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Will Brahmastra be a hit or flop? Here's a breakdown of the business of Indian films

Amid a debate on the box-office fate of Brahmastra, Moneycontrol brings you a primer on the economics of moviemaking in Bollywood.

September 23, 2022 / 09:30 AM IST
 
 
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Movies entering the Rs 200 crore club are back after a two-year struggle during the pandemic.

Brahmastra, starring Ranbir Kapoor and Alia Bhatt, has become only the second Hindi film to manage the feat in 2022. Yet, the jury is still out on whether Brahmastra can be declared a legitimate hit.

The reason is the film's budget of around Rs 410 crore, which makes Brahmastra the third most expensive Indian film. Some say makers of the film have their task cut out in earning a profit out of it.

Released on September 9, Brahmastra has so far earned Rs 205 crore at the India box office and around $12 million overseas, taking total revenue to Rs 300 crore net. The film, released by Star Studios in India and by Walt Disney Studios Motion Pictures worldwide along with Dharma Productions, Prime Focus and Starlight Pictures, collected a gross Rs 360 crore globally, according to the makers of Brahmastra.

Despite the big numbers, Brahmastra's theatrical revenue has been the subject of a debate with comparisons being drawn between the Ayan Mukherjee directorial and The Kashmir Files, the film that also scored a double century at the box office this year. With a Rs 25 crore budget, The Kashmir Files released on March 11 was made at a fraction of the cost that its makers spent on Brahmastra.

While the budget is a key metric in measuring the success of a film, the producer's share of the box office collection, revenue from non-theatrical rights and expectations from a film also come into play in declaring a film a hit or a flop.

In this article, Moneycontrol breaks down the business of Indian films and who gets what from the release of a big-screen venture.

It all starts with a film releasing in theatres and its box-office collection. There are two variations of the collection--- net and gross.

What is the difference between net and gross collections?

Net collection is what a film makes in a day less the Goods and Services Tax, said Vishek Chauhan, owner of the single-screen Roopbani Cinema in Purnea, Bihar. For movie tickets costing up to Rs 100, tax levied is 12 percent out of which the state’ share is 6 percent. Total GST on movie tickets over Rs 100 is 18 percent out of which the state’s share is 9 percent. For a film ticket costing Rs 100, roughly Rs 30 will be paid as tax to the state and Centre, said film producer and trade business analyst Girish Johar.

It is this net collection that is divided between producers or distributors and theatre owners who keep a percentage of a film's collection as rent for screening the movie. ​

How-your-movie-ticket-cost-gets-shared

What is the role of the distributor?

The distributor connects with theatre owners to release a movie. He is the vital link between the producer and the exhibitor, said Pankaj Jaysinh, CEO of distribution and film services at UFO Moviez. India is divided into 17 circuits and has 8,000 to 9,000 screens, he said.

How is a film distributed?

Once the distributor is appointed, he announces the rights to distribute the film in the specific circuit and, jointly with the producers and the marketing team, creates public awareness of the movie.

"Post that the primary role of the distributor is to connect with the exhibitor and enter into a contract with him, mentioning the commercial terms of screening the movie at his cinema hall," said UFO Moviez's Jaysinh.

How many distributors can a film have?

"With the advent of the corporates, the producers prefer to have one or two distributors having a pan-India presence to distribute their movie. However, there can be one distributor per circuit or multiple distributors for one circuit," said Jaysinh.

Brahmastra has a pan-India distributor like Anil Thadani, said Chauhan. "Vikram Vedha, which will release on September 30, will be distributed by PVR Pictures and Pen Marudhar is doing distribution for some regions. For Brahmastra, they have sub-distributors for regions like Bihar."

What are the different arrangements between the distributor and exhibitor?

Distributors and theatre owners split the box-office collection, with the distributor’s share for weeks 1, 2 and 3 at 47.5 percent, 42.5 percent, 37.5 percent, respectively, said Jaysinh.

National chains like PVR, INOX and Cinepolis India have fixed terms, which includes revenue share of net collections with exhibitor at 52.5 percent in the first week and 47.5 percent in the second, said Chauhan.

"But for non-national multiplex chains, it varies from film to film and some single screens might pay 60-70 percent to distributors," he said.

Chauhan said that along with revenue share, there is also a minimum guarantee clause and fixed hire the two parties follow. Minimum guarantee is when an exhibitor assures a distributor an initial sum from a film's revenue and the rest of the collections is shared on a percentage basis. Fixed hire is when an exhibitor pays an upfront amount for screening a film.

"There is also one way an exhibitor charges an amount from a distributor. A cinema hall with a capacity of doing Rs 20 lakh net business for a film will charge distributor around 20 percent. If a film makes Rs 11 lakh revenue, the exhibitor will deduct Rs 4 lakh and Rs 7 lakh will be given to the distributor, said Chauhan.

He added: "If the film collects Rs 3 lakh, in that scenario a percentage share, usually 40 percent, is divided between an exhibitor and distributor. It is an old thing but still followed in the South, especially when distributors are confident that a film will have a strong opening."

Like exhibitors, the distributors have different deal structures with producers.

How do producers and distributors strike a deal?

A deal between a distributor and producer can be struck in two ways, said Kamal Gianchandani, CEO of PVR Pictures.

"One structure is a minimum guarantee (MG) or royalty where the distributor promises an MG to a producer and then a share of the net collections of a film."

The second kind of deal is the advance commission model in which the distributor does not take the performance risk but extends an advance to the producer so that he has sufficient liquidity at the time of the release, said Gianchandani.

"Here, the performance risk is on the producer and the distributor gets a revenue share towards the advance he has extended to the producer. In the first structure, 30 percent goes to the distributor and 10% in case of an advance commission."

Chauhan said that in the minimum guarantee clause, sometimes a caveat is added of a commission. "If a film does a business of Rs 10 crore, then according to the clause, the distributor will get 12-15 percent commission, which is called MG commission. Such a film becomes a commission earner.

This means that the film has covered its MG and become a commission earner for the distributor. In this case, the producer cannot ask for any money from the distributor up to Rs 11 crore."

He added that if the same film collects Rs 20 crore, Rs.9 crore is left, which will be split 60-40 percent or 70-30 percent, with the higher share going to the producers. "At this time, the film is called an overflow. This term is when the film crosses MG and commission earner stage."

Along with theatrical revenue, producers earn money by selling music, streaming and satellite rights of a film.

How does a producer make money?

How your movie ticket cost gets shared R

A producer earns revenue by monetizing theatrical rights of his film worldwide (India and overseas), said Sanjay Chabbria, producer and founder of Everest Entertainment. Then comes revenues from the sale of digital rights to over-the-top, or OTT, platforms like Amazon Prime Video, Netflix and Zee5, among others.

"There is revenue from the sale of TV rights to broadcasters like Disney Star, Zee, Sony, etc. Then comes money from the sale of ancillary rights like airlines, ships, hotels, etc. Also, there are revenues from the sale of remake rights in different Indian languages and earnings from the sale of derivative rights such as rights to make a prequel or a sequel or adapt the film into a TV programme or a web show," Chabbria said.

The producer makes money when his revenue from all the above avenues is higher than the Cost of Production and P&A (Print & Advertising Costs), added Chabbria.

Johar noted that pre-pandemic box office used to constitute 55-60 percent of a film's overall business, but with the advent of OTT, that is changing. "Theatrical revenue now contributes around 50 percent and the rest comes from other streams." Out of the non-theatrical revenue, 30 percent comes from OTTs, he said.

"There are films that make a lot of money from streaming but turn out duds at the box office. And there are films which turn out big hits at box office but due to streaming and broadcast deals done right at the beginning in order to mitigate the risk, the amount of these could be small in proportion to box office," said Gianchandani.

He said that typically producers sign music, streaming and TV rights agreements before the release of a film but, in many cases they get signed afterwards as well.

In 2021, Indian films recorded domestic and overseas theatrical revenue of Rs 3,900 core and Rs. 600 crore, respectively, and Rs 4,000 crore came from digital rights, followed by broadcast rights at Rs 700 crore, said a 2022 report by EY and the Federation of Chambers of Commerce and Industry (FICCI) report.

"While 6-7 years back, theatrical revenue was the biggest contributor, now it is OTT. Producers secure themselves by selling OTT, satellite and music rights and theatrical is the bonus," said Suraj Sinngh, founder of BLive Productions.

While a movie is considered a hit or profitable when a producer makes money from all revenue streams, there are different definitions of a hit film.

When is a film called a hit?

"In older times, a film was considered a hit when it went into an overflow territory because the distributor not only covers the minimum guarantee but has also made commission. So, it is a plus for all. Now, the barometer is whether a producer has made money from all recovery channels because distributors and exhibitors are not giving MGs for a film. There is no risk taken except for the producer. Earlier, the value chain absorbed the risk," said Chauhan.

Released in June this year, Janhit Mein Jaari starring Nushrratt Bharuccha and produced by Bhanushali Studios on one hand saw below par box office collections at Rs 4.25 crore. On the other, the producers made Rs 20 crore from the sale of music, streaming and TV rights. The makers said that the film delivered a 54 percent return on investment. The film which was made at a budget of Rs 20 crore.

Surraj Sinngh concurs. "Today, if everybody in the value chain has recovered the cost then a film is a hit because in today's time producers are finding it difficult to recover cost of production," he said.

According to Gianchandani, there are two definitions of a hit film. "One is when a film's performance is looked at in relation to the performance of other films. Second is when a film is compared with the expectations," he said.

Gianchandani noted that if it is a positive return then the film is declared a hit, if the returns are disproportionate, then the film is a super hit and if it is negative business then from the producer’s perspective, it is not a hit.

"It all depends on the way you are analyzing. If you ask an exhibitor, then measuring a film's business in relation to other films and expectations comes into the picture whereas if you ask a producer, then it is the second scenario," he added.

Johar said the perception of a hit film is based on the box office as it gives validation to a particular film. "This is why talent (actors, directors) wants to release films on big screen as it gives validation, which is not there on OTT."

In the case of Brahmastra, Johar said the Rs 410 crore budget of the film should not be the yardstick to analyze whether the film is a success or not.

"Brahmastra could do lifetime business of over Rs 200 crore at Indian box office, which is a good number. Also, the studio will defer the cost to other franchise films because it is a trilogy. The cost will be subsided by the other films as there will be no new elements to be created for the sequels. So, in the long term, it will generate a profit," he said.

In a recent interview to a publication, actor Ranbir Kapoor said the assets created for the first film, including the fire visual effects or effects to depict other superpowers, will be used in next two parts of the franchise. He said the economics of Brahmastra could not be compared to other Bollywood films.

While for Brahmastra, the makers said that a significant sum had gone into visual effects, there are other heads under which production companies divide the budget.

What is included in the cost of production?

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"Budget or cost of production comprises of ATL (above the line) cost and BTL (below the line) cost. ATL is your fixed cost and BTL is variable. After the script is locked, BTL will not change, what changes is ATL. BTL will only decrease and increase by 5-10 percent. ATL includes cost of hiring directors, actors and writers and here the spends depend on the scale of talent one gets on board. Then there is landing cost which includes your P&A," said Sinngh.

P&A includes Virtual Print Fees (VPF) which the producer pays to companies like UFO Moviez, QUBE Cinema. VPF includes offering a digital package, licensing the content, delivering as well as editing a movie into different versions like into a 3D film and costs in the range of Rs 8,000-20,000 per movie per property.

Johar said that in the cost of production, the largest portion is the cost of talent, which includes directors, actors and writers. This usually accounts for 50 percent of the film's entire budget.

While top stars like Akshay Kumar are estimated to charge around Rs 100 crore for a film, some like Aamir Khan opt for a revenue share model.

"If Aamir is taking 70-80 percent of the profit, then he is not charging upfront fees. He will take a minimum fixed fee and the balance as revenue share. In terms of books, this model brings down the cost of talent because there is no fixed cost on the film," he said.

Reportedly, Aamir Khan has decided to absorb the losses after his recent venture Laal Singh Chaddha performed weakly at the box office with collections to the tune of Rs 60 crore after being budgeted at Rs 180 crore.

Actors sometimes also come on board as producers. There are different ways a film is funded.

How are films funded and when is a film's budget decided?

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A filmmaker or a producer either puts his/her own funds or takes the help of banks and financial institutions, said Chabbria.

"Getting a studio to back your film and co-produce the movie and having an A-list actor or director on board helps. Crowd funding is another way which is being used by a lot of independent filmmakers when they’re unable to raise funds through regular means i.e. institutions or studios," he added.

Chabbria said work on the actual budget of the film can begin only after the first or second draft of the script is locked.

"Before the film is greenlit, the budget is in place. A film is greenlit when you have the director, actor and all key elements in place and at that point the budget and who is financing the movie whether it is a studio, a producer, or a financier, is decided," Gianchandani said.
Maryam Farooqui
first published: Sep 23, 2022 09:30 am