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VCs enter scene as financiers stay away from films

VCs enter scene as financiers stay away from films
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First Published: Tue, Feb 17 2009. 12 57 AM IST

Plans deferred: Pyramid Saimira Group’s P.S. Saminathan.
Plans deferred: Pyramid Saimira Group’s P.S. Saminathan.
Updated: Tue, Feb 17 2009. 12 57 AM IST
Bangalore: With a population of 1.1 billion and movie tickets priced among the lowest in the world, India is home to the world’s largest film-going audience. The film business, estimates consultancy firm PricewaterhouseCoopers, is compounding at 13% annually and will record revenues of Rs17,600 crore by 2012.
It is not as if this market skipped the attention of venture capital, or VC, firms that have been active in almost every Indian business in the last five years. It is just that such specialist movie backing firms have taken time gaining acceptance in the film world. “It took time for people to realize there was a gap between funds needed and capital available and that there could also be a regularized source available for providing capital,” says Sheetal Talwar, managing director of India’s first regulated film fund, Vistaar Religare Film Fund, or VRFF.
Plans deferred: Pyramid Saimira Group’s P.S. Saminathan.
Since its launch in March with a corpus of Rs200 crore, VRFF— backed by Religare Enterprises Ltd, a financial services business promoted by the Singh family, earlier the controlling shareholders of Ranbaxy Laboratories Ltd, in collaboration with Vistaar Entertainment Ventures—has invested in 11 films so far. The Harman Baweja-Amrita Rao starer, Victory, its first project, was released on 30 January and has received a poor response at the box office. Still, says Talwar, “We are cherry pickers and look for opportunities to fund a vision. The market is robust…there are good opportunities, which will come to the right people.”
The optimism at VRFF and its peers comes from the growing reach of Indian cinema. Coming a long way from a time when local cinema catered strictly to India-resident audiences, films made in Bollywood, as the Mumbai film industry is better known, and other Indian cities are gradually making their presence felt across the world—through cinema chains, DVD releases and, even, satellite television.
Calling the concept of a film bombing at the box office and the investor’s money sinking an old perception, Talwar says there are a few other revenue streams that can buffer such a loss. “If I do not catch my audience in theatre, I catch them on DTH, if not here, then through satellite and through DVDs. If all fails, I catch them on flights or the Internet,” he says. DTH is short for direct-to-home television.
Another VC fund, Cinema Capital Venture Fund, sees immense investor potential backing local cinema but prefers to back production houses. “By investing in a company, which will have a continuous roll-out of movies, I will be in a position to spread out my risk in projects,” says senior partner Samir Gupta. With an investment peg of Rs8-40 crore, the firm is set to announce its first deal later this month. “Anyone looking at building a company over the next four years will come to us,” Gupta says.
Experts say films usually get funding through debt, equity, or so-called pre-sale arrangements. Pre-sale, which is based on the film’s cast and script, means selling the right to distribute a film in different territories before it is produced. A mix of these sources is considered ideal.
Vikash Mantri, a media analyst with ICICI Securities Ltd, says some producers prefer sourcing capital from VCs, given the high cost of funds from traditional film financiers. “While funding a film project, a VC may have a structure in place wherein they can ask for the cost of investment be met first, but this mode of financing is not drastically different from that of financiers,” he says. Cost of capital from financiers typically ranges from 16% to 20%.
With even such funding becoming squeezed, producers now prefer funding from investors. “I don’t think I would get my film funded by an individual, I would rather go to a bank or a VC,” says producer Bobby Bedi, who has produced films such as Mangal Pandey—The Rising, Maqbool, Saathiya and Bandit Queen in the past. His latest film, The Stoneman Murders, is backed by VRFF.
Still, some film specialist VC aspirants are holding back. Chennai’s Pyramid Saimira Group, which had planned to launch two film funds last year, has deferred its plans citing market conditions. “All physical work has been completed and we will wait for markets to improve before launch,” says P.S. Saminathan, managing director and chairman, Pyramid Saimira, which is also India’s largest distributor of films.
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First Published: Tue, Feb 17 2009. 12 57 AM IST