Reliance’s Free Gift to Hollywood Stars

Amit Khanna is at it again, mouthing mindboggling numbers in dollars and peddling steamy dreams to grab headlines. One hopes it works this time. It has not worked in the past and Gujarati moneybags have burnt their hands badly in Khanna’s super-hyped dream ventures like Plus Channel.

The dream news is that Reliance Big Entertainment (RBE) signs George Clooney, Chris Columbus, Tom Hanks, Jim Carrey, Brad Pitt, Nicholas Cage, and a host of other Hollywood names. What actually is happening is quite different. Major Hollywood studios give a lot of money as an advance or grant to Hollywood stars to develop scripts and film projects of their choice with a condition that they will have the right to have the first-look at it. It is the usual practice in Hollywood and a way to keep the important stars engaged with the studio.

What RBE, a part of the cash rich Reliance Dhirubhai Ambani Group (RDAG), is doing is buying a small share in such deals from  LA based Creative Artists Agency (CAA) that reprsents these stars. RBE will have no control over the process, whatsoever. They are in a way paying a fees, amount not yet disclosed, to use these big international names on their marquee. They claim and hope that in case these films are developed and presented to the studios and get made finally, RBE may have the rights to distribute them in India, PROVIDED, it foots fifty percent of their production bill.

Is it an intelligent move? Hardly. The nature of the deal is a clear giveaway. It looks more like a move to fool ignorant Reliance investors. As far as  the Hollywood stars and studios are concerned, it is easy money coming their way without serious commitments, commercial or otherwise. They are always on the look-out for free coin to develop film projects that may be considered commercially risky but are useful in garnering critical acclaim and Oscar nominations.

The Hollywood producers scour and scavenge for co-production partners and opportunities wherever they can. Your name may appear as a co-producer for merely sponsoring the location and shooting costs of a film. A recent Al Pacino film that was premiered through a DVD release had about 50 co-producers. The films of the stars RBE is associating with through this much hyped deal have done very little theatrical business in India in the past ten years. Paying 50% of the production cost of these probable Oscar nominees and commercial duds merely to secure India distribution rights is obviously a financial stupidity. It is films like Iron Man , Spider Man, and Chronicles of Nernia that rule the theatrical box office here and they are not star-dependent. 

Am I being cynical?  I don’t think so. It is a realistic assessment based on observed evidence. 

Reliance to invest $1 billion (Rs. 4000 crores) in Hollywood.

It is another big news that takes your breath away. It sounds as if an Indian company is going to take over Hollywood the way Indians have been acquiring steel and auto companies. It looks big from our perspective, but is small news for Hollywood.  Hollywood is going to stay where it is. Why are these pronouncements made with so much of fanfare? Who is the target audience here? They are certainly not those who know the reality.

Rs.4000 crores is more than the theatrical collections of all the Indian blockbusters of the last year put together. The production slate of RBE will have films with budgets ranging between $ 5 to 50 millions (20-200 crores). And we are being told that sixty-nine films are already in the pipeline helmed by the likes of Vidhu Vinod Chopra and Sudheer Mishra. Let us do a reality check.

Today, the budget of an average Bollywood film is anywhere in the range of 60-100 crores (including marketing costs) thanks to the burgeoning price of big stars. The biggest of the Bollywood blockbusters collect about a hundred crores through theatrical box office worldwide. The producer finally gets about 25-30% of this figure after customary deductions like entertainment tax, distributor’s commission, theatre rentals, shipping costs, and sundry distribution pipeline losses. He tries to meet the deficit and earn profits by selling other rights and licenses. This economics fails to work if the production and distribution budget goes beyond fifty crores even in the best-case scenario of the film being a blockbuster hit.

However, we are told that a part of its $1 billion will also be used by Reliance to develop and acquire digital multiplexes in India and outside. This is real estate investment. Not a bad idea at all, and sounds very interesting. But may we know which part will be invested in all this after you have spent nearly whole of it on all those sixty-nine films on your slate?

Do you now know the target of a big-billed blockbuster announcement? You should. It is the ever-gullible small-time Indian investor. Very soon, as the stock markets stabilize, and RPL’s IPO fiasco fades from public memory, RBE may come out with another scam of a public issue. As a friend aptly describes, Mukesh is into value creation, and the younger brother Anil believes in valuations. This entire hullabaloo in Cannes is part of an exercise in that direction – creating a notional value that has nothing to do with reality.

RBE claims to be looking at the big picture and is readying for 360 degree domination of the information-entertainment eco-system, by acquiring and controlling the whole business, from content creation to its distribution across varied platforms, through vertical and horizontal integration. It may even launch its own satellites in the near future. It must, to complete the chain and to create a powerful synergy of businesses like energy, telecom, satellite communications, Internet, broadband, television, DTH, and digital theatres. It has been an ongoing dream since the past eight years with no concrete results in sight until now.

In the mean time we have more than 100 TV channels, broadband connections through normal phone lines, IPTV, and a plethora of DTH operators going full throttle. RBE is still dreaming and talking big. And if we are really inclined to buy the far-fetched RBE dream, Anil Ambani will be our Prime Minister in perpetuity by the end of next year, aided and abetted by smart talking Amit Khanna, who is obviously good at selling dreams to star struck Gujaratis.

I wish RBE becomes the global entertainment giant. That is the best to hope for. However, one should be prepared for the worst, going strictly by the past evidence.

And the most important point to be noted my lord is that value creation pays real dividends, and valuation is a game of numbers that looks enticing but delivers zilch.

RKS