Should Bollywood take on Hollywood

Corporate Strategy Term Paper

Madhurika Ravela- 1211132 Venkateswarlu Linganaboina- 1211353 Tanveer Mohd-1211151 Aastha Trivedi-1211163

Contents
History of Hollywood .................................................................................................................... 3 History of Bollywood..................................................................................................................... 3 Production ............................................................................................................................... 4 Distribution .............................................................................................................................. 4 Exhibition ................................................................................................................................. 5 Key Success Factors -Hollywood vs. Bollywood ............................................................................... 6 1) 2) 3) 4) 5) 6) 7) Strategic Orientation ......................................................................................................... 6 Marketing Research Capabilities ......................................................................................... 6 New Product Development (NPD) Capabilities..................................................................... 7 Distribution Capabilities ..................................................................................................... 8 Promotional Capabilities .................................................................................................... 8 Pricing Capabilities............................................................................................................. 8 Strategic Market Management Capabilities ......................................................................... 8

Hollywood vs. Bollywood in numbers............................................................................................. 9 Asian Industry Perspective .......................................................................................................... 10 Growing Popularity of Indians and Indian Movies Abroad ............................................................. 11 Factors driving this globalization.................................................................................................. 12 Increased Star Power .............................................................................................................. 12 Popularity of Satellite and Other Distribution Channels ............................................................. 13 International Avenues for financing ......................................................................................... 13 Improved content ................................................................................................................... 15

Bringing Professionalism in Bollywood ......................................................................................... 15 Recommendations and Conclusion .............................................................................................. 16 Appendix.................................................................................................................................... 17

History of Hollywood
The present-day American dominance of the film industry began during World War I and was firmly established by World War II. In 1909 American filmmakers began a systematic push into foreign markets. The globalization of the industry continued at a fast pace during the 1920s. Hollywood expanded abroad through vertical integration by setting up distribution networks overseas. Many movie studios acquired exhibitors. They practiced product bundling and forced exhibitors to buy all of their films in order to screen one. Industr y associations worked hard to lobby the U.S. government for more favourable trade regulations 1 .The economics of the film industry rewarded successful globalization. Film production involved high sunk costs, which rose rapidly as productions became more elaborate and stars demanded ever-higher fees. Films are essentially copyrights rather than physical products, and film producers recouped their costs and made profits by renting the copyright. As the costs of additional sales were low, film producers could earn substantial profits if they achieved large sales. Several movie studios, such as Paramount sent their American directors to Europe to work with their counterparts there. This cross-pollination of ideas helped increase the universal appeal of Hollywood. 2 The involvement of Wall Street in the film industry also brought about discipline and provided much- needed financing for investment in modern sound-enabled theatres.

History of Bollywood
The current film industry value chain consisted of three main functions: production, distribution and exhibition.

Kristin Thompson, Exporting Entertainment: America in the World Film Market 1907 34 (Tonbridge, Great Britain: The Whitefriars Press, 1985), p. 28. 2 Henry Waldman, Beyond Hollywoods Grasp: American Filmmakers Abroad, 19141945 (M etuchen, NJ: The Scarecrow Press, 1994), pp. viiviii.

Production
With the governments hesitance to recognize Bollywood as a legitimate industry, most banks refused to lend producers money to finance films. In 2001, the Indian government recognized Bollywood as an official industry, opening the floodgates of tax concessions and investments from banks, foreign production houses and other legal financial institutions. There were approximately 400 production houses/producers in India, with over 32 of them registered as corporate entities. Producers typically made a portfolio of films ranging from big budget Bollywood films to regional language films. 3

Distribution
Indian film distribution was divided into seven territories: six territories in India, and the seventh territory covering the rest of the world. For each film, territorial rights were allocated, on an exclusive basis to distributors in a given territory. Distributors were given a limited number of prints, so the film was released in stages and rotated across their territory. 4 In order to maximize their profits, distributors first issued prints to large multiplexes in urban areas and then showed the same prints in smaller towns and villages. Although cost effective, this strategy had a downside. If the movie did not enjoy box-office success in the areas in which it was initially released, it typically did not do well when it was released later in different parts of the distributors territory. The earnings of the film were jeopardized, as the limited ava ilability of the movie in the opening weeks encouraged the sale of pirated copies. As a response to these threats, the Indian film industry was gradually shifting towards digital cinema delivery, where films were distributed through servers, telecom and satellite technology. 5 As distributors scrambled over
3

Ernst & Young. The Indian Entertainment Industry: Emerging Trends and Opportunities : FICCI Report for the Frames 2004 Convention, 2004. 4 Ernst & Young. 5 Price Waterhouse Coopers, The Indian Entertainment and Media Industry, FICCI Report for the Grames 2006 Convention, 2006.

the rights in the UK and the U.S overseas rights for a big budget film roughly doubled in price than their cost in the Indian market. 6

Exhibition
A study conducted by Screen Digest , which compared the cost of a movie ticket to average earnings, found that it took the average Indian 16 working minutes to earn the cost of a movie ticket, making India one of the cheapest nations to view a film. 7 As of 2006, there were approximately 13,000 movie screens in India. India had one of the highest entertainment taxes in the world. The film industry was subject to a variety of levies including entertainment tax (up to 60%), new release tax (1%), show tax (1-2%) and various incidental taxes such as municipal and property taxes. High entertainment taxes had a number of negative implications. Margins for earnings were relatively low and theatre owners were known to under-declare ticket sales; this trickled down in terms of reduced revenue for distributors, which in turn affected producers and the profitability of the entire chain. However, with the more sophisticated demands of the rising middle class, multiplex theatres began mushrooming across urban centres. Multiplexes required significant capital expenditure and attracted investments from various corporate houses. There was an emerging trend of vertical integration in the industry, with many corporate entities from other segments of the film value chain investing in multiplexes The government, envisioning its tremendous entertainment tax gains from multiplex sales, offered a five year tax holiday and electricity at industrial rates to all companies opening multiplexes. 8 As of 2006, Indian multiplexes owned 193 screens and this figure was projected to rise to 907 by 2011.Modern multiplexes generated more than 20% of their revenue from
6 7

Rao, p. 60. Cinema Index Survey, Screen Digest, http://blogs.zdnet.com/ITFacts/?p=997 (accessed June 2007). 8 Government of India M inistry of Finance, Finance Bill, 2002 http://indiabudget.nic.in/ub2002 03/mem/mem1.pdf (accessed June 2007).

income streams other than films, including food and beverage sales. 9 Furthermore, multiplexes also attracted shopping malls, restaurants and became a crucial part of the Indian consumer experience.

Key Success Factors -Hollywood vs. Bollywood

Clearly the strength of Major Studios (Hollywood) comes from its exceptional strategic marketing capabilities relative to its rival film industry Bollywood. The dominance of Hollywood over Bollywood comes from the fact that it has achieved most commercial success with 276 Hollywood movies placed in the all-time top 300 box office hits. To understand the success of Hollywood, it can be evaluated on the following orientation and capabilities:

1) Strategic Orientation
Hollywood Market orientation Focussed on customers, markets, competition and opportunities with the objective to entertain global audience. Bollywood Majority of production are not targeted at international audience with some derivations and exceptions. The focus is primarily on local markets and is yet to move to international focus.

2) Marketing Research Capabilities

Hollywood Bollywood

Superior marketing research Low or negligible budget allocated to market capabilities developed through research capabilities. Hollywoods global distribution network, channel partners and markets.

FICCI-KPMG, Report on Indian Entertainment, 2003.

Distinct market research previously done are: 1. 1910 + - Box office Sales analysis 2. 1916 First survey by Paramount 3. 1920 Product test screening 4. 1930 Audience demand study by Universal 5. 1930 First industry to undertake segmentation and tracking studies 6. 1940 Advertisement strategy research

3) New Product Development (NPD) Capabilities

Hollywood Bollywood

There is a rigorous and superior NPD No rigorous NPD approach in place process in place. 1. Product development depended on Following are the steps: availability of finance 2. No formula driven approach used in most 1. Idea generation from books, case plays, original stories 2. Idea Screening 3. Concept development and testing Peer reviewed script development(formula driven approach), focus group testing 4. Preliminary market planning 5. Business analysis Decision of product development takes place at this point 6. Product Development 7. Market Testing Test screening 8. Commercialisation strategy Release

4) Distribution Capabilities
Hollywood 1. Channel dominant and plays significant role in marketing research capabilities 2. Intensive global distribution capabilities 3. Adapted distribution strategies over time 4. Controlled product release to maximize revenue Bollywood 1. No distribution capabilities except for some production houses 2. Distribution is locally centric 3. No channel relations or partnership 4. Does not match scale of Hollywood

5) Promotional Capabilities
Hollywood 1. Large film marketing budgets 2. Powerful marketing communication expertise and merchandising Bollywood 1. Some production houses have marketing capabilities in home country. In most case, in house marketing capability is less 2. Increasing marketing budgets in high budget films 3. Launch of films in different regions in home market is dependent on the expertise of distributors.

6) Pricing Capabilities
Hollywood Obtained premium pricing for high quality movies, global distribution and marketing capabilities. Bollywood Unable to price high unless have a history of delivering potential hit movies.

7) Strategic Market Management Capabilities

Hollywood 1. Vertically integrated production houses 2. Mergers and Acquisition to increase in- house capabilities E.g. Paramount, Universal 3. Quality focus Delivering Bollywood 1. Large concentration of small business trying to break even 2. Low cost or target niche segment strategy

value to end users 4. Superior Brand Management Expertise in branding both movies and stars as a brand 5. On-going investment in innovation 6. Integrated marketing communication

Hollywood vs. Bollywood in numbers

Hollywood produces 500 films per year on average and has a worldwide audience of 2.6 billion whereas Bollywood produces more than 1000 films every year and has a worldwide audience of 3 Billion. In terms of viewership, Bollywood overtook Hollywood in 2004 and has been leading ever since. While Hollywoods market inside the US has almost saturated, Indias 500 million population under the age of 20 will ensure that the market inside India will grow exponentially in the coming years. Although Hollywood produces only a fraction of the number of films made all over the world, it garners a staggering 75% of total revenues. Also, 50% of its earnings (expected to grow to 80% in the next 20 years) come from the foreign market whereas for Bollywood it is only 20%. Hollywood has an overwhelming domination among the top grossers worldwide almost all of the top 50 movies are made in Hollywood. It has virtually eclipsed all other film industries except Bollywood. Fourteen million Indians go to the movies on a daily basis (about 1.4% of the population of 1 billion) and pay the equivalent to the average Indian's day's wa ges (US $1-3) to see any of the over 1000 films churned out by Bollywood each year

Global box office for all films released in each country around the world reached $34.7 billion in 2012, up 6% over 2011s total, due to an increase in international box off ice ($23.9 billion) and U.S./Canada box office ($10.8 billion). All international regions with the exception of Europe experienced growth in 2012. Chinese box office ($2.7 billion) grew by 36% in 2012 to become the largest international market, surpassing Japan. In 2012 U.S./Canada box office was $10.8 billion, up 6% compared to $10.2 billion in 2011.At the end of 2010 it was reported that in terms of annual film output, India ranks first, followed by Hollywood and China. It is easier to turn a profit in Mumbai than in Los Angeles the average Bollywood film costs only about $1.5 million to make, versus $47.7 million for Hollywood. Marketing costs are also significantly lower in India. See Exhibit 1 for the revenue of the continental film industries in USD. Exhibit 2 for Indian Movies, its various film industries and the break-up of the movies produced by each industry Exhibit 3 for volume of the various film industries across the world

Asian Industry Perspective

Asian cinema can be divided into east, southeast, central, west and south Asian sub parts. East Asian cinema includes the Cinema of Japan, China, Hong Kong, Taiwan and South Korea, including the Japanese anime industry and action films of Hong Kong. Southeast Asian cinema is typified by the cinema of the Philippines, Thailand, Indonesia and other Southeast Asian countries. The cinema of Central Asia and the southern Caucasus is typified by Iranian cinema and Tajikistan. West Asian cinema is typified by Arab cinema, Turkish cinema, and the cinema of Israel. South Asian cinema is typified by the cinema of India,

which includes the Bollywood, South Indian, Bengali and Punjabi film industries, along with the cinema of Pakistan.

Growing Popularity of Indians and Indian Movies Abroad

Indian films need to shed the larger-than-life image and be more intimate to make a mark at the Academy Awards, opines the Indian Hollywood producer Ashok Amritraj. Out of the 46 films sent to Oscar so far from India, Lagaan is the last and the third Indian movie after Mother India and Salaam Bombay to get a position among the top five films nominated for the award by an Oscar jury. However, none of these films could succeed in winning the award. Amritraj feels that Indian film ind ustry lacks good screenplay writers and says that he plans to take steps towards discovering new talent in collaboration with Indian partners. Over the last few years, Bollywood has been registering its presence outside India far too often and in big numbers. See Exhibit for the list of highest grossing movies overseas. Not just movies or big banners, Indian film actors have also been in demand. Stars like Shahrukh Khan, Aamir Khan, Salman Khan, Amitabh Bachchan and many more have been able to amass huge fan base outside India which result in huge earnings for their films. Filmmakers know this and thus, aim to cater to these fans and audiences too. Some of the popular actors/actresses in de mand in Hollywood are Amitabh Bachchan in The Great Gatsby Aishwarya Rai in Pink Panther , The Last Legion, Mistress of Spices and Provoked

Irrfan Khan in The Namesake, A Mighty Heart , Slumdog Millionaire, Life of Pi and more than 70 movies.

Anil Kapoor in Mission Impossible and 24 Ashok Amritraj of Hyde Park Entertainment as producer of more than 100 Hollywood movies

M Night Shyamalan as director of The Sixth Sense and many others A.R Rahman as Indias only double Oscar Winner Anil Ambani as 50% owner of Dreamworks Production house

The recent boom and demand for Bollywood based movies is no fluke. The new crop of film makers are coming up with better scripts and paying more attention to hard hitting, realistic movies with the aim of catering to the more educated audiences.

Factors driving this globalization

Increased Star Power
Indian film personalities are fast becoming international icons, thanks to their fervent fan following both locally and overseas. Amitabh Bachchan is probably the most recognized film personalities the world over. Indian parallel cinema actors have been getting work in Hollywood productions in the past , but the globalization of Indian cinema in the recent years has driven these and many other actors to work on important foreign projects. Aishwarya Rai Bachchan, an ex-Miss World has worked opposite Hollywood heavyweights like Will Smith and Colin Firth. Times have changed for the foreign actors too where these actors either didnt get any substantial roles or were cast in small character artists or villainous roles. Best examples would be of Alice Patten who played a British journalist in the hit movie Rang De Basanti(2005) and of Toby Stephens, who played India loving British soldier in Mangal

Pandey(2005). Shantaram, an upcoming movie is probably the best example of amalgamation of Bollywood, Hollywood and crossover movies. The movie stars Johnny Depp and Amitabh Bachchan and is being directed by Mira Nair under the production of Warner Brother Studios. Attaining global celebrity status translated into higher earnings and an array of product endorsements for Indian film stars. Even foreign brands were not far behind. Corporate giants such as LOral cosmetics and Sony Xbox Entertainment contracted Indian film stars for print and television advertisements. Furthermore, lifestyle brands such as Louis Vuitton, Tag Heuer and Dunhill entered agreements with leading filmmakers for product placements in their upcoming films.

Popularity of Satellite and Other Distribution Channels

The advent of cable and satellite television has played an important role in the resurgence of interest in Indian Cinema. Channels like Zee Tv, Sony and Star Network were launched in India one after the other. These channels expanded internationally, covering and telecasting content in UK, U.S, Middle East and South East Asia. Most of the content was spinoffs from Bollywood (Antakshari, which has been running for more than 20 years). Other programs, such as Indias franchised version of Who Wants to be a Millionaire, cast Amitabh Bachchan as host, and proved to be one of satellite and local televisions highest earning show.

International Avenues for financing

Experts predicted that by 2011, the Indian film industry would grow by two-thirds and become a $25 billion industry. Though Hollywood, a sector that grossed $104 billion in 2006

alone, was worth exponentially more, Bollywood was experiencing an unparalleled growth rate. 10 Recognizing the tremendous financial prospects of the Indian film industry, India is fast becoming a high priority market for U.S. Studios. In 2007, Sony Pictures produced an $11 million movie, Saawariya, with an entirely Indian cast, crew and direction team, though the movie didnt do very well at the box office. Indian market seems quite favourable because of many reasons. Here budgets are lower, viewership is extremely high as compared to foreign markets and the risk associated was much lower than big budget Hollywood movies. A promising trend is that of Indian film makers turning to international money markets as a source of funding. Eros International, one of Indias largest distributors , listed itse lf on Londons Alternative Investment Market (AIM), an exchange for small, growing, global companies in 2006
11

.Other entertainment companies, such as Amitabh Bachchans

floundering AB Corp, were also exploring the possibility of listing in the AIM. There was also substantial interest in Indian cinema from NRIs. For instance, Silicon Valleybased multi- millionaire venture capitalist Kanwal Rekhi invested in the film Saathiya (2002), through Kaleidoscope Entertainment. The Industrial Development Bank o f India (IDBI) set up the countrys first film fund worth 100 crores (US$22 million) in 2002. 12 Through the fund, individuals would be able to buy shares in the major film and television companies, invest in projects for profit, and invest in education and training institutions for philanthropic reasons.

10 11

Can Bollywood go global, HBS Case Study Can Bollywood go global, HBS case study 12 www.scribd.com/doc

Improved content
Masala film makers began making films that catered to the large NRI audiences who, paid more, bought more, and whose tastes needed to be reflected in film content. Attune to such a trend, big banner filmmakers such as Karan Johar directed Kabhi Alvida Na Kehna (2006). It is a movie about two couples living in Manhattan and having extra marital affairs. The film was a success both locally and internationally but what was more interesting was the fact that it didnt earn substantially more in Indian markets than overseas ($9.7 million overseas and $10.2 million in India). A newer trend was emerging all this while. Though NRI audiences preferred masala and crossover films, low budget multiplex films were making their foray into the global market. Life in a Metro(2007), starring reality show Big Brother winner Shilpa Shetty, used the stardom of the actress to have an Indian movie premiered outside India for the first time.It received extensive media coverage and collected an impressive $500,000 in overseas sales.

Bringing Professionalism in Bollywood

Bollywood suffers from the following dysfunctional practices and norms: 1. Large concentration of unorganised production and business houses 2. No capability development

3. No developed product development style 4. Complete reliance on cast for success of the movie 5. No budget allocation for script development and market research 6. Lack of focus on global markets

To dominate market in India and abroad, it is very important to focus on the development of capabilities by production houses by vertical integration, partnerships and mergers. Bollywood can go global through Joint Ventures with powerful International Production houses to access new markets and capabilities.

Recommendations and Conclusion

For Bollywood to be as successful abroad film makers fraternity has to realize the importance of being professional and removing the malaises discussed above. The ways in which they can achieve scale and profitability are 1. Improve the quality of the content, production values and the overall appeal. The script should be understood and appeal to all and one in the same way. Larger than life dramas work very well in India, even though that trend is also changing with the small budget, multiplex targeting movies. 2. Introduce the concept of endorsements. Hollywood movies do not rely only on the movie watchers for their revenues. Much of the revenues come from the uncountable endorsement deals associated with the movies and also the biggest actors and actress (all of which are Hollywood A listers) command a significant level of endorsements that are in many ways affiliated to the movies they make. 3. Introduce franchise concept where apart from the movie content, a whole lot of merchandise are marketed along with the movie. This strengthens the connection of the audience with the movie and also contributes to the revenues. 4. Use the rich culture and literature of the country to develop stories. 5. Period movies like wars, revolutions and mutinies should be made on a large scale.

Appendix
Exhibit 1: Revenue of continental films industries in USD 2008 9.6 9.7 6.8 1.6 27.7 2009 10.6 9.9 7.2 1.7 29.4 2010 10.6 10.4 8.5 2.1 31.6 2011 10.2 10.8 9.0 2.6 32.6 2012 10.8 10.7 10.4 2.8 34.7

US/ Canada Europe, MEA Asia Pacific Latin America Total

Exhibit 2: Breakup of movies made in India Language Hindi Telugu Tamil Kannada Bengali Marathi Malayalam Bhojpuri Gujarati Oriya Punjabi Assamese English Rajasthani No. of films 206 192 185 138 122 107 95 74 59 38 8 7 6 5

Haryanvi Dakhani Others Total

3 2 1 each 1255

Exhibit 3 13 : Rank 1 2 3 4 5 6 7 8 9 1o 11 Country US/Canada China Japan UK France India Germany South Korea Russia Australia Brazil World Box Office $ 10.8 billion $ 2.7 billion $ 2.4 billion $1.7 billion $1.7 billion $ 1.4 billion $ 1.3 billion $ 1.3 billion $ 1.2 billion $ 1.2 billion $ 0.8 billion $ 34.7 billion

13

http://musicmovielist.com/movies/hollywood-international-the-film-industry-by-the-

numbers

Exhibit 4: Overseas Top 10 Bollywood Lead stars movies 3 Idiots My Name is Khan Jab Tak Hai Jaan Aamir Kapoor Khan, Kareena

Collections in USD

$25,000,000 $23,000,000 $13,560,000

Shah Rukh Khan, Kajol Shah Kaif Rukh Khan, Katrina

Don 2

Shah Rukh Khan, Priyanka Chopra

$11,750,000

Kabhi Alvida Na Kehna

Shah Rukh Khan, Rani $10,770,000 Mukerji, Preity Zinta Ranbir Kapoor, Deepika Padukone, Kalki $10,500,000 Koechlin and Aditya Roy Kapur Salman Khan, Katrina Kaif $10,150,000

Yeh Jawaani Hai Deewani

Ek Tha Tiger Om Shanti Om

Shah Rukh Khan, Deepika $10,080,000 Padukone Shah Rukh Khan, Kareena Kapoor $9,200,000

Ra.One

Dabangg 2

Salman Khan, Sonakshi $9,000,000 Sinha, Prakash Raj