CALCUTTA, India, April 25 (UPI) -- For years, the Hindi film industry in India, nicknamed "Bollywood," has suffered a dubious reputation for the way it finances its films.
Finances for production and distribution for the majority of its movies have primarily came from privately held and family-controlled film production houses, many of which were financed by the underworld slush funds or "black money" (hidden from the revenue officials).
But Bollywood financing is starting to look different now, following its recognition by the Indian government as an actual industry.
First, film companies are sprouting up all over the country, and second, financial institutions, like state-controlled financial institution IDBI Ltd., and banks, which two years back couldn't have dreamed of financing films, are making forays into financing films.
According to Sunir Kheterpal of the Netherlands-based Rabbobank subsidiary, Rabo India, the primary reason for this sudden acceptance is the perception that financing films is not a dubious business any more.
"There is a growing acceptance of the fact that making films is a good business and is not vastly different from other businesses," Kheterpal said.
He added that besides other reasons -- like setting up formal corporate-run production companies that help in securing products like bank financing, insurance and completion bonds -- there's another intangible benefit: a hit not only translates into coins jingling in a production company's pockets, it also adds sheen to its brand.
And the industry has also started attracting interest from people not even connected with films. Groups that have taken a leap into financing or producing films include unexpected names like the $2-billion, U.S.-based, non-resident Indian investor Purnendu Chatterjee, a one-time associate of the now infamous Finnish investor George Soros, and the Indian stock brokerage firm SS Kantilal Ishwarlal Securities.
Purnendu Chatterjee announced his film production ambitions with a budget of close to $10 million. The Indian stock brokerage firm, although still reluctant to reveal its budget, has said that it wants to release 17 Hindi movies over the next few months. It already financed three movies at about $7 million each.
Industry experts are hoping that the entrée of corporate entities in film financing could at last cleanse the grayed reputation of Bollywood. According to the trade magazine ICE World, the increased corporate culture within the production houses may not alter the success ratio and quality of films but it will change industry practices.
"Professionally managed film companies are expected to usher in international standard practices and streamline the payments cycle," said ICE World. "Companies will also act as catalysts in improving transparency and disclosure norms. That, in turn, will help attract venture capital and private equity and organized debt financing."
Experts feel several other sources of funding could also emerge.
"In our view, two broad categories of investment vehicles will emerge in the Indian film production space," said Kheterpal. One, according to him, will be public limited companies that will produce and finance not only their own films but also films of smaller independent producers for a fee. The second could be film funds, akin to mutual funds, where a group of investors band together to invest in a project.
Film funds offer value-added advantage by tying up with domestic theater distributors, overseas distributors, music companies etc, so that each film it funds has a guaranteed outlet. In many countries, a media fund produces a film through a single producer, who works for a fee. The fund bears all the production risks and retains the film's distribution rights. It concludes deals with distributors on the basis of minimum guarantees and a revenue sharing arrangement. When it closes, the distribution rights are sold to others.
According to industry intelligence, two film funds that are already in the process of being launched are ones by Sony's subsidiary, Sony Pictures India and a London-based TV channel that beams Bollywood related software across Indian and UK -- the B4U (shortened from "Bollywood for you").
Reportedly each may set up a $20 million film fund.
Existing family-owned production houses are changing too. For instance, Yash Raj Films, Dharma Productions, Rajshri Productions, Puja Films and Film Kraft, all of which are big names locally, have converted their businesses into corporate entities and have started drawing on equity and pre-selling distribution rights of ongoing projects to fund future projects.
Although the Indian film industry is the largest in the world in terms of the more than 800 movies it churns out every year, and twice as many Indians as Americans watch movies in movie halls, it is just 1/20th the size of that in the United States in terms of revenue.
It may be awhile before Bollywood can play the catch-up game with Hollywood, but clearly, India's film industry is set to be increasingly be dominated by the money bags. Just as in the United States.