Till the early 2000’s the success of a film was judged by the number of weeks it ran in the cinema hall. However, the business dynamics changes massively post the advent of the multiplexes in India wherein people started to judge the films based on the amount they earned at the box office. Ghajini is said to be a game-changer in this aspect as it opened the Rs 100 crore club in Bollywood thereby making 100 crores as a benchmark for success.
However, not all 100 crore films are hits as the success depends on two things: Return on investment for producers and Return on investment for the distributors. There are several films which raked in over 100 crores at the box office but failed to make money for the producers and distributors. Before getting into the basis of analysing the film verdicts, let us first understand the basic terms used in the trade industry taking an example:
Suppose you went to watch Padmaavat at a multiplex in Mumbai and pay 400 to buy the ticket. Using this example, let us understand the different trade terms:
400 which you paid to buy the ticket goes into the Gross Collection. The ticket charge consists of admission fees (entry fees) and taxes (GST @ 28%) and both together are termed as gross collection.
Gross Collection = Number of Tickets Sold x Amount Paid by consumer to buy the ticket
The entertainment tax rate has been standardized under GST wherein the customers have to pay 28% GST on tickets costing above 100 and 18% GST on tickets costing below 100. In the example given above, 312 is nothing but your Nett Collection (GST @ 28%) whereas Rs 88 is the amount paid by the customer as Tax. The numbers in Bollywood are reported in terms of Nett Collections.
Nett Collection = Gross Collection – Taxes
The Nett Collections of the film are shared by the theatre owners i.e. exhibitors and the distributors at a stipulated percentage. In Nett Collections are basically divided into distributors share and exhibitors share wherein the distributor’s share reduces with every passing week. In the first week, the distributors earn approximately 52.5% of the Nett Collections which falls to 44.5% in the second week, 38% in the third week and so on. In Bollywood, it is a common practice to calculate distributors share as 50% of the Nett Collections.
While the above-mentioned example holds true in case of multiplexes, the single screens, especially in Tier 2 and Tier 3 cities, follow a totally different model. The distributors must pay rental to occupy the screen space for his film on weekly basis, which ensures a fixed income for the single screen owner. As far as revenue of distributor is concerned, the entire amount earned by the single screen owner due to ticket sales belongs to the distributor after deducting the taxes.
Distributor Share in Multiplex = 50% of Nett Collection
Distributor Share in Single Screens = Nett Collection (On Rental Basis)
The question that lies here is who are distributors and how are they different from the producers? Let’s now talk about the business of a film from distributors point of view citing different scenarios.
The ideal scenario in the film biz occurs when a film is produced and distributed by the same company. In this case, it is easier to make profits as the revenue to the producer/distributor isn’t just confined to theatrical share but also other sources like Satellite Rights, Digital Rights, Music Rights come into the picture.
For e.g. YRF are self-distribute their films, which is one of the major reason why their films seldom lose money.
In another situation, the producers sell their films to the distributors which help them make a huge table profit but puts the additional pressure on the film to fare well at the Box-Office. Over here, the producers and distributors are two different entities and the revenue earned by the producers have nothing to do with the verdict of the film, as the producers have already safeguarded their investment by pre-selling all possible rights.
For e.g. In case of Tubelight, Salman Khan Films made a massive table profit by selling all India distribution rights to NH Studioz for Rs. 138 crore and now although the producers made huge profits, the film flopped at the Box-Office as the distributors could not recover their investment.
When the producers sell their films to the distributors there are essentially three different models as mentioned hereunder:
1. Advance Basis:
Suppose, a film is sold to the distributor for 40 crore on advance basis. Over here, the ideal scenario would be that the film fares well at the Box-Office and distributor makes money. However, if for some reason, the film doesn’t fare as expected, the producer is bound to repay the losses to the distributor as the film was sold on advance basis.
2. Minimum Guaranty
In the above-mentioned example, if the film was sold for Rs 40 crore on Minimum Guaranty Basis and the distributor entails losses, the producer is not bound to repay the money as it was an outright sale of distribution rights. Maximum distribution deals in the industry are on Minimum Guaranty Basis.
3. Commission Basis
On commission basis, there is no outright sale of the distribution right. Producers get the distributors on board to merely release the film and pay a certain percentage of the theatrical share (distributor share) as commission to the distributors. Ideally, on the commission basis, the distributors are paid approximately7 to 8% of the distributors share in addition to the release expense.
The basis of allotting a verdict to the film differs from case to case and deal to deal, and ideally, a hit film is the one where everyone in the chain i.e. producers, distributors and exhibitors make money.