Gone are the days when people judged a movie based on the quality of songs or the strength of the screenplay. Today, conversations around films are primarily driven by numbers – particularly box office figures. Films are defined by the number of (hundred) crores they make at the box office worldwide. In India, the Hindi film industry – known as Bollywood – is the largest in market size and pop culture relevance. Despite being one of the country’s most important avenues of mass communication and entertainment, the inner workings of Bollywood and its finances remain shrouded in secrecy.
Moreover, the economics of Bollywood (or the Indian film industry, in general) is complex. The traditional financial model involving producers and distributors has undergone a significant transformation in the last decade with the advent of streaming platforms.
Broadly, Bollywood films make money through two revenue streams – theatrical and non-theatrical. In this article, we will explain how the Bollywood blockbusters you love make money.
Key players in theatrical revenue stream
Producer: Like any product, a film too is made within a budget. This includes all the costs associated with making the film, such as cost of production, pre-release and post-release marketing costs. Producers bear this cost. A producer can be a single player or a film studio like Marvel Studios in Hollywood or Yash Raj Films in Bollywood.
Distributor: Once the film is complete or near completion, the producer takes the movie’s theatrical rights to a distributor. They can sell these rights directly to distributors or through a third party, who then deals with the distributors. In the latter case, the producer receives their share of profits before the film is released, and the third party assumes any financial losses. In India, distinct geographical circuits have their own set of distributors.
Theatre owners: Distributors hire theatres from exhibitors (theatre owners) to screen the film. In India, there are two types of theatres – multiplexes and single screens theatres –that have different exhibition agreement models. While the agreements between theatres and distributors may vary, they primarily focus on the number of screens playing the film, and the profit to be paid to the distributors.
Theatre owners make revenue from ticket sales (paid for by cinema-goers). The revenue thus earned is called gross collection. The gross amount is subject to deductions such as entertainment tax. After deductions, the remaining amount – net collection – is divided between the theatre and distributor.
The payment to distributors is usually calculated and transferred weekly. For instance, multiplexes usually pay the distributors a 50% share of the first week’s collection. This amount falls to 30% after the third week. Single screens have their own breakup.
In addition to theatres in India, Bollywood films also manage to pull crowds across the globe, adding to the total theatrical revenue. Thus, theatrical revenue is a sum of domestic and international collections.
In the theatrical model, it is crucial to understand that more box office earnings do not mean the film is profitable. For instance, a film made on a budget of Rs 5 crore and earning Rs 100 crore is the bigger blockbuster compared to a Rs 100-crore budget project that has earned Rs 150 crore in ticket sales.
Non-theatrical revenue stream:
Today, theatres are not the sole source of revenue for film producers.
Streaming platforms like Netflix, Prime Video, and Disney+Hotstar that produce their own content also buy streaming rights of films. Here, there are two scenarios. Films can be bought for direct-to-OTT release. This means they bypass the theatres and release on streaming platforms directly. Direct-to-OTT was the preferred mode of film release during the pandemic when theatres were shut. In the second scenario, the films are streamed on the platforms after a post-theatre-release window.
TV broadcast rights are another major source of revenue. TV channels pay for satellite rights/ broadcast rights, and the movie is aired based on the TRP (target rating point) it records.
That’s not all. A considerable revenue share in Bollywood movies is from music rights. As per Statista, the revenue generated from music rights of Indian films in 2020 was approximately four billion Indian rupees. This amount is expected to cross five billion rupees by the end of 2024.
Today, thanks to increased digitisation, there are various ways for filmmakers to monetise their work today. Theatrical revenue, TV rights, streaming rights, and music sales are filmmakers’ major income sources. The monetisation of all these revenue streams boils down to the quality of the film itself. The potential for further monetisation is usually lost if the film does not perform well at the box office.