Bollywood's small-budget films are in crisis mode; Here's what's going on – Business Today

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What could possibly unite a hassled young woman dealing with her hypochondriac father’s gastric woes, a flight attendant fending off terrorists mid-air, and a dysfunctional family gathering for the patriarch’s birthday? Only the fact that they were hit Bollywood films made on a budget of around Rs 30 crore.
Think Piku, Neerja and Kapoor & Sons—a category of films that made bona fide stars out of the likes of Ayushmann Khurrana, Rajkummar Rao and Taapsee Pannu, and became calling cards for filmmakers such as Shoojit Sircar, Gauri Shinde and Shakun Batra. But today, the small- and medium-budget Hindi film segment is in a crisis.
“Now, a producer cannot green-light medium-budget films that used to do Rs 70-80 crore business at the theatres. They are not getting made,” says Shibasish Sarkar, Chairman and CEO of International Media Acquisition Corp. (IMAC), an acquisition company focussed on the media & entertainment industry. The former Reliance Entertainment CEO says that top Bollywood producers are not putting money into them, because the audience is not coming to watch them at the theatres. And OTT platforms—that emerged as a messiah for these movies during the pandemic by becoming their primary source of revenue and audience—are not buying them anymore without a theatrical release first. “It is a crisis now [for small films]. Given their reception [at the theatres], especially when OTTs are not willing to take them, it’s going to be harder. For some time, at least, you’ll see a regression,” says the head of a film production company requesting anonymity.
At a time when a string of Hindi films, big and small, have been tanking at the box office, this category of films has suffered badly. Used to making `60-70 crore at the box-office earlier, their collections have halved now, barring a few like The Kashmir Files. “It is harder to bet on a smaller film than a bigger film because the latter has more avenues to pre-sell satellite and digital rights before a theatrical release,” says Pankaj Jaisingh, CEO (Distribution Business) of UFO Moviez. Agrees Ashish Kanakia, CEO of MovieMax Cinemas. “The mid-budget producers will have to rethink their entire game. They cannot expect Rs 70-80 crore revenue at the theatres [now],” he says.
Smaller though in budget, small- and mid-budget films account for a large majority of the 1,000-odd movies released in India in a year, across languages. Only about a dozen are the big spectacle movies such as RRR, the KGF films or Brahmãstra Part One: Shiva. “The entire reliance is on the big-budget Hindi films to draw the audience. That’s a problem. The core problem is content and content consistency,” says Karan Taurani, Senior VP and Research Analyst at Elara Capital. More than nine months after reopening fully, theatres and multiplex chains say they have seen 70-80 per cent recovery in footfalls compared to pre-Covid-19 levels. “We are back to 85-90 per cent [occupancy] of 2019 levels. October and November have been very good for us,” says Alok Tandon, CEO of INOX Leisure. A closer look at the footfall numbers of listed chains PVR and INOX shows a spike in Q1FY23 when films such as RRR and KGF: Chapter 2 came out, but Q2FY23 was again a dampener when no big films were released. IMAC’s Sarkar sees this as a reflection of the audience being choosy about which films to watch at home and which ones at the theatres. Hollywood began facing this problem five-six years ago; India is just catching up, and Covid-19 has just hastened the process, he adds. “Goodbye got so much acknowledgement when it came on OTT but people didn’t turn up at the theatres.”
If OTTs are largely an urban phenomenon in India, can they really dent the prospects of a theatrical release? The executive who requested anonymity, says the small-budget films traditionally didn’t make it to the theatres in smaller cities and towns anyway. “Generally, the bigger the star, bigger the budget, and a higher likelihood of the star having a value that would take the film into deeper pockets.” Besides, Taurani points out, OTTs are really getting out there in terms of penetration. “India has 150 million households with TVs, which is around 600 million viewers. OTT or video content has more than 400 million viewers.” But Devang Sampat, CEO of Mexican multiplex chain Cinepolis’s Indian arm, sees OTTs not as competition but as an ally. “People don’t come for a star’s movie anymore. Kantara was not driven by star power but by the story. That appreciation for a story is thanks to OTTs, where people started consuming more content.”
Experts see the reason for the smaller films not faring well at the theatres as being multi-pronged—a post-pandemic discerning audience that is now accustomed to international content; Hindi content that has not kept pace with the changing times; a four-week window for theatrical films to premiere on OTTs; and the barrage of content available across the 40-odd video OTT apps, linear TV, sports, events, etc. With so much going on, the smaller films are considered suitable for viewing only on OTTs. To draw the audience to the theatres, Hindi movies have to be really good, consistently, which is not happening now, they say.
Releasing a film in theatres is also an expensive affair. The executive quoted above says most films set aside `5-10 crore for print and advertising (P&A) costs. Add to it marketing costs, and non-production costs can account for around 25 per cent of a Rs 25-30-crore film’s budget. How can a smaller film made on a Rs 5-10-crore budget even compete, the stakeholders ask. “Whereas OTTs pay you an assured amount; there are no marketing expenses for the producer. That’s why OTTs are saying, go to the theatres first,” says Jaisingh of UFO Moviez. OTTs are now insisting on a theatrical release of a movie before picking up its digital rights. Hindi films such as Gehraaiyaan, Freddy, Cuttputlli, etc., that went straight to OTTs in 2022 even after theatres had reopened, were mostly pandemic commitments, industry insiders say. “We encourage our producers to take their film to the theatres first, and then to OTTs. It shows us the producer has confidence in the content. Also, it helps the overall marketing of a film,” says Ajit Thakur, CEO of Tamil and Telugu OTT platform aha. For OTTs, it makes sense to pick up the so-called “sure-shot” films to ensure a good return on investment. These films have already done business at the box office and don’t require marketing spends because viewers would know about them. Netflix, for instance, has been picking up the rights of most of the theatrical hits across Tamil, Telugu and Hindi, including blockbuster RRR in Hindi.
Jaisingh says Rocketry: The Nambi Effect, a film distributed by UFO, must have made 30-35 per cent of its revenue from the theatres and the rest from the sale of digital and satellite rights. “But that [70 per cent] came in because you had the foundation of the theatrical release,” he says. “Today, it’s critical for a small- or medium-budget film to perform well theatrically. Otherwise, OTT platforms will not touch it, unless it goes at a low price in a bundle of 5-10 movies,” he says.
This is an echo of what’s happening globally, experts say. All major media companies such as Netflix, Amazon and the Big Five studios—Universal Pictures, Paramount Pictures, Warner Bros., Walt Disney Pictures and Columbia Pictures—are choosing to focus on profitability. They are ditching plans to burn money on OTT content and sacking employees after a bloodbath at the US capital markets last year. In fact, Warner Bros. has put the launch of its OTT player, HBO Max India, on hold indefinitely. “OTTs are going to rationalise their costs given the kind of uncertainties in the macro environment. They will not pay the hefty rates they used to pay six months ago,” says Taurani.
Predicting a movie’s box-office success is a gamble at best, but without pre-sale of digital and satellite rights, the investment is entirely at risk. “At least for the big films, pre-sale is happening, which is very difficult for the small films. There is no buyer for these films and you can’t blame the producer for not taking a punt on them,” says Sarkar.
One view is that the small-budget films require a more dynamic ticket pricing strategy because the current price differential between a big-budget and small- or medium-budget film is 20-25 per cent. MovieMax’s Kanakia says that audiences complain about the high ticket and food and beverage pricing. “Exhibitors are unable to cut them because of high rentals. It can be done if there is good demand for the films. But the content has not corrected itself post-pandemic.”
PVR Joint MD, Sanjeev Kumar Bijli, says Drishyam 2, Bhool Bhulaiyaa 2, Kantara and Brahmãstra were all priced at `240-250 per ticket in the normal format across the country and did brisk business. “With Goodbye, we experimented with `160-tickets across the country. Even at a lower price, people didn’t go. Ticket pricing is not a deterrent. It’s really about the content now.” INOX CEO Tandon says no two films are priced the same. “If we feel it can become a blockbuster, we price it high. If we feel it is average, we price it accordingly.” Cinepolis’ Sampat says: “Operating at the prices that we do, India is still one of the best recoveries in the territories where Cinepolis operates.”
UFO Moviez’s Jaisingh, in fact, says that government-enforced lower ticket prices in the South is one of the important factors for why this trend is more pronounced in the North. “Smaller Tamil movies like a Love Today or a Thiruchitrambalam did well, while a Bhediya or a Doctor G didn’t do well even though the content was good,” he says. Again, the multiplex chains disagree. The South just has a more movie-crazy audience and the prices are going up from the `120-150 range even in the Tamil- and Telugu-speaking territories after relaxations in the cap. Bengaluru has one of the highest ticket prices in the country, they add.
The way ahead is to create compelling content distinct from what’s suited for OTT viewing, and experiment with cost-effective strategies such as a limited theatrical release, social media marketing, and by cutting talent costs, experts say. “Talent accounts for 70 per cent of a Hindi film’s production cost. These high-cost models are not feasible when the audience is just not showing up,” says Taurani. Kanakia says MovieMax is discussing revenue-share arrangements and a 10-20 per cent reduction in rentals with the developers of the malls their screens are located in. “If we continue at these high real estate costs, we will not be able to cut ticket pricing,” says Kanakia.
Over the next 12-18 months, Sarkar sees fewer films coming out. “Whatever was under production will come out in 2023. Unless producers have assured visibility of where the film can be sold, they are not doing the small- and medium-budget Hindi films.” But the homogeneity this will unleash is the most worrying—much like what the saas-bahu serials did to Hindi and Indian television, says the executive quoted above. “We’ll end up having just one type of movie.”
 
@SaysVidya
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