Analysing the Evolution of Cinema via an Economic Lens

Posted in Finance Articles, Total Reads: 1791 , Published on March 20, 2015

India has taken leaps and bounds in various sectors contributing to economy but has always seen a rapid growth in the field of entertainment, especially in the field of cinema. In a country where public craze is all about three names, cinema takes third place following gold and cricket. With Indian population constituting nearly 50% as youth and a steep increase in the disposable income levels there has been observed a high propensity to spend on leisure which includes majority spending on cinema and entertainment, over the past few years.

Talking about the evolution of cinema, Indian cinema underwent a complete transformation from bell bottomed, hippy style Rajesh Khanna, Dev Anand to six pack and butt bearing heroes in today’s era and from sati-savitri to uber-cool woman who cares beyond her own life. But this transformation has not been just restricted to the lifestyles of the actors in a movie but has crossed the boundaries causing a tremendous change in the budget line of it.

Then was the time in India when a cinema reflected several problems prevailing in the country and how people struggled to overcome it like “Mother India”, which became the first Indian cinema to make its entry to the Oscars. Indian Cinema started off as an alternative to plays and dramas in the field of entertainment, but today it has earned the statute of an industry. It was the time when the protagonist of the movie was portrayed in grey colours as a poor man, which moved on and finally landed in today’s times where luxury element in the film became the most important contributor for its success.

And since early 1970s till early 2000s Indian cinema saw some diverse shifts in the procedure of movie making due to the introduction of advance technology in the country, then bloomed the science-fiction movies starting with Mr.India, and many to name which involved parts of the movie being shot abroad and this is how the budget of the movies took a substantive rise. These genres of movies slowly moved into those focusing mainly on visual effects, so called VFX and movies like Koi mil gaya, Dhoom 2, Ra One released. This involved lot of technicians from abroad to work for the movies and this had its significant impact on the budget involved in producing the movie. Eventually the shooting of the movies went entirely being shot outside India mostly probably in a western country to appeal to global audience.

Earlier were the days where movies used to pop up once in a while unlike now-a-days where we see dozens of movies being released every week and where the success of the movie moved from judging it based on the number of days it aired on the screen to just calculating the box office collections.

Talking about the budget involved in the movies, lot of parameters go on to the platter before we calculate the entire cost incurred producing the movie such as remuneration to the actors, payment to director and other technicians, technological equipment and other R&D used in the movies, cost of sets, advertising costs etc. In the golden era of cinema, actors never had a voice regarding the remuneration or characterisation of the actor, as there were limited opportunities which the actors never wanted to lose out on unlike now where actors and other supporting cast has plethora of opportunities and it has cultivated a freedom of voicing out there opinions regarding remuneration, making minuscule changes to the character they are going to live in the movie and also regarding the co actors they are going to be on sets as there are lot of budding directors who are in hunt for good performers. The primary reason behind this change in the style and budgeting of making a movie is because of change in the target audience. As a reason not only did the budgeting of the movies increase but so did its contribution towards the economy.

And today Indian cinema contributes upto $6 billion+ to the Indian economy alongside the TV industry and stands as one of the highest contributors to the GDP of India more than the advertising industry. This indicates the prominence of Indian cinema to the growth and vitality of the country’s economy. As mentioned before the industry of cinema has become a wider part of today’s consumer life as the increase in the disposable income made consumers spend more than ever towards leisure and entertainment especially in the urban society.

To quantify the contribution made towards the economy there are some key factors considered which are gross output, gross value added, net direct taxes etc.

Gross Output: It is representative for the number of goods and services supplied by the entities in the movie industry.

Gross Value Added: It measures the output that is being generated by the entities in the industry.

Net Indirect Taxes: A number of indirect taxes that are paid by the industry such as entertainment tax, service tax, value added tax etc.

Multiplier effect: Besides the direct impact that entertainment industry which is measured by the economic indicators there is also indirect impact which can be understood as multiplier effect. Multiplier effect is the subsequent increase caused in other factors influenced by the increase in one parameter. For instance, if there is increase in the cost of the infrastructure, remuneration of the actors then this causes increase in the cost of tickets etc.

As per the report taken in 2009, it is estimated that 80-90% of the total entertainment tax collections are from the film industry.

Some of the key trends in this industry will include the following parameters:

1. Growing industry size: As previously discussed the increase in the disposable income of the consumers coupled with increased willingness to spend on leisure has eventually increased the consumption market and audience for this industry.

2. Globalisation of Indian Films: Ever since 2000, there has been considerable increase in the number of movies that are released worldwide. The primary reason for this is increased migration of Indians to the west and increased Indian population in those countries which subsequently led to increased demand for Indian cinema overseas.

3. US/International Studios in India: Very recently the international film markets have been making a determined effort to enter India and stabilise their positions in India which happened with Warner Bros. as a joint production with Ramesh Sippy for “Chandni chowk to China”. Alongside they have also been making consistent efforts for dubbing Hollywood movies into Indian languages in an attempt to reach out and cater larger audience of this country which so far have been very successful.

4. Exhibitions: The platforms for airing movies has increased over the years with the expansion of multiplexes and the increased attempts of many industrialists to provide a better facilities and experience of watching movies which has led to increased revenue.

5. Better realization for producers: After the exhibitor-producer strike there has been considerable increase in the revenue share by the producer has led to improved realization.

6. Entertainment Tax Exemptions: This benefit was made available by the state governments and has served as an incentive for the expansion of multiplexes.

7. New distribution Platforms: With digitisation bubble bursting and having an ability to cater to larger audience it not only helped in reducing PIRACY but also led to media convergence on mobile phones and computers, but yet impact of piracy on the revenue generated is in the process of minimization and yet to see a lot of improvement.

Thus, the economic impact of the Indian film Industry is estimated at Rs.6,846 crores (USD 1.5 billion) which is approximately 0.13% of GDP. The estimated total employment generated by the Indian film Industry is estimated at 4.2 lakh (0.42 million) workers.

This article has been authored by Kranthi Sunku & Subhrajyoti Das from XIMB 







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