Why Hollywood studios’ romance for Bollywood has prematurely soured

On many counts, 2020 has been a tough year for the movie business. Disney itself is expected to lay off about 32,000 employees across its theme parks, experiences and other businesses by the first half of FY2021. But the Fox Star employees were being asked to go not because Disney couldn’t afford to retain them in a difficult year. The retrenchment call was the culmination of a broader business pivot.

The company had decided to halt Indian film production entirely through its acquired arm Fox Star Studios—signs of which were more than evident when CEO Vijay Singh had stepped down in early March, followed immediately by chief acquisition officer Amar Butala and chief marketing officer Shikha Kapur.

This is the second time Disney has shut down an Indian film subsidiary—after UTV Movies—in a move that signals increasing disillusionment among Hollywood studios with the Bollywood business model, industry experts say. Disney had in fact acquired 21st Century Fox Inc in a $71-billion cash and stock deal only two years ago, in June 2018, which made Star India, Fox Star Studios, and Hotstar a part of Walt Disney.

Now, along with Fox Star, trade experts say even players like Viacom18 Motion Pictures and Sony Pictures International Productions are turning conservative, focusing instead on small budget films and more regional language narratives besides digital content. Meanwhile, Universal Pictures has shut its India office and all its future (Hollywood) offerings are likely to be distributed by Warner Bros in the country.

These shifts will inevitably leave ripple effects on what the Indian cinema-going audience gets to watch and how they watch it. For instance, the pullback on traditional movie production is accompanied by new bets in the OTT or online streaming space. Warner has already hinted at bringing HBO Max to India soon.

While resisting any official confirmation about its strategy in the Indian movie market, Disney had made a global announcement this October that stated the company’s intention to reorganize its media and entertainment businesses to “focus on producing original content for the company’s streaming services".

Having started operations in India towards the tail end of the 2000s, Hollywood studios upturned the age-old Bollywood tradition of “risking" personal wealth or mortgaging property in order to produce a single film, and, instead, introduced systematic blueprints to “break even" before a film’s release through various techniques—acquisition, production, syndication, marketing and worldwide distribution under one roof. Sure, they initially burnt their hands with a few disasters, but soon managed to find a few sound partners among local producers and emerged as indispensable financiers by the second half of this decade.

Despite the limited success, the reasons behind the disenchantment with Bollywood are many and long-standing. Not only have local co-producers consistently refused to part with the intellectual property rights (IP) that foreign players could then monetize, but also, leading Indian male actors still insist on commanding 60-70% of the production budget as salary. The Bollywood theatrical film business model, which no longer fetches big returns in small towns and instead relies on select multiplex audiences, had been under stress even before the pandemic.

The runaway success of OTT players like Netflix and Amazon, which own the IP to all their original shows, has now forced a rethink. If the global studios decide to dip into their deep pockets, the Indian movie landscape could be in for some profound shifts.

The bottlenecks

Hopeful employees who staffed the marketing, corporate communications and creative verticals of Fox Star Studios had pinned their expectations of business continuity on the fact that Disney would get in-house productions like Laxmii (then Laxmmi Bomb), Sadak 2, Dil Bechara and others to stream on its video-on-demand platform, Disney+ Hotstar—underlining the importance of Bollywood titles during a pandemic, which has made big theatrical releases impossible.

“With UTV, Disney realized it was a problem of overvaluation after a series of films underperformed. With Fox Star though, they were notching up hits like Housefull 4 as recently as last year," said a former executive of the company on condition of anonymity. “I guess they realized that they couldn’t build franchises across businesses the way they do in Hollywood."

In what would be considered unprecedented and unacceptable in the history of Disney, Vidhu Vinod Chopra and Rajkumar Hirani, co-producers of the biographical drama Sanju, had refused to part with the streaming rights of the film; it premiered on a rival video-on-demand platform Netflix, along with Hotstar.

Indian producers and actors may get away with such things, the person quoted above said, but it doesn’t make sense for a risk-averse, disciplined company like Disney, which would rather focus on distributing its Hollywood offerings which are anyway seeing great traction.

In an official response to Mint’s queries though, Disney denied the reports of a permanent pullback. “We have reimagined our content strategy, whereby we are exploring and identifying fresh local stories and talent. Our aim is to provide visionary filmmakers and storytellers in India with a creative platform to present their work to the world. The recent organizational changes at (Fox Star) Studios are in line with this renewed approach. Currently, we are in discussions with leading filmmakers across the country for multiple projects," it said.

Doing what you do best

It has definitely been a learning curve for Hollywood corporates which entered with much enthusiasm but have seen the downside of not understanding the cultural nuances and creative quotient of a country like India which, however, remains an attractive economic proposition," Pradeep Dwivedi, CEO-India at Eros International Media Ltd, said.

It doesn’t mean the end of the road for them, Dwivedi added. They could relearn a few things and come back—for instance, that India thrives on high volume and low budget projects, and it doesn’t always make sense to commit a ₹200 crore budget to too many films. “They will have to reconcile with budgets and the potential of the country," Dwivedi added.

The direct impact of Hollywood studios possibly moving away, however, will be on local Bollywood producers whose projects were being fronted by these cash-rich companies and there might be no quick substitutes. While smaller, boutique companies can still manage mid-budget films by having multiple partners on board, the bigger projects will be badly hit.

“Studios have only made local producers richer. They will now have to rework revenue models with the very stars that they have put on a pedestal to allow for more reasonable profit-sharing post release," said the former Fox Star employee.

To be sure, Disney’s continuing focus on bringing Hollywood films to India is a workable strategy in itself, according to industry watchers. The infiltration of action, superhero and horror flicks dubbed into various Indian languages helped the American movie industry notch up box office collections of nearly ₹1,225 crore in India in 2019. This was several notches above the ₹900 crore and the ₹800 crore earned by Hollywood in the previous two years, respectively.

“It has been an extremely encouraging decade for Hollywood in India," said Vivek Krishnani, managing director, Sony Pictures Entertainment Films India Pvt. Ltd. The growth of 3D screens from around eight in 2009 to more than 2,000 currently has helped in showcasing foreign films that studios like Sony have dubbed in Hindi, Tamil and Telugu, among other languages, Krishnani said, enabling them to penetrate deeper into the country.

“Indian audiences want this kind of large-scale entertainment and Hollywood films play to the gallery," Krishnani said, adding that studios like theirs, however, remain committed to local production too even though 2020 has delayed several plans.

The studio business is tough and complex and requires discipline, said Ajit Andhare, chief operating officer, Viacom18 Studios. IP sharing remains an industry-wide challenge, he admitted. It is also a battle that needs to be resolved with producer partners rather than being seen as an ego tussle. “We’re not going to go after the biggest names and acquire their films just to gain visibility and volume because we want to operate with a filmmaker’s DNA and not that of a dealmaker," Andhare said.

Studios like Viacom18 say they do not want to restrict themselves to Bollywood anymore since India is a mammoth and diverse market and the biggest Indian movie hits are increasingly multi-linguals, as titles like the Baahubali franchise and Rajinikanth’s 2.0 would prove.

“We don’t want to look at India only from the lens of Bollywood, but address all pockets… be it Hindi, Hollywood or regional cinema," Andhare added.

No smooth ride in digital

Without doubt, as many trade experts point out, the Bollywood business is facing extreme challenges. While other language industries are more organically rooted, Bollywood has been far too obsessed with the US movie industry and in trying to come across as niche, experimental and intellectual, has alienated a lot of audiences over the past few years, especially those in small towns. Bollywood has a well-diagnosed issue of not appealing to a certain stratum of society anymore.

That said, if Hollywood studios do go down the digital route, challenges will be many and it is unlikely to be a smooth ride for them. India’s OTT market is cluttered with over 40 video streaming services as of now, with SVoD (subscription video-on-demand) viewers accounting for only 22 million out of the total 400 million online video viewers in the country, according to a recent KPMG report. Total online video viewers are estimated to reach 555 million by FY22 with paying subscribers making up 57 million.

Digital platforms across the board had already started experiencing pressure on advertisement revenues toward the second half of FY20 on account of a weak macro-economic environment. Besides, 68% of India’s online advertising space is hogged by Facebook and Google, leaving little room for others.

The majority of Internet subscribers in India are also wireless Internet users, reiterating the importance of the mobile as the device of choice to go online. Speeds remain slow and India ranks among the countries with the slowest Internet in the world (at 12.16 Mbps) followed by Uzbekistan, Iraq and Algeria.

Though fast growing, most local OTT players such as VOOT (Viacom18) and SonyLIV (Sony) have remained on the fringes of Netflix and Amazon, which have accumulated years of data on viewership patterns and taste. Much of urban India is glued to international, English language programming that is best curated by these American players, which are also steadily improving their Indian content libraries.

Besides, there is still much going for the theatrical segment which could potentially stall any massive digital shift. The tepid response to this year’s direct-to-digital Bollywood releases prove that India still has a separate audience segment that waits for the big-screen, mass theatrical content. For instance, Kumar’s Laxmii that premiered on Disney+ Hotstar this Diwali and was badly panned by critics and audiences shows that these over-priced Bollywood acquisitions aren’t working for digital audiences.

Laxmii is a film for the masses, a commercial entertainer that was ideally suited to single screens in small town India rather than the digital-savvy multiplex audiences, say industry experts. Trade website Box Office India said the horror comedy could have made around ₹110 crore in domestic box office collections, in addition to satellite, digital and music right sales, had it gone to the cinemas. Its web release has spelt bad news for both theatres and the OTT platform that paid around ₹100 crore for it.

“Direct digital release is a temporary phenomenon with low success rates despite 66 films being released digitally (during the pandemic)," Karan Taurani, research analyst at Elara Capital Ltd, said. A recent report by the investment firm had pointed out that less than 38% of all films released directly on digital platforms have garnered decent ratings.

“Hindi and regional content currently dominate India’s exhibition market, with Hindi being the largest at 58-60%. This further strengthens the view that Hindi films may not be meant for direct digital release," Taurani added.