The sourcing for film financing for Hindi films is now seeing itself in a new avatar with a number of Hindi films being financed by organized sources (comprising APO funds, institutional / bank loans, private equity / venture capital from institutions & private sources directly or through investment vehicles & companies). The percentage increase from 2002 to 2003 has been a whopping 200 per cent. A ballpark figure of Rs 1,761 million spread over 33 film projects is said to have been invested in the film financing sector in 2003 as compared to Rs 556 million spread over 11 films projects in 2002 and Rs 430 million in 2001. This increase in film financing from organized sources has been led by Media & Entertainment (M&E) companies that have raised funds through IPOs over the last few years and new entrants comprising of high net worth individuals (HNI) & companies, who were traditionally not engaged in the M&E business. This has resulted in the players reducing their funding from traditional unorganized sector debt financiers by a subsequent amount.

This represents the first definitive (and meaningful due to number & quantum of films involved) shift in the growth of organized film financing for the Hindi film industry, a trend which is likely to sustain & grow over the coming years.

The past five years witnessed several Indian companies engage in diverse business segments across the Media & Entertainment (M&E) space have raised money through initial public offerings (IPOs) and private equity placements over the past five years. The first company to tap public money through an IPO was the C&S TV broadcaster, Zee Telefilms Limited, in 1992-93. The big push in fund raising came in 1999 as investor appetite for M&E companies increased due to global recognition in the potential of M&E companies.

Business Segment

Names of Companies

Film Production, Distribution & Exhibition

Adlabs Films, PVR, Mukta Arts, Shringar Films, Pritish Nandy Communications, Galaxy Entertainment, Kaleidoscope Entertainment

The film financing market in India comprises producers (proprietorships, partnerships, private limited & public limited companies), private financiers (traditional financiers & new players) and banks & financial institutions. Indian films can theoretically raise production financing from multiple sources as tabulated below. However, funding from most of these sources is not forthcoming presently due to reasons mentioned alongside.

Mode of Funding
Private Financiers

Most frequently used funding source. Interest rates differ for different borrowers. By and large, interest rates have become competitive with a macro level fall in interest rates.

Promoter's Equity

The second most popular source of funding.

Larger Producers (in lieu of distribution rights & profit sharing)

Not too popular as all big producers do not have excess capital. Most of them shy away from this type of funding (equity investment for third party film projects) and concentrate on their own projects.

Institutional Debt

Most of the producers who can get sanctions do not need institutional debt funding while producers who need funding can not get sanctions due to conservative sanctioning approach (more so due to prudent credit policies) followed by lenders in order to protect themselves against distribution & completion risks.

Distribution Financing

Is available presently (in limited quantum) only for big banner films with reputed producers, directors and star cast.

IPO

Hangover of poor returns earned by investors from prior IPOs. Difficult but possible for business with diversified operations.

Venture Capital / Private Equity (Company level)>

Not forthcoming for plain vanilla film production companies due to concerns of transparency & higher risks. Low institutional activity due to lack of good, diversified investment opportunities.

Venture Capital / Private Equity (Project & Slate Specific)

Mitigates most of the critical risks associated with company level funding. Funding from corporates & individuals is growing rapidly through plain vanilla financing and / or co- productions.

The inferences that can be drawn is as follows:

Number of films financed from organized sources increased from 4 in 2001, to 11 in 2002 to 33 in 2003 representing an approximate increase of 200% year on year for the last three years. Total funding for films from organized sources have also increased from approximately Rs 430 mn in 2001 to Rs 575 mn in 2002 to Rs 1760 mn in 2003 representing an increase of more than 200% in 2003 over the last year.

It will be appropriate to infer that ongoing growth in multiplexes especially in metro towns and larger cities is promoting production of niche films (which, in turn are being financed by private investors), which till about 2-3 years back were unviable due to non-availability of exhibitor screens for showcasing to the target viewer segment.