Bangalore: In the slump of 2009, when venture capital (VC) deals went down by half, one sector stood out: the movie business.
For the first time, VC funds put their money in Indian movies, mostly Hindi-language films, and are set to double the number of their investments this year.
The Rs200 crore Mumbai-based Vistaar Religare Film Fund (VRFF) backed five films that were released in 2009, including Harman Baweja-starrer Victory and Kay Kay Menon-starrer The Stoneman Murders, as well as the South African English movie Finding Lenny. Its investments were used for making the movie prints and advertising the films. “P and A (print and advertising) meant that we were last in and first out. This way we are financially protected,” said Sheetal Talwar, managing director, VRFF.
Niche circuit: Dar Capital’s Arun Rangachari says that the best content in cinema is emerging in the regional cinema space. Ashesh Shah / Mint
The fund is investing in 10 other films set for release in 2010, including Ram Gopal Varma’s much talked about movie on the media, Rann, starring Amitabh Bachchan, Riteish Deshmukh and Paresh Rawal; Bhavna Talwar’s Pankaj Kapur-starrer Happi, and an international project, The Joneses, starring Demi Moore and David Duchovny.
There are strong business reasons behind the attraction for Bollywood, or the Hindi film industry.
On the one hand, as an industry, Bollywood has become more organized in recent years—during the slump, its box-office collections were higher than ever, according to Cinema Capital Venture Fund’s (CCVF) estimates. On the other hand, the slowdown pushed down production costs, making the valuations more viable for VC funding.
“There has been a reduction of 50-60% in costs of films made in 2009, compared with earlier years. Lots of film stars are reducing their own prices according to the market sentiments,” said Samir Gupta, senior partner, CCVF. It was a mini bubble that has burst now, he added.
In 2009, the Rs200-crore CCVF backed director Rohit Shetty’s Ajay Devgan- and Sanjay Dutt-starrer All The Best and has invested in four films which are lined up for release this year.
“VCs (firms) and PEs (private equity firms) have certainly opened new avenues of funding. However, it is too small an amount to make much of a difference,” said Farokh Balsara, national sector leader, media and entertainment, at audit firm Ernst and Young India.
The industry is generating interest from foreign investors as well. London-based Dar Capital Group, an investment advisory and PE firm, will produce 11 Indian films over the next three years. Dar is setting up a media and entertainment fund in India, with predominantly British and Arab investors, and will invest 30-40% of the total fund value, expected to have a corpus of Rs200 crore, in both Hindi and regional films.
“I would say that (the) best content is emerging in the regional cinema space,” said Arun Rangachari, chairman, Dar Capital Group. “Production cost is controllable. After the success of Slumdog Millionaire, a lot of limited partners in the West are opening up to the idea of backing films here.”
Slumdog Millionaire, a Hollywood movie set in Mumbai’s slums, won eight Oscars in 2009, including Best Picture.
Dar has signed a three-film deal with actor-director Mahesh Manjrekar and the first movie is likely to release in mid-2010. It is also in talks to fund some Bengali and Tamil films.
Experts say India’s entertainment industry is set for a change and content would be the key driver. If a movie is conceived right, priced well and has an innovative delivery channel, “films are a very viable business proposition”, said Rangachari.
Funding movies can be as risky as any other VC investment. But VC firms can put a cap on how much they want to invest in a project, limiting their exposure. Typically, a VC fund would not invest more than 65% of the overall cost of a movie.
On an average, across the portfolio, entertainment investors expect an internal rate of return, or IRR, of 30%. VC investments typically have a horizon of five-seven years, while films offer what investors call an “18-18 model”. It takes about 18 months to identify a project and release it, and another 18 months to monetize it. “(The) life cycle of a film investment is two-three years,” said Talwar. “Films don’t lose money if they are not a high-cost model.”