Lost in the jungle

For a population of barely 100,000, Burbank has a disproportionate share of the global media industry. Housed in Los Angeles County, the landscape is dotted by names such as Warner Bros Entertainment, ABC Studios, Nickelodeon and NBC. It was here, on a sunny morning in late 2006, that the top brass of The Walt Disney Company met to discuss a proposal from its India subsidiary. 

Disney had been present in India since the early 1990s, first through a joint venture and then independently. In 2004, it decided to set up the business from scratch and two television channels, Disney and Toon Disney, were launched the same year. In mid-2006, it acquired Hungama TV and picked up a minority 14.9% holding in UTV Software Communications, both from entrepreneur Ronnie Screwvala, signalling its aggressive intent.

It had barely been six months since the two deals were announced, but the Disney team in India was in no mood to sit tight. They had been contacted by Bollywood actor, Aamir Khan for his new film, Taare Zameen Par. To be produced by Khan, the theme revolved around a dyslexic child and India’s high-pressure education system. The actor, who had already tasted success as a producer with Lagaan in 2001, wanted Disney to produce his upcoming film and was open to giving them the best possible terms. It entailed offering another film as well, Jaane Tu... Ya Jaane Na, scheduled for a mid-2008 release. Taare Zameen Par was on the table for just the cost of production and Khan bluntly told the folks at Disney India that he was keen on a global release for the film; in short, it was up Disney’s alley.

Disney’s central Mumbai office was upbeat about the idea. Now, it was over to the big bosses in California to decide. At Burbank though, Disney’s A-team thought otherwise and vetoed the offer from Khan. In their minds, films in the genre were not what the company had ever been known for. There was also apprehension about the commercial viability. When the news filtered back to Mumbai, the officials had the unenviable task of saying no to Khan. On a budget of Rs.12 crore, Taare Zameen Par collected Rs.88 crore at the box office, while Jaane Tu... Ya Jaane Na made almost that much on a Rs.11 crore budget. 

Since then, Disney has lost serious money in the film business here, with very little to speak of in kids channels either. The complete buyout of UTV Software Communications means Disney, after over a decade in India, has a turnover of Rs.1,600 crore, across all its businesses including film production, broadcasting, consumer products and interactive, but is in the red by over Rs.250 crore. It has been a case of many an opportunity missed, coupled with conservatism and indecisiveness. To add to its woes, in the recent past, its big-ticket deals have seriously bombed. For the $52 billion company, the India story has been nothing much to speak of.

Just a financier

It was a beaming Yash Chopra who announced the agreement between the eponymous Yash Raj Films (YRF) and The Walt Disney Studios to create computer-animated feature films for the Indian audience. This was at the sprawling YRF Studios on a hot summer afternoon in 2007. Keeping him company on stage was Dick Cook, the then chairman of Walt Disney Studios, who spoke with passion about Roadside Romeo, the first film from the two partners. On a budget of Rs.11 crore, this project would have actors like Saif Ali Khan, Robert De Niro and Kareena Kapoor doing the voiceovers. The grand plan was to co-produce a series of animation films. 

It was difficult to pick a hole in the tie-up since animation was really Disney territory and with YRF’s clout in the Indian market, especially in marketing and distribution, optimism prevailed. Roadside Romeo, however, came a cropper at the box office and managed less than Rs.5 crore. Not surprisingly, that marked the end of the agreement between Disney and YRF. 

Interestingly, YRF, which went through a turbulent period around the time Roadside Romeo released in October 2008, with most of its films failing at the box office, has managed to recover well. Today, it has figured out the studio model. On its roster are scriptwriters, directors and, of course, actors. Cost control is an exercise here that is clinical, and combined with its marketing and distribution, it makes for a heady combination. Successes like Dhoom 3, Shuddh Desi Romance and the more recent case of the Salman Khan blockbuster, Sultan only proves that. Simply put, YRF is not just a financier but a producer, who is involved in every stage of the creative process. As Komal Nahta, editor, Film Information magazine and a well-known trade analyst says, “Stars need YRF more than the inverse. That leaves a lot of large international studios with very little bargaining power.” 

That’s exactly been Disney’s problem. It has been restricted to just a financier and not a line producer involved in every stage of the project. It’s a far cry from how it plays the game in the US, where it has longstanding relationships with pretty much anyone capable of making a film. It also explains the kind of money Disney has made on films like Pirates of the Caribbean, Toy Story and now, The Jungle Book. Apart from footing the production cost, Disney takes care of all the expenditure related to advertising and promotion. However, that is where the similarity between the US and India operations ends, for Disney at least.

Take the case of a film like Chennai Express with Shahrukh Khan, which made over Rs.300 crore at the box office, making it one of the biggest hits ever. A Disney co-production (financed in the Indian context), despite clocking big numbers, saw the multinational walking away with a mere Rs.8 crore. Khan, also the co-producer, and the film’s director Rohit Shetty took away the lion’s share. Sounds illogical, right? But this is how things work. 

Math gone awry

The cost at which a film is acquired comprises every component, including the star fee. From that point, Disney makes a commitment to spend a certain amount on advertising and promotion. “In the US, Disney is used to owning the intellectual property (IP) rights of the film apart from the final cut as well and has a say at every stage of the creative process. None of that has been the case for any of Disney’s projects in India,” says a former Disney official. If that’s not bad enough, the math, too, is extremely unfavourable and poorly structured. On a large project, like Chennai Express, Disney could recover only 30% beyond the cost of production. The rest went directly to other co-producers and the director. “In the US, Disney secures itself a minimum return after accounting for all costs including the producer’s fee, and shares a portion of the excess proceeds with the co-producers,” explains the official. 

Even in the case of Aamir Khan-starrer blockbuster, PK, Disney’s return was very low. The film made Rs.330 crore on a budget of Rs.85 crore. Disney is said to have acquired the global distribution rights for a whopping Rs.140 crore, which included Rs.25 crore spend on marketing and promotion, but ended up making no more than Rs.15 crore! Again, the deal was structured to favour the producers, Vidhu Vinod Chopra and Rajkumar Hirani. 

Aditya Shastri, president, Xeitgeist Entertainment Group and former MD of 20th Century Fox India, thinks that large studios have made the mistake of chasing movies they think could be ‘hits’. “This meant paying large and illogical sums of money to co-produce and acquire films from or featuring these so called ‘hit makers’,” he says. With their financial muscle, studios like Disney are not loath to spending a lot of money. “Large studios often believe that if they increase the price level, it would be an entry barrier for individual distributors,” adds Shastri. 

In fact, while Screwvala was known to pick and choose his projects, the fund infusion from Disney saw him taking more chances, which only diminished the success quotient. Films like Guzaarish, Jodhaa Akbar and Chennai Express indicate that the company was more sold on the “star factor”, rather than the script and there was the willingness to make big-ticket investments. Zokkomon, a film with a superhero theme and Do Dooni Chaar, both Disney productions, were also failures.

The decision to produce Fitoor on a Rs.65 crore budget without any big stars, has also hit Disney really hard. A remake of Great Expectations, it brought in a paltry Rs.18 crore, making it the disaster of 2016. “There was no justification to spend that kind of money when the film could have easily been made on a Rs.10 crore budget,” exclaims Nahta. Disney also lost as much as Rs.55 crore on Fitoor alone. 

On the anvil now, is the Rs.100-crore Mohenjo Daro starring Hrithik Roshan, scheduled for an August release. The other project in the pipeline is Jagga Jasoos, for which shooting commenced in early 2014. Very little is known about the fate of the project, except that around Rs.40 crore has been spent, with no clarity on release dates.

Notwithstanding these outcomes, post the Fitoor debacle, Disney has decided not to produce any new films and focus only on distribution instead. Clearly, if Disney wants to play the Bollywood game, it needs to transform itself from being just a financier at the mercy of a clever producer, to a full-blown producer. Not many have been able to crack it. Yes, while Disney can draw some consolation from biggies like Sony Pictures Entertainment losing money on Saawariya or Warner Bros’ disastrous experience with Chandni Chowk to China, that does not make the red on its balance sheet look good. 

It’s all red 

Thanks to all the flawed deals, UTV Software Communications, the company that runs the film business and some television channels through its subsidiary, has been in the red since 2012, the year it was completely acquired by Disney. That year alone saw the company registering a loss of Rs.923 crore (see: Unfulfilled Dreams), which was attributed to writing off expenses on interactive game development, but more importantly, accelerating the amortisation charge on movie inventories. The following year, 2013, saw a hefty loss again, this time to the extent of Rs.538 crore. Post the acquisition of UTV, Screwvala was named the managing director of the Indian business. In October 2013, he stepped down and Siddharth Roy Kapur, then the head of the studio business, succeeded Screwvala. 

Meanwhile, The Walt Disney Company India, the original entity that entered India in 2004, that runs two of the kids channels apart from home entertainment and its branded products business, has seen a drop in revenue since 2012. It was a new chapter which Disney added to its India book in 2004, after its 10-year joint venture with Modi Enterprises, a Lalit Modi company that ended in mid-2003. Rajat Jain, the first managing director of The Walt Disney Company India, thinks the company was well behind other global and local entertainment companies like Star, Zee and Cartoon Network, who had entered much earlier.

But where others like Rupert Murdoch’s Star network, after flirting with English content, went completely local, reaping them rich dividends, Disney hasn’t been keen to adapt. It went with its global positioning in India too. “In India, however, Disney characters were not as well-known, particularly given our own strong history of storytelling and local mythological characters,” says Jain. 

Interestingly, Disney did look at the possibility of acquiring Amar Chitra Katha for around Rs.25 crore (it was eventually bought by Kishore Biyani’s Future Group) in addition to exploring options in publishing and even picking up equity stakes in large Indian studios. None of these deals found favour, however, with the global headquarters. The only one that impressed them was Screwvala’s UTV business. 

At a total outgo of almost Rs.4,000 crore for buying UTV and its businesses, the deal still remains among the largest buyouts in the media and entertainment space, only it hasn’t really worked out well for Disney. 

Television and beyond       

Disney, in India, has eight channels across three genres – kids, youth and movies. Left to Disney, it would have wanted the kids segment to be dominated by its global flagship Disney channel. Instead, Hungama, a channel acquired from Screwvala, remains its flagship channel for kids here. In fact, it has only grown stronger when it comes to viewership.

Between October last year and this June, gross rating points (GRP) for the Disney-owned Hungama channel moved from 241 to 380, making it the second most watched kids channel after Nickelodeon from the Viacom group. Disney channel is at 371 GRP, but the rest of its bouquet is floundering. As per the company, “Disney India Kids Network is number-one among kids 4-14, serving up a mix of international and locally-developed animation series.”

Still, this segment, which is Disney’s bread and butter in most parts of the world, is proving to be quite a challenge in India. The pain point is that the kids segment, which brings in only Rs.350 crore of advertising revenue (with almost an equal number through subscription), has over 20 channels fighting for the pie. It is a business that relies heavily on one or two shows per channel to lure audiences. Besides, production costs are often at least twice as much as that of a GEC. Hungama alone makes about Rs.50 crore of advertising revenue each year, Disney about Rs.40 crore.

But it’s not just about the number of channels in the fray that is complicating the story. The Sun network, for instance, has launched kids channels in all four languages in the South. This means that the audience is not forced to just watch dubbed programming from international networks. “Earlier, these networks were uncontested in these markets. That is a marked change today,” says Kunal Jamuar, managing partner, Havas. 

Disney’s position in the sports genre is not on a strong footing either. Recently, Disney-owned ESPN also struck a joint venture with Sony Pictures Network India to launch Sony ESPN and Sony ESPN HD channels. This comes at a time when the sports broadcasting business is dominated by Star Sports after it acquired the broadcasting rights to most cricket properties. ESPN was in a joint venture with Star Sports, which was called off.

 Here or there

For Disney, the task on hand is to decide how it wants to position itself in India. A questionnaire sent out to Andy Bird, chairman, Walt Disney International on India operations and the way forward, met with a terse response. According to the official response from the India office, Disney and Marvel Studios have released more than 100 titles in India since 2004, including The Jungle Book — the highest grossing Hollywood film ever to be released in India — and the locally produced Disney-branded film ABCD 2, which was among the country’s top-ten grossing films of 2015. “Disney’s Beauty and the Beast, produced with an entirely local cast and crew, was the first-ever Broadway-scale theatrical show in India and opened to huge commercial and critical success last year,” it added.

That’s true — Disney’s global titles have done well. Disney made a handy Rs.80 crore on The Jungle Book and another Rs.30 crore on Captain America. But that’s no rocket science; nor is it a reflection on how well it has cracked the Indian market. Such titles are relatively risk-free investments and the job is really one of a distributor. “Given how much they can make in the rest of the world, India is of no importance to Disney. Getting a return on investment may not even be an objective,” opines Mukesh Bhatt, well-known producer and chairman, Vishesh Films.

Disney’s strategy, globally, has been to use television, movies and content in every form to amplify its characters in theme parks and merchandising. The whole objective is to increase affinity for each of its characters and monetise it in every way possible. It has worked beautifully in America and in several other foreign markets — for years, Disney has delighted kids and families with its creative content around themes like hope, happiness and magic. 

In India, that story has not entirely taken off. While it has its share of costly mistakes in films, in television it has met with uneven success, with competition making it tough. Its global releases have done exceedingly well here, though. But that’s tiny, not just in the context of Burbank, but the Indian jungle.