Indian Box Office Model
Indian films as known as Bollywood is the world’s largest film industry in terms of film production, with an annual output of 1,986 feature films as of 2017 and Bollywood is its largest film producer, with 364 Hindi films produced annually as of 2017? Bollywood represents 43% of Indian net box office revenue, while Tamil and Telugu cinema represents 36%, and the rest of the regional cinema constitute 21%, as of 2014. Bollywood is thus one of the largest centers of film production in the world. According to certain news outlets, in terms of ticket sales in 2001, Indian cinema sold an estimated 3.6 billion tickets annually across the globe, compared to Hollywood’s 2.6 billion tickets sold. Now we know how movies make money
Whenever a new movie is made, it is the producer who undertakes the complete expense of making the movie including paying the cast and crew, promotion expenses, shooting expenses etc. After the release of the movie, it earns revenue from theater collections, selling of distribution rights, selling of broadcasting rights. If this revenue exceeds the expense, then the movie has made a profit. This profit goes to the producer. Thus the producer earns money from the movie. If there are more than one producers, they either share the profit equally or share it according to the proportion of capital invested by each producer.
A producer can earn money by selling the rights of the movies first to distributors and exhibitors. The distributor pays some huge amount according to the talk about the movie and handovers the rights of the movie. The distributor sells the movie prints to theater owners. Producers also earn money by selling the VCD and presently DVD rights to some company and even producer makes money by selling music rights to audio companies. And satellite rights also gives an opportunity to make money for the producer.
If the movie gets hit talk some time prints of the movie also increase this also allows producers to earn money. Take an example of recently release movie of Ra. One Producer of this movie earns money by selling its movie of Distributors which can distribute movie all over the world. Same song records of a movie in case of castes, CD, DVD and digital. Branding is another way to earn movie from money like promoting technology, brand etc. movies make money
Now We Understand Step By Step
Director: Director is a person who buys a story from the writer. Then he assumes which actor or actress is best for his story. Then the main task is which location is best for the movie. Now expense is made for cameramen, lightmen, hotel fees, setup, etc
Producer: The person who invests in films. The money that a Producer invests in making a film is called the “Budget”. It includes everything from the remuneration of the actors, technicians and other crew members to transportation and other costs. Apart from this, once a film is complete, it has to be marketed and that calls for “PA (Promotion & Advertisement)” expenses.
Distributors give him a minimum guarantee fee before the movie in return for film rights in a territory within the country. Producers can recover up to 30 percent of the cost of the film, pre-selling it to distributors. If the movie does well and the distributor recovers his money, any additional inflows get divided between the two.
Another 25 percent of the revenue comes from overseas rights, 20 percent from satellite rights, 10 percent from the emerging home video market, 10 percent from music (which includes wireless and Internet downloads). If the producer owns the intellectual property rights and has not sold it off in perpetuity (generally, rights are given for five years), he could make money selling his library to a TV channel in the long term. movies make money
And where does he get his money? From banks, like Yash Raj does. He can borrow on the strength of his balance sheet, as UTV does. He can fund his films from IPOs, like PNC. Or go to individual high net worth individuals or companies to put in money as equity. Or, of course, raise money upfront from distributors, or through selling some of the rights early to finance the cost of the film.
Distributor: The Distributor forms the most vital link in this money chain by acting as a medium between Producers and Theatres. The Producer has to deal out their film to the All India Distributors. The price at which the producer sells his film to the distributors is termed as “Theatrical Rights”. The producer can either directly sell the Theatrical Rights to Distributors or make a contract with any Third Party which in turn has the responsibility to deal with Distributors. In that case, the Producer will get his share from the third-party even before his film releases and all Profit/Loss will be incurred by third-party only.
For example, Yash Raj Films distribute their films themselves, while Nadiadwala Grandson’s had a contract with EROS for Housefull 2. Indian film industry is majorly distributed in 14 circuits and each has its distributors to represent them:- Mumbai, Delhi/UP, East Punjab, CI (Central India), CP Berar (Central Provinces), Rajasthan, Bihar, West Bengal, Nizam, Mysore, Tamil Nadu, Assam, Orissa, and Kerala.
They offer an MG fee to the producer to book a territory. And spend on print and publicity on which they take a 20 percent commission. Any overflow of revenue after recovery of the MG fee and commission is divided between them and the producer. In cases like Yash Raj Films, which distributes most of its films, while the risks are bigger, so are the gains. movies make money
Exhibitor (Theatre): In layman terms, Exhibitor is nothing but a theatre owner. The theatres form the end of the box office model. On pre-defined agreements with the exhibitors, the distributors hire their theatres to showcase films. There are two types of theatres in India: (i) Single Screens (ii) Multiplex Chains and both have a different kind of agreements with distributors. This agreement focuses mainly on “Number of Screens” and “Monetary Returns” to be paid back by theatres to Distributors.
Entertainment Tax (All India average of 30% approx) is deducted from the total collections at the ticket window. This tax is enforced by individual state governments and thus differs from circuit to circuit. After taxes, a percentage of the total net gross is paid back to the Distributors. This return is known as “Distributor Share”. movies make money
The old system in which distributors paid a rental to the theatre irrespective of whether the movie ran or not is rapidly becoming history. Under a new system, revenue gets shared between theatre owners and distributors. Generally, in the first week of a release, the split is evenly 50:50, in the second week the producer gets 40 per cent and the exhibitors the rest, in the third week the producer makes 30 per cent and if the movie continues into the fourth week, he gets 25 per cent of the collections. movies make money
Box Office Terminology:
- 1) Cost of Film = [Budget + PA (Promotion & Advertisement) Expenses]
- 2) Non Theatrical Revenues = Satellite Rights + Music Rights + Overseas subsidy etc.
- 3) Footfalls = Total number of tickets Sold
- 4) Gross Collections = Total money collected from ticket sales
- 5) Net Collections = [Gross collections – Entertainment Tax and others]
- 6) Distributor Share is generally calculated as below:
|Week 1||Week 2||Week 3||Thereafter|
This means 50% of the collections (after entertainment taxes) goes to the Distributor in the first week of release and so on. movies make money
- 7) Profit / Loss (Distributor) = [ Amount at which film was bought – Distributor Share ] How movies make money from multiplex
Let us now go through a scenario to better understand about these terms.
Case Study – Suppose a film releases with an average ticket price of Rs 120 at Multiplex and Rs 60 at Single Screens in Week 1. 100 people visit a multiplex and single screen each. Entertainment Tax to be deducted from gross collections is the same at 30%.
|Average Ticket Price||120||60|
|Gross Collection||100 * 120 = 12000||100 * 60 = 6000|
|Entertainment Tax||0.3 * 12000 = 3600||0.3 * 6000 = 1800|
|Net Collection||12000 – 3600 = 8400||6000 – 1800 = 4200|
|Distributor Share||Fixed 4200(50% — > 0.5 * 8400 = 4200)||Between 2940 and 3780(70% — > 0.7 * 4200 = 2940 /90% — > 0.9 * 4200 = 3780)|