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RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 03 MUMBAI 000052 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD SCUL IN
SUBJECT: CAN THE INDIAN FILM INDUSTRY GO GLOBAL? 
 
MUMBAI 00000052  001.2 OF 003 
 
 
¶1. SUMMARY:  The Indian film industry - centered around the 
Hindi-language industry in Mumbai, known as "Bollywood" - is the 
world's largest.  Nevertheless, with modest revenues and low 
profitability, the industry's impact is more cultural than 
economic.  In the last decade, however, the Mumbai-based 
entertainment industry has began to corporatize, 
professionalize, and seek broader - including more global - 
audiences.  With rising incomes and extensive room for 
expansion, industry representative and analysts agree that the 
film and entertainment sector has tremendous growth potential. 
While few expect Indian films to catch on globally, Indian 
entertainment companies are aiming to develop content and 
partnerships to tap both domestic and international audiences. 
This cable explores the changing dynamics of the Indian film 
industry and its global ambitions; a subsequent cable looks at 
the potential for "Hollywood-Bollywood" partnerships in this 
sector.  END SUMMARY 
 
 
 
SMALL INDUSTRY WITH A BIG NAME 
 
 
 
¶2.  India is home to the world's largest film industry, with 
Bollywood - shorthand for the Hindi-language film industry based 
in Mumbai - at its center.  While the Indian film industry has 
always been diverse - many of the world's best known "art house" 
directors come from India - the industry was built on three hour 
action and romance films, with numerous dance and musical 
numbers.  The Indian film industry produces roughly twice the 
number of movies as the American film industry, and sells 2.5 
times the number of box office tickets as the U.S market. 
However, the Indian film industry's domestic box office revenues 
have been modest; in 2008 Indian films earned only USD 1.6 
billion compared to Hollywood's USD 9.7 billion.  (Note:  Ticket 
prices in India are considerably less expensive than those in 
the U.S. or Europe, one reason profits are lower.  End Note.) 
 
 
 
¶3. Aashish Singh, Vice President of Yash Raj Studios, one of the 
oldest production studios in India, pointed out that despite its 
fame, Indian films produce little fortune; the market for Indian 
films is highly fragmented, and only a few films make any money. 
 According to film producer G.K. Desai, only one in every 10 
Hindi movies is successful.  Siddharth Roy Kapur, the CEO of UTV 
Motion Pictures, concurred, and averred that only five percent 
of Hindi movies released in 2009 made a profit.  Nevertheless, 
Kapur says, people continue to make films because of the 
attraction and glamour of Indian cinema, and the long-term 
revenue potential of video and cable releases. 
 
 
 
¶4.  With over 22 national languages, local and vernacular-based 
industries compete in a highly regionalized market.  Of the 1000 
films produced annually, Bollywood produces about 200, the rest 
coming from regional or non-Hindi productions.  However, in 
terms of reach and revenue, as well as its stable of 
nationally-recognized stars, Bollywood films dominate the 
industry.  Jehil Thakkar, Head of Media and Entertainment for 
KPMG, says that Bollywood accounts for 46 percent of the total 
Indian film industry revenues film industry experts noted, 
however, that South Indian cinema - Tamil, Malayalam, Telegu, 
and Kannada language films - perform better at the box office, 
with four of every ten films becoming profitable.  Contrary to 
popular belief, many in the industry admit that the South Indian 
film industry is better developed than the better known Hindi 
language film industry.  According to Desai the southern film 
industry is more organized than Bollywood, and Kapur admitted 
that the technical talent and the quality of South Indian films 
is far superior to Bollywood films 
 
 
 
THE JOURNEY FROM "BLACK MONEY" TO MODERN CORPORATIZATION 
 
 
 
¶5.  In recent decades, the Bollywood film industry has been 
associated with the notorious Mumbai underworld, at the nexus of 
gangsters, money, and politics.  According to Thakkar, this 
association stemmed from the financing needs of the industry; 
until 2000, by government fiat, the film industry was ineligible 
for bank credit, private equity, and other means of legitimate 
commercial financing.  As a consequence, films were financed by 
ad hoc collections of investors, many of whom were from the 
 
MUMBAI 00000052  002.2 OF 003 
 
 
construction and trade industries, who charged interest rates as 
high as 60-100 percent.  The industry also welcomed funds from 
gangsters and politicians, looking for ways to launder their 
ill-gotten gains, known in India as "black money."  After the 
government added the film industry to the list of legitimate 
industries, the corporatization of Bollywood - and the wider 
entertainment industry - began.  Most of the major entertainment 
firms have evolved into a broad range of content lines, 
including films, TV, and music, much like the U.S. counterparts. 
 Today, even leading film stars, like Amitabh Bachchan, have 
issued IPOs and listed their own production companies on the 
stock exchanges.  However, Sanjeev Lamba, the CEO of Reliance 
Big Pictures which runs Anil Ambani's Reliance ADA group's movie 
business, lamented that the Indian film industry is still 60-70 
years behind Hollywood in terms of corporatization. 
 
 
 
¶6.  Following the Hollywood model, many film and entertainment 
companies are moving away from an actor/star-based system to a 
system more reliant on the production company's brand, and its 
stable of producers and directors, says Kapur.  In doing so, 
studios can lessen their dependence on actors -- who often 
command fees for as much as 50 percent of the film's budget 
(compared to 10-15 percent in the U.S.)-- and increase their 
chances of profitability for each film.  Kapur blames excessive 
competition and multiple avenues and sources of financing for 
much of the industry's problem because there is too much money 
and too many people chasing limited amount of talent.  Akshaye 
Widhani, Vice President of Yash Raj Films, believes that there 
is currently a "price bubble" in the film industry.  The entry 
of foreign studios and availability of multiple financing 
options have built up unrealistic expectations, especially with 
regard to actors' salaries, he complained.  Widhani believes 
that costs have to decrease by 40 percent for the film business 
to sustain itself in the long term.  However, actor's 
expectations will become more realistic only after one of the 
major production studios fails or declares bankruptcy, he 
admitted. 
 
 
 
ROOM TO GROW 
 
 
 
¶7.  Industry representatives and analysts agree that the Indian 
film industry offers great opportunities for domestic growth. 
KPMG expects revenues from Indian cinema to grow from USD 2.3 
billion in 2008 to USD 3.6 billion by 2013.  Thakkar told 
EconOffs that screen penetration and consumer spending is still 
extremely low in India, with both on the rise.  The largest 
theatre chain in India has less than 200 screens; the world's 
largest movie exhibitor owns over 6,600 screens.  With 12 
screens per million people in India, compared to 117 screens per 
million in the U.S., there is considerable room for growth. 
Additionally, according to KPMG, consumer discretionary spending 
is expected to increase from 39 percent to 70 percent of total 
household spending by 2025.  With flat growth projections for 
the U.S. and European film markets, India is an attractive 
destination market for both foreign and domestic firms. 
 
 
 
CAN BOLLYWOOD GO GLOBAL? 
 
 
 
¶8. Indian entertainment companies are increasingly interested in 
developing and co-producing Hollywood films intended for Western 
audiences.  Indian film companies are also making inroads in 
Hollywood.  UTV Motion Pictures co-produced two films with Fox 
Searchlight, "The Namesake" and "I Think I Love My Wife" and one 
with 20th Century Fox, M. Night Shyamalan's "The Happening," 
which grossed over USD 170 million worldwide.  Kapur explained 
that the UTV-Hollywood co-production collaborations for 
Hollywood movies were "tactical" and driven by the script of the 
films.  Kapur says that UTV has had more traction with the 
Western market through film festivals.  In fact, UTV just worked 
with Aamir Khan Productions to gain entry to the Sundance Film 
Festival that has recently premiered its first Indian film, 
"Peepli Live."  Additionally, Apoorva Mehta, CEO Dharma 
Productions, says that they will premier their new movie "My 
Name Is Khan" at the Berlin Film Festival which will give the 
movie global attention.  (Note:  In the last three years, major 
U.S. studios have signed agreements to co-produce Bollywood 
films with established Indian directors and production houses. 
Unfortunately, all of the joint co-productions released have 
 
MUMBAI 00000052  003.2 OF 003 
 
 
been unsuccessful so far at the box office. See septel.  End 
Note.) 
 
 
 
¶9.  The most aggressive Indian player in Hollywood is Anil 
Ambani's Reliance Big Pictures, which has invested USD 325 
million for a 50 percent stake in Steven Spielberg's Dreamworks. 
 The group has also forged development partnerships with several 
U.S. production houses owned by Nicholas Cage, Jim Carrey, Tom 
Hanks, Brad Pitt, Julia Roberts and George Clooney.  Reliance 
Big Pictures' COO, Jawahar Sharma, explained that global 
ambition, rather than strategy, drove the group's decision to 
tap Hollywood.  All of the Reliance ADA group business 
operations are globally-oriented and the film business is no 
exception, he continued.  The group has also acquired movie 
theatres in the U.S. in areas populated by Indian diasporic 
communities to showcase Bollywood and regional Indian films. 
Yash Raj Studios' Singh also believes that Reliance ADA's 
initiatives in the U.S. are strategic, rather than 
profit-seeking, in nature. 
 
 
 
THE ELUSIVE CROSSOVER FILM 
 
 
 
¶10.  KPMG's Thakkar noted that the Indian film industry has not 
yet been able to create universally appealing content for a 
global audience.  The genre of Indian film is extremely 
different from a Hollywood movie; it is longer, has many song 
and dance numbers, and is considered too dramatic to appeal to 
Western audiences.  While commercial Indian films have had some 
success in parts of the former Soviet Union and Africa, and a 
few Indian art house productions have been profitable, overall, 
Indian films are still reliant on Indian diasporic audiences for 
global revenues.  Some new directors who are exposed to Western 
film making are making Indian movies in keeping with Western 
sensibilities to draw wider audiences in world cinema.  However, 
overall, no industry participants predicted that films popular 
with Indian audiences would find true global audiences; 
recognizing this, Indian entertainment companies hope to develop 
content separate from the Indian audience that would appeal to 
viewers outside India. 
 
 
 
¶11. (U) Reliance ADA's Lamba said that there has never been a 
"genuine" crossover film which has fared well in both 
international and local markets.  Indian films pitched to an 
international audience rarely do well locally, he added.  In 
contrast, using a foreign language film script to make a 
Bollywood movie with Indian stars has great potential, he said. 
Yash Raj Studios' Singh explained that crossover films need to 
appeal to a universal audience and cultural tastes and 
preferences are always difficult to predict. 
 
 
 
¶12. COMMENT:  The film industry in India is beginning to share 
the global ambitions of other Indian companies and industries. 
As a first step, many newly-professionalized companies are 
cautiously getting a feel for global markets and opportunities. 
Larger entities with deeper pockets - such as Reliance Big 
Pictures - have moved more boldly, but most of the other 
artists, technicians and film houses are looking for smaller 
parts and opportunities to expand beyond India, while 
maintaining a foothold in their core domestic market.  Although 
visibility for the Indian film industry has increased vis-`-vis 
movies like "Slumdog Millionaire," the reality is the industry 
is just beginning to corporatize and understand the Western 
market.  Though many players are attracted to the glamour of the 
industry, the standard Indian movie rarely makes a profit and is 
unlikely ever to appeal to Western audiences.  The film industry 
is well-aware of this trend, and seeks to find other avenues for 
entering the Western market and improve their own profitability 
within the South Asian diaspora.  End Comment. 
FOLMSBEE