Last week, this column discussed Kollywood’s debt traps and the suicide of producer Ashok Kumar. The crux of the issue was that Kollywood films were funded by private financiers who charge exorbitant interest rates and use extreme pressure to recover their dues.
This week we will talk about the other side of the issue; rising star and technician salaries which lead to budgets going awry and producers having to borrow from loan sharks.
Till the beginning of 2000, superstars used to give production houses or leading producers their confirmed dates. All that changed with the emergence of star directors and technicians, who started calling the shots. The star started giving his dates to the director, as 60 to 70% of total budget went towards their salaries. The system changed overnight with the hero cozying up with his director which in turn made the producer a mere middleman.
The new producer
Many production houses stopped doing films and a new breed of producers, who were either in other businesses or fly by night operators, came into production. They had no knowledge about film production but were willing spend more than traditional producers. On the strength of heroes, and in some case the director’s star value, a lot of private financiers were willing to fund the film. The producer, on borrowed money, made a film without looking at the spiralling cost factor.
Earlier, up to late 1990’s, when a big hero film was announced, distributors rushed to fund the film from the time of its pooja launch. Today the system is dead as most producers are forced to distribute the film through the financiers’ network of agents and theatres.
The bubble burst when the cost was more than the actual sales of the film from theatrical and other rights. In many cases, the producer had to announce another film with some other saleable star to get fresh funding from loan sharks which he diverts to get the earlier project released. And he is caught in this vicious circle of borrowing which leads to his ultimate doom. Let’s take the case of a recent super hit film which had record collections; the producer of the film is still not out of the woods due to the film’s budget overrun and interest from past duds. Another recent phenomenon is producers jacking up star salaries and in certain cases willing to pay an advance to the hero and key technicians a year before the production starts. Even this amount is usually borrowed money.
How much to borrow?
Today, there are only five production houses in Tamil cinema who make films without any outside borrowings from financiers. One of them says,“Film production cannot be planned based on borrowed funds alone. Like any other business, unless you raise 80% of the total cost yourself, relying on borrowings only closer to release, films are not going to work out. When the dependence on borrowed fund crosses 50-60% of the budget, the problem begins as the cost of the film goes up because of the high interest rate. And in most cases, the interest eats up the profitability or break even factor of the film.”
G Dhananjayan, a producer who is making his new film with actor Kathik and his son Gautham Karthik says, “For Mr.Chandramouli , we have commenced the shoot based on our own funds largely (by three partners) and not planned to borrow any money. If we borrow, it may be towards the end for a short period to keep our interests low. The idea is to maximize our earnings from the film, rather than giving away the same to financiers.”
A top production house has recently signed a new film with a very big hero and a star director with a water-tight contract that if the film’s cost overshoots the budget (₹105 crore), the director and hero will have to bear the excess cost from their salary.
