Furious 7 is breaking box office records for Hollywood films in India. It has beaten The Amazing Spiderman for the biggest opening for a Hollywood film, and looks like it is also the highest grossing film in any language in India in 2015. With Rs 50 crore net over the opening weekend (Thursday to Sunday), the movie has grossed more than three times what the new Hindi release Detective Byomkesh Bakshy! recorded. Hollywood’s non-tentpole films are also growing impressively, so it’s a good time as any to speculate on how our Hindi industry is doing.

Entering the film business means that you are inherently an optimist. The film producer was never summed up more beautifully and succinctly than by Tom Stoppard in Shakespeare In Love, giving Geoffrey Rush’s Henslowe (the producer) and Tom Wilkinson’s Fennyman (the financier) this immortal exchange:

Henslowe: Mr. Fennyman, allow me to explain about the theatre business. The natural condition is one of insurmountable obstacles on the road to imminent disaster.

Fennyman: So what do we do?

Henslowe: Nothing. Strangely enough, it all turns out well.

Fennyman: How?

Henslowe: I don’t know. It’s a mystery.

Substitute Hindi films for theatre, and you had a mantra for this business – till pretty recently. The last decade has seen major disruption. The corporations have steamrolled in, vastly increasing the scale of everything in the business, from the quantity and quality of cinema screens to production values of films to ticket prices to star fees.

But that growth also planted the seeds of our precarious position today, where box office revenues are steadily down over the last 18 months, and predictions that the Hindi film output will be about half of that in previous years.

Problem area 1: show us the money

I saw a film this weekend. The experience for a friend and myself cost about Rs 1,500. I calculated how much of that makes it back to the revenue of the film. After you deduct Rs 170 for colas and other concessions, parking, entertainment tax, exhibitor rent, and distributor commission, it’s not more than Rs 200. So less than 15% of what you spend at the multiplex actually goes to the folks who made the movie.

As companies were chasing bigger topline numbers in a race to establish themselves, for the first time this industry was not operating by the old-fashioned business of the bottom line. Increasing spends in marketing greatly helped establish the presence of the new studios brands as well. This makes sense from the point of view of the company promoters and investors, in cases where they were looking for additional investment and maybe a timed exit from the company. But it leads to irrational behaviour when looking at returns on investment on individual films. Marketing in the movie business broadly helps your first day numbers. After that, word of mouth is the most viral form of marketing.

So till recently it was a given to spend Rs eight crore plus on publicity and advertising (known as P&A) on a small to medium budget film. But that would typically not get more than 25% back on day 1 (and often much less). It never made much sense to me why you would advertise for a small film in mainstream media seven or eight weeks before its release, when consumers only think about the film they want to watch a couple of days in advance.

Why do we do it then? Because the music company insists on having the campaign launched prior to the music release. And it is a way to get exhibitors to plan a good showcasing of the film. These ads were therefore targeting the trade. Earlier trade magazines used to achieve this at a cost of a couple of lakhs. But the current typical campaign launch can easily cost more than a crore, between print TV and digital ads, paid media and a press event. P&A can easily be north of Rs 20 crores-Rs 25 crores on big budget films.

By comparison, big budget films in Telugu, rarely spend more than 10% of that! Their logic is the payment to the stars is the marketing budget.

Problem area 2: mutual distrust among the industry’s key players

The question really is, why does it cost so much to get partners in the trade to work together? Part of it is explained by a relative shortage of screens. But I think it is also to do with the general antagonism between the two, dating back to a standoff over profit sharing terms between Yash Raj Films and multiplexes in 2008, which led to Tashan not releasing in the multiplexes. Till that time, it was the studios who would stare down the exhibitors. When one blinked and agreed to better terms, the others would also fall into line. But with Tashan the multiplexes united themselves and stared YRF down. Tashan released in multiplexes only in the second week.

While it is in everyone’s interest to maximise revenues, we have the absurd scenario where distributors pay to screen movie trailers, which are basically advertisements for the same multiplex. All parties ignore the fact that it is very irritating to pay 400 bucks for a ticket and then be subjected to a tonne of irritating brand adverts. The audience would love to see four or five fun trailers instead, which add to the fun of going to the movies. All over the world, it is considered a no -brainer to try and sell the next movie ticket to the guy in the cinema who has already bought one.   But here, we make it that much less tempting to go back to the movies sooner rather than later.

Problem number 3: satellite television rights come down to the earth

When a satellite crashes, how big is the crater?

At its peak, television channel rights would sometimes be the biggest single revenue source for a film. But with an increase in prices, these purchases could not remain viable for the channels. They have since created their own strong weekend programming, which gives them great ratings at a much cheaper cost.

So when satellite rights can’t be counted on, production and marketing budgets need to be slashed downwards, never an easy adjustment to make. And these days, the only way these sales happen is by also giving the TV networks additional rights for them to recover their investments. This means that the potential new stream of revenue from digital rights is being bundled into the same contracts.

Problem area 4: Hollywood rising

Bollywood is on a slippery slope, but Hollywood has been steadily gaining ground. Almost all Hollywood films have been restricted to encrypted 2K screens. These screens are good quality and offer greater piracy protection, and are approximately 15% of the screens on which a big Hindi film typically releases. The predominant other format is UFO, which forms the vast majority of Hindi film screens, and has so far not been acceptable by their studios piracy concerns and quality control.

That will change over the next few months as those concerns are assuaged with a huge increase in revenue. It has already begun with Furious 7, which released on an unprecedented and staggering 2,600 screens.

Hollywood will vastly multiply its footprint in India. The science fiction adventure Avatar grossed Rs 150 crore more than half a decade ago. When its sequel arrives, with almost 10 times the screens available to it, who wants to bet against it breaking all time Hindi film records?

The flip side for us is a smaller footprint for Hindi films in an under-screened country like India. Since these same studios are funding our films, and now scaling back local productions, they will instead bank on the no-risk or low risk-route of releasing their Hollywood content in our languages. Anyone looking at the bottom line would, right? And how long before the local producers make a protectionist argument and appeal to this ban-happy Government to restrict foreign films, joining the exalted company of beef? The Bharatiya Janata Party holds up China as a model for everything, so it may inspire them to know that China only permits 34 foreign films a year on its screens!

The other structural problem in the exhibition area is that the studios agreed to a reducing fee structure with multiplexes. Unlike the dominant global norm which is a fixed share for the duration of the film run (normally 50%), here we get less than 50% in week 1, and it reduces thereafter into the low 30s by the end of it. This is the most absurd negotiation for both sides. You incentivise studios to make movies that will make most of their money in week 1. The flip side is you are penalising producers for making films that are liked by the audience and run for several weeks. So the message is, less Vicky Donor, Queen and English Vinglish and more of…. fill in the blanks.

Problem area 5: The case of the missing producer

The report card on the Hindi movie industry is pretty healthy, but only if you were a promotor who exited with a profit, or a media company who billed producers for using mainstream media as a trade promotional tool, or a star, who have seen a more than 10-fold increase in fees overall since the studios have been active.

The rest are stirring one hell of a cocktail. Because we got great prices for satellite rights, some big films were broadcast as soon as 30 days after the release, mostly when they didn't succeed theatrically. In Hollywood this is called a drastic shortening of the theatrical window. The exhibitors don’t like it because you are, in effect, telling your audience, no problem if you miss it in the cinemas, very soon we will show it to you at home -- for free! And it is very difficult to change these windows now, with an already dormant satellite market. I think this has another subconscious effect. Somewhere the audience is switching off, having felt short-changed with this very aggressive cycle.

As studios gain greater control, somewhere the onus on an individual also dilutes. The earlier producer was personally liable, many times staking their personal properties as a guarantee. That is as good an incentive as possible to make sure you take the best decisions that will get your money back, pay off high interest costs, and make enough to get the next film started. The producer’s conviction in the director, and the director’s too, was the anchor for this to succeed. With the diffusion of roles in new companies, it is less likely to have the buck stop with any one individual. You even see films where the studio rather than an individual producer is credited.

The roots of this lie in how studios have burnt their fingers time and again with producers where deals ensure very little chance of profit but risk great losses. The last few years have been littered with big-budget Titanics (the ship at the bottom of the sea, not the film at the top of the box office!) Now that the game has changed from creating greater valuation to profit and loss, the pressure has only increased.

Problem area 6: The more things change illness

Like I advised the bartender who was upset after serving many shots to a drunk, and then discovering he couldn’t pay the bill, nobody forced you to give him the drink. As long as you’re pouring, he’ll keep drinking! Whereas the relationship between the studio and producer is critical in the West, here, it is far from having reached its productive potential. The irony is that while studios are exerting greater control over producers, we actually have the case of Reliance Entertainment, which has been merged with, and come under, the control of the producers at Phantom Films!

Twenty-one years ago, the industry was in a similar shape, minus the corporations. (File under The More Things Change department.) Every week seemed to carry announcements of cinemas shutting down. Things were probably at their bleakest when RD Burman’s phenomenal soundtrack for 1942: A Love Story couldn’t save the film at the box office.

But a couple of months later, it was Sooraj Barjatya and his Hum Aapke Hain Koun…! that brought families back to the halls. The movie marked the resurgence of Hindi films as a family occasion, and it was on this foundation, built over the next decade or so, that corporations took root.

While there were successes and failures during the last two decades, there was an overall sense of forward movement for Hindi cinema. The year 2009 was a high water mark, courtesy films like Dabangg bringing us a turbo-charged Salman Khan renaissance and 3 Idiots signing off the decade with a flourish. However, ignoring internal weaknesses have led to the gaping cracks that split wide open in 2014.

Problem area 7: The Congress Party syndrome

Now, consider this. While there were successes and failures during the last two decades, there was overall a sense of forward movement for the Congress. The year 2009 was probably a high water mark, courtesy the economy's renaissance and a big win in the Lok Sabha polls signing off the decade with a flourish. However, ignoring internal weaknesses led to the gaping cracks that split wide open in 2014.

Cinema (H) and Congress (I): is this our ultimate Seeta Aur Geeta moment? Our pain resembles the agonies of another Indian institution that has seen better days. Faced with far more adept regional players, and the rules of the game changing rapidly, the incumbent seems to have lost its appeal. Its share of the pie is rapidly crumbling. Sounds familiar?

Regional cinema has specific appeal, from the cadence of the language to the cultural nuances that our diverse country celebrates. Hollywood films have universal appeal, relying on big budget spectacle to cut across language and age barriers Is the space between them now redundant? Especially at a time which is about the winner taking all, with very little left for the rest.

While it is foolish to suggest that the Congress can be revived by the imminent return of their white knight Rahul Gandhi, we are allowed fairytales in the movie business! It is comforting to know that this Diwali, Sooraj Barjatya will be bringing back Prem, and this time with Hollywood horsepower (the movie Prem Ratan Dhan Paiyyo is a co-production with Fox Star Studios). Sooraj was the one gave us the solution to our woes many years ago when he said, so simply, “Make films you believe in.”