Unhappy ending: Why foreign entertainment companies are heading for the exits

People familiar with the developments said the company was looking to exit after Reliance began betting aggressively on sports, as Viacom18 isn’t keen on the category globally. “They were anyway being ousted by Reliance and, globally, have no interest in the sports segment. Things reached a dead end post the merger with Disney,” said a senior analyst, declining to be named. In February, Reliance said that a new joint venture will combine the Viacom18 and Disney Star India businesses.

Paramount is not the first foreign entity to have given up on India’s entertainment industry, despite its young content-viewing population and rising disposable income. In 2009, NBCUniversal exited its partnership with the NDTV Group, which had led to the formation of NDTV Imagine.

In 2016, Walt Disney pulled the plug on its Hindi film production, closing UTV Motion Pictures. However, Disney acquired 21st Century Fox Inc. in a $71-billion cash and stock deal in June 2018. This brought Star India, Fox Star Studios, and Hotstar into the Walt Disney fold. While movie production did continue through Fox Star Studios for a while, the company’s last theatrical release was superhero film Brahmastra in 2022. The American giant’s focus has now shifted to backing movies for its streaming platform, Disney+ Hotstar.

Further, in 2020, Universal Pictures shut its India office, with all its Hollywood titles now distributed in the country by Warner Bros.

Reasons for the disenchantment with India vary—from an unpredictable theatrical box office to uneasy intellectual property (IP) sharing terms with local producers, as well as broadcast regulations that make operations challenging. The emerging streaming industry, meanwhile, has already seen paid subscriptions hit the ceiling as advertising struggles to take off.

Moreover, India’s heterogeneous market has always been difficult to cater to, with its language and geographical variations. Global executives, who insist on micromanaging things and refuse to relinquish control to local teams in the country, have often struggled to fathom the market.

Box office uncertainty

India’s theatrical ecosystem continues to be riddled with far too many uncertainties for cautious and conservative foreign players to attempt big bets. The severe under-penetration of theatres means there is far too much dependence on metros and urban multiplexes, when large chunks of audiences have stopped going to cinemas in the first place, finding comfort in the convenience of home viewing and large television screens. While the Indian movie industry raked in record box office revenues of ₹12,226 crore in 2023, this was due to higher ticket pricing—footfalls have actually fallen by 10-20% across single screens and multiplexes compared to the pre-covid period.

Despite the Indian movie industry’s record-breaking box office earnings of ₹12,226 crore in 2023, footfall at both single screens and multiplexes has declined by 10-20% compared to pre-covid levels.

Global corporations have continually refrained from active investment in India; their movie production operations are more or less defunct. While the Walt Disney Co. has been focusing on producing local content for its streaming platform Disney+ Hotstar over the years, others, such as Sony Pictures International Productions, remain cautious with few, modestly budgeted titles spread out over months. Warner Bros has no local production arm even though it distributes American films in the country, while MGM (Metro-Goldwyn Mayer) hasn’t even attempted an entry.

Several analysts question this disenchantment with Bollywood given that Indians are known to love their movies. But there are dynamics at play behind this state of affairs. One, international studios have recognised the need to partner with local co-producers over the years, as the latter have a better relationship with talent and a deeper understanding of the market. But in return, the studios consistently refuse to part with intellectual property rights.

Two, leading Indian male actors often insist on pocketing 60-70% of the production budget as their salary. Third, the Bollywood theatrical film business model, which was already under stress before the pandemic, no longer fetches big returns in small towns.

It is hence, hardly surprising that this is the second time Disney has closed down an Indian film unit (after UTV Movies). It is a move that epitomizes the disillusionment of Hollywood studios with the Bollywood business model, say industry experts.

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The American conglomerate had acquired a controlling interest in UTV Software Communications in 2012 after which all forthcoming titles made by the company were rebranded as Disney movies. However, the firm announced it was halting all local film production in 2016 after a spate of disasters, including Mohenjo Daro and Jagga Jasoos.

“Compared to say, television, where global players have at least invested actively over the decades, and there is an established source of revenue from advertising, Indian film production has never seen a large strategic studio player make any kind of dedicated investment on a sustained basis,” said an independent producer and former studio executive, declining to be named. Coupled with lack of organized funding from banks or private equity, this has meant there is inadequate capital for movie production in India.

In fact, several studios believe it simply makes more sense to distribute Hollywood films—they bring in better returns and require negligible marketing, though the money-spinning superhero franchises have also been under stress for the past few months. Recent films of the Marvel Cinematic Universe (MCU), for example, including Guardians of The Galaxy Vol 3; Ant-Man and the Wasp: Quantumania; Black Panther: Wakanda Forever; and Eternals, have struggled to surpass the ₹100 crore mark in India, and, in certain instances, even the ₹50 crore mark.

Broadcast regulations

Things aren’t much rosier on the broadcast television front. The pay television market is heavily regulated, an unfair disadvantage compared to the completely unregulated, free, user-generated content ecosystem prevalent on the Internet. From regulators such as the Telecom Regulatory Authority of India (Trai) fixing prices of TV channels to a national broadcasting policy that attempts to bring over-the-top (OTT) media under the same umbrella as TV and gaming, the challenges are many for foreign players.

The Broadcasting Services (Regulation) Bill proposed by the I&B ministry last November, for instance, has sparked significant distress within the television and streaming industries. The draft bill seeks to regulate broadcasting services, including OTT content and digital news, stifling innovation with a regressive approach, say media experts.

One worry, among many, is the establishment of a content evaluation committee (CEC), which would require broadcasters to certify their programmes through this body, potentially impacting creative freedom and imposing an additional financial burden. “How can unequals be treated as equals? India is a market with significant promise, but we never deliver on our promises,” said a senior broadcaster, on condition of anonymity.

Micromanaging local teams

That said, several media and entertainment industry experts point out that global parent companies have not given their local executives a free hand to run teams in India. In cases where there has been no micro-management, such as with Sony’s television business, the business has prospered. In the words of the broadcaster mentioned above, “You can’t run the country on a tourist visa.”

“If you’re trying to run the business sitting in another country, you will have no idea on either the regulations or the complexities and biases prevalent in this unique, heterogeneous market. We are an extremely complicated market because of our diversity, and it can be difficult for any international player to navigate and do well given that the market operates with its own quirks, and things are done their own way here,” the person added.

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Further, there has been little effort on the part of corporations to cater to India’s diverse, mass-market, TV viewing population in the first place. “There is a certain belief that TV is a thing of the past and that digital will overrule all other media. That cannot be true when around 140 million people in the country haven’t even bought their first TV sets, and most TV homes do not have access to WiFi,” said Harit Nagpal, managing director and chief executive officer (CEO) of Tata Play.

Global parent companies have not given their local executives a free hand to run the teams in India, industry experts pointed out.

That mindset has resulted in very little innovation on TV, with over-dependence on a young population flocking to digital programming.

The fact that digital subscriptions have remained flat is testament to the fact that the free content-viewing population has been saturated, and that in a market like India, there is room for both TV and digital to grow together, Nagpal reasoned.

India is a complex market with multifaceted nuances that impact critical business decisions in the media and entertainment sector, said Chandrasekhar Mantha, partner, media, and entertainment leader, Deloitte India. The content preferences, media consumption habits, and regional demographic trends are ever evolving in India, with its younger population, he noted.

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The proliferation of wireless broadband and mobile devices has empowered consumers to make their own choices with entertainment consumption. Today the choices available to viewers are numerous, right from traditional TV to social media content and OTT. Growing complexities require M&E companies to keep closer to the pulse of the audiences, markets, preferences and trends, said Mantha.

“In contrast to other international markets, India presents a more demanding environment, where a deeper comprehension of the market can lead to achieving success and long-term sustainability, and this has to be done within the ambit of profitability economics. With the world’s largest population, India offers great opportunities in the M&E sector,” said Mantha. “The competition to grab viewers will keep intensifying and that may bring high growth, contraction or cannibalization among media participants. Knowing your audience well, the ability to execute within reasonable costs, and a focused content production and distribution strategy are a few things to focus on in this complex market for success.”

Streaming boom no more

As is evident by now, India’s streaming boom has slowed down. The audience for OTT platforms rose by 13.5%, reaching 481.1 million in 2023, up from 423.8 million in 2022, according to a recent report by media consulting firm Ormax. While this growth rate is significant, it falls short of the 20% surge seen in 2022.

The growth rate isn’t low, Ormax had said, especially since penetration in rural areas and small towns, which make up a sizeable part of the population, stands only at 23% compared to the pan-India figure of 34%. But OTT platforms are yet to address the challenge of whether consumption can grow beyond the top 20 cities.

First of all, the OTT market doesn’t have space for so many players. Plus, nobody is making money.
—Partho Dasgupta

Amid this, global giants such as Netflix, Prime Video and Disney are facing profitability pressure, which has tempered their bullishness and reined in their spends in the country. Plus, the industry consolidation in India has stretched far too long, be it the Zee-Sony merger or the sale of Disney’s assets to Reliance Industries, which in turn, led to a slowdown in content commissioning and green-lighting decisions, leaving many producers in the lurch with ready projects or ideas they wanted to pitch and take to the floors.

Meanwhile, new advertising-driven models are emerging with little clarity on revenue possibilities, since a major chunk of digital advertising is going to YouTube and Facebook, even with paid subscriptions having barely taken off.

“First of all, the OTT market doesn’t have space for so many players. Plus, nobody is making money. India does not seem an attractive proposition at the moment,” said Partho Dasgupta, managing partner, Thoth Advisors and ex-CEO, BARC India.