JUMP CUT
A REVIEW OF CONTEMPORARY MEDIA

From Bollywood Dreams by photographer Jonathan Torgovnik.

Krrish (Rakesh Roshan, Hindi, 2006) was an Indian blockbuster.

Krishna Picture Palace, a single screen theater, in my hometown. Photo: M. Pendakur.

Vishwanath with digital projection equipment. Photo: M. Pendakur.

Film projectors at Krishna Picture Palace. Photo: M. Pendakur.

Projectionist at Krishna Picture Palace. Photo: M. Pendakur.

Vishnu Theater. Photo: M. Pendakur.

Aishwarya Rai, one of the top stars of Bollywood, does an item number in Dhoom2 (Sanjay Ghadvi, 2006).
http://www.youtube.com/watch?v=2j5XaFEviFc

This superhit spurred the making of other films for a worldwide Indian audience.

This film, with major stars and a theme about contemporary terrorism in India, was the focus of a major dispute about splitting profits between multiplexes and producers.

Digital cinema houses: a new turn?

While the Hollywood Majors (Disney, Fox, Paramount, Sony Pictures Entertainment, Universal, and Warner Bros.) were unsure of what technical standard to adopt for digital cinema exhibition in the beginning of the last decade, Indian entrepreneurs moved ahead with digitalization of theatres with imported technology from the US and Europe. The Society of Motion Picture and Television Engineers (SMPTE), a US organization, had been working on a digital standard for cinema production and exhibition technology as early as 2000. The US Majors, however, decided that it was too slow a process and established their own company called Digital Cinema Initiatives (DCI) in 2002. They wanted DCI to come up with a standard quickly that the Majors could impose on the industry worldwide. DCI published their specifications in 2005, which were later approved by SMPTE.

The Majors started to push for the installation of digital projection technologies that met the DCI standard in 2007-2008, however, that did not receive an enthusiastic response from the larger theater chains in the US because per screen conversion costs were between $60,000 - $100,000. The US economic meltdown of 2007 became a major obstacle to secure the capital needed to make this big, expensive change. The Majors, however, came up with a way to subsidize digital conversion of theaters by providing a fee to each digital screening from their savings in not doing celluloid prints any more. Called the Virtual Print Fee, it has certainly helped the big theater chains in the US show first run films. While at the same time, it is prohibitively expensive for second run movie houses to do the same (MKPE Consulting, 2012). The subsidy to the theaters is for the first time conversion only. Any maintenance, repairs, and future replacement costs of the new technology is the responsibility of the exhibitors.

Another important reason for the DCI format to spread in the US quickly is the success of 3-D movies in the last five years. Avatar set the standard for high quality digital cinematography and it was available only in the digital 3-D format. The film grossed more than $760 million in the US and international markets (Box Office Mojo, 2012). The big exhibitors saw the golden rainbow in converting their theaters with such box office successes. As of this date, 50% of the US theaters have converted to digital projection. The market development in India, however, differs from this story. When you read the media coverage in India about digital theaters and various media releases by involved companies, it is easy to come away with the impression that it is a ‘revolution’ in cinema exhibition in India. The reality in the marketplace is far more complex than such media hype.

Digital exhibition technology essentially consists of a compressed data file (6-8 GB) that is downloaded via satellite into servers installed at the cinema hall, which in turn is displayed by a high quality projector onto a large screen in an auditorium. DG2L Technologies, a New York-based corporation, reportedly offers technology and training and is praised by their Indian partner, UFO Moviez as

“an end-to-end solution comprising film capture, encoding, encryption, management, and playback”
(DG2L: Showest, 2006, p. 1).

In the United States, there is no satellite delivery of digital prints. Distributors ship a hard drive containing the movie file to each cinema in the country. In contrast, in India the digital file is sent via the Internet to the theater because the file is much smaller than the DCI file that a Hollywood movie requires.

Venture capitalists from different parts of the world flocked to this new opportunity to convert single screen cinemas. Apollo Tyres, which manufactures automobile tires, raised Rs. 1500 million ($60 million) to float UFO Moviez. The UK-based equity investor, 3i, invested more than Rs. 1000 million ($22 million) in this new company. The US-based DG2L also bought a 15% stake in UFO Moviez. The Apollo Group holds 60% stake in the company while certain individuals who are the original promoters of the new technology from the US hold 25% equity in the company. In other words, this is a US-India-UK partnership to bring this new technology to India and change the way films are distributed and experienced all over the country.

Digital cinemas offer some obvious advantages to distributors and exhibitors. Simultaneous release of 1000 prints can be enormously expensive in terms of printing, shipping, and managing transportation whereas a digital file can be quickly sent via satellite technology and downloaded hundreds of miles from a transmission point.[12] [open endnotes in new window] All that a theater needs are technological training, reliable electric supply, a server, projector, and other technologies needed to make it all work.

Krrish (Rakesh Roshan, Hindi, 2006), India’s version of Superman, had one of the biggest openings for an Indian film. It was released across the world with a record number of 790 prints, 250 of them in the overseas market. Krrish also went out digitally to 87 UFO screens in the first week and another 90 screens in week two. Aditya Shastri, CEO of UFO International, was quoted in his company press release:

“It is (sic) has been our privilege to be part of this success and bringing the latest in digital projection technology has surely been an advantage. We are proud of our association with Krrish and remain committed to ensuring pristine quality images with perpetual life with no compromise in quality. With Krrish’s trouble free shows under our belt, we can definitely stake our claim to a stable and rugged technology of digital viewing. The overall response towards digital cinema has been extremely positive and will be a constant source of motivation for us.” (http://www.dcinematoday.com/
dc/pr.aspx?newsId=565
, p. 1).

Adlabs, a Mumbai-based company that has diversified operations in production, distribution and exhibition as well as film processing, is engaged in digital conversion of theatres. Nishit R. Shetty, head of operations, Adlabs Digital, said, “Today digital distribution is relevant only in places that don’t get the prints in the first week of release. Once the quality of projection comes close to or even better than 35 mm projection system in India, then the concept of digital distribution assumes significance at bigger theatres” (Mazumdar, 2007, p.1).

Shastri and Shetty are good advocates of this new technology and what appears clear is that ‘B’ and ‘C’ centers see some advantages in this mode of distribution. If they can show a new film at the same time as an ‘A’ center, the whole system of classification that disadvantages the ‘B’ and ‘C’ centers will collapse. A new film, even if it is a dud at the box office, has some life in the opening week before the word of mouth spreads about how bad the film is. On the other hand, if the film is a success with the audience, the small cities and towns can enjoy simultaneous releases of new films. Some enthusiasts who travel several miles to go see a new film in a bigger city will be enticed to come to a single screen in their own town if the projection and sound quality are on par with the big city theatres. Wider release of a successful film brings in the box office quicker and a distributor does not have to wait a whole year or six months to see their film go through all the markets if more theatres can be reached at minimal cost (or at least less than what the distributor has to pay to strike that many prints and pay for shipping, replacement of worn out prints, etc.) Digital conversion of theatres offers these advantages to both distributors and exhibitors.

While economic logic appears to be on the side of this change, there were significant concerns on the part of theatre owners that had to be solved. To understand the complexity of this technological change, let us turn my home town in Karnataka, about 150 miles from Bengaluru. It is a small town with about 20,000 inhabitants, but the area surrounding has small villages that are populated by some 60,000 people. They come into town for a market day or to go to a government office. There are three single-screen movie houses that operate as small businesses with no equity investment or partnerships from outside firms. The owner of Krishna Picture Palace is Vishwanath Gangavathi. It is the oldest theatre in town with 600 seats and, relies primarily on Kannada language films because the market, unlike Mysore or Bengaluru, does not have that much linguistic diversity. An occasional Telugu film or a Hindi film may play a week or at a morning show, but the audience is primarily Kannada speakers who wish to see their own stars and stories. Kannada film industry turns out about 80-100 films a year that keep the 1000 single screen theatres in the state well-supplied.

Vishwanath decided to invest in digital cinema technology in 2006 because he pointed out,

“print costs and other distribution costs have been rising; quality of prints has always been a problem for exhibitors.”

Before investing, he compared the digital cinema systems offered by competing companies:

“We looked at different systems that are available and made the deal with a Bombay company called Universal Film Organization (UFO). We pay a total of Rs. 225,000 ($4500) to get their patented computer system and a digital projector; they will charge Rs. 150 ($3) per download of a film via the Internet on to the server. Installation and training of projectionists are included in the price. The other costs are a sound system and new chairs, etc. to convert this into a better theatre. I am going to use surround sound and remove all the benches to make only two classes—balcony and lower stall and raise the price for both” (Gangavathi, 2006).

When I asked if he would continue to maintain the analog projectors that unspool the 35 mm prints, Vishwanath noted,

“Digital theatre does not mean we will abandon the 35 mm projectors yet. Until the system works out and more titles become available, film will continue.”

Almost seven months after the telephone interview, I visited Vishwanath at his theatre in January 2007. He had experienced the digital ‘revolution’ and was not terribly impressed. He had bought the technology, which had been installed successfully, and his projectionists had been trained by UFO Moviez. He had also upgraded the sound system as he had planned with new seats and the ticket prices had gone up from Rs. 10 (20 cents) to Rs. 15 (30 cents) in order to pay for all these expenses. To accommodate the needs of this new but delicate computer technology, he had to air condition the room where the server and the projector were placed, along with a back-up generator because the electricity supply is unreliable.

Vishwanath was frustrated and wondered aloud why he had ventured into this new technology when he was sitting on guaranteed profits. The expected availability of film titles had not worked out because only 3-5 Kannada films were available for digital transmission. It meant some of the films that would have been attractive to his market were not in circulation in the digital format right away. That meant the primary advantage of securing a new film when it released in Bengaluru was not realized. It essentially relegated his theatre to a ‘C’ center.

Secondly, the distributors charged Rs. 250-300 ($5-6) per show for playing the movie and their computers were capable of keeping track of the exact number of times the movie file was used to play in any theatre. This was an added cost to his operation. While the distributor charged this fee uniformly to all screens whether they are in an ‘A’ center or ‘C’ center for using a digital file, the grossing potential is markedly different. For example, Vishwanath’s 600-seat capacity theater with Rs. 15 (30 cents) a seat can only gross Rs. 9000 ($180) per show. On top of this, distributors in Karnataka passed on the cost of converting a 35 mm print to a digital file, approximately Rs. 18000 ($360) per film. These new costs are a source of worry for the small, single-screen exhibitors while the revenues and profits of multiplexes are growing.

The most worrisome problem to Vishwanath was downloading from the satellite was rather slow, often taking three hours, and not reliable. The server developed problems too often. On the day I arrived he was faced with such a problem and, luckily, he had a 35 mm print of the same film ready to be shown. In effect, the distributors are shipping a print in addition to the digital file download, just in case. I visited Vishnu, the single-screen theatre next door, operated by Vishwanath’s brother, Lakshmipathi. He had also looked into buying digital projection technology, but decided against it. Instead, he invested in a digital Dolby sound system. That was comparatively less capital invested and his audience was pleased with better quality sound.

The promise held by digital cinema technology in small towns came slowly. By 2012, UFO Moviez and their competitors adjusted their business models to encourage single screen owners in small towns to convert to digital display. I interviewed Vishwanath by telephone (Gangavathi, March 2, 2012) and he was delighted to report all the positive changes that have occurred in a five-year span. The technology has improved dramatically in terms of download speeds and the UFO Moviez maintains the projectors and replaces parts at no cost to the exhibitor. They are also not charging the exhibitors to convert by providing the projectors for free. As a consequence, Vishwanath’s brother who owns the Vishnu Theater next door also converted to digital display two years ago.

In the new business model implemented by digital technology companies, they collect Rs. 10,000 ($200) for converting each print from the distributors. As the distributors save all print costs, they are willing to pay this fee. This is different from what the Hollywood Majors did in the US market but from the exhibitors perspective it was beneficial.

Furthermore, all of the films in Kannada, Telugu, Tamil, and Hindi languages are available in digital format. This was one of the biggest obstacles for success of this technology. Once that occurred, the old designation of A, B, C status given to single screen theaters disappeared. Small town audiences can have access to a new movie on the same day that is released in Bengaluru. The small town exhibitor has to still negotiate with the distributors to secure films on certain terms. Vishwanath told me that distributors are demanding bigger advances ($800 to $1000) per film and if the picture fails at the box office the exhibitor has to wait a long time to get the money back.

The rapid growth of multiplex theaters with digital projection and high quality sound and their success with urban audiences in the big cities created a new dynamic in the film industry and an unprecedented conflict for supremacy over the box office. This tug of war also affected the Hollywood Majors who were enjoying growth of audiences and revenues for their pictures in India’s multiplexes. We will turn to that interesting power struggle now and see how the contending parties argued their case and what role the Central Government played in sorting out this conflict.

Producer-distributors strike back

It is reported that by 2009 multiplexes took in on the average of about 60% of the total box office in the nation and the rest went to the single-screen cinemas. Some 643 producers of Hindi films in Bombay were members of various trade associations. While not all of them were actively producing films, some of these family-owned operations had created vertically integrated, production-distribution companies. Some had even expanded their distribution operations into lucrative markets such as the U.K. and the United States.

One such vertically integrated producer-distributor is Yash Raj Films, based in Mumbai, that produced many successful films, including the super hit, Dilwale Dulhaniya Le Jayenge (Aditya Chopra, Hindi, 1995). It was a romantic comedy set in the UK and had such a huge response with domestic and global Indian audiences that it paved the way for others to make films with worldwide Indian audiences in mind. Yash Raj Films decided to test their company’s muscle with the multiplex owners by trying to alter the revenue sharing agreements in 2006. Their major film, Fanaa (Kunal Kohli, Hindi, 2006), with Superstars, Aamir Khan and Kajol, and dealt with the contemporary issue of terrorism in India, was set to be released in May 2006. Yashraj Films demanded that the multiplexes give up 60% of the box office collections in the first week, 50% in the second, 40% in the third, and 35% in the subsequent weeks. As production costs are seldom in control, and that the multiplexes reap 100% of the profits from the food and beverage sales, the producer-distributors historically struggle to get more out of the theaters. Whether they succeed or not in that regard is usually a testament to their power and which side of the issue the state may weigh in. In this instance, the multiplex owners refused to budge and blocked the release of Fanaa in their theaters.

The reaction from the production-distribution sector was quick and forceful. Amit Khanna, President of the Film and Television Producers Guild, issued a stern statement to Deepak Asher, the President of the Multiplex Association. “We would like to strongly condemn the action of your members to boycott the release of our member Yashraj Films Fanaa.” Asher noted that this uncalled for action was against the spirit of free enterprise and amounted to cartelization. He further stated,

“…In case your members decide to go ahead with the blockade we too will have to advise our members to take whatever steps necessary to safeguard their interests” (One India News, 2006).

There were a few other big budget productions in 2006--Krrish, Kabhi Alvida na Kehna and Dhoom 2-that were about to be released by Yash Raj Films. If the multiplexes boycotted these films, which went on to become box office hits, the losses to the multiplex owners would be considerable. The producer-distributors could have released those films on single-screen theaters and still made most of their profits. Nothing of that sort happened in 2006. The Multiplex Association could not keep its membership together as individual companies in Mumbai and other cities began making deals with Yashraj Films within that week. However, the fundamental issue of what is the fair share of the gross box office from the multiplexes festered for a couple of years and resulted in an impressive show of strength by the producer-distributor combines.

Some of the leading production-distribution companies in Mumbai came together in early 2009 to form a new association by the name of United Producers and Distributors Forum (UPDF) to deal specifically with the rising power of the multiplexes. This group of producer-distributor companies is the “who’s who” of Bombay cinema:

  • Ronnie Screwalla, CEO of UTV Software Communications
  • Sunil Lulla, Jyoti Deshpande, and Nandu Ahuja of the Eros Group
  • Sandeep Bhargava, CEO of Studio 18 and Indian Films Company
  • Yash Chopra of Yash Raj Films, Private Ltd.
  • Mukesh Bhatt of Vishesh Films Private Ltd.
  • Ratan Jain of Venus Films Private Ltd., also president of the Association of Motion Pictures and T.V. Programme Producers (AMPTPP)
  • Vidhu Vinod Chopra of M/s Vinod Chopra Films Private Ltd.
  • Ramesh Taurani of Tips Industries
  • G. P. Sippy, President of Indian Motion Pictures Distribution Association and himself a major producer
  • Manmohan Shetty, President of The Film and Television Producers Guild of India Ltd. (FTPGI)
  • Karan Johar, director and producer, Dharma Productions
  • Vasu Bhagnani of Puja Entertainment
  • Ashutosh Gowarikar , a major director and owner of AG Private Ltd.
  • Ramesh Sippy, Producer and Distributor of RS Entertainment
  • Shahrukh Khan, major Hindi film star and owner of M/s Red Chillies Entertainment Private Ltd.
  • Aamir Khan, another major star, owner of M/s Aamir Khan Production Private Ltd.

These eminent personalities of the film industry, representing the interests of producers and distributors of Hindi films, decided to use their collective strength against the multiplex chains by launching a set of actions to force the chains to their knees. These producers not only withheld supply of films but also threatened to punish anyone in the industry who cooperated with the multiplex operators. The producers combine held well-publicized meetings where they discussed various tactics. They also declared to the media that no product would be released starting April 4, 2009 until they could extract more favorable revenue-sharing terms. In addition, the two industry associations—AMPTPP and FTPGI—issued letters to all their members about this organized boycott of multiplexes that carried a threat of suspension of those who violated this call. With such big producer-distributors and two of the three major stars of Hindi cinema, who themselves were producers attached to this group, the boycott was conducted openly with a press conference in Bombay. UPDF’s bold action to withhold product clearly had its intended effect on the marketplace. Except for a few low budget Hindi films, no major film was released during the boycott. The Multiplex Association of India, representing their members, buckled under this high pressure and agreed to new revenue sharing terms on June 9, 2009.

Although the multiplex owners agreed to new terms to obtain product, which is their lifeblood that brings in an audience, which in turn, buys pop corn and other foods, they resorted to legal action against the producers combine. The Multiplex Association of India filed a complaint against the UPDF and the other two trade associations on May 26, 2009 before the Central Government agency, The Competition Commission of India.[13] The Commission found the producer-distributor corporations guilty of the charges leveled against them and declared:

“The boycott of multiplexes by the OP (producer-distributors) was as blatant an act of limiting or controlling production, distribution, etc. of films as can be. Similarly, their joint stand on fixing the revenue ratio was unarguably an example of joint price fixing” (MRTPC, Order, 2011, p. 72).

While both sides had organized bodies to represent their interests, the Commission agreed with the complainant that the producer-distributors, who created 90 percent of the major Hindi films from Bombay acted like a cartel. Their collective threats against other producers and the boycott against the multiplexes worked to benefit the producer-distributor corporations in the cartel. The Commission disagreed with the respondents in the case that the multiplex owners had acted as a cartel by stating, “…it is an established principle of law that one wrong does not justify another” (MRTPC Order, 2011, p. 73) and indirectly stated that there was no existence of ‘cartel-like conduct’ by the complainant whereas there clearly existed such action on the part of the producer-distributor combine.

The Commission also found that the new revenue sharing agreement—fixed at 50%, 42.5%, 37.5%, and 30% for the 1st, 2nd, 3rd, and 4th week respectively, enhanced the producer’s share of the net box office by 2% from the first week and is also higher for the subsequent weeks (MRTPC, Order, p. 18). The Commission noted that across the country, the multiplexes had raised ticket prices in response to the new revenue sharing agreement by 15-20%, a burden that was passed on the consumers. The Commission, in addition found that the higher revenue sharing agreement is a barrier to entry into the multiplex market. The Commission emphasized the importance of the Competition Act of 2002 by exclaiming:

 “ …keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on the competition, to promote and sustain competition in market, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets in India. And, therefore, it is incumbent upon the Commission to protect the interests of the consumers under the provisions of the Act” (MRTPC Order, 2011, p. 84).

While sounding noble about the interests of consumers, the state was forced to step in to investigate the market distortion caused by the producer-distributor combine. There is no evidence to suggest that ticket prices have fallen due to this intervention by the Indian government. The terms and conditions regarding revenue sharing were left unchanged in this Order. The Order demanded that the producers file an undertaking to the effect that they would not indulge in cartel-like behavior in the future. The Order also included a penalty of Rs. 100,000 ($2000) to each of the named respondents, a measly sum of money given that their dealings are in millions of dollars. In the final analysis, this intervention of the state was no more than a show that the state was monitoring the competitive situation in the economy and that it would philosophically try to protect the neoliberal idea that competition is a public good.

Another significant development is the expansion of international markets for Indian cinema to which we will now turn.

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