Don't Overestimate Revenues And Underestimate Costs: G Dhananjayan

G Dhananjayan, national award-winning author, film producer, founder-dean of BOFTA film institute, writes on the topic of the hour – how producers are overestimating revenues, underestimating costs and end up getting trapped by loan sharks. He also reveals how to make films responsibly with minimal risk.

The vicious nature of film business took one more toll, the life of Ashok Kumar, who was the co-producer with director-actor M. Sasikumar for ten films, most of them were successful. His death is a clear warning to producers, who are lackadaisical in planning the budget and execution of their films. Passion and deep desire is not sufficient to be a film producer.

"One needs to know the nature of film business fully before entering it.

As there are no entry barriers, so many producers enter every year (almost 150 in Tamil cinema) and out of them not even two or three succeed and continue. Rest either go bankrupt or go back to their original profession with heavy losses.

These sad incidents can be avoided or reduced if people involved in film production understand two basic things clearly: revenue and budget. Unfortunately most ‘overestimate’ the revenue potential and ‘underestimate’ the cost of the film. In both, they go wrong and end up in chaos.

Varying Nature of Business and the Need of underestimating revenue

Firstly, most films don’t bring in the revenues forecast initially due to varying nature of the business (monsoon, cyclone, ticket price hike, sudden strike, death of a political leader etc. may all suddenly spoil the film’s collections), which is dependent on domestic theatrical revenues by almost 70-75%. The balance 25-30% from satellite, digital, overseas, dubbing and music is not guaranteed and may come if the film clicks at box office. Since rights like satellite and digital sell today only when the film succeeds at box office, one can say,

"Almost 100% of the revenue forecast is dependent on the film doing well in theatres.

 

For a film to do well at box office, it should release at the right time with at least reasonable expectations among the public, with limited competition and must get positive word of mouth after the first show. All these are not easy to achieve and hence only a few films succeed in a year. As far as possible, producers must ‘underestimate’ the revenue potential and verify whether they can make their film within that to ensure the film is commercially successful.

Where the producers go wrong &  Need of Overestimating cost

Secondly, producers must remember that film production is a teamwork and is largely dependent on the captain of the ship, Director. It is the Director who can make or mar a film. If the director aligns with the plans of the producer especially on cost, he shall ensure that the film is produced within the budget. If he is not aligned and operates on his whims and fancies, he might stretch the budget as much as possible by shooting for longer days, seeking high budget for set work, expensive camera and equipment, indulge in costly VFX/CG work etc. That’s where most producers go wrong. They underestimate the cost without realizing that it is not they control the budget but the Director and his team. Most films end up with overspending by at least 25 to 50% (some even 100%) only due to this lack of alignment between the Producer and Director.

 

"Most films end up with overspending by at least 25 to 50% (some even 100%) 

 

In few films, where there was perfect alignment, the budgets were restricted is a reality. Keeping this fact, producers must ‘over estimate’ the cost at least by 20-25% of their original budget and check out whether the underestimated revenues forecast meet this overestimated budget. If they do not meet, producers must take some hard calls on whether to make a film or not.

Responsibility and the need to avoid Luxury film-making

No one is knocking at the doors of producers to make a film. It is the producer, due to the so-called passion and desire, ventures out to produce a film, without being ‘responsible’ to the investors (which can be friends, family, own money or borrowed money). Being responsible to the money raised and taking tough decisions on a film production in most cases will reduce the risks. If one is careless and abdicate his responsibility of film production by delegating to the production managers and direction team, who do not take ownership for budget, the result will be overspending than what was forecast. In film production, every rupee saved is money earned. Producers must work day in and day out to reduce the cost, without compromising on the creativity. As an example, if a legendary director like Mani Ratnam can shoot most of the Mumbai portions using a set in Chennai and reduce the cost for films like Bombay (1995) and OK Kanmani (2015), others trying to shoot in Mumbai at real locations and incur high cost makes no commercial sense. Either they should learn how to creatively cheat on locations and reduce the cost or should make only films based in Chennai city and within interiors of a house or set.

Objective of film production is not to become popular by making everyone happy by giving them royal treatment (five or seven star hotel stays, high-end car use, accepting delays in reporting for shooting, canceling shoots to accommodate actors’ demand and incurring additional cost etc.) and ending up with huge losses. There is respect only as long as you are in production. If you lose out financially, no one bothers and respects you in this industry. For actors and technicians, you are one among the producers they will be working in their career and hence instead of trying to make them happy by incurring high cost, bring out a best film in the lowest possible cost and they will respect you even more as you have given a successful film in their career. They will forget your stinginess if you have given a good film for them. Luxurious filmmaking kills over time while necessity based filmmaking enables survival.

The Survival Mantra - The YES & NO

This suicide and the earlier such incidents all happened when the producers ended up overspending by borrowing heavily to make a film and when they were unable to pay back, borrowed money by commencing another film and when that film also did not click commercially, started another and the vicious cycle continued and at one stage, the past caught up hard and sat heavy on the head of people involved. Each film must be treated as a standalone project, revenues should match cost else money should be raised (not borrowed) to settle the excess cost incurred before commencing the next project. There should be a clean financial slate (zero debt) before commencing a new project at least on paper so that there is no additional burden on the new baby.

"Survival in film business depends on our ability to say “NO” than saying ‘’YES” to new film opportunities and business deals.

 

The more one is able to say NO and stop taking up more projects when in debt would have saved some lives. Cinema should not be treated like a gamble (we have to earn back where we lost is the principle followed by most losers in gambling). It is an art combined with business. One should venture into it only when we have a strong idea on both the art of filmmaking and the business of films. If one does not have, must at least align with knowledgeable persons and with their support enter and produce films at low cost to minimize the risks.

Take calculated risks

Lastly, film production especially films with not so saleable artistes is risky. Only the quantum may vary. It may be low risk (25% loss), moderate risk (50% loss) or high risk (100% loss). Only well experienced and knowledgeable producers have ensured all their films are low in risk or at least achieve break-even, even if their films are average or bad. Rest end up with moderate to high risk and lose out heavily.

The time has come to put an end to this lack of awareness on the vagaries of film business and make everyone aware and be cautious. Loan sharks know their business well and hence take away signed blank cheques, blank letters and stamp papers, using which they write whatever they want and add interest on interest when there is default and sink the producers at the end. We as producers must also know our business well especially on revenues and costs so that we are not eaten away by these sharks and instead manage to survive and succeed, despite the challenging nature of this business.

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