By Surendra Bhatia
Jio And What Mukesh Ambani Will Do With It
The cat has been set among pigeons. A restless species by nature, pigeons have started flying hither and thither, panicked that their supply of daily grain would soon be curtailed and they would have to source new avenues to sustain or die a slow death.
For those who have not been following sensational breaking news within the film industry, this is to inform you that Mukesh Ambani, in pursuit of total domination over the entertainment space in the near future in India, has announced that his Jio would be beaming First Day, First Show movies from mid-2020, which is less than a year away. He has a firm hold on millions of cell phone subscribers and he is about to introduce broadband services in homes and offices across the country. If Mukesh Ambani’s successful launch of Jio phones is anything to go by, Jio Broadband will have subscribers signing up in millions. It took him two years to overtake established players and make Jio the largest cell phone network in the country; it should take him no more than that to take over the majority of households with broadband. The cat, by nature, is predatory; Mukesh Ambani seems to be no different.
Jio’s First Day, First Show, on smart phones and broadband, is bound to be a game changer. But that would happen if Mukesh can dig deep into his pockets to get new films on board. According to the industry norms, a filmmaker has to maintain an eight-week gap between his new film’s theatrical release and its launch on digital platforms, and this is not going to be changed to fit in with Jio’s plans. So, what does Jio do? Nothing, really, that hasn’t been done by the others in the game, like Netflix and Amazon Prime. It just has to build its own catalogue.
Jio has already started commissioning, producing and financing films. It is expected that it will become, in time, one of the biggest investors in or producers of Indian films. However, as films have a long gestation period from conception to release, it is certain that Jio would not have the line-up of releases of its own productions ready by mid-2020. So, what are the options?
Here is where Jio may just run into absolute luck.
Somewhere down the line, there is going to be a realisation among India’s filmmakers that almost 85% of the released movies lose money. This is real money which producers, distributors, exhibitors invest in a film and its release, and not enough people come to watch it to pull them out of the red. This is a hard fact. It is one thing that films, with big stars and backed by reputed production houses, may fail at the box-office but these films, at least, start off as viable projects with a basis for economic viability. However, there is the large majority of films that are launched in India with a prayer that they will, first, get released, and secondly, earn back the investment. Among these 100-plus films every year, maybe four or five realise their dreams. The rest fall by the wayside, as expected. If these films and their producers are presented with an opportunity to debut on a platform like Jio, with assurance of a reasonable return on their investment, how many will have the gumption to still stake out cinemas in the hope that the public will show them kindness, if not love?
In the coming months, there will be a clear creative and economic divide among filmmakers who undertake small projects, without the big stars. They know the risks of theatrical release. The number of films that release in cinemas and get pulled off before completing even a week’s run, for lack of audience, is not small. What would filmmakers, fearing lack of audiences, opt for? The choice would be clearly loaded in favour of the digital platform and an assured return. The number of such films wanting to turn out for the digital platform would be quite high, so high, that Jio would possibly be in a position to turn down a few or offer very low prices as the supply increases.
A digital platform is superbly placed to sell a film, even a small one, to audiences. The idea of catching a film online on its opening day in itself is a draw for audiences, and creates its own promotional appeal. Then there is another weighty factor: a film can be dubbed in various languages and put out simultaneously on the digital platform. This serves two distinct purposes: costs of acquisition drop substantially, and audiences get the flavour of good regional films in their mother-tongue. For instance, a Gujarati film, Hellaro, won the National Award for the Best Feature Film in 2018. Obviously, it has not been seen beyond Gujarat and among Gujaratis. So, for much of the national audiences of the digital platform, it would be like a new film.
However, no digital platform can survive on small films. They are good for consumption of slots but can’t sell the platform to audiences. It is natural that Jio would produce and release some high-profile films with big stars on its digital platform, and it would also acquire a few from other production houses, even if it has to pay unrealistically high prices for them. All online businesses budget the fancy prices they sometimes pay for content as the cost of acquisition of consumers. It’s a normal online business practice. It can be safely said that Jio, for its First Day, First Show, would open up its war chest and make it profitable for production houses and stars to sell it their films. This is a battle that Jio has to fight, and given Mukesh’s billions, is quite likely to win.
There may be some in the film industry who might think that Mukesh Ambani is going to be the new producer on the block, and that his profit and loss account will depend on how his films do on his digital platform. There can’t be a more ill-educated thought. Mukesh Ambani’s Jio is not going to rise and fall with the fate of his films. He may acquire a Rajinikanth film for over Rs. 800 crore for Jio and fail to recover even half that investment from his digital platform but he still won’t be in the red. He will push through a dozen of such expensive films and premiere them on Jio and he would still be making huge profits. These films will help him get subscribers and increase valuation of his digital platform. As has been observed about digital businesses, they don’t have to make profits to become big companies – it is their valuations that bring in the billions. Flipkart, for instance, was losing money hand over fist but when its founders sold out to Walmart, the valuation of their company was $22 billion!
This is Mukesh Ambani and Jio’s game. Jio, cell phone and broadband, has to pick up top-of-the-line properties (Rajinikanth, Salman Khan, Aamir Khan films) and build up a huge subscriber base, which would then get it the high valuations. And valuations are all that matter to Mukesh. For instance, Netflix is valued at over $150 billion, even though its profit in 2018 was just a little over $0.5 billion. Its subscriber base keeps vaulting globally, which has made Netflix the world’s seventh largest Internet company.
This is where Mukesh plans to take Jio. The telephone company is already expected to command a valuation of about $50 billion, and the broadband arm will push it way further. In valuation, and not profit-and-loss accounts, is where the goals lie.
But where do Indian filmmakers stand with the launch of Jio’s broadband?
It is expected that in the initial years, say the next five, Indian film industries will gain enormously from Jio’s expansion in the content space. The demand for content will shoot through the sky, and Jio might bid at prices that would have filmmakers think of pots of gold. The big films will be offered prices they are unlikely to earn at the box-office, and the small ones will be bought at more than fair valuations. In the initial years, it will be the seller’s market with Jio graciously giving in to filmmakers. In these five years, Jio will step up its own production capacity and buy out production companies or bring them on board, and then the rules of the game will change. When Jio’s own productions are top-line films, the company’s appetite for outside big films will start to dry up, prices offered will start dropping, and the company will become super-exclusive. Then, it will be the buyer’s market.
The comparisons may not hold but in his own way, Ronnie Screwvala with his UTV played the same game, albeit at a much more modest level. The industry was aghast at the inflated prices Ronnie paid to stars and films, and everyone assumed, he didn’t understand film business. He gave in too easily to reputed directors and production houses just to get their films on board and into his catalogue. Most times, it seemed, UTV had got the raw end of the deal. However, when payday dawned and Ronnie sold the company to Disney, UTV was valued at $1.2 billion, and Ronnie cleaned up in style. He understood the valuation game, the film industry didn’t.
The next few years are going to be exciting for Bollywood. They may also be tumultuous for some but the industry, with the launch of Mukesh Ambani’s content-consuming companies and the ones who stand up in competition, will grow exponentially. Films will get bigger, audiences will become global, and the new kids on the filmmaking block will prosper way beyond imagination. The old production companies, which won’t adapt swiftly will go out of business; and there will be many veterans, sitting at home, watching Jio, and feeling that the golden era of Bollywood has passed.
