Using bank loans or proceeds of an IPO or joining hands with a private equity partner, whether individual or institution, to finance a film project is nothing uncommon in Bollywood.
The trend has been on for the last few years, precisely, from the turn of the twentieth century, when a spate of entertainment companies such as Mukta Arts and Pritish Nandy Communications went public. This was followed by financial institution IDBI advancing loans for film production in 2001, and since then there has been no looking back.
Funding from non-traditional financing sources (NTFS) as indicated above has increased over the last four years touching Rs 251.5 crore by the end of last year from Rs 48.5 crore in 2001, says a report from YES Bank.
For the uninitiated, the traditional means of film financing include producer's contribution, distribution pre-sales (such as sale of TV rights, music rights, sale of territory rights etc) and funding from private financiers.
"The traditional means of film financing still exist, but NTFS funding is on the rise, and over the last four years, it has registered an over five-fold increase, which is likely to go up in the coming years," says Sunir Kheterpal, country head, entertainment and media banking group, YES Bank, who put the report together.
In terms of the number of films financed by non-traditional means, the tally is as follows: Six in 2001, 11 in 2002, 34 in 2003 and 44 in 2004.
The quantum of NTFS funding below Rs 8 crore, however, has been higher over the last four years in comparison to funding above the Rs 8 crore-mark. Lower allocations made up 67 per cent of the NTFS funding pie in 2001, increasing to 82 per cent in 2002, 85 per cent in 2003, and 86 per cent in 2004.
This trend, says Kheterpal, is on account of the production of small budget movies and the association of private investors with these projects. "Smaller budget movies don't get the funding from banks so producers rely on individuals to finance these films. For new entrants in the financing space, this works out well because they are not too keen to put in high amounts on a project," he says.
Equity financing is the preferred mode of funding through NTFS as opposed to debt financing (or, taking a loan). In the last four years, equity financing varied from 100 per cent in 2001 to 64 per cent in 2002, to 76 per cent in 2003, and 93 per cent in 2004.
Debt financing, in comparison, hovered at 36 per cent in 2002, 24 per cent in 2003 and 7 per cent in 2004. "That, in itself, speaks for equity funding," says Kheterpal. "The number of films being financed this way is on the rise, and it should stay." © 2005 agencyfaqs!