The Indian Film Industry: Demystifying the Revenue Streams

Welcome to the grand spectacle that is the Indian film industry! Just like a classic Bollywood movie filled with drama, action, romance, and a dash of song and dance, the economics of this industry is equally riveting. From the internationally recognized Hindi film industry, popularly known as Bollywood to the rapidly rising Telugu (Tollywood) and Tamil (Kollywood) film industries, the Indian film industry is as diverse as the range of emotions you experience in a three-hour-long Indian epic.”

Yet, beyond the glamour and the headlines about box office collections, the economics of the film industry often remain an enigma for many. While box office collections frequently dominate headlines, they only provide a snapshot of a film’s financial success, sidestepping the complex network of revenue streams contributing to its total earnings. So, grab your popcorn and put on your 3D glasses as I attempt to bring this financial blockbuster into focus and shed light on the nuanced financial ecosystem of the Indian film industry.

Share of each revenue stream for a standard Indian film

Box Office Collections: The Biggest Revenue Driver for Bollywood and Other Indian film industries (65–70% of revenue)

Theatrical revenue forms the backbone of the Indian film industry’s income, with both domestic and international screenings contributing to the overall box office collections. A significant majority, approximately 80–85%, of these collections are derived from the domestic market. The remaining 15–20% is sourced from overseas markets, with countries such as the United States, the United Kingdom, and the United Arab Emirates being notable contributors.

The sale of each movie ticket generates revenue that is distributed among three key players: Film producers, Distributors, and Exhibitors (theatres). Distributors acquire distribution rights for specific territories from producers and hire exhibitors to screen the film and manage the audience experience.

The Producer-Distributor Relationship

The first significant business relationship in this ecosystem is between the producers and distributors. For Bollywood, there are 14 film distribution circuits and Producers generally sell the distribution rights for each territory to distributors. Barring the one where producers self-distribute their movie, there are 3 major business models for this producer-distributor relationship:

1. Minimum guarantee basis: This is the most common distribution model followed in Indian film industries. The producer sells the film to distributors on a minimum guarantee basis. In this model, the producer is not obligated to repay any losses incurred by the distributor.
2. Advance basis: The film producer sells the film to distributors on an advance basis. In this model, the producer must repay any losses incurred by the distributor if the film underperforms.
3. Commission basis: The producer sells the film to distributors on a commission basis. In this model, distributors receive a commission from the producer based on the distributor’s share.

Barring the Minimum Guarantee model, none of the models result in an outright sale of distribution rights. Consequently, the financial risk of a film’s underperformance for such models in a territory is shared between the distributor and the film producer to some extent. No wonder Minimum Guarantee is the most preferred model for producers.

The Distributor-Exhibitor relationship

The second pivotal business relationship in this ecosystem is between distributors and exhibitors. Distributors collaborate with theatre owners in each territory to bring films to the audience. They negotiate agreements that focus on the number of screens on which the movie will be shown (particularly in multiplexes), and the revenue returns that theatres will pay to the distributors. There are two types of exhibitors, Multiplexes and Single-Screens and they have their distinct business relationships with the distributors.

The revenue-sharing arrangement between distributors and multiplex chains typically follows a sliding scale model. In this model, the distributor’s share decreases over time. During the initial weeks of a film’s release, the distributor’s share is at its peak, accounting for around 52% of the box office collection. As the film continues its run, this share gradually diminishes, dropping to approximately 30% by the fourth week. Overall, it is a common practice to calculate distributors' share as 50% of Net Collections (after tax deductions). This sliding scale model is designed to incentivize multiplexes to extend the run of movies beyond the first week. By gradually reducing the distributor’s share, multiplexes are encouraged to continue showing the film, thereby potentially increasing overall revenue from longer-running movies.

In the realm of single-screen owners, the dynamics of the revenue-sharing model differ slightly. Here, theatre owners generously offer a significant share, ranging from 70% to 90% of the total collection, to the distributor right from the first week till the time film is screened in theatres.

Digital / OTT Rights: The New Age Revenue Stream in Indian Cinema (15–20% of revenue)

The advent of OTT platforms has brought about a significant shift in the revenue model of the Indian film industry. Digital rights are now the second largest component of a film’s pre-release revenue, with producers selling the streaming rights to platforms like Netflix, Amazon Prime, and Disney+ Hotstar. The pandemic particularly accelerated this trend as people increasingly turn to these platforms for entertainment in the safety of their homes.

Satellite Rights: The Television Impact (5–7% of revenue)

Satellite rights constitute a significant revenue stream for the film industry. While broadcasting was once the second-largest revenue source for Bollywood and other Indian film industries, it has been recently overshadowed by the rise of OTT platforms. Despite this shift, satellite rights still account for about 5–7% of the total revenue.

Music Rights: The Rhythmic Revenue (3–4% of revenue)

Music rights, encompassing both audio and video rights, play a substantial role in a film’s earnings. Major music companies such as T-Series, Sony Music, and Zee Music acquire these rights and monetize them across various platforms. Platforms like YouTube are particularly lucrative, generating ad revenue for these companies.

Ancillary Revenues: The Icing on the Cake (2–3% of revenue)

Apart from the above-mentioned significant contributors, there are multiple ancillary revenue streams that the film industry benefits from. These mainly include in-film brand placements and for some movies, merchandising as well. While these streams may not individually contribute a significant amount, collectively they add considerable value to the overall earnings.

Conclusion

Navigating beyond the allure of box office collections, this exploration delves into the intricate financial ecosystem of the Indian film industry. I’ve attempted to shed light on the complex relationships between producers, distributors, and exhibitors, alongside the impact of evolving platforms like OTT services. The aim was to highlight the diverse revenue streams that contribute to a film’s total earnings and underscore the industry’s collaborative nature. In essence, it’s like a grand Bollywood dance sequence, where every participant knows their steps, contributing to a vibrant and resilient industry.

As we conclude this journey through the financial landscape of the Indian film industry, I’d love to hear your thoughts. What are your views on the revenue streams of the Indian film industry? Do you think there are other factors or trends that could influence these revenue streams in the future? Share your thoughts in the comments below!