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Foreword:
The Indian entertainment industry has been growing over the
years and has attained prominence with the emergence of new technologies
and delivery channels. The Indian film industry, which continues
to dominate the domestic entertainment industry, is one of the largest
and amongst the most vibrant film industries in the world producing
over 850 films annually.
In terms of revenues, however, it represents a small fraction of
developed markets such as the USA, where theatre ticket sales in
2002 were estimated at about $9 billion.
Nevertheless, with new creative talent and growing global aspirations,
Indian films have started making their presence felt on the international
stage. In the last few years, two important milestones have set
the stage for the corporatisation of the Indian film industry.
In May 1998, the Ministry of Information and Broadcasting accorded
"industry status" to the film industry and in October
2000, the ministry of finance announced that the entertainment industry
would henceforth be recognised as an approved activity under "industrial
concerns" as per the Industrial Development Bank of India Act,
1964.
With the changing environment, the Indian film industry is also
undergoing a metamorphosis. Apart from corporatisation, some of
the recent trends in the industry include access to institutional
funding and the institution of risk mitigants such as insurance
covers. But such efforts are few and far between.
It is estimated that currently, annual film production costs in
India are in the region of Rs 25 billion and these have been growing
at 15 per cent a year.
While the Industrial Development Bank of India (IDBI) started financing
films in April 2001 and the Reserve Bank of India (RBI) also issued
broad guidelines to commercial banks regarding bank finance for
film production in May 2001, the total institutional funding to
the Indian film industry is still estimated to be only around Rs
1 billion.
Given its size, growth, diversity and current funding practices,
the industry offers huge lending potential for banks and institutions.
But it is still hampered by issues such as the lack of transparency,
piracy and high dependence on informal sources of funding.
Also, given the fragmented and unorganized nature of the industry
as well as the lack of authentic data, risk assessment remains an
onerous task. Hence, if the sector's lending potential is to be
tapped, appropriate risk assessment tools and risk mitigants need
to be instituted to effectively manage the risks of lending to this
sector.
Against this backdrop, the Confederation of Indian Industry (CII)
has been actively working with the corporate, legal and government
sectors to strengthen the entertainment industry. As part of this
initiative, Crisil has evolved a framework for analysing film and
television software producers. This analytical framework comprehensively
assesses all the risks pertinent to these two segments.
Crisil believes that an objective and independent opinion on the
risks involved would help both lenders and producers. Lenders, comprising
banks, financial institutions and intermediaries, could avail of
Crisil's service in pricing their products and determining their
exposure levels to entities in the entertainment industry.
As for producers, they have hitherto been borrowing funds at exorbitant
interest rates from the informal market and this service would act
as a key facilitator in accessing institutional funds. Both Crisil
and CII believe that Crisil's risk evaluation service would play
a pioneering and catalytic role in channelising institutional funding
to the entertainment industry.
Thus, Crisil's risk evaluation service could well become the third
important milestone in the entertainment industry's evolution into
a transparent and mature sector.
Also read
High cost of funding mars
film industry growth, says Crisil
TV ad spends - 39% of ad
pie in 2001-2, says Crisil
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