FICCI-KPMG-Report-13-FRAMES

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78 The power of a billion: Realizing the Indian dream Indian media industry: Growth story unfolds Mr. Karan Ahluwalia, EVP, Media & Entertainment, Yes Bank © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The Indian M&E industry has seen a metamorphosis over the past two decades and is at an inflection point towards an accelerated growth trajectory to reach USD 30bn by 2020. What really makes the Indian M&E industry a potential goldmine? Currently it is the heightened consumption of media in Tier II and III cities, sustained growth of regional media, impact of positive regulatory changes, digitization and the rapidly accelerating new media space. The face of the entertainment industry has changed. The industry has reinvented itself from a private community dominated by a privileged few to an organized and corporatized industry with lower entry barriers. Growing exposure to various organized providers of capital such as banks, film funds, development capital, PE and capital market are driving several industry players to restructure and transform from a family run structure into corporate enterprises. The avenues and challenges of film financing have also evolved, with reliance on unorganized funding sources (such as family and friends, moneylenders and other non conventional sources) in the 1980’s giving way to an increasing role of organized funding sources in the 1990’s when capital markets developed and firms began raising funds through equity markets. Additionally, the ease of listing on London’s AIM and raising funds through the FCCB route motivated various firms to utilize international capital markets. The last few years have witnessed the emergence of private equity as a mode of financing for the M&E industry. The altered economic backdrop created “opportunities in adversity” for private equity and strategic buyers to acquire assets at attractive valuations with several notable deals in the M&E segment. It has always been difficult for filmmakers and financiers to predict the success of films. From a financial institution’s perspective, the fragmented structure of the production segment needs to be addressed since a credible track record, sound balance sheet and good corporate governance are prerequisites for organized funding. However, in the recent past, increased efficiencies, transparency, track record, strong budgetary controls & timelines and reduced distribution risk have enabled content creators to cover their working capital requirements through Financial Institutions, either in the form of Single/Slate financing or discounting various deals involving the sale of IP distribution rights. Other methods of raising capital such as crowd financing, film funds, P&A financing further reflect the rising maturity of the Indian film industry when it comes to structured methods of financing. Yes Bank has constantly demonstrated its commitment to this sunrise sector by engaging in key structured transactions for a range of M&E enterprises in this segment. Today, the need for diversification & linear integration has led to the emergence of media conglomerates, strategic joint ventures as well as alliances that call for pooling of technology, capital and talent to jointly create and exploit IP rights. Co-productions and the presale of IP rights have become the new modus operandi for funding film productions involving local and global major studios. Various overseas studios have been actively participating in the Indian industry with the aim of opening newer avenues for expansion; given the stagnation in their mature home markets. These studios are using their strong international network to distribute movies around the globe. Leading US studios are going a step further and are now seeking to capture a share of the commercially viable Indian regional film industry. Remakes, a phenomenon commonly observed in Bollywood, dates back to the inception of the Indian film industry. Until recently, the South Indian film industry has traditionally been the primary source of content for Bollywood remakes. However, there have been several recent instances where Hindi movies are being remade to cater to regional audiences. Another trend is that movies are being made based on bestselling novels. The film distribution landscape is witnessing a shift from movies being distributed not only the traditional international markets such as the US, UK, Middle East Australia and SAARC countries but also to many non traditional markets such as Morocco, Turkey, Africa and Vietnam, among others. Indian production houses are gradually migrating and adopting global best practices in order to gain traction as well as build scale, this will enable them to access innovative and structured financing products such as securitization of IP receivables and gap funding to name a few. However, government deregulation, prudent structuring of the entire value chain and greater participation by stakeholders will further accelerate growth in the industry and help bridge the gap vis-à-vis international markets. Unless otherwise noted, all information included in this column/ article was provided by Karan Ahluwalia. The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG in India.
The power of a billion: Realizing the Indian dream 79 Independent filmmakers embrace crowd funding Crowd funding (also called crowd financing, equity crowd funding, or hyper funding) is a financing model where a project is funded by small contributions from a large number of individuals or communities, usually through Internet portals or social networks, rather than seeking substantial sums from a small number of investors. Participants or sponsors of such initiatives may receive some reward in return (in cash or kind) based on their contribution. Crowd funding for movies is a trend that is already popular in many countries across the world and is gradually being adopted by independent filmmakers in India who find it difficult to source funds for their films. Crowd-funding vs Crowd-investing Crowd-funding is when individuals fund a movie or any project in exchange for tangible and intangible rewards and incentives, for example DVDs, tickets or VIP passes, name on credits, music lessons, autographed merchandise etc. There is no profit sharing involved. On the other hand, crowd-financing or investing is when the investors fund money for financial gain – for example an equity or profit sharing in the venture or loan payback with interest 64 . Advantages Risk Reduction • Risk of investment is low as the loss is divided among a larger group that is involved in the funding. • Transparency in financial dealings • There is no interference in work from production houses. Disadvantages Limitation on amount of funding • Only works for small budget films. • There is a limitation of funds pooled in for finance. Difficult to attract foreign investors • Only a good script with a universal appeal is able to attract investors. Risk of concept leakage • Risk of film’s concept being copied as some parts of the movie need to be disclosed to the masses to attract investors Case Study – ‘I AM’ ‘I Am’, the National Award winning film has given a boost to the idea of crowd funding of movies. Being a film that dealt controversial subject matter, it was not able to get backing of any studio. Therefore it turned towards the crowd sourcing model for funds. The film aggressively used social media campaigning to attract investors. I Am’s fund-raising campaign used more than 50 usergenerated videos 65 . The director provided regular updates on the project and spread high awareness of the legal issues. Around 400 individuals – both local and foreign contributed to the project 64 . All of them were acknowledged as co-producers in the movie as well as were part of the profit sharing process. The total amount pooled in for the movie was INR 30 million 66 . After successfully raising funds from the general public for I Am, its producer-director duo Sanjay Suri and Onir again took the crowd-funding route for their upcoming film ‘Chauranga’. 64. ‘The growing trend of crowd funding’, Times of India, October 2012 65. ‘Crowd funding set for Indian boom’, Film Business Asia, March 2013 66. ‘Crowd funding: An emerging trend in Bollywood’, Times of India, March 2012 67. ‘The One Rupee Film Project’, Lfebf.com, December 2012 Another example of crowd funding is a project by two filmmakers from Kolkata on independent filmmaking. They are seeking contribution from people through crowd funding platforms – Wishberry and Indiegogo. Though people are welcomed to pay more, but one could become a producer by paying just a rupee. That is why the film makers have named it as ‘‘The One Rupee Movie’. The project was able to collect INR 153,000 as of 21 December 2012 67 . © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Acknowledgement We acknowledge the
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FICCI-KPMG-Report-13-FRAMES

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