Long derided for cranking out kitschy melodramas and escapist claptrap, the Indian film industry is suddenly attracting attention of a different sort. The critical and box-office success of movies from Bollywood – Mumbai's answer to Hollywood, has thrown spotlight on an increasingly lucrative industry which private equity investors, high net-worth individuals, and venture capitalists have taken notice of over the last one year.
What was being considered impossible until sometime ago, now seems to be possible. The new trend, witnessed in 2003, has been the fact that the Indian film industry for the first time saw private equity investors and high net-worth individuals coming in and making investments in Bollywood.
Based on the statistics provided by Sunir Kheterpal, Head of Media & Entertainment at Rabo India, total funding for films from organised sources have increased from approximately Rs 43 crore for four films in 2001 to Rs 55.6 crore spread across 11 films in 2002 to Rs 176 crore lined up for 33 projects in 2003. “This represents a sharp 200 per cent increase in 2003 over the previous year," he says.
During 2003, the film funding through IPOs was to the extent of Rs 64 crore – representing 36 per cent of total investment. As per the statistics, institutional funding was to the extent of Rs 43.8 crore (25 per cent). Funding through venture capitalists and institutional private equity investors was Rs 27.5 crore (16 per cent), while private equity investors invested Rs 40.7 crore; thereby, representing 23 per cent of the total funding.
According to Kheterpal, funding from organised sources has been led by Media and Entertainment (M&E) companies which raised funds through IPOs over the last few years and new entrants comprising high net-worth individuals and companies such as Lucky Star Entertainment, part of the Oswal Group and Vijay Path Singhania's Raymonds which were traditionally not engaged in the M&E business. These players have reduced financing offtakes from traditionally unorganised sector debt financiers by a corresponding amount.
“This represents a definitive shift in the growth of organised film financing for the Hindi Film industry, and the trend is likely to sustain and grow over the coming years,” observes Kheterpal.
A sharp surge in funding from the companies funded by IPOs can be attributed to the growing interest of TV software and other M&E companies in the film production arena. Entertainment One is one such example. The group is currently financing and producing more than five films. The assignment is larger than its older competitors Mukta Arts and PNC. Contiloe Films, Creative Eye, Optimystyix, Sri Adhikari Brothers are also understood to be foraying into film production.
While the first three categories of funding sources have started financing films in 2001 and 2002, film financing from private sources like high net-worth individuals or through companies funded by them gathered momentum in 2003 and the trend is continuing in 2004.