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Monday, October 15, 2007

Consolidation is the new buzzword in Bollywood

If consolidation is the buzzword in India Inc, can the film industry lag behind? The fragmented entertainment industry, growing at a scorching pace, is seeing a lot of activity on the M&A front, sale of music rights and content, as well as in distribution rights.

With the industry's growth rate being pegged at higher than 9 percent year-on-year, the pace of consolidation is only expected speed up. The most important reason being that many entitles, with deep pockets, are entering the space. Most prominent among them being Citigroup Global Markets, which recently announced that it will underwrite a $100 million financing facility for Eros International.

The much-touted Citigroup deal will now enable Eros to go in for M&As and consolidate the fragmented Indian entertainment content sector: According to Eros chairman & CEO, Kishore Lulla: “This facility will increase Eros' firepower to create significant value for our shareholders and partners though the acquisition and production of Indian entertainment content.”

The company, in its 30th year, has already acquired a 51 per cent stake in a leading Tamil language film company, Ayngaran International. Eros not only producers and commissions films, like a studio, but it also distributes films across formats globally via cinemas, home entertainment, television formats and new media.

It has built a successful business model around the release of 30-40 new films every year and the exploitation of a film library containing more than 1,300 titles.

According to industry sources, Shah Rukh Khan has sold the entire rights, except music, of the forthcoming film Om Shanti Om from his home production, Red Chillies, to Eros for Rs 75 crore. The music rights are reportedly sold to T-Series for Rs 9 crore. Meanwhile, Eros and Sony Pictures Entertainment have entered into a non-exclusive agreement to coin vest in a slew of Hindi films, which will be released in India and abroad too.

While Sony Pictures is expected to distribute some of the titles in the US, Eros will use its established infrastructure to distribute the films in other international territories. There are a host of such deals happening across the industry. Shri Ashtavinayak Cinevision, which released Bhagam Bhag early this year and is now ready to launch Jab We Met with Kareena Kapoor and Shahid Kapoor; has tied up with TV 18 for the distribution of the film.

According to the grapevine, TV 18 has partly financed the marking of the film. But when we asked Dhilin Mehta, CMD, Shri Ashtavinayak Cinevision, he denied this: “TV 18 has joined us in the distribution of the film.”

Mehta, however, admitted that consolidation has become a necessity for the film industry at a time when a host of big production houses like Adlabs, UTV, Balaji Productions and others are making big moves in the sector. Asked whether he has any acquisition plans, he said: “Although we have no immediate plans, we are open to the ides.”

Times Infotainment Media, which is readying to invest substantially in the motion picture business through its subsidiary Mirchi Movies, has also expressed its wish to acquire ready motion picture content apart from producing and co-producing films. After striking a deal with Satish Kaushik and Anupam Kher's Karol Bagh Films, it is negotiating terms with other players in showbiz.

The Reliance Anil Dhirubhai Ambani Group (ADAG) is also making its moves in the entertainment sector. While it is reported to be in advanced talks with film director, Nitin Desai, to either have a majority stake or buy out his movie studio, it has also hiked its stake in Saregama India, from nearly 7 per cent to 12.25 per cent for Rs 26.5 crore.

According to analysts, the deal shows how bullish the company is in the music space. The buzz is ADAG also has set it sights on the country's largest online movie rental company, Seventymm Services Pvt. Ltd. Interestingly, ADAG's arm, Reliance Entertainment, has itself launched an online movie rental store under the brand name Big Flicks.

The film industry is also finding suitors from various sectors ranging from real estate firms to exhibition companies. While Delhi-based exhibition company, PVR, is planning to produce six Hindi movies by the end of next year, another Delhi-based real estate firm, DLF, has declared plans to venture into multiplex through its arm, DT Cinemas. An official of the company recently told the media that DT Cinema was acquiring domestic multiplex chains to grow its business faster.

Following the footsteps of DT Cinemas, Future Media, the media company floated by Kishore Biyani of Future Group, has acquired onscreen media rights of all Inox Leisure multiplexes in the country for more than two years. The acquisition of multiplexes is not just limited to urban areas. Noted filmmaker Prakash Jha has tied up with Sanchojoy Investments even as he looks for private equity investors to funs his ambitious project. He has already tied up with ADAG”s Adlabs to set up 100 screens in small towns.

Meanwhile, in its bid to tap the Telugu film industry, which is the largest film market after Hindi, UTV Motion Pictures is set to make its foray in film production and land distribution deals. The company has signed on Telugu superstar Mahesh Babu for two productions, the first of which is likely to go on the floors in six months. Incidentally, Mahesh Babu's last released Telugu film, Pokiri, is the highest grosser in the Telugu film industry so far this year.

Besides, UTV Motion Pictures has signed a deal with Indira Productions to Co-produce two films, one of which will see Mahesh Babu in the lead. This apart, the company has acquired the Andhra Pradesh distribution rights for the forthcoming Telugu movie, Atithi, which is likely to be released end of the month. Interestingly, the company which plans to invest Rs 600 crore to launch nine TV channels over a period of 18 months has sold off its post-production house, UTV Software Communications Ltd (USL), comprising two leased facilities, to the post-production and VFX specialist, Prime Focus, at a reported price of $2 million.

Funds for the acquisition are likely to be raised by various funding options including ADRs (Americann depository receipts) and GDRs (global depository receipts).

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