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Indywood The Indian Industry September 2016 Indywood | The Indian

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Contents

Foreword 3 Executive Summary 5 Make in Initiative and the Film Industry 6 India’s Film Industry 6 Industry Overview 7 Key Trends in the Indian Film Industry 10 Growth Drivers and Opportunities 15 Key Challenges in the Industry 17 Key Focus Areas for the Film Industry 21 Technological Advancements in the Film Industry 24 Skill Development in the Film Industry 32 Film in India 34 Background and Global Perspective 34 Film : An Overview 40 Recent initiatives to Improve Film Tourism 40 Next Steps and Initiatives 46 International Best Practices: Case Studies 50 Case Study: Film Tourism in the UK 50 Case Study: Film Tourism in 54 Shooting of Foreign in India – Tax Aspects 59 Authors, Acknowledgments and Contacts 62

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Foreword

Welcome to the Indian Film Industry Report critical to remain at the forefront of global for the Indywood Film Carnival taking place trends. The report analyses the methods to during September 24 – 27, 2016 in Ramoji achieve this including technology transfers, , . The film industry collaboration with international studios and has been earmarked as a key sector in the development of technical skills in-country. campaign. As part of this, Another endeavour of the Make in India the Government of taking several campaign has been to develop technical initiatives to effect growth in the sector skills for film production, post production as well as promote foreign film shootings and VFX. Given the low labour cost, this locally. Deloitte India’s objective with this could be a key factor in attracting foreign publication is to provide an overview of filmmakers to the country. The report Hemant Joshi the film sector in India and analyse the key elucidates the current initiatives being trends impacting the sector today. taken by the under the Make in India campaign to improve Our endeavour is to provide a considered availability of skill and talent in . point of view on key initiatives required The report also analyses other actions going forward in the film industry to propel that can have an impact on increasing growth and promote film tourism. In order availability of skills locally. to do so, the report delves into the current state of the industry to identify key focus In this report, the international best areas and requirements to increase box practices in thriving film sectors globally office realizations, improve occupancy and have been studied including initiatives address the infrastructure constraints. taken by various regions to attract foreign film shooting. The report also includes Ashesh Jani As the Indian film industry moves into the case studies on the UK and New Zealand, next phase of growth, it is imperative to countries that have successfully been keep pace with the global technological able to position themselves as key filming advances and innovation. Historically, destinations as was witnessed by the Harry the Indian film sector has lagged behind Potter Series and Lord of the Rings Trilogy. in its counterparts in the deployment of emerging technologies such as virtual Deloitte hopes that you and your reality, augmented reality, drone shootings, colleagues find this report a useful etc. The development and deployment stimulant in your strategic thinking. of key technologies in Indian films will be

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Executive Summary

of the total industry. Cable and satellite rights and online/digital aggregation produced with between 1,500 to 2,000 revenues are the fastest growing segments, and expected to grow at a 20 languages. In terms of revenue, the CAGR of about 15% over the period FY15

of $2.1 billion which is expected to grow is dominated by , the at 11% CAGR reaching $3.7 billion by 2020. The key growth drivers for the industry revenue while regional and international are:

• Increasing per capita income and currently a small, but growing segment, growing middle class driven by rising numbers of English and • Demand from Tier 2 and Tier 3 cities other foreign languagespeakers, as well as rising numbers of international movies • Diversifying into international markets witnessing dubbed releases across the • Releasing the potential of digitization country. Other key recent trends in the industry include: • Upside from ancillary revenue streams • E ntry of international studios through • acquisitions and collaborations in movies • Rise of regional cinema produced in India, the industry gross • Digital adoption across the value chain realization has been substantially lower than its global counterparts. For example, • Organic and inorganic growth in multiplexes

Canada stand at $11 billion whereas • Emergence of alternative streams of revenue

Going forward, the industry needs to focus on the following factors to ensure

• Low infrastructure penetration • Film tourism • Slow growth in average ticket price (ATP) • Skill enhancement

• Complicated tax regime • Shortening window of release through better planning • Rising costs and lack of access to funding • Updating current technology

• Piracy • Countering piracy

• Multiple layers of bureaucracy • Growth of multiplexes

• Prevailing strict censorship norms

majority of the revenue, representing 74%

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Make in India Initiative and the Film Industry

Overview of the Make in India Make in India initiative. Till , several Campaign steps have been taken in the sector The Make in India campaign, launched to improve investments and increase by Prime Minister Narendra Modi in business opportunities. The following September 2014, is aimed at enhancing steps, specific to the film segment, have local manufacturing, fostering innovation, been initiated under the campaign: and facilitating investments in the Indian •• A Film Facilitation Office has been industries. The initiative is being led by established under the operatorship the Department of Industrial Policy and of the National Film Development Promotion (DIPP) and the Department Corporation (NFDC) for facilitation of film of Commerce and Industry and covers shooting in India and promotion of India 25 key sectors, including media and as a destination for foreign production . houses.

The Make in India programme endeavours •• Media and Entertainment Skills Council to create additional employment (MESC) is being promoted by Federation opportunities through improving business of Indian Chambers of Commerce and opportunities and positioning India as Industry (FICCI) with financial support by a destination for manufacturing and National Skill Development Corporation services. The programme also aims to (NSDC) to create 1.2 million skilled facilitate businesses and entry of workforce by 2022 in the media and players in India by instating clear and entertainment sector across 74 job transparent processes, enabling Ease of profiles. Doing Business, and simplifying laws and •• Additional film treaties are being explored regulations. Since the of the by the Government of India, having Make in India program, there has been recently entered into film treaties with a significant increase in Foreign Direct and , to not only avail Investment (FDI) owing to the growing film production benefits but also widen positive perception of India in the global the reach of Indian cinema. scenario. The Make in India campaign for the film Objectives and Initiatives in the Film sector aims at driving growth and creating Sector employment opportunities in the sector as Media and entertainment has been well as making India one of the leading film identified as one of the key sectors for the tourism destinations globally.

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India’s Film Industry

Industry Overview Historically, the film industry in India 15% over the period FY15 – FY20, The Indian film industry is the largest has grown at a CAGR of over 10%. driven by rising demand for movies in the world in terms of number of Currently, the film industry grosses on TV and increasing smartphone films produced with around 1,500 to total revenue of INR 138 billion ($2.1 penetration across the country 2,000 films produced every year in billion). Going forward, the industry respectively. On the other hand, more than 20 languages. The industry is expected to grow at 11.5% year-on- home videos have been shrinking also had the second highest footfalls year reaching total gross realization due to increasing piracy and growing in the world in 2015 (over 2.1 billion) of INR 238 billion ($3.7 billion) by popularity of digital platforms. Home following China (almost 2.2 billion). 2020. The key growth drivers are video has lost share to Video on Despite the large number of films expansion of multiplexes in smaller Demand (VOD) through Direct-to-home and theatre admissions, the industry cities, investments by foreign studios (DTH) operators and Over-the-top continues to remain small with respect in domestic and regional productions, (OTT) platforms. to other global industries in terms of growing popularity of niche movies, revenue. In India, the film industries and the emergence of digital and The Indian film industry is dominated gross realization stands at $2.1 billion ancillary revenue streams. by Bollywood, the Hindi film industry, versus gross realization of $11 billion contributing 43% of the revenue in the US and which produces The domestic box office contributes while regional and international films significantly lower number of films to the majority of the revenue, contribute the remaining 50% and (approximately 700 films).1 This is representing 74% of the total industry. 7% respectively. Within the regional mainly due to low ticket realizations Cable and satellite rights and online/ film industry, Tamil and Telugu are and occupancy levels, lack of quality digital aggregation revenues are the the largest segments comprising content, and rampant piracy. fastest growing segments, and are approximately 36% of box expected to grow at a CAGR of about office revenues followed by Bengali,

Figure 1: Film Industry Revenues Figure 2: Category-wise Break-up of Revenue (INR billion) 238 Anncillary Revenue CAGR 214 Home Streams 10.5% 193 Cable & Videos 5% 173 Satellite 1% Rights 155 13% 138 125 126 Oveaseas Box Office 7%

Domestic Box Office 74%

2013 2014 2015 2016 2017 2018 2019 2020

Source: Deloitte Report - Economic Contribution of the Indian Motion Picture and Industry

1PVR Analyst Report 9 Indywood | The Indian Film Industry

Kannada, and films. Currently, realization, rising urbanization, and international films is a small, but growing growing disposable incomes. segment, driven by rising numbers Entry of international studios through of English and other foreign language acquisitions and collaborations: Several speakers, as well as rising numbers of international film studios such as Warner international movies witnessing dubbed Bros., Disney, Fox, and Dreamworks have releases across the country. not only set up distribution houses in India, but have also entered into partnerships Key Trends in the Indian Film Industry with local film production houses through acquisitions and co-production 1. Film Production Segmen agreements. For example:

International/foreign films gaining •• Walt Disney acquired a 50% stake in UTV share in the Indian industry: and now has a controlling stake in UTV International films is a growing segment in Software Communications. the Indian film industry, having increased •• , a JV between and its box office share from almost 5% a few Network 18, was the first studio model years ago to approximately 7% today. This based production house. Viacom18 is mainly due to: engages in production, syndication, •• of international films in marketing, and worldwide . regional languages: The number of foreign films dubbed into Indian Additionally, a key example of collaboration languages has doubled over the past 5 has been Fox Star joining hands with years. These films are being dubbed into in a deal worth INR Hindi, Tamil, and Telugu which has helped 5,000 million. Fox has produced almost 30 them reach audiences beyond Tier 1 Bollywood films, as well as a few Tamil and cities. Malayalam language films.

•• Rise of multiplexes: Multiplexes have Local film production can leverage the witnessed significant growth across major experience of these international studios Indian cities and continued penetration in to expand their international reach and smaller towns. Investments in multiplexes incorporate enhanced project planning and is mainly driven by improved per-ticket cost controls.

Figure 3: Box Office Revenue Split by Language

International, 7%

Other Regional, 14%

Hindi, 43%

Telugu, 17%

Tamil, 19%

Source: Deloitte Report - Economic Contribution of the Indian Motion Picture and Television Industry

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Rise of regional cinema: While mainstream Bollywood dominates the Indian film industry, regional cinema has been witnessing a surge in investments from to tap the potential of underpenetrated markets. Large national producers such as , Eros, Disney, Viacom 18 Motion Pictures, as well as independent producers like (Nikhil Advani), , and Grazing Goat Productions plan to spend 20% of their annual budgets on regional cinema. This is not only due to the relatively untapped nature of the market but also because of cheaper cost of production of regional movies. The average cost of producing a commercial Hindi film is INR 150 million versus a cost of INR 40 million for a Marathi or Punjabi film.

•• South Indian film industry is very vibrant with revenue expected to grow at a CAGR of 12% reaching over INR 42 billion over by 2017. This segment is dominated by Tamil and Telugu films (90%) with 365 films released in 2015. However, the profitability of these films has been low with only 30% recovering production costs.2 While big budget films continue 1PVR Analyst Report to account for a large share of revenue (approximately 40%), smaller budget films with strong content have been gaining popularity. Further, Tamil and Telegu films have started to gain nation-wide and international popularity

•• Malayalam film industry has witnessed high growth and profitability driven by strong content and large audience in 2015. Over 140 films were released during the year in Malayalam. High profitability was demonstrated by films with good content making over INR 500 million at the box office over movie budgets of INR 120–150 million.

•• Bengali film industry has seen a slump in the recent years as poor content, shift of audience to English and Hindi cinema, and lack of infrastructure became growing challenges in the sector. Single screen theatres have been successively

2Deloitte FICCI Report: The Digital March Media and Entertainment in

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shutting down in the state with over 100 screens closed in the last one and a half years.

•• Marathi film industry has re-emerged over the last few years owing to strong content, lower budgets, and government support. The segment has shown 40–45% growth in 2015 reaching INR 1.5 billion in revenue. The state government has bolstered sector growth through mandating screening of at least one show of a Marathi film in a multiplex.

•• Gujarati film industry is showing indications of coming out of a long slump due to production of urban centric films and higher investments in the sector. There has been a considerable jump in box office collections reaching INR 550 million last year from INR 70 million in 2014.

•• Punjabi film industry experienced a strong growth of 15–20% over the previous year.

2. Marketing, Distribution and Exhibition

Digital adoption across the value chain: Real Image and UFO Moviez have facilitated the digitization of movies enabling wider distribution of films across various regions and curbing piracy. Key benefits of digitization can be witnessed across the value chain:

•• Film makers: Digital printing costs 80% less than conventional printing which allows producers to scale up to 5 times the number of screens than originally in the same budget. Due to this, digitization has enabled the penetration of content to smaller cities and towns. In the current scenario, over 60% of box office collections are realized in the first week of a movie’s release. Increased penetration, simultaneous release across theatres, and front-ending of revenue has resulted in a drastic increase in number of films

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generating over INR 1 billion in box office has also helped in revenues. addressing piracy as well. With the advent of digital technologies, piracy of films and •• Distributors and exhibitors: Digitization songs has decreased tremendously. With of content has resulted in the reduction , movies are released of costs of physical transportation and on the same day in all places and checks print manufacturing. Digital content can be kept on where movies are showing is delivered by way of satellite or hard and how many times they are screened, drive adding convenience and cost resulting in reduction in the scope effectiveness to the process. Nearly all for piracy. theatres have adopted digital technology resulting in shift from large-sized Organic and inorganic growth in projection systems to smaller and more multiplexes: Multiplexes have shown efficient digital projection systems. a growth rate of 15% in Indian cities, Although digital projection systems have increasing from 925 in 2009 to 2,100 in a heavy initial investment, the running 2015. Over 2,000 single screen cinemas costs as opposed to analog are minimal. have been shut down or converted to •• Consumers: Digital projection in the multiplexes in the last year mainly due cinemas has superior quality of images to greater cost of operations (higher which are not subject to deterioration entertainment taxes, increase in with the passage of time. It has also given distributors’ share, and lower ticket prices), viewers access to technologies such as non-viability of running on a standalone VFX, , and 3D films. basis and low occupancy rate. Multiplexes

Figure 4: Number of Movies Grossing over INR 1 billion

3 2 2

9

6 6 5 5

2 1 1

2008 2009 2010 2011 2012 2013 2014 2015

INR 1 bn + INR 2 bn +

Source: Analyst Report - India Film Exhibition – Blockbuster year

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currently account for approximately 26% Figure 5: Number of Screens in India market share of the screens; however, they contribute more than 40% of box 9,710 office collections. Wider content and 9,308 9,121 8,685 8,451 programming flexibility result in higher 8,002 occupancy and hence profitability of multiplexes. With comparison to growing 6,000 economies, India has a low penetration of multiplexes with a potential to have almost 7,500–10,000 multiplex screens across the nation. Going forward, the key multiplex 2,100 operators such as PVR, Inox, Cinepolis, 1,225 1,350 1,500 1630 1,075 and have aggressive 925 expansion plans in the coming three years.3 2009 2010 2011 2012 2013 2014 2015 Industry leaders in the film exhibition Single screens Multiplexes segment have grown not only through organic screen additions, but also Source: INOX Investor Presentation February 2016 through acquisition of smaller regional multiplex chains and single screen players. Consolidation of the multiplex segment has Table 1: Consolidation in the Multiplex Segment resulted in the top four cinema operators (PVR, Inox, Carnival, and Cinepolis) Acquirer Target Year Number of controlling almost 70% of the market. Screens Acquired PVR DT 2015 39 Emergence of alternative streams of revenue: Other sources of revenue have Carnival Glitz 2015 30 started to make an increasing contribution Carnival Broadway 2014 10 to the film industry realizations. In the last few years, the window available to Inox Satyam () 2014 38 monetize a film’s revenues at the box office Cinepolis 2014 83 has shortened considerably. This is driving film studios to exploit ancillary streams of Carnival 2014 250 revenue such as the following: PVR 2012 135 •• In-cinema advertising: In 2015, the Inox Fame Cinemas 2011 95 in-cinema advertising revenues reached Source: Business Standard4

Figure 6: Expansion plans of the top-four multiplex operators

1,000 1,000

557 493 400 372 341

193

PVR + DT Inox Carnival Cnepolis 2015 2018E Source: Analyst Report: India Film Exhibition – Blockbuster year

3Source: Inox Investor Presentation, Feb 2016 4http://www.business-standard.com/article/companies/coming-soon-multiplex-boom-across-india-115021101507_1.html 14 Indywood | The Indian Film Industry

approximately INR 6.3 billion exhibiting a •• Mobile and online platforms: Revenue 28% growth over the previous year. This from new media, including mobile and is mainly due to increased digitization of online rights, is expected to increase with , shift from public sector advertising the high penetration and accessibility of to corporate advertising, and higher ad 3G services by mobile operators. Further, durations in multiplexes. Going forward, film production houses can reduce their ad revenues are expected to grow at 18- dependence on theatrical performance 20% over FY16-20 and play an important by monetizing content through gaming role in growth of revenues. on mobile and online platforms.

•• Video (VOD): While on- Growth Drivers and Opportunities demand services for video and audio form a small segment of the industry Increasing per capita income and (less than 5%), it is at the inflection growing middle class: India’s per capita point in India. With the growing mobile income has shown a steady increase in the and internet segment, an ecosystem last few years and is expected to reach INR around these services has developed 100,000 (equivalent of $1,500) by FY17 on with content providers, aggregators, the back of a growing middle class which distribution channels, technology has grown by 150% since 2000 (versus platforms, advertising platforms, 70% increase in Asia Pacific).5 By 2020, payment channels and marketing the Indian average household income is channels. expected to reach $18,500 from $8,000

5Middle-class wealth up 150% in India since 2000: report 15 Indywood | The Indian Film Industry

currently exhibiting a 2x increase with mall development in Tier 1 cities has development of the digital channel. This a corresponding middle class of over reached saturation point. At present, shift towards digital is expected in turn 90 million people.6 This level of median only 25% of malls are located in smaller to give a thrust to the small budgeted household income will drive discretionary cities and retail attractiveness of Tier 1 good content films which can then be spending on leisure and entertainment. cities has been stagnant. Smaller cities monetised through personal devices. As a consequence, the film sector has and towns offer large and inexpensive Further, digitisation can result in creation of huge potential in India with rapidly growing spaces for infrastructure development new release windows by enabling studios demand and increasing footfalls. with rising disposable income making to explore release of films through various them attractive for investments. Further, platforms with differentiated prices to Further, India has around 500 million there are many small cities and towns that consumers. Films are now available for unique mobile users which is likely to have an appetite for cinema consumption, home theatrical screening the day of become 1.3 billion by 2020. Currently, but are still virgin pockets for multiplexes. release and pay-per-view, with DTH, digital around 200 million have access to internet Over 50% of screen additions in FY15 by cable and Internet Protocol television (IPTV) and this number is set to increase with Inox and PVR has been in Tier 2 and 3 distributors at prices as low as INR 50 per the introduction of 4G services. The cities.7 screening. proliferation of internet and smart phone usage has opened up a new platform for Diversifying into international Upside from ancillary revenue film distribution and viewing. markets: While domestic markets provide streams: : Apart from the box office the Indian film sector with steady growth, revenues, ancillary revenue streams can Demand from Tier 1 and Tier 2 cities: In diversifying to international markets can provide an increasing share of the film the recent years, there has been a change provide a large upside in demand as well revenues driven by digitisation, onset of in the outlook of investors regarding future as revenue. For example, next generation networks and availability prospects, with the focus shifting from the currently derives almost two-thirds of its of sophisticated devices to access media. national to regional markets. As the Tier 1 revenue from overseas market versus Releasing the potential of these revenue cities near saturation, growth of the film 15% overseas revenue collected by streams can provide a large upside to the sector is expected to be driven by the Tier the Indian film industry. Since only few theatre related income. For example, Star 2 and Tier 3 cities: international markets have an established Wars grossed total revenues of $42 billion film sector, Indian production houses •• Production of regional films: The while only $7.3 billion (approximately 17%) are well positioned to tap the domestic demand for films in non-metro cities came from box office revenues. Home sales demand in these regions. This can be with distinct cultures, languages and entertainment, toys and merchandise and realised through forming collaborations content preferences is a rapidly growing video games where the largest contributors with local studios and talent for distribution segment. This represents huge markets with $5.7 billion, $17 billion and $4.3 billion of dubbed movies, co-production of local within markets and provide a variety of respectively. and international films. For example, opportunities to deliver localized and Eros tied-up with three Chinese film and regional content. While many global film Some ancillary sources of revenue that can entertainment companies in May 2015 to studios have already entered regional be explored in the Indian film industry are co-produce, distribute and promote Sino- markets and are producing regional as follows: Indian films in both countries.8 language content, this is expected to be a •• Merchandising: While merchandising key growth driver going forward. Releasing the potential of digitization: currently contributes miniscule amount •• Addition of screens: Currently, screen Going forward, digitization is expected of revenue, it has immense potential distribution is largely skewed to to increase with digital becoming an with the development of Indian movie and Delhi/ which account independent revenue stream, rather franchise and strong content. In order to for 60% of the box office collection than part of a bundle, and the entry of drive this stream of revenue, films require of films. However, the next wave of more international players in the film strong story lines, relatable characters, expansion of screens is expected to be industry. Digital revenues are expected and innovative ways of engaging with driven by the Tier 2 and Tier 3 cities as to grow significantly owing to the rapid the audience. For example, Ra.One was

6Top 5 Emerging Markets with the Best Middle Class Potential, Media and Entertainment (M&E) Industry: The Sector Of India 7Analyst Report – India Film Exhibition 8Eros International Announces Deal with Major Chinese Film and Entertainment Companies

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Figure 7: Franchise- Revenue Split used by the visual media in India in three Miscellaneous categories, .e., movies, TV shows and 9% Box Office advertisements. In India, the VFX segment 17% Intellectual is currently in its nascent stages with low Property domestic consumption; most of the work 10% comes from outsourced projects from the Home USA and the UK. However, with viewers Video Entertainment Games becoming increasingly sophisticated, the Sales 10% 14% domestic market is seeing bigger budget movies and ad campaigns leading to a rise in VFX spend. Currently, India has nearly 300 animation and 40 VFX studios, Source: employing more than 10,000 professionals. Fortune Toys and Merchandise News 40% The film sector has been increasing its usage of VFX and is expected one of the first Indian film to be launched to play a bigger part in Indian cinema with an overall campaign. It had over 25 going forward. This can also be seen in the brands associated with the film covering regional films where VFX is a growing trend; merchandising, licensing, publishing, for example, the Marathi film used a video games, board games and figurines. total of 325 VFX shots. In 2015, the Indian film industry saw a number of VFX heavy •• Licensing content for games and mobile films such as , , I, apps: Consumption of media and Dilwale, Velvet, , entertainment related mobile content, Baby, amongst others. The industry such as songs, games and mobile (including post-production) is expected themes, accounts for almost 30% of to grow rapidly in the coming 5 years. overall VAS revenues in India. Developing However, the VFX industry is still inhibited bandwidth-light games and apps that by cost constraints and skill gaps in the engage consumers can significantly country leading to slow adoption. increase recall and add value to the movie brand while bringing in additional To tap into the growing VFX space, revenues. production houses in India are setting up •• Web-based home entertainment: The their in-house VFX divisions. For example, home movies market had been steadily (YRF) has commenced an declining over the last few years owing independent VFX division, titled yFX, which to relatively high pricing and piracy. This released its first film in July 2016.9 has led to large repositories of movies being underutilised after release. With Key Challenges in the Industry the proliferation of 4G and broadband Low infrastructure penetration: While services, the home entertainment can be the Tier 1 cities and metros are reaching revived through online delivery of movies saturation, the Tier 2 and Tier 3 areas lack over PCs, mobile phones and tablets. To the required infrastructure such as malls, fully capture this segment, there is a need access to low-cost power, etc. This lack of to develop effective distribution channels availability of exhibition infrastructure is and invest in digitising and meta-tagging a key impediment for the growth of the content for digital delivery. sector. The addition of screens has not kept up with demand with increments of only 150-200 Upcoming use of Visual Effects (VFX) new screens per year. Further, India is severely in movies: VFX involves the creation of behind the globe in screen penetration with 6 imagery by using computer- per million, versus 23 per million in China and generated effects. It is being increasingly 126 per million in the US.10

9Source: Yash Raj Films to have its own VFX studio yFX 17 Indywood | The Indian Film Industry

Single screen theatres have historically had of these taxes are applicable on program Figure 8: Screen Penetration low occupancy, low ticket realisations, and, production, in-film placements, grant (per million population) hence, low profitability. This has led to shut of various rights such as distribution US 126 down of single screen cinemas especially rights, theatrical rights, cable and satellite

France 85 in small and rural towns which have rights, sale of airtime for advertisement experienced a decline from approximately purposes, recording/editing of program, 82 10,000 screens in 2009 to 6,000 currently. sale/lease of program content, etc. These UK 61 While multiplexes are being added in taxes are increasingly being disputed with 45 the Tier 2 and Tier 3 towns, the pace of authorities. Complications in taxation in the

Japan 26 additions is one-third of the pace at which film industry have arisen due to interplay the single screen theatres are shutting of multiple indirect taxes and frequent China 23 down. Without faster addition of screens, changes in taxation law and judicial rulings. India 6 especially in small towns and rural areas, Further, entertainment tax varies across

Source: PVR Investor Presentation, February 2016 the growth of the film industry will be states in India and is one of the rates stunted. India needs to have at least 20,000 levied globally. Recently, some states have screens to fully realise the potential of films granted exemption from entertainment tax Figure 9: ATP across Screen Types - 2015 produced in the country. for regional films to promote the sector. 239 Slow growth in average ticket price Rising costs and lack of access to (ATP): In India, the growth in ATP has been funding: The film sector in India suffers slow rising from INR 150–160 in 2011 to from lack of access to funding across 127 INR 175–200 in 2015, marking a CAGR of the value chain due to high tax rates and 95 approximately 4%. This growth has been complex taxation. mainly driven by increase in multiplex 56 screens, priced at more than 100% to •• Film production is facing severe shortage single screens and rising number of 3D of funds while costs are rising with only movies which continue to be priced at a studios as a source of capital for most High end Multiplexes Single Low end Multiplexes screen screen premium of 15-20% over regular movies. films. The biggest cost inflation factor ATP also varies regionally; for example, Tier is employment of talent, which can Source: MOSL INOX Initiating Coverage 1 cities command an ATP of approximately charge up to 40% of a film’s budget, the INR 200 versus INR 160 and INR 100 in Tier highest globally, wherein the cost of Figure 10: Global ATP Comparison - 2015 2 and Tier 3 cities. Meanwhile, the ATP in talent does not exceed 15–20% of the 10.7 the US and China are $8.4 (approximately film budget. Further, marketing costs INR 570) and $5.5 (approximately INR of films have risen to 30-50% of a film's 8.4 385) respectively. In order to improve budget depending on the size of the performance of Indian cinemas, keeping in film, from 15-25% in 2010.12 Costs have mind the average occupancy rate of 35%, to be controlled through lowering of 5.5 ATP will have to drive towards global rates. talent costs (hiring of younger stars and providing share of profits rather than Complicated tax regime: Several levies, upfront fee) and efficient marketing 2.0 central as well as state, are charged in the strategies (move towards social and media and entertainment industry with digital platforms of marketing). central levies being Central Excise duty,  India China US UK Customs duty and Service Tax and State While the bank support has been

Source: Business Standard11 levies being state-VAT and Entertainment extended to films after the industry status tax. The Service Tax and state-VAT or one was accorded to the film sector in 2000,

10PVR Investor Presentation, Feb 2016 11http://www.business-standard.com/article/companies/india-s-box-office-growth-runs-into-a-screen-problem-116011801209_1.html 12Film industry battles high costs and low revenues 18 Indywood | The Indian Film Industry

Table 2: Entertainment Tax across States of conversion has been stalled by lack of cash flow and access to funds by State Entertainment Tax the single screen operators. Financing support can be provided through tax 20% (15% for Telugu Films) holidays for operators retrofitting their , Punjab Nil properties, allowing single screen owners to have extra floor space index that can 50% then finance the retrofit, introducing Delhi 40% a public private partnership model for 20% conversion of single screens and access to government capital at lower interest 20% rates.15 30% (Nil for Films) Piracy: Despite the ongoing digitization 30% of the film industry, piracy continues to 45% (Nil for Marathi Films) be a key issue resulting in industry losses of INR 190 billion a year. Over 150 sites 15% (Nil for Tamil Films) thrive on piracy where content is stolen

West 30% (2% for Bengali Films) from Indian movies, quick copies are made and distributed globally. Nearly half of Source: Deloitte Analysis the 150 are from the US, followed by 11 from Canada, 9 from Panama and 6 from the stringent norms for lending have to invest INR 3 billion in South Indian films . The top 100 sites make INR 35 resulted in difficulty in accessing capital. and TV.14 billion ($510 million) highlighting the extent Especially affected are the small players •• Exhibition: Several single screens in India of the issue. and independent filmmakers which are severely dilapidated and in need of typically do not get access to bank finance. maintenance. However, owing to low The problem is exacerbated for regional Further, while several film funds have been revenues and occupancy, investments on films. For example, Baahubali, which founded such as Third Eye, Cinema Capital renovation are not feasible. This has been had one of the highest budgets in the Venture Fund, Vistaar Religare Film Fund, witnessed in the Bengali film industry film industry, was pirated on the day and Dar Capital, their success has been which is suffering from lack of profitable of its release. About 1.6 million people intermittent. This is mainly as investments and sustainable exhibition infrastructure downloaded the movie and another 1 are made in smaller productions which resulting in shut down of several theatres. million people watched it illegally through carry higher risk.13 With the growing focus 1,500 links. Additionally, the Telugu film on content, improvement in scale, and The conversion of single screen cinemas industry lost about INR 3.6 billion in 2015 corporatization of the industry, film funds to multiplexes is essential not only to due to online piracy through 18 million to investing in Indian content may gain increase the number of screens in India downloads or web streaming.16 prominence going forward. For example, but also to improve the profitability of the Bend It Media fund, with a corpus of INR sector. However, retrofitting or turning 1.8 billion, has been launched to invest in single screens into two or three screen Hollywood, Indian films and TV. Cinema multiplexes costs INR 4-7.5 million at the Capital has been instated to invest INR 1.7 low-end to INR 10 million (non-metro)– 25 billion in Bollywood films and Indus Media million (metro) per screen for three or Cinema fund has been recently created more screen multiplexes. This process

13India film funding: Bollywood bets 14This is for reel 15India's box office growth runs into a screen problem 16How online piracy ‘industry’ is a box-office wrecker 19 Indywood | The Indian Film Industry

Multiple layers of bureaucracy: There is Prevailing strict censorship norms: was released within 48 hours of the Court's no single window to provide all clearances The censoring of films by the Central decision.18 needed to shoot in India. Producers Board of Film Certification (CBFC) prior to need to approach several institutions to public screening in India is mandatory for Further, several Hollywood films releasing understand the required permissions. filmmakers as per the provisions of the in India are subject to edits prior to public At times filmmakers need to obtain over Cinematograph Act, 1952. In this process, screening. This leads to delays in public 70 permissions and licenses for a shoot films are viewed before public screening viewing and often discourages viewers in in the country without any pre-defined by CBFC which in turn takes a decision watching the movies in a cinema resulting turnaround time.17 For example: of whether or not it should be screened in challenges to release Hollywood films publicly as is, with restricted access, or in India. As a key growth segment in the •• Central clearances: Shooting of foreign with certain cuts and alterations. This has Indian film sector, Hollywood films should feature films in India requires the prior been a major impediment for the Indian be subject to minimal censorship and approval of the Ministry of Information film industry not only due to the extended delays to capture the growing audience and and Broadcasting (MIB) whereas in the time to monetization but also due to risk of potential of this segment. case of a documentary, approval of reduction of good content. the Ministry of External Affairs (MEA) is required. The script of the film has to As larger sections of the audience have be approved by the MIB which is a time become more receptive to films which consuming process; the Ministry may also tackle serious issues, filmmakers have depute a liaison officer to facilitate the become more experimental as they seek to shooting. make better content and progressive films. •• Location specific permissions: However, constant battles for certification Film makers require approvals from without edits with CBFC are a dampener authorities in specific locations prior to to the industry. For example, the CBFC shooting. demanded 89 edits in the recent movie, •• Other approvals: Filmmakers also , a film on the growing problem need to adhere to certain local laws of drug addiction in Punjab. The ensuing of the region where shooting is to legal battle has become a precedent for take place in India. The regulators the industry and CBFC, as the Bombay High may be various Municipalities and Court ruled in favour of Udta Punjab which Municipal Corporations, associations of , make-up, hair-dresser, etc., and state legislations.

Often, foreign producers are faced Table 3: Approvals Required for Film Shooting with unclear rules and regulations in Location Relevant Authority terms of obtaining permissions making the process inefficient and expensive. Sensitive areas of Jammu and , Ministry of Home Affairs However, the Indian film sector, along North-east India or border belts with the Government of India and various City/town/village Magistrate and Police authorities state governments, is revamping its approvals process as well as looking to Forest State Forest Department incentivise local film making through Historical Site Archaeological Survey of India the establishment of an India Film Commissions and the Film Facilitation Defence Area Ministry of Defence Office. Both these initiatives have been Airport Airport Director recently announced as part of the Make in India campaign in the film sector. Railway station/Train Railway Board and State Railway Zone

17Deloitte Report: Single window clearance: Making India easier for filmmakers Way forward for Indian Film Commission 18Udta Punjab, and Bollywood's battle with the censors 20 Indywood | The Indian Film Industry

cost Entertainment $150 million. This further percolated into generation of $44 Key Focus Areas for million in wages to residents, $4.5 million in taxes to the state, $1.9 million for catering, $4 million for site fees and $5.7 million for hotels. Similarly, the recent the Film Industry production of Teenage Mutant Ninja Turtles by and Movies was completed over 70 days in New York State resulting in a spend of over $55 Film tourism: A key untapped area in million in local economies, including $30 the Indian film sectors is promoting film million in wages and $3.2 million in taxes tourism and encouraging global players paid to the state.19 to shoot and produce films locally (i.e., in India). India can offer various benefits to Skill enhancement: Approximately film makers such as scenic and diverse 160,800 people are required by the film locations, cost-efficiency benefits, skilled industry to produce 1,600 films in a year yet inexpensive manpower, and local talent. corresponding to a crew of 100-150 people Further, film tourism can result in a number per film. On the basis of an increase in the of benefits to the country as well including: number of films expected to be released •• Promotion of tourism industry in the next few years, the resource requirement in the industry is expected to •• Boost to local film production grow at 12% year on year reaching almost •• Creation of employment 250,000 by 2017. Majority of the resource requirement is for set crafts, acting and •• Transfer of technology voiceover professionals and support staff.20 •• Inflow of foreign currency Although close to 200,000 people are For example, in 2014, the production of employed by the film industry in India, The Amazing Spider-Man 2 in New York close to 90% of the workforce has been

Figure 11: Employment in the Film Industry, 2013-17 Figure 12: Split of Demand for Skill Direction Others 248,600 Hair & 2% 3% 4% 222,900 Grip makeup Set Crafts 199,900 3% 3% 20% 179,300 Camera 160,800 3% Sound 4% Acting / Costume Voiceover 4% 19% Post production Support 7% Staff Lighting (Drivers, 7% Production Spot Boys) 2013 2014 2015 2016 2017 10% 11%

Source: MESC Report: Skills Gap Study for the Media and Entertainment Sector

19Benefits Of Film Tourism In Media By LA India Film Council Launched 20MESC Report: Skills Gap Study for the Media and Entertainment Sector 21 Indywood | The Indian Film Industry

trained on the job rather than through traditional means of finance in the form to increased competition for acquiring formal trainings resulting in non- of film incentives, brand finance, pre-sale movie rights and a new revenue stream standardised skill sets.21 Even candidates based bridge finance and revenues through for film producers along with a channel to recruited from media schools lack technical alternative sources pre-release amongst monetise older and archived films.23 and practical training on how to apply others.22 theoretical concepts to live situations. Countering piracy: Piracy is a key issue With the increasingly technical nature of Updating current technology: The Indian plaguing the Indian film industry with large the industry, technicians will require to film industry is behind the global industry revenues being lost annually. Despite be formally trained in new and evolving in terms of adoption of new technologies various efforts to arrest piracy, this remains technologies for Indian films to move to and trends. Going forward, greater focus a key issue requiring proactive measures the next level. While film schools such as should be updating existing technology and being implemented by state governments embracing emerging technologies which are Film and Television Institute, through initiatives such as spreading being deployed globally. and Film and Television Institute awareness against piracy and the formation of India, exist, a concerted effort by of anti-piracy cells as have been created In the production segment, keeping up with the government and industry is required to by Tamil Nadu and Maharashtra. Further, new and emerging technologies can help develop skill in India. since almost 67% of website services the industry in unlocking new revenues, offering pirated version of Indian films are catering to the wider international markets, Further development of formal training located abroad, the film industry is unable and adopting methods to prevent piracy. schools and high skill course will be to take action. In order to counter this, state For example, uptake in production of imperative for the Indian film sector to governments need to consider tie ups and 3D movies in Hollywood has generated come on par with the global industry. bilateral agreement with the US. Such an higher returns for studios by allowing Collaboration with foreign film schools to agreement is being negotiated by the anti- theatres to charge a premium to audiences set up specific courses in various aspects piracy wing of the Telugu Film Chamber of and helped curb piracy by maintaining of film making can be explored. Commerce (TFCC) and the CID of exclusive distribution to technology - police to coordinate with the authorities in enabled theatres. 3D films usually generate Shortening window of release through the US and .24 about 66% higher revenues than 2D films better planning: Due to increasing resulting in more investments. The Indian digitization and expanding reach of movies, film sector is considerably behind in Adopting emerging encryption the window available to a film to monetize production of 3D films with few successful technologies to safeguard the film content revenues at the box office has sharply films made in 3D. The first was in all stages of release and distribution is reduced. During the opening weekend, made in India in 1984 called Chota Chetan. becoming imperative. Digital Compliant distributors flood the market with prints Following this, over 40 other 3D films have Digital Cinema Initiatives, LLC (DCI) was in order to ramp up high revenues. In been developed which is significantly created in March, 2002, and is a joint the current scenario, over 60% of box behind the global trend. venture of Disney, Fox, Paramount, Sony office collections are realized in the first Pictures Entertainment, Universal and week of a movie’s release. As a result, Further, adoption of emerging technologies Warner Bros. Studios to establish and focus needs to shift towards shortening and platforms for distribution can unlock document voluntary specifications for an of release windows and quick reach to new revenue channels. For example, the open architecture for digital cinema. A audience across the nation to monetise pay-per-view (PPV) market is an emerging secured DCI Compliant distribution model film investments. source of revenue for the Indian film can be established to ensure that the film industry. Growth in PPV market is directly content is safeguarded at every stage of Further, Indian films face a long lead time linked to the growth in the direct-to-home its release process including certification, in planning and execution of films. Better (DTH) segment. Through DTH service supplies to global distributors and Indian planning and management of film projects providers PPV films are available for a price digital operators.25 can help in bringing cost efficiencies and of $0.5 – 1. With all four metros and many savings to the project as well as improving others cities moving towards digitisation Along with stricter legislation and the bankability of the film. Planning at and DTH services, the demand for PPV repercussions for users of pirated an early stage can also facilitate non- films is expected to increase. This will lead content, there is also a need to create

21Cinema is to be learnt 22Film financing in India 23IBEF Report: Corporatization of the Indian Film Industry 24Telangana govt mulls deal with USA to curb film piracy 25Guild Initiative To Curb Piracy Of Upcoming Film Dishoom 22 Indywood | The Indian Film Industry

public awareness on the damage done by Table 4: Comparison of Multiplexes to Single Screen Cinemas28 piracy and bust the common perception that piracy is a victimless crime. State Multiplex Single Screen governments and movie guilds should Number of screens 2,100 6,000 undertake initiatives to launch large scale campaigns and create awareness is all Seats per screen 250 750 segments of society. Shows per day 5.5 5.0

The following initiatives have been Occupancy rate (%) 27% 19.5% 26 proposed by the MIB to counter piracy: Footfalls (million) 271 1888

•• Dissemination of multi-media campaigns Average ticket prices 183 75 on piracy Contribution to box office 40% 60% •• Training programmes and workshops to revenue sensitize police, judicial, administrative Growth in revenue since 2010 20% 2% officials, multiplex and cinema hall owners about the Act higher occupancy rate to break even. Along addition of multiplexes in the country in a •• Research on the effects of piracy and with higher revenue share to distributors, cost effective manner. Such retrofits cost formulation and implementation of low ticket prices, advertising revenue about INR 400,000–750,000 at the lower public-private strategies to combat piracy potential and limited food and beverage end and can be encouraged through tax •• Formation of a dedicated web portal income make economics of single screen holidays/subsidies or allowing single screen challenging. Multiplexes, on the other hand, owners to have extra floor space index to •• Engaging with the Resource have improved economics due to higher assist in financing. Conversion of 75% of Department (HRD) to include anti-piracy ticket prices, advertising revenue potential the existing 6,000 single screens into two awareness material in the curriculum of and food and beverage sales. screen multiplexes can unlock revenues the schools and colleges of INR 40 – 50 billion for the film industry Retrofitting of existing single screen through higher ATPs, occupancy rate Growth of Multiplexes: India has a cinemas into two or three screen and advertising and food and beverage multiplex density of 6 multiplex screens per multiplexes can lead to a significant revenues.29 million people which is significantly lower than that of developed countries. Further, multiplexes account for only 15% of the total market share while the remaining is still controlled by single screen cinemas. In comparison, 90% of the screens in the US are multiplexes. In India, multiplexes are expected to gain significant market share going forward with expanding presence in Tier 2 and Tier 3 regions as well as the steady decline in single screen cinemas due to unfavourable economics. Further, India has a potential for 7,500 to 10,000 multiplex screens compared to the 2,100 currently established.27 Given this, the share of multiplexes in total screens is expected to increase to 25% by 2018.28

A typical single screen theatre houses 700- 1,000 seats compared with 100-250 seats per screen for a multiplex, hence, requiring

26India at 27Coming soon: Multiplex boom across India 28PVR Ltd. – Analyst Reports 29India's box office growth runs into a screen problem 23 Indywood | The Indian Film Industry

Technological Advancements in the Film Industry

Global Scenario and Emerging etc. The world of cinema has remained Technologies ceaselessly dedicated to technological advances throughout time. With the In the 120 years since its origin, the global recent proliferation of digital platforms movie industry has continuously developed and grown through technological advances. and computer-based innovations, the Both mechanical and digital innovationw s film industry is continuously pushing the have influenced everything from equipment technological boundary even further. For to exhibition, changing how films are made, example, 24 frames per second has been edited, distributed, and consumed. The film an industry standard, however, due to sector has seen a flurry of technological major advances in filming technologies, The advancements that have revolutionised Hobbit was the first movie made with 48 the industry time and again such as 3D, frames per second resulting in making of a green screens, IMAX, Computer Generated more immersive and visually stunning film Images (CGI), digital filming and distribution, than ever before.

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Figure 13: Evolution of the Film Industry

1925 Development of non-fiction films in Soviet such as Battleship 2002 Blue-ray discs Potemkin and The 1982 announced Man with the Movie 1907 Camera commercially Russian Ark, the first single take Invention of The 1926-27 released Dolly, i.e., placing film, 96-min long Move from silent 1986 camera on wheels shot, using the to sound films and 1969 First permanent to move along steadicam to Start of recording IMAX 3D theatre tracks for getting colour onto memory built in , 2006 sweeping shots Standardization cards and internal Canada Disney buys storage for $7.4 bn 1908 of the Hollywood Steve Jobs First movie to have 1970 acquires Graphics 2007 a score specifically first Child, Group division of RED One Camera written for it (The film with recorded 1946 first IMAX film - became enabling high Assassination of the dialogue and first First in demonstrated in Pixar Animation quality digital films Duke of Guise) musical Cannes Osaka, Studios for $10 mn shoots

1900-20 1920-40 1940-60 1960-80 1980-2000 2000-15

1929 1960 1973 1995 2009 On with the Show French New Computer– DVD technology Nicon D90, first first in Wave films using Generated Imagery released DSLR to film at 24 colour and sound lightweight / (CGI)used in film frames per second portable shooting Westworld in HD video 1932 revolutionizes equipment First film festival in 1975 animated films with Avatar, first full Steven Sasson box office earnings length movie with invents the digital of $192 mn photo-realistic 3D 1939 characters and camera 1997 Wizard of Oz first featuring a fully CG The introduction of film the using 3D photo-realistic HDCAM recorders Technicolour world and 1920x1080 1940 pixel 2011 The Thief of Bagdad, cameras based on HMZ–T1 Sony first film to use CCD technology personal HD & 3D Blue-Screen effect viewer invented Fantasia first film released with surround with 48 frames per sound second

Source: Public Report - The Evolution & Future of the Film Industry

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26 Indywood | The Indian Film Industry

Some of the upcoming technological are safer, easier, and faster to set up and levels of detail, print size and finish leading advancements which can once again use, making them a popular tool among to props departments on big productions transform the industry are as follows: directors and . Drones embracing the flexibility and efficiency are also more economical, costing about of 3D printing. The computer-generated (VR): Virtual Reality is the one-fifth of the total helicopter expenses designs are brought to life through 3D next major innovation being explored and with a camera drone and crew costing printing, bringing fantasy just that much developed across Hollywood. VR is seen almost $5,000 a day, compared with at closer to reality. as a rich narrative platform for viewing least $25,000 a day for a helicopter shoot.32 of media and as a practical, time-saving Drone technology is being increasingly For example, Propshop, a production pre-production tool. With the amount of used and has been embraced by big- company at Pinewood Studios produced concept art and design that is now created budget movies such as , The Wolf Of set pieces for many films from 3D printing in files, VR offers production Wall Street, Mission Impossible 5, etc. such as the night vision goggles in Zero designers a way of planning and designing Dark Thirty, full-scale tank exterior for an a full set environment complete with props, In an effort to encourage the adoption of action set-piece in Fast and Furious 6, and before it’s built. While the technology is still drones as innovative tools for filmmaking, the canopy of Peter Quill’s spaceship in nascent, a number of developers, such as several film festivals dedicated to films Guardians of the Galaxy.34 Oculus Story Studio, are working to build made with drones are coming up as compelling VR cinema formats. platforms for aerial filmmakers to showcase Digital platform for filming versus film: their work. The largest ones are New York Historically, film has been the preferred IMAX has announced its plans to team up City Drone Film Festival, Drone technology for filmmaking. However, this with Google to build a virtual reality camera Film Festival, Flying International trend has been moving towards more and to develop a “premium location-based Film Festival, and Rise of the Drones Film digital adoption for shooting. Shooting in virtual reality offering.” Across cinemas, Festival amongst others.33 digital can be more economical and easier multiplexes and malls, IMAX will provide as it enables shooting multiple takes, studio-quality VR experiences created by 3D printing: In 1990s, CGI led to the minimal retakes, and capturing multiple Hollywood filmmakers. Further, several emergence of virtual angles. Further, with the rest of the movie filmmakers are exploring VR as a key through the application of computer making process being almost entirely digital opportunity due to its potential to change, graphics to contribute to images in art, including editing, distribution and exhibition, engage and immerse the audience even printed media, videos, and simulators. digital footage is a lot easier and quicker further. For example, the Similarly, 3D printing is set to transform to work with. Currently, movies shot on director is in talks with IMAX film industry by enabling movie studios film are scanned into a digital intermediate about potential VR projects and Heather and special effects artists to use 3D for editing and distribution. This stage can Wright, an executive producer at Aardman printing to make concept models, and be skipped entirely if the film is shot in , is currently working on an as- full-size props, set-pieces, and costumes. digital thus saving costs on conversion and yet unnamed VR project with the BBC.30 This technology can achieve sophisticated improving quality through editing.

Further, the 2016 Figure 14: Shooting Format for top 100 US Grossing Films featured the screenings of VR short films and presentations in a pavilion dedicated Digital Film exclusively to VR. Amongst these was 100% a 6 minutes VR film named "Invasion!" 90% presented by Eric Darnell, the co-director 80% of and a short animated 70% film "Allumette" produced by Penrose 60% 31 Studios. 50%

40% Drone shooting: As drone technology 30% has evolved, filmmakers have increasingly 20% begun utilizing drones to capture difficult shots. Compared to the traditional usage 10% of helicopters for aerial shots, drones 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Stephen Follows 30Is Virtual Reality The Future Of Film? 31VR at Cannes: How Will Virtual Reality Change Film? 32Drones are providing film and TV viewers a new perspective on the action 33Comprehensive 34Five ways film-making is evolving thanks to new technology

27 Indywood | The Indian Film Industry

India – Current Status of Film featured King Fu Style fight scenes and mainstream Hindi cinema taking up Technology choreographed by legend more VFX centric films, the industry is at Yuen Woo-ping, animation and special the inflection point of growth. The budget The origins of Indian cinema can be traced effects by Winston Studio, costume allocation to Indian films to VFX is expected back to 1986, with the French Lumière designs by Mary E. Vogt (The Matrix; Men to increase from 10–15% currently to Brothers hosting a screening of their work in Black). The movie pioneered in blending 30–35% in the coming years.37 in the Mumbai Watson Hotel. This led to eastern talent with technology a series of potential Indian filmmakers and experience. This has been further In line with the increasing demand for VFX, experimenting with techniques and improved on by Ra.One which involved the technology has also been evolving in technologies leading to the making of the a movie crew of 5,000 members drawn India. Currently, there are more than 40 first Indian in 1898. However, from India, , and the US put together major domestic VFX companies in India the first Indian movie (Shree Pundalik) by more than 1,000 people working in catering to domestic and international was screened in 1912 with the help of around 15 prime studio rooms across the clients. Several studios, such as Reliance British cinematographers, equipment world. The movie was converted into 3D MediaWorks, Prime Focus, Tata Elxsi and and processing. A year later the first film by Prime Focus which had earlier worked Pixion, have been successful in establishing fully directed and developed in India, on 3D format movies like The Chronicles a strong footprint in international VFX ’s , of Narnia and Transformers. International markets. This growing presence on Indian was screened giving birth to Indian special effects specialist, Jeffrey Kleiser, studios in the global market has enabled cinema.35 led a team of 750 technicians to supervise transfer of technologies and skills into the special effects of Ra.One resulting in a truly domestic industry. This has resulted in Since then, the Indian film sector global production. Such efforts have been the Indian industry moving up the value has adopted a host of technological instrumental in transfer of key technologies chain in terms of quality of work conducted advancements being used by the global to the Indian industry and also in upgrading locally and adoption of technologies. industry. The evolution of the Indian the skillset of local technicians. Acquisition Further, in an endeavour to move closer to film industry through the adoption of of the innovation and skills can be deployed the global innovation in the sector, Indian technology can be seen in visual effects readily in the Indian and global film studios are looking to acquire or merge based films such as , , industry.36 with Hollywood VFX studios similar to the and Ra.One amongst others. recent merger of Prime Focus with Double The endeavour has been to improve With the advent and adoption of digital Negative (DNeg) to create the world’s storytelling, scriptwriting, and special technology in India, key technologies are largest independent VFX, stereo conversion effects skills to new frontiers that can being developed locally to keep up with the and animation company serving the be recognised and appreciated by an global film industry. Hollywood film industry.38 audience within and extending beyond Indian borders. Historically, adoption of Visual Effects (VFX): Over the years, the Indian films in 3D format: Technology established technologies across the film Indian VFX industry has been growing and for converting 2D to 3D films is being value chain has resulted in a boosting of transforming rapidly. Studios have been developed by studios which have box office sales, wider distribution, and upgrading their technology and reinventing increasingly taken to outsourcing these cost efficiencies. However, the Indian techniques, through their experience on conversions. Prime Focus has become sector is still far behind the global scenario outsourced work from Hollywood which a market leader in end to end 2D to 3D in terms of innovation and adoption of is now being deployed within the Indian conversion having worked on the recent forefront technologies. film sector as filmmakers are aligning largest Hollywood movies such as The VFX as an integral part of storytelling. For Legend of Tarzan, : Civil Of late, technology transfers in India example, VFX was used in over 90% of War, X-Men Apocalypse, and Teenage have happened through polycentric the scenes in the movie Baahubali–The Mutant Ninja Turtles: Out of the Shadows innovation wherein Indian films utilized Beginning, released in 2015. Out of the amongst others. globally available innovation, technology total production cost of INR 3 billion and creativity to co-develop radically spent on Baahubali, INR 850 million were While this technology exists within new products, processes, and business spent on VFX. VFX was also used as an India, it is limitedly used in Indian films. models. For example, Enthiran (2010), important tool in several major films such Historically, this has been mainly due to was produced by based Sun as Bajirao Mastani, Hawaizaade, Detective local filmmakers claiming that theatres in Pictures with an international crew and Byomkesh Bakshi, , and India did not have the technology in place globally distributed by HBO. The movie Bajrangi Bhaijaan. Further, with regional to screen 3D movies while theatre owners

35A Cinema Like No Other: 100 Years of Bollywood 36ISID Report: Bollywood on the Wings of Technology and its Contribution to Economy 37Is Indian VFX on par with Hollywood? 38Prime Focus World and Double Negative Announce Merger

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29 Indywood | The Indian Film Industry

have been wary of limited 3D enabled country. Still, India is under penetrated content to warrant the investment required and largely dominated by single screen to make screens 3D enabled. However, the households leading to vast potential for advent of Hollywood 3D movies in India has VOD services. Establishing sustainable led to the proliferation of 3D screens and monetization model, subscription or higher revenues from screenings resulting advertising-led, which is suitable for the in an extensive exhibition platform for Indian audience is key for all VOD firms Indian 3D content. Further, film production going forward.42 costs increases by 35–40% if it is made in 3D without compromising on technical Table 5: List of VOD Platforms in India elements.39 Company Brand Launch in Business Model Usage of drones for shooting: While India usage of drones for shooting of aerial and action shots is becoming increasing Yupp Communications YuppTV 2006 Pay common internationally, in India Google YouTube 2008 Ad based deployment of drones for film shootings is at a nascent stage. This has been stunted PCCE-Vuclip 2008 Ad + pay due to difficulty in obtaining experienced Media Matrix nexGTV 2010 Pay and well trained pilots to work with the cinematographers and special permissions Zee Group Ditto TV 2012 Pay required by the police department for Multi-Screen Media Sony Liv 2013 Ad based flying drones above 400 meters. However, drones have been deployed in the movie Times Group Box TV 2013 Ad + pay Kick (2014) for shooting high action 2014 Ad + pay scenes where the director wanted a high impact that could not be captured by a Spuul 2014 Ad + pay 40 zoom lens. Further, for the first time in 2015 Ad based regional cinema, drones were deployed Sing Tel (with Warner and for shooting of scenes in the Kannada film 2015 pay Sony) Aatagara. The action sequence in the film was shot from multiple angles using four Netflix 2016 pay cameras on the ground and three drones PressPlay TV PressPlay 2016 Ad based by a cinematographer and a team of technicians.41 Network18 2016 Ad based

Balaji Telefilms ATL Balaji TBL 2016 pay Adoption of digital and VOD platforms: The four big broadcasters in India, Star Source: : India gets set or a big rush India, Networks, Zee Entertainment Enterprises, and Viacom18, are now setting their sights on digital Currently, the VOD platforms include platforms for distribution of content. Hotstar, Sony LIV, Ditto TV, Ozee, and This has been heralded by the increasing Voot. Netflix, the world’s leading internet smartphone penetration (expected to media network with more than 70 million grow to 520 million by 2020) and the rise members in 190 countries, also entered in broadband, 3G and 4G users across the India in 2016.

39Cinema's born-again avatar 40Game of Drones 41Drones used to shoot Kannada movie scene 42Video-on-demand services set to explode in 2016 30 Indywood | The Indian Film Industry

Initiatives to Encourage Technology done well, others have had intermittent emerging technologies such as VR, drone Adoption in India success. For example, Warner Bros. lost cinematography, 3D conversion amongst almost INR 300 million in its first venture, others through tie-ups with global schools While the Indian film industry has been to China. This discouraged developing of the likes American Film receptive to adoption of new technologies international studios, with cutting edge Institute (AFI), CalArts School of Film and historically, wider deployment of emerging technology with low risk capital, from Video, NYU Film School etc. and cutting edge innovations has lagged entering India. However, with the rapidly behind the global industry. This has growing Indian film sector entry of several Financial incentives for studios and been due to various challenges faced by large players looking to enter this large films deploying emerging technology: the industry which has hampered the market is expected. Studios in India are usually faced with entry of global players and development funding challenges which holds them back of technology locally. Key initiatives are In order to bring emerging technologies to from developing, deploying or adopting required to assist the industry in deploying the country, it is important to incentivise expensive frontier technologies. In order upcoming technologies, encouraging co-production of films with global studios, to incentivise studios to explore emerging technology transfers, and developing new especially ones engaging in leading technologies, financial incentives such as technologies in the country. technology disruption such as VR/ tax holidays or recovery of development augmented reality. Such incentives can costs can be instated. This will not only Strengthening of Intellectual property range from tax breaks for co-produced provide studios with the required cash flow (IP) in films: Over the years, the Indian film films, cash rebates or provision of funding to develop technologies in-country but also industry has realized the importance of IP at lower rates. The government is looking encourage global production houses to set in the work produced including prequels, at formulating methods to facilitate up shop here. sequels, remakes, copyright or trademarks. co-production and support the entry of However, additional strengthening of IP in foreign filmmakers. Funding support for conversion of the film industry is required as the industry 2D screens to 3D compliant screens: is still lagging far behind in defining and Development of technical skill: India In order to encourage wider adoption implementing a process whereby IP is has emerged as a preferred destination of 3D content in Indian filmmaking, it is developed and nurtured in a systematic for outsourcing of VFX and 3D conversion important to ensure proliferation of 3D manner and results in creation of an IP work. This is mainly due to the availability screens to monetize content. Currently, bank. Implementing a strict process of of low cost labour; however, there is a the cost of conversion from existing 2D IP registration and protection right from dearth of technicians with training in high screen to 3D compliant screens cost INR pre-production to filming will encourage technologies. Development of skill in 1 million whereas the cost of building a international studios to enter India, enter emerging and cutting edge technologies new 3D screen is approximately INR 3–3.5 into JVs with local players, and co-produce would not only enable early adoption and million. Government incentives to support films with domestic studios. This could deployment of new technologies but also funding of conversion of 2D to 3D screens enable transfer of emerging technologies position the country as a film service centre should be explored including tax benefits used by global players and also lead to for the global industry. and access to funding at low interest rates. development of local skills. Once the conversion is completed through There is a scarcity of formal training funding support, theatre owners expect Incentivise co-production of films institutes for film and creative technologies to quickly recover their investment given with international studios: Several in India. Currently, most of the personnel that 3D films are generating two to three international studios such as Vaicom18, are trained on the job or self-trained. times the revenue per theatre than the Walt Disney, and Sony Pictures have Establishing more institutes to impart conventional format. This can enable the entered the Indian film industry to co- film education is key to developing a growth of 30–40% in 3D screens annually produce movies for the large domestic standardised skill for films in India. in India. market. While some players that have Further, the institutes should explore formed alliances with local studies have instating specialised courses on key

31 Indywood | The Indian Film Industry

Skill Development in the Film Industry

Film in moving up the value chain to higher With a population of over 1.5 billion people, end work. Thus, with technology entering India has one of the largest educational every aspect of the film value chain, it is systems in the world and is the highest imperative that technicians need to be well contributor to the global workforce with trained in new technologies especially at the working age population surpassing the high end of the spectrum for Indian 950 million. Over the last two , films to move to the next level. the higher education system in India has Currently a number of initiatives to increase transformed dramatically having created vocational training in the film sector have an additional capacity for 40 million been undertaken: students. The number of institutions imparting higher education has grown at •• The Media and Entertainment Skills a CAGR of 11% and student enrolment Council (MESC) is being promoted by at a CAGR of 6% over the last 10 years, the Federation of Indian Chambers leading to a student population of over 70 of Commerce and Industry (FICCI) million. However, despite the rapid growth, with financial support by National Skill India’s higher education has not emerged Development Corporation (NSDC). as a global leader with less than 25 Indian •• The MESC has a mandate to create 1.2 universities in the top 200. Further, focus million skilled workforce by 2022 in the on vocational training has been low with media and entertainment sector across limited number of specialised institutions 74 job profiles.44 for imparting high skills in specific domains.43 •• Veteran actors and film makers are expected to collaborate with government The film sector also faces a dearth of institutions offering film courses by giving specialised institutes that impart training training lectures and holding workshops. and formal education in film technologies, MIB has received support offers from higher skills and creative thinking. Majority 120 actors, film makers, and technicians of the workforce in the sector has been for this initiative, and is chalking out a trained on the job or self-trained, leading plan to hold lectures every fortnight and to a lack of standardisation in process and workshops every semester. MIB also techniques across the sector. Further, plans to use their consultation to improve this has hampered the entry of new film the quality of government support technologies into India and also stunted offered to the Indian film industry.45 the growth of the special effects segment

43IBEF Education Sector in India 44MESC Website 45Film industry promises to be part of PM's Skill India; , Aamir to in 32 Indywood | The Indian Film Industry

•• Regional governments have initiated projects. Currently, artists with advanced animation and VFX courses for enhanced VFX skills are in short supply in the technical skill development. industry.

Further initiatives that can be explored to In order to bridge the skill gaps, several strengthen the training in the film segment government initiatives have been include: embarked to develop training facilities for •• Associations with global film schools to animation and VFX: impart specialised courses in India. For •• The Karnataka Government has come example, the New York Film Academy up with initiatives in the Karnataka AVGC has established a campus in Mumbai (Animation Visual Effects and Gaming and aims to provide film education and Comics) Policy including setting up a across various facets of the industry Centre of Excellence for promoting AVGC such as filmmaking, producing, digital education in the state. editing, cinematography, screen writing, acting, etc.46 •• The Maharashtra Government has come up with a number of provisions in its •• Implementing mandatory internships as Information Technology Enable Services part of film courses to impart important Policy (ITES) to promote the AVGC sector on the job skills to students which can and will be establishing a Centre of help build on theoretical know-how. Excellence with state-of-the-art facilities. •• Developing higher skill programs for •• The Telangana Government has shorter durations intended for seasoned announced the opening of an incubation professionals to enhance and refresh centre called IMAGE (Innovation in their skills as well as learn about Multimedia, Animation, Gaming and emerging technologies. Entertainment) in Hyderabad.

Skill Development in VFX and Further, private companies have also Animation been trying to address the skill gap by With continuous in-flow of technologies opening training centres across the and products, VFX is an ever evolving country. For example, Reliance Animation segment. Technicians and artists are has established 21 training centres often unable to keep up with the global across all major cities in India47. More trends and lack technical know-how on the such specialized institutes are required to latest developments in the VFX industry. improve the skill sets of artists and drive In order to bring the Indian industry on the growth of the domestic industry. par with global standards, it is imperative to train students and employees on new Prime Focus is also looking to improve technologies and equip them with the skill through end-to-end training of their required expertise. employees. The company provides fresh graduates with opportunities to work In India, majority of the VFX work caters along wide seasoned employees on large to outsourced projects from Hollywood projects in order to pass on key skills and and other international studios. Currently, techniques.48 Maya Digital Studios also India contributes about 10% to the global started the Maya In Studio Training (MIST) VFX and animation outsourcing industry. in 2012 to provide advanced training However, the VFX post-production work programmes in animation, visual effects outsourced to India has historically been and 3D to students giving on the lower end such as wire removals them opportunities to work on live projects and clean ups., The availability of local and gain hands-on experience.49 talent trained in higher skills becomes key as the industry moves to higher end

46New York Film Academy website 47Reliance Education website 48Education trends in India’s animation, visual effects and gaming verticals 49Maya Digital Studios' first of its kinds 'In Studio Training' initiative 33 Indywood | The Indian Film Industry

Film Tourism in India Background and Global Perspective Rings Trilogy with a $150 million incentive Across the world, films have been program51 which helped position the recognized as a powerful tool to promote country as a prominent holiday destination and generate tourism in various locations. for international tourists by showcasing According to the Tourism Competitive the country’s picturesque scenery and Intelligence, more than 40 million landscapes. Post release of the films, New international tourists per year choose their Zealand experienced an increase of 40% destination primarily because they saw a in the average annual visitors and 17% film shot in that country. Further, almost increase in visitor spend.52 5% tourism is inspired by movies leading to several countries vying for local production In order to promote film tourism, several of films.50 Fuelled by the growth and reach countries across the world are providing of the media and entertainment sector and film incentives to encourage shooting of increase in international travel, film tourism foreign films in those countries. Typically, is expected to be a growing phenomenon most countries offer tax sops in the form worldwide. of VAT refund or tax exemptions for films that spend a certain percentage of the There are several examples demonstrating budget filming in a particular country the impact that a film had on visitor and using local talent. Shooting of films numbers, either of a specific shoot site locally not only result in driving tourism by or more generally to the country in which showcasing travel destinations but also has the film was shot. The Sound of Music, a range of other benefits. It is estimated a Hollywood classic shot in Salzburg, that a studio-based production can spend still attracts over 300,000 visitors upwards of $250,000 per day while a large to Salzburg every year with 40,000 taking international television commercial can the official Sound of Music Tour even 50 generate local spending of up to $1 million years after the film’s release. Similarly, in less than two weeks.53 New Zealand provided The Lord of the

Table 6: Benefits of Local Film Production

Revenues to Local Economy Creation of Employment Technology Transfers Promote the Local Film Industry •• Inflow of foreign exchange •• Local technicians hired on film •• Opportunity to showcase •• Local industry gets exposure •• Expenditure in the host crew capabilities of the local film to new technologies and country on hotels, logistics, •• Employment of locals for industry which could result techniques facilities, and leisure assistance on film production in further collaboration and •• Training of local talent on co-production •• Revenues to local companies •• Hiring local transport and latest technologies in the film for building sets, equipment logistic companies sector rentals, and other film related •• Increase in hotel occupancy assistance

5040 million tourists choose their destination primarily by movies or TV programs they’ve seen 51Hollywood: World's most dramatic travel agent? 52Oxford Economics: The Economic Impact of the UK Film Industry 53India Needs Film Commissions to Attract More Foreign Shoots, Study Findsv

34 Indywood | The Indian Film Industry

Figure 15: Film Tourism – Key Global Successes

Stockholm, Vancouver, Canada •• Millennium series Ireland •• Twilight series •• Revenues of $100 mn •• Star Wars: •• Positioned as Forks, The Force Washingtvon Awakens •• 10x visitors Alps, •• Increase in Japan •• Demand for •• Bollywood films number of •• Lost in Translation, themed tour •• 250,000 Indian overseas Last Samurai visitors per year, visitors •• 25% increase in UK 15 – 105% growth visitors

Taiwan •• Life of Pi •• 43% increase in •• tourists inflow •• Increased tourist activity •• ~$2 bn •• Krrish contributed •• The Beach •• International to the UK •• 20% increase in visitors rose economy youth visitors to 15.6 million every year in December 2013

Salzburg, Austria •• Sound of Music New Zealand Bolivia •• 300,000 visitors •• Lord of the Rings •• Motorcycle a year •• 40% increase in visitors Diaries since mid 1990s •• 30% increase in bookings Source: Deloitte Analysis

35 Indywood | The Indian Film Industry

Recognizing various direct and indirect and often result in increased employment benefits of encouraging local film opportunities, growth in direct and indirect productions, several countries have started taxes, increased tourism and development investing in film production incentive of film industry infrastructure. A programs. These programs include both comparison of incentives provided in select monetary and non-monetary benefits countries is as follows:

Australia54 Canada Ireland56 Italy57 Malaysia58 (British Columbia55

•• Producer Offset •• Tax credit of 28% Tax relief of 32% of Tax credit up to 25% of Film in provides a cash on qualifying British eligible expenditure qualifying production Incentive Scheme rebate of 40% on Columbia (BC) labour with a lower cap: costs of foreign films (FIMI) gives 30% cash Qualifying Australian expenditure with a cap of EUR 5 rebate on Qualifying •• Eligible expenditure Production min per project ($6.6 Malaysian Production •• Digital Animation or Expenditure (QAPE) •• 80% of total mn) or EUR 10 mn ($11 Expenditure (QMPE) Visual Effects (DAVE) production cost mn) per company •• Post, Digital and Credit of 16% on Visual Effects DAVE labour •• EUR 50 mn ($66 mn) Production (PDV) •• Regional Tax Credit offset provides 30% Film Incentives of 6% of qualifying rebate on PDV QAPE labour when min •• Location offset 50% of principal provide 16.5% shooting is in rebate on QAPE Vancouver

•• Australian resident Canadian taxable Producer company Italian Executive •• Foreign production company production company must be: Producer Service companies filming with a permanent Company that produce in Malaysia or •• Foreign company •• Be Irish resident or establishment in BC portions of films on undertaking post with permanent trading through a Company should commission from production establishment in branch have primary foreign production •• Co-production business in film or •• Make film for companies with a Malaysian •• Official Treaty Co- video production cinema exhibition or film producer with productions or provision of broadcast majority foreign production services, •• Be existent for at ownership broadcasting/cable least 12 months

Beneficiaries Subsidiaries are and have filed eligible for credit corporation tax return

•• Not connected to a broadcaster

•• Hold 100% in Qualifying Company – SPV for 1 film

54Aus Film, Australia Government – Department of Arts & Communication, Screen Australia 55Canada Film Capital 56Section 481 - Irish Film Board 57Filming in Italy, Interlinea Film 58Film in Malaysia

36 Indywood | The Indian Film Industry

Australia54 Canada Ireland56 Italy57 Malaysia58 (British Columbia55

QAPE includes: QPE include: Eligible expenditure Eligible expenses are: QMPE includes: includes cost of all cast •• Goods and services •• Wage expenditures •• Production costs till •• provided in Malaysia and crew and goods, provided in Australia master copy •• Service contract services and facilities •• Land use in Malaysia •• Land use in Australia expenditure purchased in Ireland •• Financial and Minimum QMPE insurance expenses •• Crew cost for •• Tangible property Projects having eligible required: up to 7.5% of members remaining expenses expenditure of at least production cost •• MYR 5 million ($1.2 in Australia beyond 2 EUR 125,000, or total •• Hotel, international mn) for production consecutive weeks cost of production of •• Production staff travel expenses (inclusive of post- at least EUR 250,000 costs up to 25% of Minimum QAPE production); or Minimum production total cost of AUD 500,000 Must pass cultural test expenses of CAD 1 mn •• MYR 1.5 million ($380,000) for feature •• Overhead expenses ($0.7 mn) ($370,000) for post- films (net of GST) to up to 7.5% of production qualify for PDV offset production cost Eligibility for Benefits for Eligibility Location offset for Eligible expenses to films with minimum not exceed 60% of QAPE of AUD 15 mn total budget ($11.4 mn) All films must pass a Film should have cultural test Significant Australian Content (SAC) to be eligible for rebate

•• Film must be •• NA •• NA| •• NA •• Crew: At least 30% released in Australia Malaysians in commercial •• Intern: Minimum cinemas or through number of interns distribution/ based on production broadcast channels size:

o $5-15 mn — 3 Interns

o $15-45 mn— 5

Other Conditions Interns

o >$45 mn — 7 Interns

37 Indywood | The Indian Film Industry

Mauritius59 Spain60 61 UK62 US (New York)63

Film Rebate International films VAT refund on •• 25% cash rebate Film Production Credit Scheme provides produced in Spain procurement on UK qualifying of a 30% refundable 30% rebate for eligible for 15% tax and import of the film production tax credit on qualified Qualifying Production rebate on eligible costs goods and services expenditure expenses Expenditures incurred with cap of EUR 2.5 mn purchased during film •• Tax relief is capped 30-35% post in for both ($2.8 mn) production at 80% of core production tax credit local and international Rebate of 35% for expenditure for costs incurred in filmmakers productions based in NY •• No budget limit Gran Canaria with a Productions with cap of EUR 4.5 mn ($5 budgets over mn) $500,000 receive additional 10% credit

Film Incentives on qualified labour expenses from specific countries

Sales tax exemption to film production activities

Film production Foreign producer All cinematographic •• Film Production Production companies company registered along with Spanish works approved by the Companies (FPCs) that film majority of in Mauritius including production service Ministry of Culture and within the UK tax net the project in NY or those with 100% company to manage Tourism post production work •• Official Treaty Co- Beneficiaries foreign ownership production happens in NY productions

59Filming in Mauritius 60European Film Commissions Network 61Turkey Film Commission 62British Film Commission 63Empire State Development – Film Tax Credit Program

38 Indywood | The Indian Film Industry

Mauritius59 Spain60 Turkey 61 UK62 US (New York)63

Qualifying Production Eligible expenses: Foreign film producers Eligible expenditure Films with budgets Expenditures include: can file for VAT returns is that incurred on pre- of over $15 mn and •• Creative staff costs post duration of film production, principal being produced by a •• Travel and from Spain or EU shooting , post company with more accommodation not exceeding EUR production within the than 5% ownership by 50,000 ($55,000) per •• Submission of •• Ground transport UK and goods and a public firm requires head certified financial and facility vehicle services consumed at least 10% of accountant (CFA) services •• Expenses for hiring in UK report following technical companies to be in a Qualified •• Labour costs which VAT returns Minimum of 10% of and other service Production Facility finalized in 30 days total costs must be •• Production service providers (QPF) in NY or incur spent on UK qualifying company fees 75% of expenses Minimum investment expenditure related to work done •• Post productions of EUR 1 mn ($1.1 mn) Production must at QPF services in Spain pass cultural test or •• Professional services qualify as an official (such as insurance, co-production

Eligibility for Benefits for Eligibility legal and accounting services)

•• Rental of equipment

•• Allied costs Minimum local qualifying spend of $100,000 per project

NA Deduction plus the NA| Films must be NA rest of subsidies intended for theatrical

obtained by taxpayer release under this scheme cannot be more Other than 50% of total Conditions production cost

39 Indywood | The Indian Film Industry

Film Tourism in India: An Overview cities in India are the Mumbai Film City, for promoting local shooting for films. Currently, India is gaining traction as a film the Ramoji Film City in Hyderabad, the •• In 2012, a Memorandum of shooting destination. After the success MGR film City in Chennai, and the Noida Understanding was signed between of India based movies such as Slumdog film city in Delhi, NCR. The Ramoji Film the Ministry of Tourism and the MIB Millionaire, several international studios City is the world’s largest integrated film to promote Indian cinema under are increasingly considering shooting a studio complex. Further, film studios and the ‘’ campaign in large portion of their films in India. Some cities are being developed in popular international film festivals and larger of the recent Hollywood movies shot film shooting destinations such as , global industry. in the country include Point Break, The Vishakhapatnam, Mussoorie, etc. Second Best Exotic Marigold Hotel, Million •• The MIB has recently announced the Dollar Arm, The Hundred Foot Journey, However, foreign filmmakers still have formation of a Film Facilitation Office The Limited, Life of Pi, Mission to face long convoluted procedures to (FFO) to facilitate efficient approvals and Impossible IV, The Best Exotic Marigold obtain clearances and shooting permits. improving the ease of shooting in India. Hotel, and Jobs. Factors promoting India as Currently, about 70 approvals and licences •• Website for India Film Commission a prime location for film shooting include: from as many as 30 authorities are established to provide details of required for shooting films in India. Delays permissions required, film treaties, tax •• Several attractive locations for in the approvals process often results incentives, etc.64 shoots: India has various heritage and in filmmaker going to other destinations picturesque locations for shooting despite the cost advantage in the country. •• Film treaties have been signed with 11 films of various . Different Due to hurdles in obtaining licenses, India countries including UK, Spain, Germany, terrains including beaches, deserts, has lost at least 18 big budget movies China, Canada, New Zealand, , and mountain ranges as well as world to other locations in the last 4 years. Italy, Germany, , China, and, renowned heritage sites such as the However, with the establishment of the most recently, South Korea. The salient provides the filmmaker with Film Facilitation Office (FFO) and India Film features of the film treaties are as follows: various options. The country also has Commission, simplification of procedures is o Co-productions get treated as national innumerable unexplored locations that to be expected along with considerable film productions in both nations and can can provide new visual landscapes for shooting support and efficiency. claim financial and other benefits shooting foreign films. available to films in either region. Further, there is considerable competition o Governments facilitate the temporary •• Low cost labour: Talented crews to amongst countries to incentivise film stay and entry of film personnel along assist in filmmaking at a comparatively productions locally. Foreign filmmakers with custom export and import low cost are available locally in India. The are more inclined to shoot in destinations of equipment to ease film shooting. country also has well developed post- providing lucrative financial incentives o Most film treaties mandate the production capabilities including VFX, as well as assistance with visas, licencing shooting, production and post 3D and animation which are currently and application process and other on the production of films in the co- being outsourced by major Hollywood ground requirements. In order to promote production countries; however, other films due to the significantly lower cost. the shooting of foreign films in India, it locations can be used if required and Foreign film producers can create entire is imperative to streamline the process approved. films from shooting to post-production of approvals as well as provide incentive o Film treaties require the employment at a considerable cost advantage locally. packages to filmmakers. of personnel from the co-production Making of foreign films with assistance countries, unless otherwise from Indian film studios has historically Recent initiatives to Improve Film approved. lead to reduction of production costs by Tourism o Minimum financial contribution is up to 15%. outlined in co-production treaties Central Government Initiatives •• Film infrastructure availability: India has (mostly minimum contribution The Government of India has recognised film production facilities across multiple required in 20% of total film costs) the potential of films to promote tourism cities called film cities. These facilities and creative contribution is expected to various destinations in India. Recent provide all infrastructure requisites for in line with the above split. initiatives to boost film production in India film producers including air-conditioned include: and soundproof shooting floors, An overview of the treaties entered into by custom-designed set locations, digital •• The Ministry of Tourism has formulated India is as follows: film processing labs, dubbing studios guidelines for extending Central Financial and other allied requirements. Major film Assistance to States and Union Territories

64Indian Film Commission Website 40 Indywood | The Indian Film Industry

Table 7: Film Treaties in India

Country Date Minimum Finance Location of work Provision for Third financial only nationals party co- contribution projects Shooting Post Production from non-co- producers (% production permitted producing permitted costs) countries

New Oc t-11 20% (Max 80%) Shooting in Co-production Exceptional Yes Zealand other countries countries cases requiring permitted if approval for technicians performers from India and and technical New Zealand personnel employed Crowd artists, small roles Brazil Jun-07 20% Yes Any location (on Co-production or additional Yes approval) countries 10% of employees multilateral from country productions of shooting (max 70%) permitted

Canada Oct-05 20% (Ma x 80%) No Any location (on Co-production Mutual consent Yes approval) countries required for third-party nationals

France Dec-06 20% (Max 80%) No India or France Co-production Film personnel Yes countries to be from India, Other shooting France or EU locations permitted if Participants from required on other countries approval may participate on approval

Germany Feb-07 20% (Max Yes Not specified Not specified Film personnel to Yes 80%) 10% of be from India or multilateral German productions Participants from (max 70%) other countries inly in exceptional circumstances

Italy May-05 20% (Max 80%) No Shooting in Co-production Film personnel No other countries countries to be from India permitted if or Italy technicians Participants from from India and other countries Italy employed permitted in case of dire need

41 Indywood | The Indian Film Industry

Country Date Minimum Finance Location of work Provision for Third financial only nationals party co- contribution projects from non-co- producers Shooting Post Production (% production permitted producing permitted costs) countries

Poland Jul-12 20% (Max No Shooting in Co-production Film personnel to Yes 80%) 10% of other countries countries be from India or multilateral permitted if Poland productions technicians Participants from (max 70%) from India other countries and Poland on approval employed

Spain Oct-12 20% 10% of Yes (financial Shooting in Co-production Film personnel to Yes (third multilateral contribution other countries countries be from India or party productions between permitted if Spain contribution (max 70%) 10% - 25%) technicians capped at Participants from from India and 30%) other countries Spain employed on approval in exceptional circumstances

UK Oct-08 20% Yes Shooting in Co-production Film personnel Yes other countries countries from India, the 10% permissible (financial Not greater permitted on UK, EU or EEA in some cases contribution than 4 co- agreement unless agreed between producers otherwise 10% - 25%)

Source: Individual Film Treaties

More recently, additional treaties have been signed with China and South Korea in September 2014 and May 2015 respectively.

Going forward, the Government is expected to increase the number of film treaties signed with foreign countries. Key film treaties with US and Australia would help in boosting the Indian film industry as well as developing skills in the local talent pool.65

65Will sign film co-production treaties with more countries: Min 42 Indywood | The Indian Film Industry

Regional Government Initiatives A number of states provide production and tax incentives to attract both domestic and foreign filmmakers to their region. An illustrative list of states along with the benefits provided is listed below:

Table 8: Incentives and Initiatives by Regional Governments

State Monetary Non-Monetary

Maharashtra •• No tax for Marathi Films with additional tax Tourism policy 2016 envisages: exemption subsidy of INR 1.5 million •• Simplificatvion of procedures and Single window clearance •• Tax exemptions to single screens under mechanism for permissions Municipal Councils for 5 years and to those •• Online registry mechanism for various services related to the located in rural areas for 7 years film industry

•• Creation of the Film Tourism Promotion Council under the aegis of 'Maharashtra Tourism'.

•• Familiarization tours for major production houses in India and across the globe for key tourist destinations in Maharashtra

•• Marketing support for films shot locally in global film festivals

•• Online portal for information on locations66

Maharashtra Tourism Development Corporation (MTDC) rolled out a Bollywood tourism plan for guided tours of film studios and sets

Gujarat •• 100% exemption from Entertainment Tax for •• State Government has started a Single Window Clearance Desk Gujarati films to help filmmakers scout locations and provide logistic support

•• Gujarati Films to be graded out of 100 and be •• Presence of a dedicated web portal, international promotions, bucketed in 4 categories: database of product facilities and hotels and emergency o 81 or more points – A grade – INR 5 million services68 or 75% of production cost whichever less

o 61-80 points – B grade – INR 2.5 million or 75% of production cost whichever less

o 51-60 points – C grade – INR 1 million or 75% of production cost whichever less

o 41-50 points – D grade – INR 0.5 million or 75% of production cost whichever less

o Children film and women empowerment related film will get additional 25% financial assistance

•• Further assistance in range of INR 20–50 million given to the films that win awards, for example, for an Oscar assistance will be INR 50 million67

66Maharashtra Tourism Policy 2016 67Gujarat govt announces new policy for incentives to Gujarati films 68Gujarat named most film-friendly state

43 Indywood | The Indian Film Industry

State Monetary Non-Monetary

Andhra •• 7% concession on Entertainment Tax for low- •• Earmarked 7% of Entertainment Tax collected to develop films Pradesh budget Telugu films and 15% for high-budget and arts in the state ones

•• Andhra Pradesh Government’s Animation, Media and Entertainment policy (2014–2019) offers reimbursement of INR 0.5 million lease rentals, power subsidies, etc., to makers of animation films

Tamil Nadu 100% entertainment tax exemption on films Established animation and visual effects studio, renovated with Tamil names given U certificates dubbing theatres and constructed hostels in MGR Film City with an expenditure of INR 80 million

Uttar •• Subsidy limit of 50% for Braj, Awadhi, Bundeli, •• Film Bandhu, Uttar Pradesh set up to provide all film production Pradesh and Bhojpuri films and 25% for Hindi movies related requirements and acts as a nodal agency to promote on production costs film related activities

•• Maximum limit of INR 10 million for films with •• Film Development Fund set up for sanctioning subsidies to films at least 50% of shooting days in UP produced in the state, scholarship to students, arrangement of film equipment, setting up of film training institutes, •• Maximum limit of INR 20 million for films with organisation of film festivals, financial assistance on film, etc. at least two-third of shooting days in UP •• Film Development Council to be constituted to ensure long term •• If 5 main artist used in the film hail from UP, development of the film sector in UP70 additional subsidy of amount paid as wages to the artist or INR 2.5 million (whichever is lower)

•• If all artist used in the film hail from UP, additional subsidy of amount paid as wages to the artist or INR 5 million (whichever is lower)

•• For carrying out post-production in UP, 50% of processing cost or INR 5 million, whichever is lower, to be given as subsidy

•• If the film captures tourist and heritage places in UP, an additional subsidy of INR 5 million provided

•• Hindi, Braj, Awadhi, Bundeli and Bhojpuri films produced in UP provided 100% Entertainment tax exemption69

69Film Policy UP, 2015 70Film Bandhu, UP website 44 Indywood | The Indian Film Industry

State Monetary Non-Monetary

West Bengal •• 2% Entertainment Tax on Bengali films NA

•• Tax rates for Bengali, Nepali, and Santhali films reduced to 10% from 15%

•• For new and renovated cinema halls, Entertainment Tax exemption for 3 years

•• Maximum incentive of INR 30 million in the form of subsidy for film makers executing post production processing at Cine Laboratory Complex71

Rajasthan •• Exemption of 50% Entertainment Tax for films NA shoot at least 50% in Rajasthan72

•• Films that are minimum 75% shot in and have U certificate are 100% exempted from Entertainment Tax for 1 year

•• New multiplex cinema halls receive Entertainment Tax subsidy for 3 years (75% of 1st year, 50% for 2nd year, 25% for 3rd year)73

•• Waiver of security deposit of INR 5 million for a one week schedule and INR 1 million per day beyond one week

•• Waiver of processing charges of INR 15,000 per day for the first week and INR 10,000 a day beyond the first week

•• Waiver of application fee of INR 1,00074

Jammu & •• Waiver of taxes for films shot in the sate •• Single window clearance system for granting permission for Kashmir shooting films within 7 days in Kashmir

•• Film Tourism Promotion Committee established to promote the region as a filming location and extends all support to film productions including security75

Goa •• Entertainment Society of Goa (ESG) •• The International Film Festival of India is held annually at Goa is formulating a draft scheme for which attracts filmmakers from across the globe reimbursement of 5% of the film cost spent in •• Single window clearance system and permits for films to be shot Goa76 anywhere in the state

71West Bengal Incentive Subsidy Scheme 72Rajasthan Tourism website 73Rajasthan Tourism Board 74Rajasthan offers sops to boost film shootings 75Kashmir in Bollywood Films 766ovt may provide tax rebate to filmmakers shooting in Goa 45 Indywood | The Indian Film Industry

State Monetary Non-Monetary

Punjab •• Rebate of 5% on Entertainment Tax to •• Film City and film institute to be set up in Mohali providing Punjabi filmmakers provided that 75% of the animation, film mixing, cinematography, sound engineering, dialogues are in Punjabi editing and lighting facilities along with training in 48 specialisations78 •• Proposal to abolish entertainment tax on movies being considered77 •• Punjab Film Policy to promote and incentivise film shooting in the state is being developed79

•• Set up of cinema halls in villages having one or two screens having a capacity of 100 seats proposed80

Jharkhand •• Films made in Jharkhandi languages granted •• Film Development Management to work along with banks 50% subsidy on total production costs to provide funding support for films shot more than 75% in •• Films made in Hindi, Bangla, Oriya and other languages will be granted 25% subsidy on •• Film Fund set up for sanctioning subsidies to films produced total production costs in the state, scholarship to students, arrangement of film equipment, setting up of film training institutes, organisation of •• Maximum limit of INR 10 million for films with film festivals, financial assistance on film processing, etc. at least 50% of shooting days in the state •• Single desk system for clearances81 •• Maximum limit of INR 20 million for films with at least 2/3rd of shooting days in the state

•• Films shot more than 50% in the state will be given 50% tax subsidy for 6 months

•• Films shot more than 75% in the state will be tax exemption for 1 year

Next Steps and Initiatives Corporation (NFDC). The FFO will include foreign filmmakers to enter India. FFO Roll out of Single Window Clearance representatives from key ministries like is required to be modelled around the through Film Facilitation Office for Home, Tourism, Culture, Railways, Civil lines of film commissions across the film shooting in India: In India, as many Aviation, Defence, and External Affairs world that provide the complete range of as 30 authorities are involved in granting ministries to coordinate and provide quick pre-production services. The role of FFO permission for film producers to shoot clearances. The office will also include should encompass general resource for in the country leading to increase in nodal officers from State Governments for filmmakers, clearing house for information process time from the stipulated three film clearances. The FFO will develop and locations and repository of logistical weeks to over three months. Recently, implement a standard operating procedure information regarding crew, talent, facilities, the government has launched a single to accord clearances for film shooting by stages, equipment and support services. window clearance to facilitate the film domestic and foreign filmmakers across Overall, the goal of the FFO is to provide makers in the country in order to secure the country. assistance throughout a film’s production efficient approvals and improve the life cycle and aim at promoting India as a ease of shooting in India.82 The MIB has While the establishment of the FFO has favoured region for film shooting.83 also announced the formation of a Film been announced, the swift implementation Facilitation Office (FFO), which will be of the office is critical to promoting A summary of some services that could be operated by the National Film Development local film tourism and encouraging provided by the FFO is as follows:

77Punjab proposes to abolish entertainment tax on Punjabi movies 78Punjab govt sets up Film Institute to promote Punjabi film industry 79Soon, Policy for Promoting Films in Punjab 80Punjab to announce new film policy, set up rural cinema halls 81Jharkhand Film Policy 2015 82IB Ministry has launched single window clearance to facilitate country's film makers 83Deloitte – FICCI Report: Single window clearance: Making India easier for filmmakers June 2013 46 Indywood | The Indian Film Industry

Some other roles and responsibilities of the regulatory and transport agencies. Hollywood to help in creating awareness FFO are as follows: about India as a shoot destination and •• Collaboration with film funds or financial promote brand India. institutions: While the FFO is not a •• Entry and informational assistance to financing body, it may need to work •• Affiliations with international Film foreign productions: The FFO should closely with film funds and banks to Commissions: FFO would need to obtain provide all necessary information with provide funding options to producers. membership of international networks respect to acquiring work permits and of Film Commissions. This would help in visas, rules for import and subsequent •• Marketing of the Indian film industry: expanding the reach of the FFO as well as export of equipment, and any other The FFO should participate in various enable an exchange of the best practices information on mobility of personnel international film festivals such as Cannes among commissions. and equipment. Additionally, the FFO and in order to promote India should provide information to the as a favoured region for shooting films. FFO should be viewed as a nodal agency foreign filmmakers on the country, Additionally, the FFO could organize for all film making requirements in India. climate, cultural sensitivities and other roadshows showcasing India to key However, the services envisaged for this handy tips which can assist in planning foreign producers or members of the agency will have to be built over time and shoots. It may also choose to provide film fraternity. The FFO can also consider rolled out in a phased manner. contact details of relevant government, opening offices overseas, particularly in

Figure 16: Overview of FFO’s Assistance to Film Makers

Permissions: Location scouting: •• One stop window for all clearances (Police, •• An online database showcasing various Municipal, script approval, circumstantial locations which facilitate easy category wise permissions likes ASI, Traffic, Railways, Defence and geography wise search. This database etc.) along with clearly defined Service Level should be able to provide a visual experience Pre-production Agreements (SLAs) for turning around the application •• Regular and frequent updates to the database

•• Permissions for national and historic parks •• Local coordinator assists in finalizing the locations as per requirements •• Local coordinators who assist with additional permissions with respect to specific locations •• Local guides to help introduce local culture and customs of a location

Contacts of registered agencies: Certification: •• Provide direct contacts of certified and •• All the touch points eligible to be featured as Production reliable production houses, equipment contacts should be reliable and should go providers, trade unions and various guilds and through a rigorous certification / inspection associations which can be utilized during film process before being featured. production. •• Additional option for foreign producers to •• Provide updated information about labor rates, rate these service providers after availing the wherever possible services could also promote fair practices

Post Production Contacts of registered agencies: Certification: •• Provide a list of certified and credible post •• Post production facilities listed should be production and VFX facilities. certified after a thorough inspection process

Source: Deloitte – FICCI Report: Single window clearance: Making India easier for filmmakers June 2013

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Figure 17: Phased Roll-out of FFO’s Services

Services to be rolled out in Services to be rolled out Services to be rolled near term (1-2 years) in medium term (2-4 out in long term (>4 years) years)

Area Activities to be Rolled Out

Operational •• Redirection of permissions to •• Comprehensive location assistance apt bodies •• scouting services •• Basic location scouting services

•• Single window clearance

•• Basic database of registered •• Comprehensive database •• Comprehensive database agencies for production of registered agencies for of registered agencies for production production

•• Basic database of registered •• Comprehensive database of •• Comprehensive database of agencies for post-production registered agencies for post- registered agencies for post- production production

Informational •• Information on work permits, •• Information about general Assistance visa, import export of code of conduct in the equipment country, contact of other relevant govt. agencies •• Information on local culture and requirements

Financial Assistance •• Financial incentives for film •• Financial incentives for film shooting such as tax credits, shooting such as tax credits, cash rebates etc. cash rebates etc.

Marketing Initiatives •• Participation in film festivals •• Organize roadshows in the and events country

•• Open offices overseas

Grant of Film Incentives: Several FDI for films and TV productions under the resources, and infrastructure are key countries across the world have initiated automatic route which has encouraged ingredients to attract foreign and local incentives to improve film tourism due overseas studios to co-produce films in productions to shoot in a country. to the enormous benefits that can India. Further, State Governments have Ensuring these factors are available be accrued. For example, the French proactively initiated measures to attract to filmmakers in an efficient and cost Government has set up Film France to both foreign and local filmmakers by effective way will ensure retention of local attract international film shoots through offering production and tax incentives productions within the country and help offering incentives such as refund of VAT in their regions. However, India needs to position India as an international filming and rebate of 20% for non-French projects adopt a globally recognised standard to destination. at least partly made in the country capped introduce production benefits to boost at $22 million per project. film production across various locations. An array of film shooting incentives are Production incentives, timely permits, implemented by various countries. In India’s regulations already permits 100% availability of local talent, production India, these can be provided through

Source: Deloitte - FICCI Report: Single window clearance: Making India easier for filmmakers June 2013 48 Indywood | The Indian Film Industry

the FFO and provided uniformly across was partly (60%) shot in Singapore on different states in the country. These prominent location such as Singapore incentives can range from cash rebates, Zoo, the Gateway Building, and Singapore tax credits, exemption from or refund of National Library. Through Singapore VAT/customs duty to financial assistance Tourism Board’s (STB), Film in Singapore in the form of interest-free loans. subsidy scheme, Krrish availed 50% of The following examples illustrate the the expenses incurred during the shoots success of the incentive regimes in other in Singapore. countries: •• Tax credit: Tax credit is given as a sum •• Cash grants: Cash grants are funds to be deducted from the total tax to be disbursed to the production companies paid by the film production. It can be which help them reduce their cost of granted for various types of taxes such as production and can be paid upfront or income tax, value added tax (VAT), etc., or on completion of the particular project. through refund of taxes paid while filming For example, Life of Pi, an American 3D in a location. For example, Zindagi Na was partly (70%) shot Milegi Dobara was shot in Spain and the in in 2012. The Government of filmmakers were provided with a refund Taiwan provided a cash grant of $1.7 of 18% on VAT. million to the film and also invested ($6.7 •• Tax holiday and tax breaks: A tax million) in the film through a subsidy holiday or tax breaks are a reduction scheme set up to aid projects undertaken or elimination of taxes payable for locally. a specified period of time. Such •• Cash rebates: Cash rebates are given exemptions can bring down production as a refund of actual expenditure budgets significantly, thus, attracting incurred during shooting of the film. Cash production companies to shoot in these rebates are usually given at a specified destinations. For example, Harry Potter percentage on a minimum expenditure was mainly shot in the UK and was given incurred in the host country or on the extensive tax breaks for its filming in the overall production budget. For example, region, resulting in incentives of $160 Krrish, an Indian , million per year.

49 Indywood | The Indian Film Industry

International Best Practices: Case Studies

Case Study: Film Tourism in the UK were inward investment films. in 2000. However, majority of the films The number of companies in the UK film released in the UK originate from the US, Overview of the UK Film Industry industry has also grown rapidly at 47% India, and Europe. The UK film industry has shown significant since 2010 versus the industry average growth in the last two decades. The UK growth of 17%. Currently, the industry has UK films also contribute to over 25% share box office recorded the highest revenue over 6,800 film production companies, of the global industry with worldwide gross in 2015 of over GBP 1.2 billion ($1.6 billion) 2,660 film, video and TV post-production revenues of $9.2 billion. UK studio-backed exhibiting an increase of 17% over 2014. companies, 420 film distribution films (UK films wholly or partly financed Further, annual admissions soured to 171.9 companies, and 230 film exhibition and controlled by US studios but featuring million with London accounting for majority companies. UK cast, crew, locations, facilities, post- of the footfalls (approximately 25%). In production, and often UK source material) 2015, 201 films were produced wholly or Out of the total 759 films released in the UK accounted for 22.3% of the worldwide box in part in the UK having declined from 310 during 2015, close to 210 were produced office in 2015, while UK independent films in 2014. Of these, 30 were co-productions, by the local film industry showing a steady earned 2.8% of global revenues. 84 124 were domestic UK features and 47 increase from about 80 productions

Figure 18: Country-wise Share of Films Released in the UK (by number & market share)

India Other 1% Europe RoW 2% 1% RoW UK 13% US independent 29% 12%

India 15% US 51% Number of Box Office releases: Revenue: 759 $1.6 bn

UK studio backed Other 3% Europe UK studio 16% backed UK 34% independent 24%

Source: BFI Research and Statistics, The Box Office 2015

84BFI Research and Statistics 50 Indywood | The Indian Film Industry

The UK film industry has had wide acclaim Figure 19: Films Produced in the UK (by number and market share) globally along with a large domestic audience for international films. Owing to this, the UK is well positioned to encourage Co- Inward local film shootings due to an established productions investment domestic and global market, familiar 15% 23% locations and clear procedures. Out of the GBP 2.1 billion ($2.75 billion) generated by overseas visitors and tourists in 2013, GBP 840 million is attributable to film- induced tourism along with generating full-time employment for 8,400 people and Number of contributing GBP 92 million ($120 million) to releases: 201 the Exchequer.85

Film Tourism in the UK The UK has been a preferred destination for many productions in Hollywood due to developed infrastructure, availability of talented and experienced crew. Some of the famous movies shot in UK include Domestic UK The Da Vinci Code, Golden Compass, 62% The Bourne Ultimatum, The Dark Knight, Clash of the Titans, and Inception. The UK region saw the production of 47 inward investment films and 30 co-productions Co- being shot in 2015. The total spend productions generated by films produced in the UK was 3% Domestic GBP 1.4 billion ($1.8 billion) in 2015 out of UK which foreign films (inward investment 14% and co-productions) accounted for almost 85%. Major international films produced domestically in the UK included Avengers: Age of Ultron, Pan, Spectre, and Star Wars: The Force Awakens. Recent major productions have resulted in bringing in Spend: investments, creating jobs, and helping film $1.8 bn professionals develop new skills which can then benefit independent productions.

The expenditure incurred by foreign film shootings in the UK has steadily risen by 11.5% CAGR over the last 10 years to GBP 1.2 billion ($1.6 billion) in 2015. This growth has been primarily driven by the following Inward key factors: investment 83% Film Tax Relief: The UK Film Tax Relief Scheme was announced in 2007 with Source: BFI Research and Statistics, The Box Office 2015 the aim to incentivise investments in the domestic film production and promote films showcasing the UK’s culture and history. The film incentive program was revamped in 2015 to provide 25% cash rebate on all

85BFI Report: Economic Contribution of the UK’s Film, High-End TV, Video Game, and Animation Programming Sectors

51 Indywood | The Indian Film Industry

UK, qualifying expenditure is provided for Figure 20: Operation Support to Foreign Filmmakers films produced locally. Films qualifying for the tax relief have to have at least 10% of its Permissions: total spend on goods or services used or •• BFC doesn’t assist with requisite permissions. Line producers are consumed in the UK. The tax relief provided expected to help the production house. BFC intervenes only in case of permissions which require special consideration (E.g. opening the is capped at 80% of total core expenditure; London Bridge) however, there is no cap on the amount to Pre-production be claimed. For example, in 2014, Disney Location scouting: was given a total tax credit of GBP 32 million •• Provides a list of experienced Location managers / scouts who can by HM Revenue and Customs for filming the help in finding a suitable location Avengers: Age of the Ultron in the UK. This •• Provides links to various location directories such as The has historically been the highest tax relief Knowledge, KFTV and Kays provided to a film in the UK. •• Provides links to various regional agencies (England, , Ireland,  etc.) for other local permissions In 2015, a total of GBP 251 million ($372 million) was provided to the UK film industry •• Provides contact details of various guilds and associations through the film tax relief program resulting comprising production houses, sound technicians, production in over GBP 1 billion ($1.5 billion) in direct Production designers, line producers, location managers, cinematographers, investments in the country. According to the directors, camera technicians, and makeup and hair artists, editors and casting directors British Film Institute, every pound of film tax relief provided contributes approximately Source: Deloitte – FICCI Report:•• Provides Single window contacts clearance: of relevant Making guilds India easier for filmmakers June 2013 GBP 12.5 ($18) for the UK economy. Since •• Provides financial incentives for production of films in the UK the introduction of the tax relief scheme Post Production •• Provides links to knowledge databases like Kays, The Knowledge in 2007, the UK film industry has secured and KFTV for postproduction facilities. These databases give GBP 1.5 billion ($2.25 billion) in government a comprehensive directory of top contacts for various post- support with a total of 2,615 claims.86 A production facilities within UK majority of the tax relief (approximately 66%) was paid to big budget films while the government agencieis, information in and US remaining was provided to lower budget sources and directories, travel ― BFC is a member of the Association films. The tax relief program has resulted in and tourism associations, weather of Film Commissioners International an investment of over GBP 6.9 billion ($10 associations, etc. (AFCI) and is affiliated to European billion) by the UK film industry across other ― Liaising with the UK Government to Film Commissions Network through sectors in the UK, generated 260,000 full secure and maintain film-friendly Film London time creative sector jobs, and positioned policies 87 •• Abundance of Film Infrastructure & the UK film sector as a global leader. ― Production and location support Talent: across the country •• British Film Council: The British Film o Studios and facilities: The UK has a o Financial assistance to foreign Commission (BFC) is the national body number of world class studios such productions: Guidance on the Film Tax in charge of attracting, encouraging, as Pinewood, Warner Bros. Studios Relief to all films passing the cultural and supporting the production of Leavesden, Shepperton, Elstree, Ealing, test or qualifying as a co-production international feature films in the UK. The Longcross, 3 Mills, The Bottle Yard o Marketing the UK as a filming BFC’s key roles are as follows: Studios, etc. to undertake productions destination: o Operational assistance to foreign of varying size. By 2017, the UK will ― BFC participates in various productions boast over 1 million square feet of film festivals such as Toronto o One source for entry and information additional studio and workshop space.88 International Film Festival to assistance to foreign productions: o Post-production and VFX: The UK has promote UK as a favoured territory ― Necessary information with respect one of the largest repository of special ― Organizes various networking to migration of workers and import effects and post production talent and events with other screen agencies in of equipment technology. the UK ― All information required for o Skilled manpower: The UK Government ― Increases awareness and mandatory film insurance along with invests large sums, managed by encourages filming in the UK within a database of insurance companies Creative Skillset, to support training Hollywood by having brand offices ― Contact details of various and skills development across film,

86UK Pays Out $2.24 Billion in Film Tax Relief in Nine Years 87Record year for UK film industry tax relief 88BFC Report – Made in UK 2015 52 Indywood | The Indian Film Industry

television, animation and VFX. As a •• Individual Site Promotions: Several estimated GBP 4.2 million for the castle.89 consequence, the UK has highly skilled areas where Harry Potter shootings took •• Gloucester Cathedral: The cathedral technicians in the film sector with place have become key tourist attractions was used to depict the corridors of experience across the globe. leveraging their link to the series such Hogwarts in the first two Harry Potter as Gloucester Cathedral, Alnwick Castle films. The cathedral recorded a 50% Harry Potter Franchise – An Example and Lacock Abbey. In London, the increase in visitors in 2003 post the Harry Potter is a series of eight fantasy King’s Cross station erected a plaque release of the movies. films based on the ‘Harry Potter’ novels by signalling ‘Platform 9¾’, in response to J.. Rowling. The series was distributed by visitor demand. Goathland Station runs •• Pembrokeshire County: The Bros and primarily shot in the UK. ‘Wizard’s Weekends’ and Glencoe has Potter and The Deathly Hallows was Harry Potter is one of the highest grossing themed events such as a Harry Potter premiered in 2010 in the Pembrokeshire film series globally with $7.7 billion in box safari in which they point out the sets. County. The visitors to the county office receipts. increased to 4.2 million from 30,000 The Harry Potter series has significantly during that year along with a rise in The UK Government and other agencies helped promote tourism in the UK. The tourist expenditure in the county. provided a number of film shooting and above initiatives have led to substantial tourism initiatives to encourage the increases in the number of visitors to the The outcome of shooting the films in the shooting of Harry Potter in the country following locations: UK was an increase in expenditure on as well as promote tourism to the key local film production from $670 million •• Alnwick Castle: The castle located in shooting destinations. Some of the key pre-release of the Harry Potter movies Northumberland was depicted as the initiatives they took are as follows: to $1.8 billion backed by Warner Bros.’s Hogwarts School of Witchcraft and investment in special effects technicians. •• Financial incentives: Tax break of $160 Wizardry in the first two Harry Potter Further, Warner Bros. contributed almost million per year on all movies made in the films– the Philosopher’s Stone and the $2 billion to the UK economy every year UK (which accounts for 25% of the total Chamber of Secrets. Since the release during the shooting and marketing of the production cost) of the films, Alnwick Castle has seen an films, through salaries, national insurance increase of 230% in tourist numbers, •• Movie Map: In November 2001, the contribution, advertising and infrastructure receiving over 800,000 visits yearly. In British Tourist Authority (BTA, now known investments. 2014, tourists’ expenditure generated an as VisitBritain) launched an international tourism camA A saw a 300% increase on the number of enquiries about travel to the UK

•• Tours: Following the release of the movies, a number of Harry Potter themed guided tours and events were undertaken throughout the UK. British Tours Limited, a leading tour guide operator in the UK, reported that almost 700 groups booked the Harry Potter tour which is larger than bookings for any other themed tour offered. Further, in 2010, Warner Bros acquired the Leavesden Studio in Hertfordshire where the Harry Potter films were shot for approximately GBP 100 million. In the 200 acre studio, the Making of Harry Potter tour comprising of sets, costumes, prosthetics, and film experiences was launched by Warner Bros which is visited by more than 5,000 people daily.

89Alnwick Castle expects visitor increase after final Harry Potter film released 53 Indywood | The Indian Film Industry

Case Study: Film Tourism in New were completed exhibiting a 34% increase Zealand over the previous year. Majority of the co-productions were in collaboration with Overview of the New Zealand Film Australian partners. Industry New Zealand has a growing film industry New Zealand, as a destination for mega with increasing number of local films projects such as LOTR and The Hobbit, along with several large international is expected to continue to boost the film productions. In 2015, film production and sector. 's Avatar series, post-production contributed NZD 483 comprising four films, is expected to be million ($338 million) in gross revenues produced in New Zealand. A Memorandum to the economy, with 35 feature films of Understanding (MoU) signed produced locally, showing a decline between , Lightstorm from 40 produced in 2014. The industry Entertainment and the New Zealand experienced a decline in revenue from Government states a minimum spend 2014 to 2015, post the production of the of $412 million on production activity in high budget The Hobbit trilogy released, New Zealand on the films, including live- and during 2012-14 which clocked a total action and visual effects. The MoU also

Figure 21: Gross Production and Co-Production Revenue ($ million) 728

602 571

338

2012 2013 2014 2015 Source: New Zealand Film Commission spend of $745 million.90 highlighted additional incentives provided While the local film production is still in a to Lightstorm and 21st Century Fox nascent stage, New Zealand has become including a 25% percent rebate on the total a popular destination for production spend in the country. and post-production of foreign films. The successful production of the Lord of the Apart from being a key destination for Rings (LOTR) Trilogy in New Zealand, one of international productions, New Zealand the largest film projects globally, succeeded has also emerged as a global leader in in putting the country on the international special effects and computer generated filming map. Several international imagery. The industry has a number of productions have followed since including studios undertaking post-production and Avatar, Chronicles of Narnia: The Lion, the VFX work having worked on award winning Witch and the Wardrobe, The Last Samurai, projects such as The Hunger Games: and The Hobbit. In 2015, a total Mockingjay - Part 2, Dawn of the Planet of of 106 international co-productions91 the Apes, Batman v Superman: Dawn of Justice amongst others.

90'Hobbit' Trilogy Reportedly Cost $745 Million to Make 91Co-productions describe content produced with an overseas business or individual, where each business made a financial and creative contribution. 54 Indywood | The Indian Film Industry

Film Tourism in New Zealand international production of films in New threshold expenditure of NZD 30 million New Zealand has become a global hub for Zealand by offering financial incentives. ($21 million). The QNZPE comprises the filmmaking and a preferred film location The first incentive rolled-out in 2003 following: both for its dramatic beauty and its was known as the Large Budget Screen •• Goods and services provided in New domestic talent pool spanning extensive Production Grant (LBSP Grant) providing Zealand production, post-production and special a 12.5% rebate on qualifying New Zealand effects capabilities. Additionally, the production expenditure (QNZPE). In 2007, •• Land lease and rental Government has been instrumental in the LBSP Grant was increased to a 15% •• Fees and expenses for cast and non-cast attracting international films through rebate and extended to post-production professionals who have travelled to providing financial incentives under the and VFX work under the Post, Digital New Zealand to work on the production New Zealand Screen Production Grant and Visual Effects Grant (PDV Grant). provided they have worked on the (NZSPG) as well as entering into several In 2014, the LBSP Grant and PDV Grant production for at least 14 days co-production treaties. For example, the were replaced with the New Zealand Hobbit Trilogy collected $120 million in Screen Production Grant (NZSPG) for The applicant for the cash grant must be: filming cash grants from the New Zealand International Productions increasing the •• New Zealand resident company or government over the course of the 4 year rebate to 20% of QNZPE. partnership for tax purposes, or a foreign production process. In turn, the films corporation with a fixed establishment in generated 3,000 direct jobs during their Under the current framework, the NZSPG New Zealand production and brought other significant offers a cash grant of 20% on all QNZPE economic benefits such as increased with a minimum threshold expenditure of •• Entity responsible for all activities tourism, influx of foreign currency, and NZD 15 million ($10.5 million) for feature involved in making the production marketing related expenditure by the films and NZD 500,000 ($350,000) for •• Special purpose vehicle established solely production company. 92 post-production work for international to make the production in New Zealand productions. Some projects may be also eligible for an additional 5% uplift if •• Financial Incentives93 significant economic benefits are foreseen Since November 2003, the New from the film and it meets a minimum Zealand Government has encouraged

92Hobbit trilogy collects $120m in New Zealand filming incentives over four years 93Film New Zealand 55 Indywood | The Indian Film Industry

•• Co-Production Treaties New Zealand has co-production treaties or agreements with Australia, Canada, China, Chinese , , France, Germany, India, Ireland, (to be enforced), Italy, Poland, The Republic of Korea, Singapore, Spain, South and the UK. Further treaties with Canada and Brazil are under negotiation.

The New Zealand Government offers additional financial incentives to New Zealand productions and official co- productions. Under the NZSPG, a cash grant of 40% of QNZPE is provided for films with a minimum threshold expenditure of NZD 2.5 million ($1.7 million). The grant is capped at NZD 6 million ($4.2 million) per production. An additional grant of 40% of QNZPE above NZD 15 million ($10.5 million) is provided to productions with QNZPE above NZD 15 million ($10.5 million). The additional grant is capped at NZD 14 million ($9.8 million) and New Zealand Film Commission is entitled to a share of net income and profit from the production.

Productions must have significant New Zealand content to qualify for the grant which is determined by a points test (i.e., cultural test). Official co-productions are deemed to have significant New Zealand content and are exempt from the points test. The points test takes into account the following:

•• New Zealand subject matter including setting, lead characters, creative material, culture/history

•• New Zealand production activity in terms of shooting location or studio for production, post-production of VFZ

•• New Zealand personnel employed

•• New Zealand business engaged

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Lord of the Rings (LOTR) Trilogy – An Example Lord of The Rings Trilogy consists of a fantasy series based on books by JRR Tolkien released during 2001–2003 [The Fellowship of the Ring (2001), The Two Towers (2002) and The Return of the King (2003)]. The movies were directed by and shot in various locations across New Zealand. The films have had a favourable impact on the perception of New Zealand, as they have showcased the country as a favourable film destination and have attracted tourists from around the world. The production of the films incurred an expenditure of approximately NZD 353 million (approximately $250 million) including NZD 188 million ($130 million) in labour costs.

The New Zealand Government provided extensive financial and operation support to the LOTR films during the production period. This included $150 financial support and amending the labour laws to make the filmmaking process conducive in tourism spend. Further, traveling to for international productions.94 Further, the sites of the LOTR shooting such as the Government played an active role in Hobbiton (a.k.a. Matamata), Fernside promoting the films, collaborated closely Lodge, and Lothlorien has become the with the production company and invested leading tourist activity. Since 2004, an in the launch of the ‘New Zealand: Home average 47,000 visitors each year have of Middle Earth’ campaign.95 For example, visited a film location.96 The LOTR trilogy the New Zealand Airlines made its tag line had several other long term effects on the the official airline of Middle Earth post country and the economy: the release of the LOTR trilogy and has •• It raised the international profile of New released a LOTR based safety video after Zealand film writing, production, and the Hobbit trilogy. post-production industry

Post the release of the films, a 50% •• It built skills and development of increase in tourist visits to New Zealand forerunning technology in the production were seen. In 2004, 6% of visitors to New and special effects industry Zealand (120,000-150,000 people) cited •• It contributed to the development and The Lord of the Rings as being one of the expansion of film related infrastructure main reasons for visiting New Zealand. Additionally, 1% of tourist cited LOTR as •• It contributed to the move towards a film their only reason for visiting New Zealand friendly regulatory environment which contributes approximately NZD •• It enhanced Brand New Zealand, and 33 million ($24 million) to the country helped in boosting of tourism

•• It enhanced the potential for spin-off industries such as merchandising, theme tours, theme parks, etc.

94New Zealand tourism: Facts and figures 95How have the Middle Earth films benefited NZ? 96The Impact (Economic and Otherwise) of Lord of the Rings/The Hobbit on New Zealand

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58 Indywood | The Indian Film Industry

Shooting of Foreign Films in India – Tax Aspects

Background Income-tax implications or loan-out corporations, in turn, engage In recent times, the Indian Government In connection with film shooting in India, the actor for acting services. In such cases, has been focusing on promoting India as income-tax implications for the following performance income of the actor accrues a filming destination. A country benefits non-residents should be evaluated: not directly to the actor but to another from film shooting, primarily, by providing person/entity (star company or loan-out •• Foreign film producers/studios local facilities/infrastructure (e.g., hotel), corporation). This income should still be generating employment opportunities •• Foreign actors (in front of the camera) taxable in India [Article 17(2)]. This is an for its residents, collecting taxes, and anti-avoidance measure included in tax •• Foreign crew (behind-the-scenes). showcasing the country’s tourist locations, treaties. The income-tax implications in thereby promoting tourism. the hands of star company or loan-out Foreign film producers97: Based on a corporation also needs to be evaluated. specific exemption under the domestic Over the past few years, several foreign tax laws, income of foreign producers films have been shot in India such as Kung Income from performance in India (e.g., should not be taxable in India in respect acting fees) is taxable in India and taxes Fu Yoga, Point Break, The Second Best of operations confined to shooting a film are required to be withheld by the payer at Exotic Marigold Hotel, Million Dollar Arm, in India. Income from distribution of films 20% (plus surcharge and education cess) and The Hundred-Foot Journey. is not covered under this exemption and under the domestic tax laws. If appropriate hence, taxation of the same needs to be taxes are withheld on acting fees and this Business Model evaluated separately. is the only India sourced-income for the Typically, foreign producers and studios actors, then such actors are not required appoint a line producer in India for Foreign actors: Taxability of foreign actors to file a tax return in India. This benefit is assistance with India film production is covered under Article 17 of most of applicable in case of non-resident actors related activities and pay fees to such the tax treaties (Taxation of entertainers who are not Indian citizens. line producers. The line producer may and sportspersons) that India have with be a third party entity or an Indian group other countries. Income from personal Foreign crew would include behind-the- entity. For shooting the film (or principal activities, as such, performed by actors in scenes personnel such as action director, photography) in India, foreign actors and India should be taxable in India. At times, costume designer, etc. Taxability of their foreign crew are engaged by the foreign income from acting fees is paid/accrues to income should be evaluated based on producer/studio. The line producer star companies or loan-out corporations, criteria such as specific nature of services, engages the Indian cast, crew and facilities i.e., companies owned by such actors. employer-employee relationship with the and accordingly, enters into agreements In such cases, the actor services are payer, legal form of entity, presence/period with them. Prior to the commencement of provided to the film producer by star of stay in India, and relevant tax treaty principal photography, it is common for the companies or loan-out corporations and provisions. Foreign crew would be required foreign producers/studios to undertake a accordingly, acting fees are paid by the to file an income-tax return in India, if the recce in India. film producer to such star companies or income is taxable in India. loan-out corporations. The star companies

97Individual not citizen of India, firm which does not have any partner citizen/resident of India, company which does not have any shareholder citizen/resident of India 59 Indywood | The Indian Film Industry

In addition to the above, following are the length price is to be considered for team on a condition that an accredited income-tax compliances to be noted in taxation purposes and an accountant’s representative of the foreign film unit case of foreign films being shot in India: report (Form No 3CEB) may have to be or the television team executes a bond filed with the Revenue authorities. in such form and with such surety •• Individuals (e.g., foreign film actors), not as may be acceptable to the Deputy domiciled in India, who visit India for A non-resident can claim benefits of a tax Commissioner of Customs or the purposes of business/profession and treaty, to the extent it is more beneficial for Assistant Commissioner of Customs, as earn income from a source in India, such non-resident vis-à-vis the provisions the case may be, binding himself to pay are required to obtain a tax clearance of the domestic tax laws in India. For on demand an amount equal to the duty certificate from the Revenue authorities claiming tax treaty benefits, a non-resident leviable on such equipment and cameras before departing from India. requires a tax residency certificate issued if the same are not placed under customs by the Revenue authorities of the home control for re-export within a period of •• Indian income-tax registration number country and Form No 10F (self-attested three months or such extended period (permanent account number) is required document). as the said Deputy Commissioner or the to be obtained by the film producer Assistant Commissioner may permit, and actors. The crew is also required to Indirect-tax implications after clearance for home consumption. obtain a registration number, if income is In connection with film shooting in India, taxable in India. indirect tax implications could emerge in Services availed from line producers: •• A film producer or any other payer relation to the following transactions: •• Foreign producers may enter into a withholding Indian taxes is required to contract with Indian line producers to •• Import of film equipment by foreign unit file quarterly withholding tax returns assist them with shooting films in India. in India outlining the details of expenses incurred This would include availing services of and taxes withheld. A person liable to •• Services availed from line producers backstage technicians, music composers, withhold taxes on payments is required lights, etc., which could be provided by •• Royalty/license fees paid for importation to obtain an Indian withholding tax the line producers. of film print registration number (i.e., tax deduction •• Services provided by such line producers and collection account number). Import of film equipment by foreign unit: to the foreign production unit should •• Additionally, a film producer is required •• The Admission Temporaire/Temporary be examined to determine applicability to furnish a prescribed statement (Form Admission (ATA) Carnet permits duty of service tax depending on the nature No 52A) outlining the details of expenses free temporary admission of goods into of service involved and further if such incurred. Such statement is required to a member country. The list of exempted services are provided in taxable territory be submitted per film per year within 30 products inter alia includes filming as per Place of Provision of Services days from the end of the financial year or equipment. Rules, 2012 (‘POPS Rule’), could attract completion of film, whichever is earlier. service tax in India. •• Moreover, Entry No. 414 of Notification •• In case of cross-border payments made No. 12/2012-Cus, dated 17.03.2012, Royalty/license fee on importation of film to group entities, implications from a stipulates nil rate of customs duty for print: transfer pricing perspective need to television equipment, cameras and other •• Film shot in India will be broadcasted be evaluated. Once transfer pricing equipment for taking films, imported in India through the distributors. On provisions are applicable, the arm’s by a foreign film unit or television importation of the cinematographic film, in addition to the cost of the print, remittance of royalty, license fee, profit sharing, etc., is made to the foreign producer/supplier for re-producing copies, etc. Issue arises whether transaction value for the purpose of calculation of customs duty, if applicable, includes only cost of print or also such royalty/license fees paid for the same. The Central Board of Excise and Customs (‘CBEC’) has clarified that royalties and license fee related to the imported goods which the buyer is required to pay, directly or indirectly, as a condition

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Levy of tax on service provided by resident to non-resident: •• As per draft GST law, if the recipient of the service is not a registered person then the place of supply is the location of the recipient where the address on record of the supplier exists. If the address on record of the supplier does not exist then place of supply is the location of the supplier of service.

•• It would thus be required to examine the implications on the Indian line producer vis-à-vis transactions with the foreign production unit.

Abolishment of Entertainment tax: •• Currently producers and multiplex are required to pay both service tax as well as entertainment tax. GST will bring a major change and uniformity in business. Multiplex chains will save on revenues as there will be a more uniform tax, unlike of sale of the goods being valued, shall current high rate of entertainment tax be added to the price actually paid or levied by different states. It may lower payable for the imported goods to the the average ticket price, and increase the extent that such royalties and fee are footfalls in multiplexes. not included in the price actually paid or payable. Thus, such royalty or license Availability of Input tax credit: fee, if are a condition of sale of the print •• GST will be a big boon to film producers imported into India, then the same would and studios that currently pay service tax be included for customs duty purposes on most of their cost, but cannot charge adding to the cost of doing business. input credit on creative services (payment to artists, etc.) as they fall under the •• Likewise, the declared list of services negative list. Under GST, they will be able includes within its purview temporary to claim credit of these services which will transfer or permitting the use or reduce the overall cost of production. enjoyment of any intellectual property right. Grant of license for theatrical With the thrust on promoting India as release of film has been exempted from a filming destination, consideration of service tax, whereas, grant of license of tax aspects on film shooting in India has non-theatrical right being television right, become important especially with the internet right, etc., by producers attracts introduction of GST, the biggest tax reform service tax. Thus, service tax exposure to be introduced in the country. The GST on such royalty/license fee would also be rate may see an upward rise vis a vis current relevant to examine. applicable service tax rate. The foreign film producers/studios should structure Impact of Goods and Services Tax (GST) contractual arrangements appropriately GST is likely to get introduced in India from to mitigate tax risks and undertake Indian April 1, 2017, which would subsume most tax compliances (such as withholding of the indirect taxes currently applicable, tax on payments) as required. In case of inter-alia, to foreign film producers. Some star companies or loan-out corporations, of the impact points includes: additional complexities arise on account of triangular cases (i.e., situations where more than two countries are involved).

61 Indywood | The Indian Film Industry

Authors Acknowledgements

Neeraj Jain Hemant Joshi Partner Technology, Media & [email protected] Telecommunications

Tarun Soneja Ashesh Jani Director Media [email protected] Prashant Bhojwani Japun Ahluwalia Media Manager [email protected] Anu Peisker Clients & Industries Contacts

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