How Bollywood Movies Raise Funds

Bollywood has been entertaining us since ages. From Alam Ara, where the budgets were tiny, to a Rs. 100 crore Ra.One, Bollywood has come a long way. Many actors have entered, entertained us and, even after retirement, continue to give us joy through their on screen histrionics. The life of  every actor in Bollywood is uncertain. They may be the most happening thing right now, but a new star with a bigger presence could come in and usurp their place in a matter of months. Along with that, movies are essentially investment avenues, so a lot rides on the actor to deliver. For this reason, actors charge millions for a few months of work. But from where does all this money flow in? If you are in the entertainment business, your scope of growing can’t be assumed. Your movie might be a sleeper hit, raking in the crores, or a colossal Rs. 70 crore production that fails spectacularly at the box office. This means that the funding for you movie has to be solid and based on a financial model. What is this model and how is it funded?

Before we get into the sources, let’s first understand how much an average movie costs.

Average cost of a Bollywood movie:

The average cost of a Bollywood movie in 2009, according to Business Standard, was around Rs. 30-35 crores. This includes star remunerations, expensive sets, shoots in global locations and the high cost of hiring trained film technicians. In contrast, most regional cinema such as Gujarati, Marathi and Bhojpuri films produce films on budgets under Rs. 3 crore. With new innovations in movie industry, the cost of production will only rise in the future.

Business model and Returns for a Bollywood movie:

Bollywood movies make money by selling distribution rights to different regions and by selling other rights such as television and internet broadcast to third parties. How much they make from this could be anybody’s guess. A Bollywood movie is essentially a business enterprise with a short go-to-market phase and a very short window in which to collect money. You could have an Aashiqui 2 which makes Rs. 100 crores on a budget of Rs. 40 crore or a colossal dud like Himmatwala which can recover any amount only by selling satellite rights quickly. This is just a gist of where they could make money from and we’ll explore this in detail in another post. For now, let’s get to the heart of our story.

How does Bollywood raise funds?

There are several avenues to be explored here. Filmmakers can raise a loan, pre-sell distribution rights, pitch an idea to a large studio, find equity funding and, as a last resort and if they come from a rich family, approach daddy dearest.

Pre-selling distribution rights to raise a loan: Filmmakers can offer rights of their movies to distributors for certain regions even before the movie goes into production. Once these rights have been pre-sold, they can use these contracts to go to a bank and raise a loan. Distributors don’t pay up front with the entire amount, but their guarantee to pay once the movie is complete serves as collateral to the banks. This, however, works best for established producers. First time filmmakers might find it hard to raise funds this way. They can instead get a loan from a bank by providing a substantial security of their own.

Investment by big studios: This is the best possible approach for any aspiring or established filmmaker. Getting the backing of a large studio gives them the financial and intellectual muscle needed to execute a project as intensive as making a film. Big studios such as Yash Raj and Mukta Arts have already invested in the infrastructure needed and have the network and risk appetite to take on more and more film making projects. Once a big studio steps in, the filmmaker can go ahead and make the movie fully knowing that they have the backing of a solid movie business behind them.

Private equity: This one is slightly more tricky. Raising the finance needed for the movie from investors requires an understanding of corporate law and having an excellent track record as a filmmaker. These daays, you find a lot of companies which have huge capital backing them entering the film world. Reliance Entertainment, for instance, is one such large company that has made a foray into films. They are not a traditional movie studio but work with a lot of producers to make movies. The reason a company like Reliance would foray into entertainment is that they can expect a large and quick return on their investment. Traditionally, companies consider 15-20% return per year on the capital they have invested to be a good number. Since the return could be a lot higher and quicker in ffilm maing and distribution, they have begun to actively consider film making as an investment opportunity.

The underworld: Yes, people still wonder if the underworld finances movies. In the 90s, this was a reality of everyday life in Bollywood but now, the impact and connection with the underworld has diminished considerably. You may find the underworld patronising artistes who have fallen on hard times but by and large, they have moved their connection to glamour away from Bollywood. (Hello, IPL)

Crowdfunding: This is the most innovative approach so far. With online communities becoming a huge part of the internet, it was only a matter of time before people began to put forward financial support for ideas that resonated with them. In India, wishberry.in, a crowdfunding platform helps aspiring film  makers and artistes find the funds they need. They haven’t yet raised the crores needed for a Bollywood film, but they can help independent filmmakers get the money they need for their film. Critically acclaimed films such as Onir’s I Am, and Mombatti raised funds this way.

Daddy: We don’t mean to be disrespectful to talented film makers who happen to be from privileged backgrounds but if you are a rich kid and your parents are sufficiently convinced about your talents, then you have zero problems in raising funds. The industry is littered with the efforts of actors and producers who had the money, couldn’t make the cut in a big studio and went solo to prove their film making skills. It could work if you are exceptionally talented, but chances are that without industry knowhow you will fail. It might be a better idea to invest part of that money in learning more about the film trade through courses and  short films before plunging headlong into mainstream cinema.

These are all viable ways with which to finance your film. Depending on your budget and the kind of talent you and the team you assemble possess, you have a serious chance at building something that endures long after you’ve gone.

We’ll be back next week with more coverage on the Business of Bollywood.

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Business of Bollywood is a weekly column by Bollywood Celebden. We are looking at creating a section where insights and perspectives about this industry that we love can find readers. Contact us if you have an idea which you think will appeal to those curious about the workings of Bollywood. 

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