Film Financing in India

The business of filmmaking garnered industry status long back but banks are still shy of financing films. There are two main reasons for this - firstly,banks don't understand filmmaking very well. Filmmaking has always been considered an esoteric fusion of art and technology and very few privileged people have access to it. It is but natural that banker's are far removed from the whole activity of filmmaking. The second reason is that the risk perception of banks is very high. The fact that virtually no filmmaker can guarantee success of a film is not helping matters. Even then a prudent appraisal of a film project can enable a bank to make wise decisions. This will increase the bank's finance to film industry and will benefit both the sectors.

Almost every bank already has a broad guidelines set out for film financing. Apart from these guidelines and procedures, there are several aspects of film production and distribution which a bank should look into :

Configuration of Budget: In big and medium budget films the major portion of the budget is allocated to remuneration to main cast and technicians, shooting at foreign locations, erection of set pieces and special effects. These are therefore the areas where bank's will have to verify the actual expenses incurred by the producers. In small budget films, the main item of expense is the equipment hiring and raw stock cost and these areas need to be looked into. For example, bank can arrive at the stock ratio of a film by dividing total stock to be purchased as per the budget, by the final screen time of the film. For a low budget film, a stock ratio above 6 is alarming. But for medium and big budget films, stock ratio can be more than 10, because raw stock for them is one of cheapest item of expense. Similarly lighting and other equipment hiring cost for low budget films shoul

Budgeted and real value: Human resource is the biggest asset of any organisation and this is perhaps more true for film industry than any other industry. Personal relations play a big role in this sector. Friends (and relatives), many a times, work for far less than their market price. Bank's need to factor in these concessions and discounts to arrive at the true value of a film project. On the other hand, high remuneration to actors or main technicians need to be justified by the producer.

Funding Risk: If producers get the balance payment from distributors at the time of release of film, they make a 'table profit' and can square off accounts with bank even before the film is released. However, the bank's risk increases if the producers themselves are releasing the film in some/ all territories. Also, not all films make a table profit. Big budget films depend on the collections of the film to recover investment and generate profits.

Distribution Strategy: The distribution of films is no longer the simple affair which it was earlier. The rising income of middle classes, rapidly changing value systems and multiplexing of theatres has made it pertinent for film distribution business to go in for segmentation of market. New distribution medium like internet are increasingly becoming important and cannot be overlooked any more. And then there are films which are directly released on DVD, without going in for the traditional theatrical release. A banker will have to use his discretion to find out if the distribution strategy suits the films profile.