FILM MARKET OPPORTUNITY PROFILE INDIA MARKET OVERVIEW EXECUTIVE SUMMARY

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1 FILM MARKET OPPORTUNITY PROFILE INDIA EXECUTIVE SUMMARY MARKET OVERVIEW The Indian Film Industry, with its century-old historical legacy, is causing ripples worldwide with its ability to attract numbers. Whether it is in the number of films per year, number of regional language films within one single country, revenue or box office hits, the Indian Film Industry continues to make, break and remake records. Global filmmakers, producers and technicians have realized the Indian film industry s potential with governments, institutions and organizations worldwide looking at various ways to create and build lucrative co-opportunities. Whether to leverage skill sets, capture overseas rights, co-produce to expand or for revenue generation, countries are finding newer and better ways to partner with the Indian film industry. This report gives a three-dimensional view into what makes this industry the oldest, strongest and largest. The Indian film industry is big business. Not only in terms of viewers worldwide but for the number of films released per year, the number of regional language films within one single country, the number of minutes of run-time, and most importantly, the annual growth rate which continues to rise at a steady 11 per cent annually and is now worth an impressive US$2.3 billion. For most outsiders, Indian films mean Bollywood. While Bollywood (Hindi-language films) does dominate mainstream cinema in India and typically makes up a significant portion of the total domestic box office, it is the regional language films that govern the future of this industry. In any given year, at least 1,000 movies are released in Hindi, Tamil, Telugu, Kannada, Punjabi, Gujarati, Bengali and other Indian languages. Two decades ago, the Indian film industry did not have the organized and systematic corporate philosophy that now makes it a prominent segment. As a result of its growing potential, a

2 large number of corporations have emerged that run smoothly, systematically and efficiently. These organizations run on sound corporate principles and adhere to strict time schedules, cost budgeting and governance standards. The result has been a much larger inflow of funds to produce, distribute and exhibit films, as well as clear improvements in the quality and variety of films being released, in technical standards and in cost control. In turn, this has generated greater revenues, boosted profitability and lowered the probability of failure. Market Size Rs 95 Billion At a Glance CAGR USD 1.98 Billion Domestic Box Office Rs 70 Billion Rs 170 Billion USD 3.5 Billion 12.4% CAGR USD 1.45 Billion Overseas Box Office Rs 8 Billion Rs 124 Billion USD 2.47 Billion 12.1% CAGR USD 0.17 Billion Admissions Rs 14.5 Billion USD 0.3 Billion 8.8% CAGR 2.1 Billion 3.5 Billion - Figure 1 - Image courtesy PricewaterhouseCoopers Indian Media Report 2010 While India s GDP ranks 11th in the world in absolute terms, it ranks among the top five economies when assessed in terms of purchasing power parity. In the last decade, a growing consuming class with spending power is determining the growth of the entertainment industry. Revenue generation is triggered by consumer spending at the domestic and overseas box office in the form of ticket sales, home filmed entertainment (which includes buying and renting CDs and DVDs) and ancillary revenues consisting of spending on broadcast syndication rights, mobile VAS and other new age media sales related to films. With more than 20 million Indians living abroad, the entertainment industry is in overdrive to satisfy this growing demand. Globally, several international films with Indian content, themes and performers are receiving wide visibility and acclaim. Some key revenue streams from the Indian filmed entertainment industry include: Box Office Collection Domestic Domestic box office revenues comprise theatrical revenues from multiplexes and single screen theatres. There are approximately 10,000 theatres in India, with 900 multiplexes. It is estimated that there are there billion viewer admissions in India which is comparatively higher than that in the U.S. The revenues from multiplexes and single screen were around US$1.5 billion in Box Office Collection Overseas Overseas distribution is primarily divided into three territories, U.S., U.K. and rest of the world with the U.S. contributing the most. It is estimated that overseas box office revenues are US$ million. Home Video The home video segment was estimated to be US$22 million in 2009 and showed significant growth in There is an inherent change in the business model for home video in India. The home video market is converting to sell-through from rental, which constituted 100 per cent of sales in By 2014, sell-through is expected to capture 90 per cent of the market. This change in business model was spurred by the entry of Moser Baer into the market in For Category A movies, the cost of acquiring home video rights is in the range of US$0.6 1 million. For Category B movies, the cost of acquiring home video rights is in the range of US$ million. India s software success is extending into the creative field. It is now blending IT skills with its historic talent for storytelling to produce interesting entertainment. With English as the second language and inexpensive manpower, India is using these two advantages to offer cost-effective solutions to the global animation market. While animation is just one dimension of digital entertainment, it is still a big business the worldwide market for digital animation is over US$90 billion. Of that, India is estimated to have earned revenues between US$200 and US$300 million with a growth of more than 20 per cent every year. India has the potential to become an attractive destination for international broadcasters and production houses, despite its low per capita income, as the larger population base makes a viable case for high-volume consumption. India has seen improved income levels across a large section of its population, with a significant number of people willing to spend on entertainment. OPPORTUNITIES For overseas investors, opportunities abound across the value chain, as skill and maturity levels differ from country to country. For example, while India may be robust in development, it might

3 require help with post-production which could be a strong area for another country. With a legacy of almost 100 years (the first full-length Indian film was released in 1913) and 1,000 films a year, the Indian film industry has reached a point where the focus is on content quality. The increase in the number of films made has not seen a proportionate increase in their commercial success. To reduce the pressures of television programming, the Indian film industry is turning to technological developments like advanced visual effects, special effects, sound sync, animation and sheer star power. The growing adoption of digital television around the world has forced leading global broadcasting companies to put development and use of new technologies at the centre of their core strategies. The Indian film industry, which generated US$1.96 billion in 2009, is expected to nearly double itself by 2014 according to PricewaterhouseCooper s Indian Media Report For the Indian entertainment industry, this is a pivotal time. Beyond linear growth projections, there is a bigger story waiting to unfold if a concerted and accelerated effort is made now. The industry is entering a second phase of growth, with technology as one of the key drivers. This growth phase will result from combining quality infrastructure with the gradual penetration of digital connectivity, which will redefine the way entertainment content is delivered and consumed. CO-PRODUCTION Official co-productions are made possible by agreements between countries and seek to achieve economic, cultural and diplomatic goals. Canada and India have committed to negotiating and closing a co-production treaty in the near future that could create phenomenal benefits. Some of these are listed below: The ability to pool financial resources Access to the partner government s incentives and subsidies Access to the partner s market or to a third market Access to a particular project initiated by the partner Access to a desired location or to cheaper inputs Cultural benefits The opportunity to learn from the partner LOCATION B.C. Increased Viewership for Indian Films in B.C. Indo-Canadians constitute more than five percent of British Columbia s population. To cater to this segment, British Columbia can facilitate the release of Indian cinema in B.C. theatres which would contribute to revenue in the form of entertainment taxes and levies. To increase viewership, B.C. can encourage more films to be shot in Canada by capitalizing on the natural advantages that make it an ideal film location with great scenic views, urban landscapes, different climatic zones, and most importantly, advanced technology. Cash-back offers, funding and quick visa processing are some of the ways B.C. can attract Indian production houses. Also required is a more transparent environment, especially in terms of advantages for Indian film producers. Hollywood Films Shot in India 1. Eat, Pray, Love 2. Gandhi 3. A Passage to India 4. Octopussy 5. The Borne Supremacy 6. The Deceivers 7. Around the World in 80 Days 8. Holy Smoke 9. The Far Pavilions 10. Close Encounters of the Third Kind 11. Vanity Fair 12. Code A Mighty Heart Film Distribution There are three distinct film distribution models that include: Distributor and producer belong to the same group of companies Distributors give financial assistance to producers in exchange for distribution rights Distributor purchases the rights for distribution The distribution model ensures that the producer, distributor and the exhibitor stand to gain. The distributor gives the producer a minimum guarantee fee in return for the rights to a territory. This way producers can recover up to 30 per cent of their cost. The distributor on the other hand, earns 20 per cent commission on promotional spending and gets to share in the profit. The exhibitor (theatre) operates in a revenue-sharing model in the first week of a film s release the share is and in the second week it is 60 per cent for the exhibitor and 40 per cent for the producer.

4 Joint Ventures in the Areas of 3D Effects and VFX Three-dimensional or stereoscopic effects are growing rapidly to become the next step in cinema technology. Stereoscopic images displayed in 3D increase visual impact and heighten the viewers experience. The successful adoption of 3D by the general public will depend on technological advances in stereoscopic 3D displays as well as on the availability of a wide variety of 3D program content. Indian production houses have accumulated content over the years. B.C. can provide the technology to convert these resources into different formats towards monetizing them, even after they have lost their new movie sheen. On the flip side, India s talent pool in the field of VFX can be advantageous for B.C. companies looking to have a local presence in India. Content and Script Writing Skills in India Rich in suspense, drama, romance and emotion, Indian film scripts provide variety for audiences with a thirst for entertainment, which is probably why mainstream Indian films made early inroads into the Soviet Union, Middle East, Southeast Asia and China. With Indian film stars gaining an international reputation and recognition at film festivals, there is abundant evidence that Indian films are not just about song and dance sequences. Danny Boyle s Oscar-winning film SlumDog Millionaire (2008) was an onscreen depiction of Indian author Chetan Bhagat s work of fiction titled Q&A. Leveraging IPs A recent media and animation report promises a bright future for the Indian media industry. According to the report, the domestic market for animation has grown significantly over the past two years. Animation companies have started focusing on building original IP, which they can leverage in terms of merchandising and TV broadcast revenues. Currently, custom content development is the largest segment with an estimated industry size of US$187.5 million, followed by animation entertainment at US$120 million. TECHNOLOGY COLLABORATIONS Digital film Restoration of flux. Manufacturers of digital cinema systems must balance development costs against a possible, undefined return on investment that is dependent on the success and swiftness of the transition. With the emergence of digital presentations featuring release print quality comes a daunting new challenge for movie distribution security. Each digital data copy is a virtually perfect copy of the original, immune from degradation in the act of duplication. Since several hundred million dollars can be at stake with a movie release, new and highly-effective content protection measures must be incorporated. This provides an immense opportunity for B.C. media companies interested in partnering or participating in Indian film industry s digital evolution. Stereoscopic Conversion Several large media houses in India are providing conversion services to major Hollywood studios. For B.C. companies that do the same, partnering with Indian companies or opening an office in India will allow it grow its market and expand its customer base. CO-PRODUCTION 1. Production Integration 2. Joint Ventures: Joint work in 3D effects / VFX in movies 3. Leveraging local content and script writing skills 4. Leveraging IPs across platforms 5. Digital film restoration 6. Stereoscopic conversion 7. Film distribution Attraction for Indian Film Industry in B.C. 1. Locational advantage - scenic beauty of mountain, ocean, ice can serve as one-stop location. 2. Attractive subsidies like cash back offer, funding, quick visa processing for crew members. 3. Advanced technical knowhow of B.C. film houses Attraction for B.C. in the Indian Film Industry 1. Strength in numbers from trained technicians to directors 2. Lower production costs 3. Experienced Industry-Internationally proclaimed movies, actor/actress, directors 4. Native English-speaking population There is a growing need for digital installations with lowrisk modular system architectures that will support future improvements, help establish new business models and create consumer demand. Physical interface standards sufficient to support digital cinema are already available in India, but the image format, compression algorithms, encryption key management protocols and other aspects are still in a state

5 REGULATORY AND COMPETIVE ENVIRONMENT The Reserve Bank of India has issued some broad guidelines to commercial banks for financing Indian films and some production houses have gone public to generate funds. Apart from these local options, foreign participation is also being actively encouraged. Many other international locations have encouraged Indian movie shoots by providing incentives that include: Percentage cash-back offer With increased foreign participation, the Indian film industry is changing rapidly. This is a two-way relationship as new producers/ directors and productions houses are coming to India for its facilities and are entering into joint venture agreements. The government is also working with institutions like NFDC and the Film & Television Institute of India towards developing a comprehensive legal structure for insuring all kinds of movies which will definitely give a great boost to the film industry, and more importantly, to the film finance sector. MARKET ENTRY STRATEGY Subsidized stay of crew members Co-funding by foreign film association and tourism Quick visas for crew members The benefits of a film shoot increase tourism in the location countries while attracting additional film production houses. The U.S./international film industry in India is estimated at Rs 300 s ($66 and is growing steadily. This industry revenue is from the box office of US/international films released in India. It is relatively easy for foreign companies to enter the Indian film industry, which can be seen in the ever-increasing international industry presence. Reliance ADA Group has entered into a production deal with DreamWorks Studios promoted by Steven Spielberg to produce films with initial funding of US$825 million for the first three years. Walt Disney has partnered with Yash Raj Films to make animated movies, the Warner Group is funding the Sippys film projects, Viacom has a joint venture with the TV 18 group to form Viacom-18 and Sony Pictures Entertainment has co-produced with Sanjay Leela Bansali Films. A foreign company can enter through a liaison office/ representative office, project office or branch office. It can also enter as an Indian company through a JV (Joint Venture) or as a wholly owned subsidiary. The film production, exhibition, marketing and distributionrelated services and products have 100 per cent foreign direct investment (FDI) allowed under the automatic route. Foreign investors seeking to acquire shares of an existing Indian company engaged in film production, exhibition or distribution are granted general permission. However, if the foreign investor had or has any existing joint venture or technology transfer/trademark agreement in the same or allied field in India, then prior approval is required from the Foreign Investment Promotion Board (FIPB). If the foreign partner has entered into a JV in the same field before then NOC of the previous JV partner and approval of the government is also required. As mentioned above, the easiest way for foreign companies to enter India is through a liaison office, through joint ventures or as wholly owned subsidiaries. But the question is why would a foreign film production company want to come to India? And why would an Indian film company choose to go to a foreign location? In looking at how the respective film industries in British Columbia and India can collaborate, it is helpful to review the strengths and opportunities of the two countries. India s inherent advantage is in numbers and that is where British Columbia can gain. It can be in terms of larger production support or crew or it could be in the pure power of audience numbers. Distribution rights would be an attractive proposition for B.C. investors and co- production or partnership with Indian film production houses would also be a viable proposition for revenue generation or for global expansion. The Indian film industry would find that B.C. offers the advantage of natural scenic views combined with a metropolitan background, and would be captivated by B.C. s natural wonders as well as its skyscrapers. The Indian film industry is evolving strongly in terms of technology and innovation, and it can leverage B.C. companies that need to bridge a gap. Looking at the cross advantages of partnership, the two countries have much to gain. Clear regulations for co-productions and tax benefits are needed from both governments to ensure that participants understand the implications and advantages of joint partnerships. With liaison offices or representatives of both countries taking on active participatory roles, B.C. and India could find that the barriers are mostly imagined.

6 Blockbuster Indian films shot in North America Movie Budget Leading star Location Director Producer Production & Distribution INDIAN FILMS SHOT IN CANADA 1. 8 x 10 Tasveer 2. Aapko Pehle Bhi Kahin Dekha Hai 3. Apne 4. Bekhudi 5. By Chance Milta Hai Chance 6. Dus 7. Hum Ko Deewana Kar Gaye 8. International Khiladi 9. Kaash Aap Hamare Hote 10. Kal Ho Naa Ho 11. Khiladi Khiladiyon Ka Khiladi 13. Koi Mil Gaya 14. Mere Jeevan Saathi 15. Monopoly - The Game Of Money 16. Mr And Mrs Khiladi 17. Neal N Nikki 18. Pardes 19. Partner 20. Taal 21. The Hero 22. The Lookalike 23. Tum Bin 24. Zameer -The Fire Within Swades, We the people Kabhi Alvida Naa Kehna Kambakkht Ishq Kites Blue Kal Ho Naa Ho My Name Is INR 20 (US5 Mn) INR 50 (US$10.85 Mn) INR 60 (US$13.02 INR 60 (US$13.02 INR 100 (US$21.7 INR 30 (US$6.51 INR 38 (US$8.25 Shah Rukh Shah Rukh Akshay Kumar Hrithik Roshan Barbara Mori Akshay Kumar Sanjay Dutt Shahrukh Saif Ali Preity Zinta Shah Rukh USA Ashutosh Gowariker Ashutosh Gowariker USA Karan Johar Hiroo Johar LA, USA LV, USA & Mexico Bahamas, USA NY USA Sabbir Anurag Basu Anthony D'Souza Nikhil Advani Sajid Nadiadwala Rakesh Roshan Dhillin Mehta Karan Johar Yash Johar USA Karan Johar Hiroo Johar Ashutosh Gowariker Pvt. Ltd. Dharma Nadiadwala Grandson Entertainment & Eros Entertainment Reliance BIG Pictures Filmkraft Shree Ashtavinayak Cine Vision Ltd Dharma Dharma Fox Star Studios Fox Searchlight Pictures Red Chillies Entertainment Enthiran-The Robot INR 175 (~US $ 40 Mn) Rajinikanth Aishwarya Rai USA/ Brazil S. Shankar Kalanithi Maran W. Hansraj Saxena Sun Pictures Gemini Film Circuit Ayngaran International Eros Labs B4U Network LINKS AND REFERENCES Indian-Films-and-Indian-Cinema/9494/

7 Commissions.htm ntent&view=article&id=424:latest-trends-in-film-financing-inindia&catid=123:3&itemid= KEY CONTACTS Asia-Pacific Business Centre Suite Hornby Street (corner of Robson and Hornby) Vancouver, B.C. V6Z 2C5 Tel: Toll free: ASIA (2742) British Columbia Trade and Investment Representative Office #660/1, Akshaya, First Floor 100 Feet Road, Indiranagar Bangalore Tel #s / info@canadaspacificgateway.in CASE STUDY A multi-million dollar media and entertainment fund based in Bangalore acquired a substantial stake in a new media firm operating out of British Columbia. Comic books and graphic novels, web comics, video games, short-form animation and live action shorts, toys and merchandise, as well as feature length films are just some of the tools the B.C-based animation company uses to establish brands and intellectual properties. Both companies have worked with big brand names like DreamWorks on various projects in the past. Did you find this document helpful towards advancing your business interests? 1 = Not Helpful, 5 = Very Helpful *If you are having trouble using this form click here to rate online *Please note, if you are using Safari, to rate this document, please right click on the PDF link, and download to your hard drive DISCLAIMER: This report has been prepared for the Government of British Columbia, Canada based on primary and secondary sources of information. Readers should take note that neither the author nor the Government of British Columbia guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations mentioned within. Readers should independently verify the accuracy and reliability of the information before making any decisions related to their business. Produced for the Government of British Columbia by: Abroader Consultancy India Pvt. Ltd.