Mumbai: Kumar Mangalam Birla has pulled the plug on Applause Entertainment Pvt. Ltd, a movie and television software production company he promoted in April 2003, according to two people familiar with the development.

The closure of Applause Entertainment, personally funded by Birla, highlights the perils of the entertainment business, say experts.

Painful decision? K.M. Birla. Kunal Patil / HT

A spokeswoman for Birla, chairman of the Aditya Birla Group, declined comment on the development.

Birla has wanted to make Applause Entertainment one of India’s biggest movie production and distribution firms. But as the company floundered financially, he seems to have changed his mind.

“Applause stopped movie production earlier and by July this year completed the contracts with several television channels to supply software," said one of the two persons. Applause’s chief executive Anshumaan Swami left the company in 2007.

G.K. Tulsian and Sushil Agarwal, two directors who represented Birla on the Applause board, have now been made heads of two operating companies of the diversified group. Agarwal is now the chief financial officer of Aditya Birla Nuvo Ltd and Tulsian, executive president of Grasim Industries Ltd’s chemical division. Both have been associated with the Birla family for decades and worked closely with the late Aditya Birla, Kumar Mangalam Birla’s father.

Click hereto listen to former CEO of PVR Pictures and Mint columnist Ashish Saxena talk about the shut down of Applause Entertainment and the challenges faced by the entertainment industry as a whole

Manu Kumaran, a movie producer, said the cost structure of movie production has become so skewed that profits in the business are non-existent. Listed companies in the business are dressing up balance sheets to keep the capital market and investors happy, he added.

Birla doesn’t need to do it and so he has withdrawn from the market, said Kumaran, who has made low-budget English movies such as Mr Singh and Mrs Mehta.

It’s true that the break-even point for Bollywood movies has gone up significantly with rise in the cost of talent and post-production, said Rakesh Jain, head of information technology and media at KPMG India, an audit and consultancy firm. While producers are renegotiating costs, these are still not down to desired levels, he added.

Jain said that the economic cycle would correct itself.

However, he refused to label the closure of Applause Entertainment a trend.

UTV Motion Pictures, and Studio18, the movie production house of Network18, are looking at various opportunities in this space. And in July, the Reliance-Anil Dhirubhai Ambani Group and DreamWorks SKG, owned by Hollywood director Steven Spielberg, finalized a $825 million (nearly Rs4,030 crore today) movie production deal.

The Aditya Birla Group ended 2008-09 with $29.2 billion in revenue. Birla has also invested some of his personal wealth in Aditya Birla Retail Ltd that runs food and grocery retail chains under the More brand.