From Dharma to Sikhya — why corporate capital is lining up for Bollywood

Corporate capital in films

• Corporate investors acquire stakes in Bollywood studios for valuable IP libraries.
• Non-theatrical rights now cover most production costs, lowering investor risk
• Corporate investment brings structure, stability, and fuels bigger film projects

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Big money is finding its way into Bollywood boardrooms and experts say investors are drawn by monetisable Intellectual Properties (IP) libraries along with a business model that is now less exposed to theatrical volatility.

Reliance’s recent acquisition of a 50.1 percent stake in Oscar winner Guneet Monga's Sikhya Entertainment marks the fourth such deal in the media and entertainment space, following investments by Adar Poonawala in Dharma, Saregama in Sanjay Leela Bhansali and Universal Music Group in Farhan Akhtar, Ritesh Sidhwani-led Excel Entertainment.

Three top reasons why corporate investors are lining up to buy into premium production houses include owning IP, lesser risk due to more contribution from ancillary rights and corporates bringing in more structure to filmmaking.

Why is corporate money flowing in film banners?

Anant Roongta, Managing Director of Famous Studios called to attention the IPs Dharma Production holds from Kuch Kuch Hota Hai, Kabhi Khushi Kabhie Gham and many others.

"Dharma retains the rights of many of their films and the IPs they have hold a certain value. One reason for an investor to invest in a film studio that holds IP is that they also get access to that IP and it comes into their books," he told Moneycontrol.

Second factor, Vivek Menon, Managing Partner, NV Capital highlighted is that nowadays majority of the cost of production is covered by non-theatrical rights. "Streaming and other rights now are 50-70 percent of a film's revenue so whatever comes from the box office is a huge boom."

He also cited the recent and one of the most successful ventures Dhurandhar. "It is windfall profits for the makers."

Third aspect, Roongta said that investors think they can bring more structure to film production, increasing viability of films.

"Only one out of ten films actually do well. The balance doesn't because it's unstructured. Corporates bring a certain type of structuring to the filmmaking process. Also, now the industry is going to rely very heavily on technology. So, there has to be a balance of creative understanding, technology as well as business understanding which the corporates think they can bring in which is why I feel a majority of investors are coming in."

Sharad Patel, a Film Producer and Founder of SP Cinecorp Cinematic Venture is seeing independent family offices, Alternative Investment Funds (AIFs) turning their heads to content creation.

"I see a lot of positive interest by family offices, High Net-worth Individuals (HNIs), and certain AIFs to invest in the content business."

Is consolidation an impact of Covid?

Corporate capital is flowing is good news but the need is arising due to the Covid impact, Patel noted.

Dependency completely shifted to digital in the two years of pandemic, he said, adding that supply surpassed demand. "Too much content was made and now there is a lot of unsold inventory lying in the market. All of a sudden, platforms that earlier wanted to acquire 50 films/shows a year, it has now reduced to almost one-fourth."

Patel also noted that platforms during the peak Covid period were also paying high premiums to content creators. "Creators started overcharging because the platform started paying. Now, reality has struck, there is correction in prices and also an imbalance. So now content creators expect corporations to bring in that balance."

What will these investments mean for the film industry?

In addition to stability, Menon expects big-scale projects to be fueled by these investments.

"Once capital formation becomes easier, studios can make more deals of their choice. The ambition of Indian content makers is also getting bigger. Look at projects like Ramayana and the scale at which it is mounted. Also, bigger and better projects drive other segments as well like visual effects (VFX), animation."

He also expects the corporate capital to help Indian films draw bigger audiences abroad especially in key markets like the US and UAE.

Patel expects more regular income for talent across the filmmaking industry. "When it is a one project work, many try to grab the maximum benefit out of their one gig. But when they know it is an ongoing work  they won't mess around because they know they will get regular income."

He also expects corporate investment to increase risk taking appetite. "A studio backed by investors brings on board their bandwidth of capital. They are able to take and absorb risk of launching newer talent. I feel the industry needs more faces, more talent, more risk-taking appetite."

Currently, the studio deals are happening based on setup which includes who the star or director is and not the subject of the content, he added.

"There is a certain discipline in the western world because there are completion bonds in the projects. Investors don't worry about investing at the development stage because they are sure that if the project does not go further, the capital is protected by insurance. India had started with completion bonds long back but shut it down because projects never got completed on time," Patel noted.

He added that in Hollywood 5-10 percent of any film's budget is spent in the development stage which includes story, pre-visualisation, research and development, etc. "Around 5-7 percent of the budget also goes into reworking on scripts, etc after which it is decided whether the film can be made or not," Patel said.

Then the next 25-30 percent of the budget is allotted towards key actors, directors and as much as 60 percent of the budget goes into film making. "For Hindi films, 50-60 percent is spent on actors, director, 40-45 percent is production and less than 2 percent is development. The moment a star has said yes to a project, irrespective of whether the script holds value or not, or if an A-lister writer has said yes, nobody stands their ground if they are not convinced with the subject. Everyone just gives in," he added.

This is why he thinks corporates can bring more structure to film making.

Is it a wave of consolidation in the film industry?

Nikhil Narendran, a media lawyer, thinks it is a wave of consolidation in the media and entertainment industry not just in India but globally.

Patel also said that the number of independent film studios have reduced to half because of consolidation. He expects more acquisitions happening in the near future.