Opportunities for Organized Procurement in Bollywood

Spend Matters welcomes a guest post from Nitin Khandelwal of GEP.

I am pretty sure that if I wasn’t a procurement professional, I would be doing something in Bollywood. Please don’t jump to conclusions that I am talented or good-looking enough to do something in front of the camera. Rather, I would love to be working behind the camera. My wife is in Bollywood programming, and I must confess that I am extremely jealous of what she does for a living. I’m pretty sure my love for Hindi cinema rivals that of other fans.

India churns out approximately 1,700 movies every year, totaling $2 billion in revenue, or almost 33 movies every Friday across all languages. In comparison, the U.S., the biggest film market worldwide in terms of revenue ($10 billion), produces around 600 movies annually. Of the net film revenue in India, 43% comes from Bollywood, 36% from Tamil and Telugu cinema, and the remaining percentage from other regional films. The numbers are staggering for a country of 1.25 billion people, and the opportunity to make money is gigantic, as movies remain the first choice for people looking for some entertainment.

But is the movie business thriving enough? Let’s look at some numbers for Bollywood in the past decade that might identify a crisis.

bollywood-1

Let’s identify some key reasons for the poor commercial performance of these movies:

Poor Product – Let’s face it! A poor product will not be accepted anywhere, in any industry or country, and the same applies for Bollywood. No one likes to pay an exorbitant ticket price for a bad movie and waste three precious hours (including a painful traffic commute) on a weekend.

Bad Timing – I am not sure if this applies to other countries, but in India, the timing of the movie release is very important. Unlike the good old days, when good movies used to run in theatres for 20 to 25 weeks depending, these days around 60% of the business is achieved in the first week or so. Therefore, an extended weekend (with a festival) is always beneficial. Plus, production houses try not to release their smaller movies alongside movies with more famous actors or big budgets (because of obvious reasons), but there are only 52 Fridays in a year and movie release dates are bound to clash.

High Costs – In the past decade, India has witnessed a large influx of production houses from the West collaborating with India’s leading production companies. As a result, such collaborations have been able to to make big budget movies without solid content, and, seven out of 10 times, the results are undesirable. An average Bollywood movie’s production cost can be 250–300 million Indian rupees, or $3.5–$4.5 million.

An average Bollywood movie has a crew of 200 to 250 people working on it at any given time. Some of them will be involved on the creative side and others on the non-creative side. The creative costs (approximately 40%, and also known as the above-the-line costs) will be the potential non-addressable spend, which includes the script and salaries for the cast, director and technicians. Organized procurement can help bring down the non-creative spend (roughly 60%, or below-the-line costs).

In this piece, I aim to identify the reasons for high “below-the-line” costs and propose some recommendations for bringing them down.

Facilities, Travel and Hotels

Problem: A crew traveling to a shoot location involves catering costs and hotels for some 300 people for 30 to 45 days, which constitutes around 10%–15% of the entire film budget. In India, most of the major towns and cities have fixed brokers who control this spend.

Recommendation: This represents a huge opportunity for an efficient procurement organisation to identify local or national facilities suppliers, benchmark them and create a pool of vendors who could be hired for any project. Similarly, a strategic sourcing exercise could be kicked off for hotels, and rate cards could be established with budget or premium properties, depending on the kind of crew expected to stay there.

Temp Labour

Problem: Production houses tend to deal with their incumbent suppliers responsible for providing resources, who work on daily wages for different aspects of the production and the post-production work.

Recommendation: As per unofficial statistics, every day 2,000 people land in Mumbai to get into Bollywood. Among them, 90% aspire to an on-camera job, with the rest wanting to make a living behind the camera. Most talented technicians register themselves with a variety of talent companies and work vigorously to get their first break. It would be great for the production houses to reach out to these talent management companies for a mix of experienced and novice support crew (at agreed rate cards), working on the project to keep costs low while not compromising on quality.

Lease Versus Buy

Problem: Movie production equipment includes high-end video cameras, lenses, microphones and lighting kits, among other high-tech devices. As you may imagine, much of this equipment is not what people tend to have in their homes. Most of this equipment is hired at exorbitant lease rates, meaning that any delay in the schedule can stall shooting for days or weeks, adding additional costs to the overall budget.

Recommendation: As most of the renowned production houses release eight to 10 movies every year, they should perform a lease vs. buy analysis with regards to the production equipment. If they can afford an upfront capital investment, they should purchase the equipment to have it available at all times, loaning out the equipment to smaller production houses if unneeded on specific days.

Locations

Problem: Movies are shot in studios or in real-life locations. Big budget films with well-known celebrities are shot in studios, where the cost of constructing a life-like set is humongous, but it avoids inconvenience and interference. However, no matter how big the production house is, they don’t have studios of their own and must rent them, which adds on significant cost.

Recommendation: As highlighted above, real locations can cause inconvenience and interference on the shoot but nothing needs to be created. Moreover, the costs of construction in studios can be quite significant. Properly managed real-life shoots are much cheaper than filming in studios. For example, the state government in Uttar Pradesh (UP) has recently announced they will provide subsidies to filmmakers and production houses if they shoot their movies in UP and include local resources for the cast and support crew.

Contract Management

Problem: One of the reasons movies get delayed is because of the last-minute schedule changes concerning established actors, which escalates cost. The contracts aren’t drafted with clauses, which would penalise such actors for the cost escalation.

Recommendation: Legal clauses with strict financial penalties should be introduced in the contracts of the lead and the supporting cast and should ensure that any cast member will compensate for the financial burden to the filmmakers in the case of their unprofessionalism.

As an ardent Bollywood fan, I couldn’t be more proud if we could deliver world-class movies and Bollywood could make similar money as their Hollywood counterparts. Lowering costs is just one way to do it.

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Voices (3)

  1. Vikram Singh - Spend Matters:

    Good Opportunity Nitin !

  2. Priyanka Kaktwan:

    Very wisely analysed!!! I believe Nitin has done excellent analysis. Actors will be scared if producers consider this in future 😉 .

  3. Jason Busch:

    Love this! Wonderful post. We need to extend procurement thinking to targeted markets. And if the procurement/Bollywood “wedding” works, could imagine the dance scene at the end?

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