One savvy Indian entrepreneur bets against MGM, Sony, Disney, Warner Bros ... and, well, just about everybody.
By Jason Overdorf
GlobalPost - August 11, 2011
NEW DELHI, India — A few months ago, bargain-basement Bollywood filmmaker Mahesh Bhatt released India's first 3D film, a schlocky teen horror flick called "Haunted."
Against the odds, it was a sleeper hit — but not because of stellar performances or even slick marketing. Its success was due, largely, to one Indian entrepreneur's decision to take on the biggest Hollywood studios in the business.
The Indian film industry — until recently a "single genre" business of epic song-and-dance family tearjerkers — has never been much for costly special effects. But as Hollywood's biggest guns put their muscle behind 3D and Indian producers began pushing the envelope with films like Bollywood's "Krrish" and Tamil cinema's "Robot," Sanjay Gaikwad saw the glimmer of an opportunity for a cheap, Indian-made rival to Hollywood's 3D technology..
"In Hollywood, when they create the movies their main revenue comes from North America and they look at territories like India as incidental business, so the critical mass [for 3D] was coming from somewhere else," Gaikwad said.
"But in India, the kind of response that 3D content got was phenomenal, so obviously there was a lot of interest generated among Indian movie producers."
According to PricewaterhouseCoopers, the number of 3D releases in India has increased steadily over the past two years. Globally, eight of the top 20 grossing films in the first eight months of 2010 were 3D, compared with only three in 2009 and one in 2008, and the consultancy believes that the trend is set to continue despite risk of weak films diluting audience interest.
Meanwhile, 3D has already emerged as the biggest driver for Gaikwad's other business — the digitalizing of cinema screens.
As CEO of Mumbai-based UFO Moviez, Gaikwad had already revolutionized India's film distribution business by convincing thousands of single-screen theater owners in the hinterland to convert to digital — creating his own, cheaper alternative to the technology being promoted by Hollywood's Digital Cinema Initiatives, a virtual cartel comprising Metro-Goldwyn-Mayer, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox, Universal Studios, The Walt Disney Company and Warner Bros.
So, when he saw James Cameron's "Avatar" fill multiplexes with audiences ready to pay a 25 percent premium for 3D, it was like deja vu.
"When we started our digital cinema business in 2005, we knew that when everything got digitized moving to 3D would be much easier than during the analog days," said Gaikwad.
"Eventually, it was proven when Hollywood studios started releasing a large number of 3D movies over the last two, two-and-a-half years. That is the time we realized 3D is here to say."
Ten years ago, Gaikwad convinced theater owners to convert to digital so they could download new releases instantaneously — filling seats by beating local pirates to the punch. But with 3D, it was a tougher sell.
Apart from a handful of multiplexes in metropolitan cities, Indian movie theaters earn 90 percent or more of their revenue from Indian films — not Hollywood blockbusters like "Avatar." After a decade of effort by DCI, the Hollywood cartel had only managed to sign up 76 theaters.
Meanwhile, until this year, no Indian had ever made a 3D film, and as long as only a handful of big city screens had the technology to show them, they weren't about to start, either.
"Unless you have that critical mass, you can't spend that additional budget for 3D content, and if you don't have any 3D content then people are not interested in investing in 3D infrastructure, so it was becoming like a chicken and egg story," said Gaikwad. "That is the time we decided to do something different."
To bridge the gap, Gaikwad's UFO Moviez spent a year-and-a-half creating its own 3D technology, which doesn't require a silver screen and costs about a third of what Hollywood's DCI 3D technology costs to install. Then, because the DCI agreement meant that he wouldn't be able to show films produced by the big seven Hollywood studios, he approached Indian cinema owners and offered to give them his 3D projectors for free, in exchange for a modest cut of the proceeds for upcoming movies — at 10-15 rupees per ticket.
"The capital cost is borne by UFO, whether it is changing the screen from the white screen to silver screen or by putting this 3D box and the additional projector," Gaikwad said. "Only when 3D movies are played do we recover our costs. That is how we started aggressively going into the market."
The bet is already paying off — at least in terms of expansion.
Currently, UFO Moviez has inked deals to install its 3D projectors in 200 Indian cinema halls, and Gaikwad says they will be up and running in 500 theaters by March 2012. But that's only the tip of the iceberg. UFO Moviez has tapped around $60 million in financing from Providence Private Equity. And with a planned investment of around $20 million, UFO is targeting 1,500 screens by the end of next year, ready to cash in on a wave of new Indian 3D content.
Ten made-in-India 3D films are reportedly slated for release this year, and according to the Bollywood rumor mill — "Haunted" made a big enough splash that the upcoming 3D films may well include the third installment of the blockbuster "Dhoom" franchise ("Dhoom 3 in 3D") and superstar Shah Rukh Khan's much anticipated superhero film "Ra.One."
The company will recoup its costs after just 10-12 Indian 3D releases. But can UFO Moviez go head to head against the DCI cartel and make money? Yes and no, says Gaikwad.
"The Hollywood Content has a [different] audience profile, whereas we still see 90 percent [revenue] from Bollywood movies and there's a large number of single screen theaters," Gaikwad said.
"Obviously, the single-screen theaters cannot afford the technology which is recommended by Hollywood studios so they are looking at the most cost effective without any compromise on quality. That is the solution which we have provided."
At the same time, though, UFO Moviez has cracked the window for Hollywood filmmakers who haven't pledged their souls to DCI to get their 3D films into more theaters across India, and the makers of movies like "Drive Angry," "Sanctum," and the "Nutcracker" have already leapt at the opportunity.
"Barring those seven studios, the other independent movies which come out of Hollywood are getting released on the UFO platform whether in 2D or 3D," Gaikwad said.
Of course, with only one film in the can, it's hard to say for sure if Gaikwad's 3D bet will pay off. He could sink or swim on the basis of a few terrible 3D movies, and Indian producers are notorious for their hit-or-flop, scattershot approach to the business. But the results from "Haunted" suggest that 3D could give an added boost to future genre-breakers in the vein of "Krrish" and "Robot."
An otherwise unimpressive film with C-list stars, "Haunted" had the biggest box office opening of any horror film to date in India, grossing around $3 million and nearly doubling its producers' investment. Meanwhile, theater owners reaped the benefits not only through packed houses but also through charging a 25-30 percent premium for tickets. Overall, 3D screen revenue was five times that of 2D screen theaters.
"Three to five years down the line, when we reach a critical mass of 1,500 to 2,000 theaters equipped with 3D, at least 5 percent of the content, or 100 films in Hindi and regional languages, will be released in 3D. At least 10 to 15 will do really serious business."
By that time, Hollywood may well have changed its tune.