For a few years now, institutional funding has been available to the film industry in India from banks as well as private equity funds, especially with the granting of ‘industry' status to the industry.
Institutional financing has helped bring legitimacy to the business and is paving the way for corporatisation. It has led to the implementation of best practices such as fixing of wages for skilled and unskilled labour, detailed and enforceable contracts, security for investors, industry-level arbitration bodies to ensure that disputes are settled and completion guarantee funds.
With better organisation, incorporated (and even listed) companies are now playing an increasing part in film funding as opposed to individuals and informal organisations earlier.
In many countries especially in the UK, the employment generation potential of the film industry has been recognised. Specialised film funds are provided with tax incentives, but the risk of this investment is recognised and, hence, it is available as an investment vehicle only for sophisticated investors who can make informed decisions.
These investors usually get some form of tax incentive either on the investment itself (such as a tax deferral) or on the income from the investment, provided they invest a large amount such as £50,000 or more.
Like a mutual fund scheme, the underlying principle is that of diversification of risk, multiple investors pool their money and can invest in many films. The film fund manager is usually an expert who selects suitable projects to finance. Usually, there are some pre-conditions to the investments made by the fund in a film. The film must be shot in the country where the fund is structured. Secondly, a large percentage of the people employed and the resources used must be from that country.
We see only the half a dozen or so film stars in a movie. But, apart from the many extras, think about how many people actually derive their livelihood from a movie.
People like spot boys, technicians, camera personnel, make-up artists, touch-up staff, clothes makers, set designers, carpenters, electricians… Ranging from highly paid software engineers to tea-boys, it is just like a very large factory or corporation. Then there is tourism: Once a film is shot somewhere, people are usually ushered to that place and given the “superstar was here” kind of tours.
Let us look at a film like Raavan , which was shot in Malshej, a little known tourist spot some distance from Mumbai. The film would have spent about x per cent of its budget in that little town. The film maker also helped renovate a hotel to make it fit for his stars and key staff to stay…. and just make a trip to Malshej.
You will be told where Aishwarya Rai was imprisoned and Abhishek dove into the water: And people would go there to see stuff like that if we just invested a little more in promoting it.
Today, many of our films are shot in the UK, indeed set in the UK. This is partly because of the availability of cheap funding.
Thus, if a film maker manages to set his story so as to use UK locations, he can easily use local manpower for almost all activities and get funds at a much lower cost. Why do funds cost less? A film fund can be an equity investor — the fund could own the “negative rights” or a part of it and, thus, make a profit when the film is sold to the distributors.
Alternatively, the fund could own the negative rights, but lease it back to the filmmaker who takes the performance risk, but pays a fixed rate of interest to the fund. In either case, the investor looks at the fund not only from the point of view of the absolute return that he gets but also the tax savings.
Tax-incentivise film funds
In India, film financing is still in infancy. With India having the distinction of being the country that produces the most number films every year, opportunities for film funds are enormous.
With a right blend of tax incentives and regulatory oversight, we could provide an enabling environment for film funds to be launched in India. Access to transparent funding will be an added incentive to attract both local and international filmmakers to film in India. This would, in turn:
Generate employment opportunities in priority areas for a host of skilled and unskilled workers;
Promote educational infrastructure that caters to this industry;
Become a tourism engine with some effort from the local government.
India needs to look creatively at employment generation, especially in non-metro areas, where jobs are hard to come by.
Instead of focusing only on conventional services or manufacturing operations, tapping unconventional avenues can expand employment potential… and if it can be done through our second love — films (the first being cricket), it would surely be a success.