The money flick

Balaji Motion Pictures produces saleable films with a tight leash on costs. The result: profitable movies

It was the summer of 2011 and shooting for the Silk Smitha biopic The Dirty Picture had just started. Somewhere around August, when the film was about 40% complete, co-producer Balaji Motion Pictures realised that the filmmakers had overshot the budget by about Rs.4 crore and if filming continued in the same way, the Rs.14-crore film would end up as a Rs.25-crore project. Since Balaji’s high profile joint MD and creative director Ekta Kapoor swears by her ‘cost control without losing creativity’ credo, she opted to take over the production completely (from director Milan Luthria, then the other co-producer).

Brutal fiscal discipline followed. Kapoor’s team brought in the docket management system, an art her company has mastered as the champion of never-ending TV soaps. Professional auditors monitored costs on a daily basis, minimised waste and forecast future expenses. Cost escalation was arrested and the film was released on time. The Dirty Picture, which grossed Rs.117 crore, was completed in about Rs.18 crore.

“They [the Balaji group] are creative champions,” says Salil Pitale, executive director, investment banking, Enam Securities. “TV has commissioned programmes so the upside is largely capped and the margins are limited. But if a film is successful, producers can get a big chunk of it.”

Balaji’s penny-pinched-is-penny-earned philosophy dates back to the way the company learnt to dominate TV soaps back in the early 1990s. Under Kapoor’s canny eye, a handful of serials based on maudlin social themes gave way to high voltage family dramas laden with glycerine and vitriol. Indian TV was never to be the same again. So successful was this strategy that Ekta Kapoor became a household name and her business acumen was widely envied. Now, she is replicating the same cost-and-content savvy business model to make movies and the Midas girl hasn’t lost her touch.

The chhota B

The difference between Balaji and its corporate peers starts at the project conception stage. Companies like UTV, Eros or even Reliance Entertainment do not do their own production. Once a movie is ready, or has been conceptualised and even partially shot, they tie-up as co-producers. They are studios — they are not involved in content creation. To that extent, their hold over the storyline or the quality of filming is limited. On the other hand, Balaji’s involvement starts at the story-telling stage.

“Content is supreme in our scheme of things,” agrees Tanuj Garg, CEO, Balaji Motion Pictures. Content, by its nature, cannot be static or formulaic. So how does Balaji crack the content code every time? “Ekta has her finger on the pulse of the masses,” feels film trade analyst Komal Nahata. “She understands public psychology better than most. More importantly, she has in-depth understanding of both the content and the business-related aspects of film-making.”

The only other company that is a production house as well as a studio is the 42-year-old Yash Raj Films. Film distributor Anil Thadani, who also distributed Balaji’s The Dirty Picture, says, “Creative people at the very top have good control over the whole process of film-making compared with corporates. That’s Balaji’s biggest strength.”

It’s not just content, but cost focus that colours Balaji’s financials. So the first step is to say no to ‘set-ups’ — no one can come to Balaji with a ready script and star cast and expect to get funding for production. “We want to be in control from day zero. Every expense has to be justified and we walk a tight rope when it comes to cost,” adds Garg. How does Balaji do that? Through some innovative stinginess. The company has 23 sets, the largest owned by any production house in India, and its TV sets double up for its movies, minimising incremental costs.

“We used several of our TV sets in The Dirty Picture, Once Upon A Time in Mumbaai and in other films,” points out Balaji Telefilms CFO Srinivasa Shenoy. Rivals like Reliance Entertainment, Eros and UTV, however, hire sets when they need them — the cost of hiring a set can range from Rs.50,000 to Rs.2.5 lakh per day, depending on the kind of set and the purpose of the shoot. 

But that’s not nearly enough. Last year, Balaji hired Fidelis Management Consultants for its cost control endeavours on a project-wise basis — a Fidelis rep is on the sets to keep a sharp watch for unnecessary expenditure. The accountancy firm oversees all expenses, be it location, costumes, pre- and post-production, equipment or marketing. It saved the company at least Rs.6-7 crore at the time of shooting The Dirty Picture. Now, Lootera, currently under production, is expected to overshoot its budget and Balaji is planning on ways to minimise cost escalation. “A detailed docket for every expense on each day is made,” Shenoy says. “So we know the cost for each day.” Fidelis has other clients in the entertainment industry, including Star India, Zee India, SET India and Fox Television, but the daily docket practice is not followed by any of them. Fidelis declined comment on the story. 

There’s also an independent commercial team to control hiring and requisition materials. Balaji’s financial prudence is reflected in the balance sheet — it is the only production house without any debt on the books and was, in fact, sitting on cash and equivalents of over Rs.215 crore at the end of FY12.

In contrast, Eros Media has a debt of Rs.540 crore, including long-term tax liabilities, despite raising over Rs.300 crore via its IPO in September 2010. Similarly, Mukta Arts had debt of Rs.69.45 crore at end of FY12. UTV Software Communications, now de-listed, had a debt of Rs.629 crore in FY11.

Next level

The prudence shows up in Balaji’s choice of projects as well: it’s spreading its bets to span the spectrum of film offerings — from mass commercial to urban niche, big to mid- to small budget films. Plus, the company is releasing around four to five films every year. “They are not putting all their eggs in one basket,” says Nahata. “Even if two [films] do well in the box office, the overall P&L is taken care of.” 

The company’s communications strategy is different from others. Instead of hiring event management firms like most production houses do, Balaji customises its communication. “We have different posters for B and C centres and metros,” says Prerna Singh, chief marketing officer, Balaji Telefilms. “There are different on-ground activations for all centres.” 

For promoting The Dirty Picture, actors Emraan Hashmi and Tusshar Kapoor went to Patna. They visited the famous Hanuman Mandir in Bihar’s capital to seek blessings and the film got all its publicity in one go. On the other hand, Vidya Balan launched two new flavours for an ice cream parlour chain in Hyderabad – Cream Stone Creations – ahead of the movie’s release. She went to promote the movie in Andhra Pradesh as Silk Smitha was born there.

These flavours were locally called “Silk” flavours and became an instant hit. For releasing the film’s theatrical trailer, Balaji chose Gaiety, a single screen theatre in Bandra. The place was chosen as only single screens existed in Silk Smitha’s era and the place was done up in retro theme in tune with the movie’s storyline. 

The group also identifies media partners to reduce costs and promote the film — The Dirty Picture was promoted via a tie-up with Lokmat in Maharashtra and Rajasthan Patrika in Rajasthan. Its quirky Ragini MMS campaign, in which the company got 2,500 autorickshaws in Mumbai to carry a sticker reading, Ragini ka MMS dekha kya?, got a whole host of attention. Balaji also placed blood-stained beds with the words “Ragini was here” across multiplexes to promote the film. These beds became talk of the town wherever they were placed and helped publicise the movie widely.

There’s more

To complete the circle, Balaji is now setting up it own pan-India theatrical distribution infrastructure, to be headed by veteran director Ramesh Sippy. “We can then control everything in the film-making value chain,” Garg reasons. “We can use the distribution network to get the right value for our films and minimise undersell.” Typically, of the net collections (gross collection minus entertainment tax), exhibitors like PVR and Inox get to keep 50% — the remaining half is shared between the distributor and the producer. 

It works like this: distributors sell films through theatrical exhibitors and sub-distributors. Their strength is their network, and producers traditionally lack it. Consequently, distributors are vital for taking a film to the masses. Controlling the distribution network will allow Balaji to not only get 50% of the net sales it can also make money from the other films it decides to distribute. Nahata approves. “It is a sound commercial proposition,” he says. But Enam’s Pitale says, “There can be a huge profit if a film is successful but losses are also high in case it fails.” 

If Balaji manages to complete this chain, it will become a fully vertically integrated entertainment house. Its biggest strength continues to be its cost austerity. Even in its desire for creativity, the company is watching what sells, even though it claims give top billing to creativity. Fact is, Balaji’s ‘sleeper hits’ are made by a team that has its eyes wide open.