Treating entertainment as a formal industry

“I came across an article recently, where Warren Buffet spoke of the challenges facing the streaming business, which I believe, are not very different from the issues faced by the movie business in India.

He mentioned three key challenges:
– Too many streaming services, all at once
– Overwhelmed audiences, with limited attention
– Rising cost of talent, who get paid upfront

These challenges have made it difficult for films to achieve success at the box office in recent years.

While there have been exceptions, by & large, the industry needs to make some changes.

Given how we love our movies, most people have ideas on what needs to change in the film industry.

The most common feedback is the need for better writers, movies tailored for mass audiences, socially relevant content, prices of tickets & popcorn etc!

While these suggestions are fair, it’s imp to tackle the problem from a first principles approach.

Buffet’s statement resonates with me as the most significant cost input in films is the talent cost, regardless of the language, genre or scale.

The more bankable the actors & director, the higher their upfront costs, which could account for 75-80% of the total cost of a film. The remaining goes into production, marketing & distribution.

Historically, talent costs are front loaded on the budget. This model made sense when audiences primarily watched films in theatres. However, theatrical collections are now impacted as audiences often choose to wait for films to release on OTT platforms instead of going to theatres.

To address this change, a shift in the P&L structure could be beneficial. All the key talents, could transition to a partnership or revenue share model. A project’s upfront cost could be reduced, and funds allocated upfront only to production, writing & marketing.

Under this model, the talent then receive a share, potentially even the majority, of the film’s earnings from box office collections, satellite, OTT & music rights, once realised.

Additionally, the talent could be granted a perpetual share in the IP of the film, ensuring continued earnings even years after its release.

Another pressing need is to invest in a larger number of screens across the country, particularly in Tier 3 & 4 towns. Currently, India has a limited number of screens, making it challenging for films to find adequate distribution, especially during festive seasons.

Just as a limited number of retail stores would mean brands & products aren’t able to sell to potential, a lack of distribution points limits the growth of the film industry. For context, China has approx 15x more screens with fewer locally produced films.

I’m hopeful on both fronts. Actors are starting to explore rev-share or royalty models. Moreover, treating entertainment as a formal industry will encourage more players like Inox, PVR etc to invest in building more screens in smaller towns, which would benefit the industry as a whole.”