India’s movie industry

Motion pictures came to India in 1896, when the Lumière Brothers’ Cinematographed unveiled six soundless short films in Mumbai. This was just one year after the Lumière brothers (inventors of cinematography) had set up their company in Paris.
The first Indian on record to make a movie was Harishchandra Sakharam Bhatvadekar (nickname: Save Dada). He made one short film on a wrestling match at the Hanging Gardens in Mumbai and another on the playfulness of monkeys. Both these shorts were made in 1897 and were publicly exhibited for the first time in 1899 using Edison’s projecting kinetoscope inside a tent which the film maker had himself erected.
India’s first feature film – named “King Harishchandra” – was released in 1913. It was made by Dhundiraj Govind Phalke (nickname: Dadasaheb Phalke, 1817-1944). This was a silent movie.
By 1920, film making had taken the shape of an industry.
The first talkie made in India was “Alam Ara” (produced by Imperial Film Company) released in 1931.
Until the 1960s, film-making companies, many of whom owned studios, dominated the film industry. Artistes and technicians were either their employees or were contracted on long-term basis. Since the 1960s, however, most performers went the freelance way, resulting in the star system and huge escalations in film production costs. Financing deals in the industry also started becoming murkier and murkier since then.
Current position
India has the world’s biggest movie industry in terms of the number of movies produced (around 800 movies annually, mostly in the Hindi language. Tamil, Telegu, Bengali and Malayalam are the languages in which most of the non-Hindi films are made).
Today, the technology of film-making in India is perhaps the best among all developing countries though the films themselves remain mostly repetitive in storyline and content. Superior movies, in thematic and creative terms, are made in many developing countries with less sophisticated technologies.
According to unofficial estimates available in January 2001, the Indian film industry has an annual turnover of Rs. 60 billion (approximately US$1.33 billion). It employs more than 6 million people, most of whom are contract workers as opposed to regular employees.
The above statistics cannot however be used to calculate the movie industry’s share in the GDP or employment generation. This is because a vast proportion of the turnover takes place outside the legal economy.
Though India’s overall entertainment industry is taking on professional colours (with the rise of TV production companies), India’s movie industry per se remains highly informal, personality-oriented and family-dominated.
Until the late 1990s, it was not even recognised as an industry. Even though it has since been recognised as an industry, banks and other financial institutions continue to avoid the industry due to the enormous risks involved in the business. Two banks, Canara Bank and Indian Bank, have reportedly lost heavily by financing films. However, the prospects of bank financing and risk insurance are becoming brighter, albeit at a slow rate (as explained further down this report).
As a result, the financing of films in India often remains shrouded in mystery.
Surprisingly, however, the oft-murky world of film industry’s finances has not tainted the film industry’s perception in the general public eye or in the government’s attitude. Even though many famous people from the movie industry have risen to positions of political and social responsibility, including seats in federal and state parliaments, none of them have cared to reveal – or have been under pressure to reveal – the truth about the industry’s finances.
Some developments in the years 2000 and 2001 – including the arrest of a leading financier, Bharat Shah for his alleged links with a fugitive gangster – have not yet brought to public knowledge the inside economics of the industry.
The rot or financial amorality of India’s film industry seems to have set in since the 1960s. Until the 1960s, film producers would get loans from film distributors against a minimum guarantee: this meant that the distributors had to ensure that the film was screened in cinemas for a fixed minimum period. If this minimum guarantee was fulfilled, the producers had no further liability. Profit or loss would be the destiny of the distributors.
(There are exceptions, however. India’s most celebrated film-maker, the late Satyajit Ray, is known to have pawned his wife’s jewellery to part-finance his first film).
Star System: The financing pattern, centered on distributors, is suspected to have changed since the 1960s when the studio system collapsed and ‘freelance’ performers emerged. This gave rise to the ‘star system’ in which actors and actresses ceased to have long-term contractual obligations towards any studio or film production firm (such as the now defunct Bombay Talkies, New Theatres and Prabhat Studios). Rather, they began to operate as freelancers commanding fees in proportion to the box office performance of their recent films. This increased costs of film production since the more successful actors and actresses hogged major proportions of the producers’ budget.
In the changed system, distributors would pay 50 per cent of the film-making cost leaving it to the producer to get the rest from other sources.

The ‘other’ sources are:
conventional moneylenders (who lend at an interest rate of 36-40 per cent annually);
non-conventional but corporate resources,
promissory note system (locally called ‘hundi’ system): this is the most widely prevalent source, and
underworld money: about 5 per cent of the movies are suspected to be financed by these sources.

Film production thus became a risky business and the relationship with usurious money-lenders strengthened over the years.
As at the start of 2001, a reasonable budget film in Hindi could cost US$1.75 million. A low budget Hindi film can be made for even as low as Rs. 15 million.
A big budget Hindi movie can cost in excess of US$30 million. The ‘bigness’ of the budget is attributable mainly to the high fees paid to ‘stars’, celebrated music directors, high-end technologies and expensive travel costs to shoot in exotic locations worldwide.
At the time of writing, it is believed that ‘stars’ like Shah Rukh Khan and Salman Khan are paid Rs. 20 million (US$440,000) per film.In contrast, script writers and film editors remain poorly paid. In an interview, India’s so-called ‘superstar’ Amitabh Bachchan (whose wax statue stands at Madam Tussaud’s in London) attributed the lack of strong storylines to the poor money paid to writers.

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India has a National Film Development Corporation (NFDC) which finances some films. A few film makers, who would find it hard to obtain finance from the regular sources, have been financed by the NFDC. However, NFDC cannot be considered to play a central role in the film industry because it finances too few films which, too, are not of the type that has made the Indian film industry so vibrant. It however goes to the NFDC’s credit that, without it, some of India’s best film makers wouldn’t have got a break in the industry.
Another shortcoming with the NFDC is that it funds films only at the production stage while ignoring the just-as-important marketing stage. The film industry is currently losing unestimated volumes of revenue due to competition from local cable operators who illegally beam newly released movies into the drawing rooms of their subscribers.
Future Of The Industry
This is not intended to be a scare story, however. As mentioned above, the overall entertainment industry in India is taking on professional colours and this will change the culture of the film industry too. Some film production companies, such as Mukta Arts, have made public share issues, thus keeping out of the world of murky financing.
The Film Federation of India is actively seeking to make film financing a viable proposition for banks. It is likely that films would also be insured to offset possible losses for banks. The granting of industry status to the film industry will eventually allow overboard financing of films, though this will result in production of fewer films than at present. Stricter enforcement of copyright law will help the film industry in its fight with cable operators.
Foreign entertainment companies, with steady revenue streams, can do good business if they invest in Hindi and other Indian language films.Despite high risks on a per-movie basis, the risk spreads out across a number of movies.
Animation industry
Animation is a word that has practically stormed the film industry these days. Everyone, right from the 8-year old kids to 80-year old granddads, loves to watch an animation flick. Have you ever wondered what animation exactly is and how did it come into existence. Animation is basically the rapid display of a sequence of images, of 2-D or 3-D artwork or model positions. The display is so rapid that it creates an illusion of movement in the viewers. The phenomenon of persistence of vision is the main basis behind the development of animation.
Background of Animation
The earliest instance of animation dates back to the Paleolithic times, when attempts were made to capture motion in drawings. The cave-paintings of that time depict animals in superimposed positions, drawn with an aim of conveying the perception of motion. Persistence of vision, the basis behind animation, was discovered by Ptolemy, the Greek astronomer, in 130 AD. Fifty years later, in 180 AD, an unknown Chinese inventor created an early animation device, which we later came to know as the zoetrope.
Phenakistoscope, praxinoscope and the flip book are the other early animation devices, which were invented during the 1800s. All these devices made use of technological means for the purpose of producing movement from sequential drawings. However, it was the introduction of motion picture films, in the late 1890s that gave a boost to the concept of animation. There is no single person who can be credited with the title of the “Creator” of animation. This is because when animation was developed, many people were involved in the same thing at the same time.
J. Stuart Blackton was the first person to make an animated film, which he called “Humorous phases of funny faces”. For the purpose, he used to draw comical faces on a blackboard, one after the other, and film them. In 1910, Emile Cohl came out with the first paper cutout animation. The development of celluloid, around 1913, made animation much easier to manage. While talking about the history of animation, three names that are definitely worth mentioning are those of Winsor McCay of United States & Emile Cohl and Georges Melies of France.
Émile Cohl’s Fantasmagorie (1908) was the first animated film that was made using ‘traditional (hand-drawn) animation’. Georges Méliès, a creator of special-effect films, was the first person to use animation, along with special effects. He was the one who gave the idea of stop-motion animation. McCay also created a number of animation films, with the most noted ones being Little Nemo (1911), Gertie the Dinosaur (1914) and The Sinking of the Lusitania (1918). In fact, many people take ‘Sinking of the Lusitania’ to be the first animated feature film.
However, it was Walt Disney who took animation to an entirely new level altogether. In 1928, with the premiere of ‘Steamboat Willie’, he became the first animator to add sound to his movie cartoons. Walt Disney achieved another milestone in 1937, when he produced the first full length animated feature film, named ‘Snow White and the Seven Dwarfs’. The year 1955 saw Art Clokey producing ‘Gumby’, a stop-motion clay animation. Introduction of computers marked a step further in the concept of animation.
In 1951, an MIT student Ivan Sutherland created a computer drawing program, Sketchpad, further giving a boost to animation. With time, computer started gaining an increasing importance in the field of animation. Movies like ‘Star Wars’ relied on computer animation for many of its special effects. In 1995 came ‘Toy Story’, produced by Walt Disney Productions and Pixar Animation Studios, the first full length feature film animated totally on computers. Since that time, animation and computer have gone hand in hand, creating new milestones with time. Technology development has prompted a number of low cost hubs with powerful computer animation platforms to emerge in Asia.
India is fast becoming a preferred destination for Animation outsourcing and is steadily overtaking the traditional players in the field like Philippines, Korea & Taipei. Its boom time in the Indian animation industry, pegged at approximately US$ 300- $350 million in 2005. Cities like Mumbai, Chennai, Bangalore, Hyderabad and Thiruvananthapuram are fast emerging as the country’s major animation hubs. The big studios have set up world-class, state-of-the-art facilities equipped with hardware and software like SGI, 3DMax and SoftImage, SFX and processing motion capture facilities. India’s biggest advantages are its cost effectiveness and good quality. The total cost for making a full-length animated film in America is estimated to be US$100 million to US$175 million. On the other hand, in India, it can be made for US$15 million to US$25 million. According to NASSCOM, the animation sector grew by over 20% in 2004.
Studios spread across the country are doing animation work like cartoon characters and special effects for clients around the world including Walt Disney, Imax, Warner Brothers and Sony. Some of the other companies are outsourcing animation for commercials and computer games.
Some of the prominent animations outsourcing companies are:

Toonz Animation India is based in Thiruvananthapuram and has to its credit the successful series “The Adventures of Tenali Raman”. The team here is also working on a full-fledged feature film called Tommy and Oscar which is a 2D /3D combo project. This is apart from completing work for the Italian producer Rainbow Productions; a 2D television series called Will o’ the Wisp (26 X 6 min) for Animoon Plc, United Kingdom and a big-budget 3D television series for major a US broadcaster. This company has tied up with First Serve International to form First Serve Toonz.
Pentamedia Graphics, Chennai is a subsidiary of computer software company Pentafour. It is best known for its animated 3D film using the “motion capture” technique, Sindbad: Beyond the Veils of the Mists.
Maya Entertainment, Mumbai has been doing outsourced work for a while now and has done the special effects for The Mummy and Stuart Little. It is also working on animating short films starring a character called Wabo, to be used by the United Nations to educate worldwide audiences on the importance of fresh drinking water.
UTV Toonz, Mumbai is the animation division of UTV Software Communications and is one of the top ranking studios dealing in flash as well as traditional animation. It has bagged a US$10 billion deal with an American company for outsourced work. Other assignments for international clients include like two Dutch deals to produce a musical cartoon series called “ClubNow!” and a fantasy series “The Donz”; a project with Cinegroup of Canada for the images for a sci-fi series. They are also working with companies in Scotland and Luxembourg for the development of series like “Clootie & Dumpling” and “Snow Queen”. It will also be working on “Kong: The Next Generation” for New York-based BKN New Media.
Heart Entertainment, a 2D animation studio is yet another big name in the animation sphere, which is doing a lot of outsourced work. Among the animation featured in its portfolio are Warner Brothers’ Histeria, Tommy Nelson’s Crippled Lamb and Little Dogs on the Prairie. It also has to its credit some work done for Walt Disney.
Padmalaya Telefilms, Mumbai is a unit of India’s largest listed media firm, Zee Telefilms. It is expected to make 104 cartoon episodes for US$ 14 million and distribute Mondo’s library for US$ 15 million. It has also inked some deals with British animation companies like Mallard Media and Ealing Animation.
Nipuna Services Ltd, a division of Satyam Computer Services, has recently bagged a project worth US$ 8 billion from 4K Animation GmbH, a German animation company. This assignment is among the biggest deals struck by an Indian BPO in the animation space. It is also doing significant work for a New Zealand – based company called Applied Gravity. The work includes animatronics models for New Zealand Theme parks as well as an animatronics dog for Animal Planet’s series K9 to 11.
Jadoo Works, Bangalore is working on an animated film series Lord Krishna and the crime caper Bombay Dogs. It has done work for US animation studios like Wild Brain and Guardian Angel Animation (GaGa).
Crest Communications, Mumbai, is a leading 3-d animation company and does a lot of work for American Studios. It came into limelight in 2002, when it won an Emmy for animation production work done for the animated series “Jakers: The Adventures of Piggley-Winks”. It is also to work on three features for Lions Gate Family Entertainment. Crest is also expected to produce and release “Sylvester and the Magic Pebble” based on the story by William Steig the creator of”Shrek”.
Silvertoon Studio, Mumbai, is engaged primarily in subcontract work for U.S., French, and British studios, using digital ink, paint and compositing system.

The Animation Industry in India though a late starter, is considered as one of the fastest growing segments of the entertainment and media industry. The Animation Industry in India gained significance as an outsourced destination for animation work due to low cost, skilled labour as its many advantages. In the recent past Indian animation companies and animation studios have been moving up the value chain to create their own intellectual property rights with Hanuman, Roadside Romeo, etc. and partnering with international studios to produce animated properties for the global audience. Though a majority of the work done by the animation industry in India is outsourced work, this is expected to change in the future with increased demand from the domestic entertainment industry. The Indian animation industry in 2007 was estimated at USD 0.31 billion and is expected to grow at CAGR 24% to reach USD 0.94 billion by 2012. (Source:Ficci-PwC Entertainment and Media report 2008).
The Indian animation industry in 2007 was estimated at USD 0.31 billion and is expected to grow at CAGR 24% to reach USD 0.94 billion by 2012. (Source:Ficci-PwC Entertainment and Media report 2008)
1.2 Introduction to pestle analysis
PESTLE Analysis is a simple, useful and widely-used tool that helps you understand the “big picture” of your Political, Economic, Socio-Cultural, Technological Legal and Environmental. As such, it is used by business leaders worldwide to build their vision of the future.
It is important for these reasons:
First, by making effective use of PESTLE Analysis, you ensure that what you are doing is aligned positively with the powerful forces of change that are affecting our world. By taking advantage of change, you are much more likely to be successful than if your activities oppose it;
Second, good use of PESTLE Analysis helps you avoid taking action that is doomed to failure from the outset, for reasons beyond your control; and
Third, PEST is useful when you start operating in a new country or region. Use of PESTLE helps you break free of unconscious assumptions, and helps you quickly adapt to the realities of the new environment.
How to use the tool:
PESTLE is a simple mnemonic standing for Political, Economic, Socio-Cultural, Technological, Legal and Environmental
To use this tool, follow this three stage process:

Brainstorm the relevant factors that apply to you;
Identify the information that applies to these factors; and
Draw conclusions from this information.

The following factors may help as a starting point for brainstorming (but make sure you include other factors that may be appropriate to your situation):
Political:

Government type and stability
Freedom of press, rule of law and levels of bureaucracy and corruption
Regulation and de-regulation trends
Social and employment legislation
Tax policy, and trade and tariff controls
Environmental and consumer-protection legislation
Likely changes in the political environment

Economic:

Stage of business cycle
Current and project economic growth, inflation and interest rates
Unemployment and labor supply
Labor costs
Levels of disposable income and income distribution
Impact of globalization
Likely impact of technological or other change on the economy
Likely changes in the economic environment

Socio-Cultural:

Population growth rate and age profile
Population health, education and social mobility, and attitudes to these
Population employment patterns, job market freedom and attitudes to work
Press attitudes, public opinion, social attitudes and social taboos
Lifestyle choices and attitudes to these
Socio-Cultural changes

Technological Environment:

Impact of emerging technologies
Impact of Internet, reduction in communications costs and increased remote working
Research and Development activity
Impact of technology transfer

Legal

World legislation changes
National legislation changes
Prospects
Current legislation home market
Future legislation
European/international legislation
Regulatory bodies and processes
Environmental regulations
Employment law
Consumer protection
Industry-specific regulations
competitive regulations

Environmental

Customer values
Market values
Stakeholder/ investor values
Staff attitudes
Management style
Organisational culture
Staff morale
Staff engagement

The PEST Analysis is a perfect tool for managers and policy makers, helping them in analyzing the forces that are driving their industry and how these factors will influence their businesses and the whole industry in general. Our product also presents a brief profile of the industry comprising of current market, competition in it and future prospects of that sector.
Chapter-2
Objectives of the study
The major objectives of the study are: –

To get the knowledge about the business environment of film and animation industry.
To assimilate the factors which affects any industry.
To enlarge the view of doing business in the present era.

Chapter-3
Research and methodology
Research methodology is the theoretical depiction of the process involved in the research work. It refers to the collection of data from various sources.
This term paper deals with the PESTLE analysis of film and animation industry. For collecting information I have used two types of sources i.e. primary and secondary sources.
Primary sources: – The primary sources of this term paper includes –

Interaction with my teachers.

Secondary sources: – The main secondary sources for this term paper includes-

Site visits.
Document analysis (Reports and newspapers.)
Data collected from various journals.
Data collected from books.

Chapter-4
PESTLE Analysis of Film and Animation industry
Political factors affecting Film and Animation Industry: –
Tax in Indiasignifies the tax paid by the Film and Animation Industry in India. The entertainment tax in India is usually applicable for large-scale entertainment shows, private festivals that are sponsored, movie tickets, video game arcades, and amusement parks among others.All activities include commercial movie/theater shows, games, amusement parks, exhibitions, celebrity stage shows, any kind of sports such as horse racing, and exhibitions. The entertainment tax department looks after the tax payable for the entertainment activities being performed in various places across the country. The entertainment tax department is located in Delhi and works under the stipulation of The Delhi Entertainment and Betting Tax Act, 1996. The organizers or proprietors of the entertainment shows are responsible for the entertainment tax in India.

They collect the tax from the sponsors and deposit it to the Government of India. One of the highest revenue earning sectors from tax in entertainment industry is cinema. With every ticket, a certain amount of tax is tagged which is paid while buying the movie tickets and is included in the price of the tickets. The entry tickets to any cinematographic exhibitions have the entertainment tax included in it, which is 25-30 percent.
The entertainment department is a major source of revenue for the Government of India. It also has a great contribution towards the publicity of Indian arts that portrays ancient culture and various sports. This is done by granting tax-free benefits to the same. The organizers of any entertainment shows will have to seek the permission of the Entertainment Tax Department before putting up any commercial shows. The entertainment tax in India is levied upon the organizers or proprietors depending on the kind of shows being organized. There are a range of tax schemes for various entertainment programs. These are as follows:

Tax schemes designed for amusement parks
Tax-paid programs
Programs based on tax exempted sectors
Tax programs on cable television networks
Tax for various invitee programs
Tax on entertainment betting
Tax on video parlors

To alleviate the tax generating program, a series of technologies has been introduced in the entertainment tax department. For example, the computerized ticket booking system has been incorporated for booking movie tickets along with the online data transmission in the entertainment industry. The more advanced the entertainment industry is becoming the tax rate is increasing at a proportional rate. Customers mostly look for convenience and less hazardous tasks while going for any entertainment program and so faster access would definitely attract more customers.
Economic Factors affecting Film and Animation Industry: –

Consistent commitment to economic reform over the last decade has spurred the steady growth of the Indian economy. The emphasis on creating an enabling environment for investment and the inherent potential of the Indian economy have together pushed India’s annual Gross Domestic Product (GDP) growth rate beyond 8 percent.
While India’s GDP ranks eleventh in the world in absolute terms, it ranks among the top five economies of the world when assessed in terms of purchasing power parity. It is the growing consuming class with the proclivity to spend that will drive the growth of the Indian entertainment industry. Adding to this positive outlook is the fact that the average Indian is getting younger and is showing a greater propensity to indulge and entertain himself. Moreover, there are over 20 million Indians living abroad who are increasingly opting for India-oriented entertainment, as the availability of such content increases. Globally, a clutch of international films with Indian content, themes and performers are receiving wide visibility and acclaim. This broad acceptance of Indian entertainment is likely to give a further fillip to the expansion of this industry.
The emergence of the Indian middle class with greater earning power and a higher disposable income is one of the key factors that will drive the growth of the Indian entertainment sector. Demographic analysis clearly shows the evidence of this growth. The consumption indicates the continued progression of people into higher income and consumption segments.
As the average Indian gets richer and his more compelling needs are met, his propensity to spend on discretionary items such as entertainment increases. Further, as his consumption of various goods and services rises, companies would try to reach out to him through more marketing and advertising. Higher demand and an increased investment would result in an expansion of the entertainment industry in the years to come.
As the Indian entertainment market grows, it is essential to recognize the heterogeneous nature of the market. All too often, the specific appetite of certain segments such as the rural population, women and children, is under-estimated and their financial value proposition continues to be under-recognised. Companies and businesses that have managed to differentially cater to the varying segments of Indian population have benefited. As a corollary, the entertainment sector too has begun to witness the advent of a broader set of offerings which are aimed for specific segments: e.g. television channels for children. On the other hand, the ‘children’s films’ genre, for instance, has yet to grow and mature in India. There is a case for a proactive and sustained targeting of specific, niche segments of the market. In fact, given the size and potential of India’s niche segments, niche may be a word which is likely to be replaced soon.
As per industry estimates, the total advertising spend in India in 2004 was approximately INR 118 billion, a growth of 13.4 percent over the last year. However, India continues to have a low ‘advertising spend to GDP’ ratios compared to other economies, underscoring the untapped potential. In 2004, the advertising spend for India stood at 0.50 percent of the GDP, up from 0.48 percent the previous year. This is expected to increase significantly due to rising consumerism and growing interest from global brands attracted by this huge and expanding market.
Given the increasing number of media channels that consumers are exposed to, brands will have to advertise more frequently and across more channels to generate brand recall. As television channels have multiplied and the content available has become more diverse in the last decade, their viewership has increased, niche channels have emerged targeting specific demographic segments and the cost of advertising on television has reduced. While the broadcasters can dwell on this shared optimism, they must also recognize that advertising budgets are very sensitive to economic downturns. Advertising budgets are not only easily brought down, but the productivity of such expenses is also challenged. Companies are increasingly demanding their advertising agencies to link their fees to performance indicators such as sales increments. With increasing access to state-of-the-art technologies, addressability issues are being put to test, ther
 

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