Mumbai: Film-focused funds are exploring ways to hedge risks as their journey to tinsel town has not been pleasant, with most movies failing to make an impact on the box office.
Offering debt and mezzanine funding—a hybrid of debt and equity—last-mile investment in the form of backing print and advertising of a film and even co-production are the new ways of investing in the film business.
While India is the world’s largest single consumer of film entertainment in the world, with as many as 1,100 movies releasing every year and 3.5 billion tickets being sold, pure equity funding has become too risky with an increasing number of flops.
Sales factor: Ticket counter at a multiplex in New Delhi. Around 85% of films released flop, according to industry estimates. Priyanka Parashar/Mint
Around 85% of films released flop, according to industry estimates. When the movies do not do well in theatres, their satellite rights also do not fetch good money.
The film industry has shrunk 20-30% in the last one-and-a-half years, said Samir Gupta, managing partner, Cinema Capital Venture Fund (CCVF). His firm has backed eight films, including Ajay Devgn-starer All The Best.
Gupta said the film industry continues to have reservations when it comes to getting institutional capital for its companies.
The fund has now started doing debt and mezzanine funding for a few projects. Two-three such transactions have been closed so far and Gupta may look at a few more in future. “We are adapting with time… Real estate companies are doing it. We are doing these transactions only for a few projects.” he said. Gupta wants 21-25% returns.
“Today, debt and last-mile funding would be the best thing for films in India,” said Gupta, adding that mezzanine funds are the most successful investment vehicles for films globally.
For investors, hybrid investments and debt offer better returns than vanilla equity deals. Private equity (PE) funds, however, cannot do pure debt deals unless mandated by their investors.
Vistaar Religare Film Fund (VRFF), which has backed films like Victory, The Stoneman Murders and Finding Lenny, is planning to invest in prints and advertising (P&A) of films. “P&A means that we were last in and first out; this keeps us financially protected,” said Sheetal Talwar, managing director, VRFF.
P&A is the last stage of any film that is being produced. Those who invest in P&A are the ones who get their money first, ahead of other financiers. Their entry at the last stage also is relatively less risky as they take a call when the project is nearing completion.
VRFF is also looking at raising another fund early next year. Its current fund is worth Rs200 crore and the bulk of it has been invested.
Dar Capital Group, which has a Rs250 crore film fund, also raises money from high networth individuals to invest in both Hindi and regional films.
Dar Capital plays the role of a co-producer for certain projects and investor for others. “By its very nature, funds are not conducive for films,” said Arun Rangachari, chairman, Dar Capital Group, as running a fund is a structured business while films are creative. “For funds, raising capital for investments in films is easy, but deployment is difficult. Film funds are a great idea, but need to be structured differently and draw money only when required.”
Global Entertainment Partners (GEP), a US-based film fund, that earlier had plans to invest in Indian films has decided against it. “Indian investors are in higher risk position than us,” said A.V.T. Shankardass, founder, GEP, and a film producer.
According to him, the Indian film industry is not organized well enough to make it lucrative for investors. “The DVD market is not big enough in India to make profits. In the US, there are various platforms to make returns on a film; in India, there is no tax benefit and there is hardly any overseas market, except NRIs (non-resident Indians).”
Meanwhile, CCVF has invested less than 10% of its Rs200 crore corpus in last-mile and mezzanine funding. The fund is now looking at raising another offshore fund of $100-150 million.
The film business, estimates consultancy firm PricewaterhouseCoopers, is growing at 13% annually and could record revenues of Rs17,600 crore by 2012.
A media consultant, who did not want to be named, said it is not easy for institutional investors to get a firm footing in film funding as it is not a transparent industry. With money available from unaccountable channels and top producers not needing institutional capital, investors will have to keep looking for ways where they can invest capital and generate returns, he said.
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