Business model of Bollywood, How Film Industry Earns Money? Financial education, with the help of best example(1)

Business model of Bollywood

Hello friends, about four years ago, the film Race 3 was released with Bollywood actor Salman Khan in it. This film received terrible reviews from the audience and critics alike. It is considered a huge flop but do you know, despite this, this film was a financial hit? This film was made on a budget of 1.8 billion rupees and it earned more than 3 billion rupees. On the other hand, there’s a stark contrast the Bollywood film Mera Naam Joker in 1970. The director, producer and actor of the film was Raj Kapoor a huge celebrity of his time. This film is considered a cult classic nowadays, one of the best films of its time. Even so this film lost so much money they it put Raj Kapoor in a financial crisis. If anyone earned profits from this film, it was a company based in the Soviet Union. This is the reason why some hit films turn out to flop for some people and flops films became a financially hit film. Come, in this article let us understand the Business Model of Bollywood films.

How Film Industry works?

Friends, the Indian film industry is the world’s largest film producer. The number of films made in India is unmatched by another place in the world. Every year, about 1500 to 2000 films are made in India in 20 different languages. The Hindi film industry that’s known as Bollywood had been the most popular film industry in India for a long time. Even though, only about 16% of the Indian films are made in Bollywood out of the total films being made in India but the market share of Bollywood in terms of revenue was the highest about 45% of the collections from the films were by the Bollywood films. I’m using past tense because this was the scenario before the pandemic. Today, the number 1 film industry in India is the Telugu film industry, their share in the domestic box office this year is at 28% and Bollywood’s share has fallen to 27%. Overall, the South Indian language Film industries have increased their market share from 36% in 2019 to 59% by 2020-21. Bollywood is slowly losing its dominance but the business model on which all these films work is the same for all of them.

Let’s understand how a film earns money?

To understand how a film earns money, first we need to understand, how a film is made, the process of making a film can be divided into four stages: Development, pre-production, production and post-production. In the stage of development, the story of the film is developed. The script and dialogues of the film are prepared then in the pre-production stage, the main cast and the supporting cast as selected. The actors who will work in the film during this stage, a crew is hired as well. The shooting equipment is arranged whether it will be rented from somewhere, the shooting locations are selected and the travel and accommodations are arranged and if the film needs any permission for filming, the permits and insurance are secured at this stage and then comes the third stage, production. The film is actually shot at this stage, once the shooting of the film is over then it goes into editing. This editing is known as the post-production stage where in the film is finally compiled. In each of the stages of this entire process a lot of money has to be spent. Apart from the salaries of the actors, the writers need to be paid at least in some films, the crew needs to be paid the expenses of renting or buying the filming equipment, the expense of getting the requisite permits. Overall, there’s a huge expenditure, it is very rare they a single individual has this kind of money, the budget of an average mainstream Bollywood film is around 50 crores. The upcoming film Brahmastra has an estimated budget of more than 300 crores rupees. Even the most successful Bollywood across like Ranvir Kapoor or Akshay Kumar wouldn’t have the money to spend on one film. That’s why the task of managing expenditure is undertaken by huge corporations known as production companies. Brahmastra is among the most expensive Bollywood film, that’s why it’s not produced by only 1 production house, multiple production companies are spending money to make this film like Dharma production, Prime focus and Start studios. The individual who pays their own money to pay the expenses of the film are known as the producers.

If you remember the brilliant comedy film released in 2007, Bheja fry, Bheja fry was actually one of the lowest budget Bollywood films of all time. The total cost of making this film is estimated to be around 70 lakh rupees and 70 lakh rupees can easily be paid be a rich person, that’s why there was only one individual producer for this film, Sunil Doshi, the only producer of Bheja fry.

Role of producers in film industries

Friends, the film producers are like entrepreneurs, their task is very risky. They invest their money to bear the expenses of the making a film, if the film turns out to be a hit then they will earn a good return on the money they spend but if the film turns out to be a flop they lose their money and as you know most of the films are flops, it is very rare that a film is a hit. The producers basically invest their money to make a film, the money they invest in a fill is known as budget and they hope that the film is a hit so that they can make a profit. The actually task of making the film is of the Director like shooting, editing, post-production to maintain an overview of all the various activities and to actually make the film. In the most cases, the directors are like the actors, they are employed in salary, they paid a salary per film, especially in film with a small budget. For the big shot directors, such as Steven Spielberg, they often work on the basis of profits sharing but in our business model, the directors and actors play almost role.

Role of distributors in film industries

Once the film is made then it is loaded onto a small hard disk and the producers take this film to the distributors. The distributors have to ensure that the films reach cinema halls as well as the OTT platforms. Often, the distributors are responsible for marketing the films as well so they spend their money on the promotions and advertisement of the film. The distributors make money by the seeking the satellite rights to the film and the digital streaming rights like the TV channel on which the film is telecasted for the first time has to pay the distributors to buy this right so that the film telecast on TV for the first time only on that TV channel, when this is done it is known as the world television premiere you might have noticed this. The distributors sell the film to the OTT platforms as well and the OTT platforms pay the distributors for this. You can take the example of the latest film Bhool Bhulaiya 2, it was produced by T-Series and distributed by the company AA films. Often, before the film is released the distribution companies enter into deals with the OTT platforms, they sell the film at a mutually determined amount and set a date after which they can release the film on their OTT platform. In the case of this specific film, this film was a super hit. Even after 2-3 weeks this film continued to be in the cinema halls but the since the deal was already struck between the distributors and Netflix and the distributor has sold the film to Netflix for 30 crores rupees and they had agreed on the date after which the film could be released on Netflix.

Friends often for major films the major production company and the distribution company of the film are the same. The large production houses such as Yash Raj Films, Dharma Film Production, Fox Start studios, they are distribution companies as well. If the producer and distributor of the film are the same so the production consult maintains separate budgets for production and for marketing and distribution.

Box office and box office collection

Next, when the films are shown in the cinemas you need to purchase tickets to watch it, the ticket counter from where you get the tickets is known as the Box office and the revenue is a film by setting the tickets is known as the Box office collection. This amount is collected by the theatre owners. On this revenue, the theatres have to pay GST to the government. GST at the rate of 18% if the price of the tickets is more than 100 rupees or at 12% if it is then 100 rupees. After posting GST the remaining amount of known as the Net collection the film. If the net collection of a film is more than its budget so the can be considered profitable.

Before GST was introduced, the state governments charged an entertainment tax, it used to vary from state to state. When a film was declared Tax free in a state of meant that the entertainment tax on that film had been waived off, it reduced the cost of the tickets. As I said, now the GST is levied at either 12% or 18%, the GST is then system by the Central and State governments so now when a state declares a film tax free only the SGST component of GST is waived off, you steel need to pay the CGST, so now the exemption can either be 6% or 9% depending on the price of the tickets. Basically, this is the involvement of the government in this business model of films. You can say that it is the government’s way of regulating the film industry but since the introduction of OTT platforms such as Netflix,  they are providing free entertainment online so the government is unable to charge tax on it, this aspect is quite similar to crypto when crypto was newly introduced it was outside the purview of the government’s regulation although now the government had introduced crypto tax as well to where that there are no avenues on which they are not levying taxes.