian Film Industry Report
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