Film Insurance & Financing in India

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Themes: Financial Markets
Period : 1998 - 2000
Organization : UTI India
Pub Date : 2002
Countries : India
Industry : Financial Services

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Case Code : FINC012
Case Length : 07 Pages
Price: Rs. 200;

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The Problems Contd...

Thus, the financiers had emerged as the de-facto primary source of funds in India over the years. Financiers - often diamond merchants, brokers, builders and other cash rich businessmen, charged very high interest rates, generally in the range of 36-48% per annum. To get funds at cheaper rates, the film industry gradually moved towards black money, laying the foundations of the underworld mafia and the film industry's association. Industry sources revealed that approximately 30-35% of the films were financed by the underworld.

At various other stages in the course of production of the movie - transactions with the distributors and the music companies for instance - there was always an element of black money involved. Most of the popular stars commanding a high fee, did not take their entire payment in white money in order to escape the taxes. According to estimates, 15-20% of the money paid to stars was always in black money. By the mid 1990s, the industry was facing serious problems with the underworld mafia demanding increasingly higher payments.

Often, producers/stars/directors were threatened to pay 'protection money' or the rights for distributing a potentially successful movie. After some celebrities were murdered, reportedly by the underworld, the government had even begun providing police protection to film personalities. Another problem plaguing the industry was the issue of piracy. The piracy of films, either in the form of illegally showing the movie on cable networks, or the selling/renting of unauthorized video cassettes, VCDs, LDs and DVDs³, had become a big business in India. In 1995, the industry lost approximately 99% of its total earnings to piracy. Though the figure had come down to 80% in 1998, the threat of piracy was still very significant.

In the late 1990s, the film industry was going through a phase of changes. With increasing concern over removing the underworld influence and the emergence of corporate houses, (such as Mukta Arts, Ajay Devgan Entertainment and Software, Balaji Telefilms, Zee Telefilms, Amitabh Bachchan Corporation Ltd. and Dreamz Unlimited), the demand for the government granting films an industry status intensified. In October 2000, the government finally gave films industry status via notification 2 (C)(XVII) of the IDBI Act 1964. Though the move was welcomed by the industry and banks/FIs in the media, the film financing and insurance business failed to pick up as expected.

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3] Video compact discs, laser discs and digital video discs.