Dharma-Serene deal spotlights stress in showbiz

MUMBAI: The news of Adar Poonawalla-led Serene Productions agreeing to pick up a 50% stake in Karan Johar’s Dharma Productions shines the spotlight on the stress lines in India’s film entertainment business. Poonawalla, CEO of Serum Institute of India, one of the largest vaccine manufacturers of the world, will shell out ₹1,000 crore to be a non-strategic partner in the production house.
According to industry experts, Dharma had been looking for an investor for the last eight to nine months to service debt, and Johar wanted to secure his family’s future with this deal.
The money will go into expanding large-scale, multi-lingual productions, building franchises and elevating traditional entertainment formats. “He needed a partner who could align all these objectives,” said the head of a production house, declining to be named.
The deal underscores the pressures on the Hindi cinema business which is faced with dwindling revenues and escalating cost of operation. “Poor footfalls in theatres are causing stress on the film industry. Even OTT platforms are consolidating. There isn’t enough work and people are wary of taking risks, especially with bigger movies, which was once Dharma’s forte,” the person said.
Earlier, film makers sought collaborations with other studios such as Viacom or Zee, to de-risk their projects. Such deals are no longer available in the face of the industry’s hardships. There’s a slow-down in commissioning as well, owing to the ongoing merger between Viacom and Disney Star.
“Despite the size of our market, the extent of organized, structured and sustained capital available to fund productions is well short,” said Vikram Malhotra, founder and CEO of Abundantia Entertainment, that has made films like ‘Baby’, ‘Airlift’ and ‘Sarfira’, among others.
Globally, the entertainment business is fuelled by large studios such as Disney, Paramount, Warner Brothers, MGM and Sony. “None of them is currently active in India – some never came, others exited and the rest are dormant,” said Malhotra. So, capital from big foreign studios isn’t available either.
Historically, Bollywood projects have been funded by capital borrowed on interest or advance from distributors. Though Abundantia was among the first production houses to raise private equity funding in 2013, PEs avoided the industry owing to perception problems.
“Bollywood was seen as the domain of a few families in tinsel town that created business more out of vanity and passion than scalable opportunity. That perception has been very difficult to break,” Malhotra said.
Also, the business has been subscale and the industry’s approach to finance has been transactional, Malhotra said. “It used capital to continue business rather than create value for investors looking for sustainable, exponential return on investments,” he added.
The absence of structured financing made producers dependent on the buyers of their film rights to finance projects. “The business resembles contract manufacturing where products are pre-sold and the funds generated thereby are ploughed in, in the hope of making a margin,” Malhotra said.
This has led to a power skew in favour of streaming services which are financing films.
But as the OTT industry matures, streamers’ own objectives have changed. After splurging on entry, growth and customer acquisition, platforms are looking for fewer products, higher engagement and profitability. The head of the production house quoted earlier said, overall commissioning by OTT services has declined by 40-50% impacting the content ecosystem. The FICCI-EY 2024 report said digital platforms have rationalized the premiums on direct-to-digital film releases.
Additionally, the broadcast rights of films remain soft as television film channels struggle with ratings and monetization, the report said. As more films tank at the box office, theatrical revenue is no longer dependable.
Content industry experts feel the stress may continue for a while, driving further consolidation. Already several mom and pop content shops that mushroomed to cash in on the streaming boom, have shut shop. Only companies with multiple revenue streams such as feature films, web shows, old IPs or studio space to rent out, will survive, said the production house head.
It’s time for content producers to think out of the box and figure out ways to monetize content.
Forced by technology and economics, film business in India is poised for a reset. But Malhotra is optimistic. “The Dharma-Serene deal is sending the right signal to other corporates, family offices and funds, that there is strategic interest and value to be created in this business,” he said.