An Insider’s View: Why is Bollywood Going Bust?

Yes, star and director’s fees are hurting the Bollywood economy, but studios are leading its downfall.

The film industry is buzzing with the news of the Walt Disney Company, one of the biggest studios in the world, shutting down their motion pictures division in India, and Siddarth Roy Kapur, the current Managing Director, parting ways with the company –however, I am not surprised a single bit.

Reason? I expected this long back. Not that I claim to be a visionary but I figured that the illogical ways in which studio heads function make no sense at all. I could see this coming in Bollywood. I have been in touch with all my friends in the Hindi film industry and am in the know about how the tide has turned for the worst. Let me explain how, step by step.

Corporate Studios Are Failing and How

First, sample these scenarios:

2004: Studio18 was negotiating the acquisition price for the Anees Bazmi film No Entry. They thought Rs 45 crore was expensive and refused it. But UTV bought it. Just a few days later, the same team of Studio18 went and paid a premium of extra Rs 9 crore and picked the same film for Rs 54 crore.

2008: PVR Pictures green-lit Ashutosh Gowariker’s Khelein Hum Jee Jaan Sey without reading the script, and at an unheard price of Rs 46 crore for a film starring Abhishek Bachchan. They were just told what the story was. Later, when the Bijlis realised it’s too expensive, they went to Gowariker during the shoot and tried to negotiate the price to Rs 28 crore, the cost was finally settled at Rs 35 crore. The film gave a return of only Rs 5 crore and was one of the biggest flops of the year.

According to a source, the first time anyone at PVR saw their own film was just 2 days before its release at a cast and crew screening.

2009: After Sanjay Leela Bhansali delivered a big flop with Saawariya, Sony Pictures India was still considering him for his next film. But then UTV came into the picture and offered him a director’s fee of Rs 35 crore, an amount that was unheard of in Bollywood. It made no sense at all as he had just delivered a huge flop with a big Hollywood studio. Sony shut shop in India after that.

2013: Phantom Films was shopping around Bombay Velvet at a price of Rs 55 crore. Fox Star Studios picked the film at Rs 95 crore and delivered one of the biggest flops in recent years. How did Rs 55 crore reach Rs 95 crore? Take a guess.

And now sample this contrast:

2015: Reliance Big Pictures released Vibhu Puri’s Hawaizaada, which turned out to be a colossal flop. Made on a budget of Rs 35 crore, it could not even make Rs 10 crore at the box office. The film starred Ayushmann Khurana in the lead along with a new actress. This was the last nail in the coffin of Reliance Entertainment. Sanjeev Lamba, the CEO, was asked to step down along with the senior management team, and further movie production under the banner was stopped.

Just a few months later, Yash Raj Films, released another film starring Ayushmann Khurrana - Dum Laga Ke Haisha. Made on a budget of less than Rs 10 crore, it went on to make Rs 30 crore at the box office, got huge critical acclaim, and bagged a bunch of National Awards. Everyone in the industry had warned Yash Raj Films that they shouldn’t release another Ayushmann Khurrana-starrer just after Hawaizaada. But Aditya Chopra proved everyone wrong.

The point I am trying to make is the clear cut difference between how corporate studios failed and how traditionally family owned studios flourished at the same time.

Films Are Not FMCG

If Siddarth Roy Kapur is blamed for terrible decisions (like Mohenjo Daro made at Rs 125 crore / loss of Rs 75 crore, Fitoor at Rs 75 crore / loss of Rs 50 crore, Katti Batti at Rs 45 crore / loss of Rs 30 crore, Phantom at Rs 75 crore / loss of Rs 40 crore), there were similar executives who were responsible for shutting down many national and international corporate film studios.

Start counting – Sony Pictures (after Saawariya) and later PVR Pictures (after Khelein Hum Jee Jaan Sey) went down while it was headed by Uday Singh. Warner Brothers (after Chandni Chowk To China) shut shop in India under Blaise Fernandes. Percept Pictures and Sahara Motion Pictures closed shutters while headed by Sandeep Bhargava. He, along with Priti Shahni, were overseeing operations at Studio18 when it hit heavy financial losses. Sanjeev Lamba was heading Reliance Big Pictures when the Hawaizaada debacle took place. Apurva Nagpal and Madhu Mantena were at the top when SaReGaMa’s movie division collapsed, post the disastrous Jhootha Hi Sahi.

The other corporates who shut shop in Bollywood are – Birla Group’s Applause Entertainment, the Singhania Group, the Tata Group and the Mahindras. The Times and Zee Group have shut down once but are trying their luck again. And all these big banners have entered and exited the industry in the last 15 years.

Compare this to individual or traditionally family owned studios – Aditya Chopra’s YashRaj Films, Karan Johar’s Dharma Productions, Sajid Nadiadwala and Firoze Nadiadwala’s banners and Bhatts’ Vishesh Films. They have all survived and have been making money. While Aditya Chopra delivered the biggest hit Sultan this year, Sajid took the cake by delivering three big hits in 2014 – Kick, Heropanti and 2 States, and the Bhatts have created successful franchises with Murder, Raaz and Jannat.

One wonders why? Where big banners like Disney / Warner / Sony / Reliance / SaReGaMa failed, how are individual producers successful?

There are a few crucial points to that:

1. Studio Heads Don’t Know Cinema

Most studio heads in Bollywood are completely cinema illiterate. They all come from management or marketing backgrounds with no clue about the creative aspect of story telling and movie making. If MBAs could make successful movies, we would have IIM graduates running the show. All studio owners and promoters repeated the same mistake – they hired a glib talker instead of people who knew cinema. They all worked on numbers but forgot that the numbers could come only when the “story” was interesting.

2. No Understanding of Content

Studios follow a set pattern – Salman film works, Ayushmann film won’t. South Indian remakes work, thrillers don’t and so on. So Reliance delivered big flops with big stars, like Salman Khan’s Jai Ho and Hrithik Roshan’s Kites. Without understanding how a story or film unfolds, studios end up treating films as FMCG (Fast Moving Consumer Goods).

When Sujoy Ghosh’s Kahaani was being shopped around, all studio heads dismissed it saying a film with a pregnant woman as a central character won’t work. Sujoy made the film with an independent producer, Jayantilal Gada, and it was later acquired by Viacom18. The Rs 12 crore film earned Rs 80 crore at the box office.

Dum Laga Ke Haisha was written off in all studio cabins, as the story was about a fat girl. While working on an animation film, I was told animation doesn’t work in India. This year, a Hollywood film, The Jungle Book made more than Rs 100 crore and beat most Bollywood films. The list is endless.

They even failed to remake successful Hollywood films. When Viacom18 remade The Italian Job into Players, the Rs 60 crore film made just over Rs 15 crore at the box office.

Studios almost never develop in-house content with writers and end up paying a premium to production houses like Farhan Akhtar’s Excel Entertainment, Vipul Shah’s Blockbuster Entertainment, Neeraj Pandey’s Friday Filmworks and many such. Studios pay a heavy premium to get the content, and that too without owning any IP (intellectual property) rights for future exploitation. They have no understanding of the right content, and pay a premium for the wrong ones.

3. Need Talent to Spot Talent

Individual producers, be it Vidhu Vinod Chopra, Aditya Chopra, Karan Johar, Sajid Nadiadwala or the Bhatts, have all launched new actors and directors. But most studios failed terribly here. They didn’t have the talent to spot talent, or the talent they launched, were miserable. Like Reliance made Vibhu Puri’s debut film Hawaizaada which was a disaster. As a result, it paid a heavy price and premium to woo big directors and stars, while individual producers started launching new directors and locked them for three films at a much cheaper cost.

4. Acquisition Blues

As studio heads are not creatively inclined, they take the easiest route of acquiring films – by paying up a premium price. These films are made by independent successful producers who earn big money by way of the selling price, regardless of the film’s fate.

Once individual producers learnt that the studios had no vision for content and actors, they started exploiting them more. What’s worse, most deals and prices are locked even without watching the film. The producers just describe what the film is about, who the stars are and who the director is. Price locked.

The studio is dependent on the film’s theatrical and other revenues, to recover its monies. The margin of profit is already low as the purchase price is always too high. Additionally, in almost all cases the single producer owns the bigger share of IP, leaving the studio with an even lower margin of returns even if the film is a box office success. For instance, Baaghi, which was acquired by Disney UTV from Sajid Nadiadwala was a box office success. However, since the IP belonged to Sajid, the studio reportedly barely made a 10% return, despite the film’s huge success.

Another example: Junglee Pictures reportedly paid Excel Entertainment Rs 35 crore for acquiring their film Bangistaan. This film starring Riteish Deshmukh and Pulkit Samrat, and directed by debutant Karan Anshuman, was cleverly clubbed with the more commercial Dil Dhadkne Do, to the studio as a 2-film deal. Junglee Pictures got no IP on both the films. Bangistaan ended up making around just Rs 5 crore at the box office. The film reportedly got large subsidies as it was shot in Poland, giving Excel a table profit already on the deal. But Junglee Pictures allegedly incurred a heavy loss on these two films.

Actually, according to insiders, with Excel Entertainment, no studio has earned any money. But Excel always gets its return on investment, charges a premium, keeps the IP, and even gets a share in the profit.

5. Kickbacks Hurt

A reason for the high acquisition prices is the alleged kickbacks taken by studio heads and executives, and in the case of listed companies – news in the industry circle is that a share even goes down to the promoters.

The Curious Case of the Indian Studio Head

The strangest thing is so many studios have shut down in the last few years, still no owner/promoter has learnt anything from the mistakes made previously. They keep on hiring the same bunch of people from one studio to another. These executives, keep sinking ships and jumping to new ones.

The future of film studios in India seems bleak as the same people are constantly being shuffled in key positions. If we take a look at the current crop:

Viacom18: After incurring heavy losses, the studio has slowed down its operation with the release of just 2-3 films per year. The studio is headed by an MBA graduate and it apparently doesn’t even have a creative head or team in place. The head of production also pitches in as the creative head.

Sony-MSM Pictures: The studio is headed by someone with a financial background who was handling Sony’s television business. The studio head reportedly did not have much confidence in Piku which was produced by MSM last year. The film ended up being a commercial and critical success. The person, however, was very confident about Azhar, which ended up being a dud.

Junglee Pictures: The studio head here is reportedly responsible for the one-sided deal with Excel Entertainment which caused losses for the company. Again no creative background here, the head apparently worked in the hospitality industry before.

Balaji Motion Pictures: The person here started his career in acquisition / distribution and moved on to talent management. He personally produced a flop film directed by his brother. With no background in creative and development, he was still hired at Junglee Pictures as creative head and then later at Balaji as CEO. This is baffling, to say the least.

Fox Star: The senior here has been running a disastrous show at this studio with not a single film making any money in the last few years (barring Neerja this year). As a result, Uday Shankar (CEO, Star) reportedly had to step in to do the 10-film deal with Karan Johar’s Dharma Productions. At least that ensured they will get some good films from a reputed producer.

Eros is still playing the same game of paying high priced acquisitions. After the news came out of its trouble in NYSE, the company has not been able to generate any more cash flow. As a result the entire team of Eros Now has quit. With cash flow drying up, Eros reportedly stalled all digital media plans.

Again, I am not a visionary, but let me make a prediction – if these existing studios keep playing the same game, I can bet that all of them will be making heavy losses and will be shutting down in the next 5 years.

Reason being, with acquisition and no in-house content development, the profit margin will remain low and losses will remain big. Also with talentless people at the helm of affairs, who have no understanding of films, no studio will ever make money.

At a time when the film business is growing and markets are expanding worldwide, Bollywood studios seem to have failed miserably. Unless there is a complete rethink in the kind of professionals that should be hired as studio heads – passionate, cinema literate and educated individuals, studios in India will lack longevity and success. They will either halt their India film production business like Disney, shut down completely or keep on plodding with massive losses till they see minor success like Fox.

(The writer of this piece, A Krishna, can be contacted at [e-mail])

(Disclosure: The founders of The Quint were also the controlling shareholders of Studio18 and Viacom18 before May 2014.)