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- - thesis entitled

AN APPLICATION OF FLOW APPROACH TO THE
STUDY OF DOMESTIC MARKETING ABROAD:
A CASE STUDY OF INDIA'S MOTION
PICTURE INDUSTRY

presented by

Jagmohan Mundhra

has been accepted towards fulfillment
of the requirements for

Ph.D. Marketing

 

 

degree in

“E.
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Date October 31, 1973

 

0-7639

 

ABSTRACT

AN APPLICATION OF FLOW APPROACH TO THE
STUDY OF DOMESTIC MARKETING ABROAD:
A CASE STUDY OF INDIA'S MOTION
PICTURE INDUSTRY
By

Jagmohan Mundhra

The Objective and the Approach

 

This dissertation describes, analyzes and evaluates
the marketing of a service in a developing economy as
exemplified by the motion picture industry in India. A
motion picture is regarded as a service because it cannot
be physically possessed by its consumer (the movie-goer).

In 1971, India produced the largest number (433)
of feature films in the world. To study the marketing
of motion pictures in India, a fundamental approach was
needed which would describe clearly what agencies partici—
pate in the work of marketing, what they do irrespective of
what they are called, how much of each task they perform,
and in what sequence. "Flow-approach" originated by
Professor Reavis Cox was found to be most useful because
it converted the functions of marketing into various flows
for purposes of analysis and measurement. Five such flows
were selected to be examined: flows of physical possession,

ownership, financing, payment and communication. Attention

Jagmohan Mundhra

was directed at the "aggregate" channel comprising of each

of the five "unit" channels.

The Areas of Inquiry

 

Answers were sought for five specific questions in
this thesis. The first two constitute the descriptive
aspect, the third forms the analytical aspect, and the
last two belong to the evaluative aSpect of this research.

Question 1. What is the existing structure of
channels in India's motion picture industry?

Question 2. Why have these channels taken exist-

 

ing structures?

Question 3. How much marketing is performed in the

 

channel?

Question 4. How efficient is the functioning of

 

a marketing channel in the industry?

Question 5. How would common proposals for change

 

affect the marketing of motion pictures in India?

Procedures and Methods

 

Flow diagrams were drawn for each of the five chan-
nels in answer to the first question. Also the participat-
ing elements in the channel, the channel captain, the
direction, duration and magnitude of the flow were identified
and discussed. In reply to the second question, factors
responsible for the existing structure of the channels were

presented in the light of the environment in which they

Jagmohan Mundhra

evolved. In order to answer the third question it became
necessary to define three real and two monetary indicators
of marketing work. On the basis of data collected for a
simple random sample, estimates for the values of these
indicators were made for the population average. These
values could serve as a set of decision criteria to

separate the efficient channel from the inefficient one as
required in Question 4. Sources of inefficiency both
internal and external to the industry were identified and
the pros and cons of the effects of certain common proposals

for change were examined in response to the last question.

Results and Recommendations

 

The description, analysis and evaluation of the
aggregate marketing channel in India's motion picture
industry resulted in the following set of recommendations
to the industry.

1. There is an immediate need for both vertical
and horizontal integration at all levels in the industry.

2. Self-regulation is the only answer to many of
the industry's problems for which it alone is to blame.

3. The concept of cooperative advertising should
be introduced in the channel.

4. A reorganization of distribution territories
is needed to improve efficiency. An alternate system is

proposed.

Jagmohan Mundhra

5. Theaters should be forced to shift to a per-
centage basis of payment rather than the present systems
of fixed rentals and minimum protection.

6. The average length of the feature film should
be reduced by a thousand meters. Shorter running times
will result in more shows and hence more releases, thus
easing the problem of theater shortage.

7. A computerized accounting system is proposed
for managing the flow of payment.

8. The need for on-going market research to keep
abreast with changes in audience tastes and preferences

cannot be overemphasized.

Conclusion

 

A marketing channel in India's motion picture
industry is inefficient due to internal as well as external
problems. Recommendations are aimed at solving the
internal problems. The external environment at the present
time is not conducive to the uninterrupted flows of physi-
cal possession, ownership, financing, payment and com-

munication.

AN APPLICATION OF FLOW-APPROACH TO THE
STUDY OF DOMESTIC MARKETING ABROAD:
A CASE STUDY OF INDIA'S MOTION

PICTURE INDUSTRY

By

Jagmohan Mundhra

A DISSERTATION

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Marketing and Transportation Administration

1973

Copyright by
J AGMOHAN MUNDHRA

1973

DEDICATION

 

To all those who cared.

ii

ACKNOWLEDGEMENTS

By the time a typical Ph.D. candidate reaches the
stage of writing this section, he or she has a lot to be
thankful for. Not only is he indebted to a lot of people
who gave direction, assistance and guidance in the course
of research, but also to those who put up with him at the
peak of his irritating behavior during the seemingly
endless, grueling period of writing. II am no exception.

I wish to thank the members of my executive com-
mittee, Professor Leo G. Erickson, Professor Donald A.
Taylor, and Professor Richard J. Lewis, for their guidance
and encouragement. In spite of their busy schedules,
,their quick feedback really expedited the preparation of
this thesis. Their understanding, compassion and expres-
sion of confidence in me will not be forgotten.

This dissertation couldn't be possible without
the help of the Motion Picture Industry in India. Mr.
Tarachand Barjatya, Mr. Mohan Segal, and Mr. Prakash Verma
wholeheartedly supported this project and gave valuable
advice and information. I am extremely thankful to them.
I also appreciate the c00peration of Mr. Jimmy Ollia, Mr.
Colin Pal, Mr. Hosi Wadia, Mr. Rajendra Kumar, Mrs. Gulshan
Ewing, Mr. Roshanlal Malhotra, Mr. Arvind Kumar,

iii

Mr. Phani Majumdar and Mr. L. N. Verma in providing useful
contacts and significant data.

I am grateful to Mrs. Karen Yurchak who was a lot
more than a typist and a proofreader to me. Her suggestions
were invaluable and her expertise on the typewriter made it
possible to meet all the deadlines.

Finally, I want to express my gratitude to my wife
who patiently put up with a totally unattentive husband in

the first year of marriage. Chandra, thank you for hanging

in there.

iv

TABLE OF CONTENTS

DEDICATION O O O I C O O O O O O O 0

ACKNOWLEDGEMENTS O O O O O O O O O C 0

LIST OF TABLES O O O C C O O O O O 0

LIST OF EXHIBITS O O O O O O O O O O 0

Chapter

I.

II.

THE RESEARCH PROPOSAL . . . . . . .
Nature of the Problem . . . . .
The Subject Matter of Research . . .

The Descriptive Aspect . . . . .
The Analytical Aspect . . . . .
The Evaluative Aspect . . . .
Conceptual Framework and Methodology .
The Flow-Approach . . . . . . .
Application to our Specific Problems
Reduction of Marketing to Measurement
Indicators of Marketing Work . . .
Movement Through Time .
Methods of Obtaining Data and the Use
of Statistics . . . . . . .
Reasons for the Choice of Industry and
Country . .
Contribution of This Study to Marketing
Literature . . . . . . . . .

BRIEF REVIEW OF LITERATURE . . . . .

Introduction . . . . . .

Studies of Domestic Marketing Abroad .
Studies Using "Flow-Approach" as a
Theoretical Framework . . . .
Studies Based on Marketing in India .
Studies Dealing with the Economic
Aspects of the Motion Picture
Industry . . . . . . . . .
Conclusion . . . . . . . . . .

V

Page
ii
iii
viii

ix

KO\IU1l-"

10
15
17
22
24
26
27
29
35
42

42
43

49
54

57
61

Chapter Page

III. BACKGROUND INFORMATION ON THE INDIAN

FILM INDUSTRY . . . . . . . . . . . . 62
Introduction . . . . . . . . . . . 62
A Brief Historical Perspective . . . . . 64
India's Movie-Going Public . . . . . . . 72
The Organizational Structure . . . . . . 80

Organizational Structure in the
Production Sector . . . . . . . . 84

Organizational Structure in the
Distribution Sector . . . . . . . 90

Organizational Structure in the
Exhibition Sector . . . . . . . . 94
Current Trade Practices . . . . . . . . 99
The Government's Role . . . . . . . . 109

IV. CHANNELS AND FLOWS: THE DESCRIPTIVE
ASPECT O C O C O O C O l O C I O O 115

Introduction . . . . . . . . . . . 115
Physical Possession Flow . . . . . . . 116
Ownership Flow . . . . . . . . . . . 120
Financing Flow . . . . . . . . . . . 129
Flow of Payment . . . . . . . . . . 135
Communication Flow . . . . . . . . . 141
Factors Responsible for the Existing

Structure of Channels . . . . . . . 146
Conclusion . . . . . . . . . . . . 151

V. MEASUREMENT OF MARKETING: THE ANALYTICAL
ASPECT I O O O O O O O O C O O O O 152

Introduction . . . . . . . . . . . 152
Real and Monetary Indicators . . . . . . 154

Other Possible Indicators . . . . . . 161
Description of Population . . . . . . . 163
Selection of the Sample . . . . . . . . 166
Statistical Procedure . . . . . . . . 168
Computations . . . . . . . . . . . 171

Interval Estimation for Production Cost . . 172

. . . 173
. . . 173
174

Interval Estimation for Indicator
Interval Estimation for Indicator
Interval Estimation for Indicator
Interval Estimation for Indicator . . . 174
Interval Estimation for Indicator . . . 175
A Test of Hypothesis . . . . . . . . 175
Interpretation . . . . . . . . . . . 178

U'lubUJNl-J
o
o
0

vi

Chapter

VI. EFFECTIVENESS OF MARKETING: THE EVALUATIVE

ASPECT . . . . . . . . . .

Introduction . . . . . . .
The Meaning of Marketing Efficiency
Sources of Inefficiency . . . .
Lack of Integration . . . .
Erratic Financing . . . . .
Excessive Taxation . . . . .
Bureaucratic Controls . . .
Scramble for Stars . . . .
Scarcity of Theaters . . . .
Ill-organized Territories .
Common Proposals for Change . .
Method of Amortization . . .
Nationalization of Theaters . .
Setting Up the Film Council . .
Conclusion . . . . . . . .

VII. SUMMARY AND CONCLUSIONS . . . .
Recommendations . . . . . .

Some Opinions . . . . . . .

A Brief Review . . . . . . .
Suggestions for Future Research .
Limitations of This Study . . .

A Closing Statement . . . . .
APPENDICES . . . . . . . . . . .
A. DETERMINATION OF OVERFLOW . . . .
B. GRAPHICAL DETERMINATION OF OVERFLOW
C. AN ANALYSIS OF INDUSTRY CASH FLOW .
D. PROPOSED TERRITORIAL RE-DISTRIBUTION

BIBLIOGRAPHY O O O O I O O 0 O 0

vii

Page

180

180
181
184
185
186
187
188
188
189
190
190
191
198
200
201

202
202
210
211
213
214
215
216
217
220
221
224

225

12.

13.

14.

LIST OF TABLES

Number of Feature Films Produced . .
Annual Attendance at Cinema in India .
Thematic Classification of Indian Films

Classification of Films Produced on the
Basis of Language . . . . . .

Allocation of Total Costs for a Hindi
Film 0 O O O O O I I O O 0

Classification of the Population on the
Basis of Language Spoken (1961) . .

Output of Hindi Films According to
Production Centers . . . . . .

A Table of Random Digits . . . . .

Data for Statistical Computations . .

Data for Test of Hypothesis . . . .

A Comparative Analysis of the Govern-
ment's Cash-Flow Using Three

Amortization Methods . . . . .

Proposed Reorganization of Distribution
Territories . . . . . . . .

Net Cash Flow Before Taxes . . . .

Comparative Analysis of Industry Cash
Flow 0 O O O O O O O O O 0

viii

Page
63
73

76

100

163

165

165
168
170

176

193

206

222

223

Exhibit

I.

II.

III.

IV.

VI.

VII.

VIII.

IX.

XI.

XII.

XIII.

LIST OF EXHIBITS

An Illustrative Flow Diagram

The Motion Picture Industry: A Synergy
of Art, Technology and Business

General Structure of the Motion Picture

Industry in India . . . .

Organizational Structure in the
Production Sector . . . .

Organizational Structure in the
Distribution Sector . . .

Organizational Structure in the
Exhibition Sector . . . .

Present Territorial Distribution

Channel for Physical Possession Flow

Flow of Ownership . . . . .
Flow of Finance . . . . .
Flow of Payment . . . . .

Communication Flow . . . .

Measurement of Rupee-Days of Investment

ix

Page

18

32

83

85

91

95
103
117
125
131
137
142

157

CHAPTER I

THE RESEARCH PROPOSAL

Nature of the Problem

 

Motion pictures, like any other commodity, have to
find their way through a variety of channels from the pro-
ducers to the consumer. Yet the nature of this commodity
is quite unique. To the distributor it is a can of film,

a tangible economic product which is capable of being seen
and touched and physically moved to different points in
the channel. To the consumer it is an audio-visual experi-

ence. It can be called a "non-good service" because the
1

consumer cannot have the physical possession of the film.
What he gets is an experiential possession.

Economic products lie along a goods/service contin-
uum, with pure goods at one extreme and pure services at
the other, but with most of them falling between these two
extremes. According to John Rathmell, the various market-
ing systems in the services category have taken on highly
differentiated characteristics. Although contrasts do

exist in those marketing systems that have evolved for

 

1This concept was first discussed by Robert C. Judd
in an article called "The Case for Redefining Services,"
Journal of Marketing, Vol. 28 (January 1964), 58-59.

1

 

different types of physical goods, they are primarily
differences of degree.2 In the case of services, the
marketing of recreation bears little resemblance to the
marketing of medical service. For this reason, each
industry which is in the business of marketing a service
(as perceived by the consumer) has to be studied and
researched in depth separately, and conclusions based on
one cannot apply to another. Few, if any, generalizations
can be made. The Motion Picture Industry is in such a
business.

"Survey of Current Business" lists the box office
receipts of movie theaters under "service" classification.
But if we closely examine the suggested "marketing char—
acteristics of services," they do not all apply to motion
pictures.3 Here are some comparisons:

1. Services are most likely to have their monetary
value stated as rates, fees, admissions, charges, tuition,
contributions, interests and the like. Motion pictures do
state their price as admission charge.

2. Unlike many other services the movie-goer is a4
consumer of the service and not a client. The relationship

between the audience and the movie is different than that

 

2John M. Rathmell, "What is Meant by Services?"
Journal of Marketing, Vol. 30 (October 1966), 32-36.

3For a detailed list of marketing characteristics
of services see Rathmell, Ibid.

 

of the patient and the hospital or the passenger and the
carrier.

3. Like other services, movies are products of
the economic nature, because they have some value in the
minds of the consumer and certainly they compete for the
consumer's dollar.

4. Like other services, movies cannot be mass-
produced; standards cannot be precise. Because of the
human creative element involved in this product, no one
movie can be exactly the same as another; but unlike other
services, if the product is defined as a "print" of a film,
it can be exactly duplicated. Service procedures can also
be standardized, although their actual implementation will
vary according to the creativity of people involved.

5. Economic concepts of supply and demand and
costs are difficult to apply to a service because of its
intangible nature. In case of motion pictures these con-
cepts do apply but with some modifications. Even though
the rate of admission does not go up if more people start
attending the screening, an increase in demand of a type of
product (e.g., themes containing sex and violence) does
increase its supply. Also the concept of fixed and variable
costs can be applied if all the costs of production and
negative processing are lumped together on the completion
of a film as a fixed cost (comparable to an eXpenditure in

plant and equipment), and then the costs of developing

prints from the negative as variable cost (since this cost
will vary in prOportion to the number of prints desired).

6. Webster's dictionary defines "tangible" as
"capable of being touched, capable of being realized by the
mind and capable of being affected emotionally." From the
consumer's vieWpoint, a motion picture is not capable of
being touched—-it is an image on the screen, so it is
intangible. But then it is capable of being realized by
mind as well as affected emotionally, so it is tangible.
From the point of view of middlemen and various agencies
involved in its distribution, it is certainly tangible
because it is a physical good. For a consumer it is an
emotional eXperience. This "good or service" dilemma
distinguishes this product from many others which are not
quite that ambiguous.

7. But most of all, what comes in the way of fit-
ting this product in the pattern of marketing characteris-
tics of services is the following statement by Rathmell:

Since services are acts or processes and are produced
as they are consumed, they cannot be inventoried, and
there can be no merghant middlemen since only "direct"
sales are p0581ble.
This we already know is not true in the case of motion
pictures.

These somewhat unique characteristics of motion

pictures make them a very interesting topic to study. They

 

4Ibid.

 

are primarily "services" with "good" support and their
marketing is a challenging task which has traditionally
been performed without any scientific basis. Even in the
U.S., which has a relatively high degree of awareness of
the marketing concept among the people in business, research
has indicated:
There is no significant evidence present to support
the position that the motion picture industry has
adopted the marketing concept or that it is employing
(to any appreciable degree) highly sophisticated
methods of consumer study to predict the market
response to a particular film. Decisions are based

on the gubjective judgment of movie-makers and risk-
takers.

The Subject Matter of Research

 

A study of the system of marketing in any industry
requires more than just the knowledge of its institutions
and agencies. The functions they perform and their rela-
tionships to each other are difficult to describe in
generalized terms. A helpful procedure is to fall back
upon one of the most basic concepts of marketing-~the
channel of distribution.

We may think of motion pictures as originating with
the procurement of raw film,tflual"moving" through a sequence

of processes (where form utility is added to it by

 

I;
~Chris Musun, "The Marketing of Motion Pictures"

(unpublished Doctoral dissertation, University of Southern
California, D.B.A., 1969).

imprinting coherent audio-visual effects with some enter-
tainment value into the hands of business organizations
such as distributors and exhibitors who add time, place and
possession utilities by making it available to the consumer
(the viewer) who eXperiences it at his or her convenience.
The term "moving" must be taken to cover much more than the
physical movement of the product itself. It also covers
passage of the rights and responsibilities of ownership
and the burdens of financing and risking to successive
agencies, transmittal of impulses to buy or sell, the
arrangement of successive transactions, the accumulation
and distribution of market information, transfers of instruc-
tions as to what shall be produced and the transfer of pay-
ment.

Vaile, Grether and Cox identify marketing channels
comprising of five major flows: communication, ownership,
physical possession, financing, and payment.6 A channel of
distribution may be thought of as the combination and
sequence of agencies through which one or more of the
marketing flows move.

It has been suggested that marketing behavior is

systemic, i.e., comprised of a number of interrelated parts.

 

6Some other flows discussed are negotiation, risk-
ing and ordering in Roland S. Vaile, E. T. Grether, and
Reavis Cox, Marketing in the American Economy (New York:
The Ronald Press Company, 1952), p. 121.

 

For example, a channel of distribution is a system and has
its own structure. Part of the channel may be the busi-
ness firm, which is a system or sub-system that can be
analyzed by studying its components, organization and

structure. It is to the overall channel system that our

 

attention will be directed in this thesis.

This study will describe, analyze and evaluate
marketing in a developing economy as exemplified by the
motion picture industry in India.

Each of the three aspects mentioned above has its

own significance.

The Descriptive Aspect

 

Even though a descriptive undertaking usually lacks
any major objective or hypothesis it is a prerequisite to
any such specific research. Because both theory and know-
ledge are very limited in the field treated, any attempt at
directing the work by the use of a specific hypothesis will
be both difficult and of limited utility because it may
overstructure the work. However, depth of understanding
can be gained by seeking answers to a few specific ques-
tions. Two such questions are of interest to us in this
section.

Question 1: What is the existing structure of

 

channels in India's motion picture industry?
Since we are primarily concerned with the five flows

of ownership, physical possession, communication, financing

and payment,and each flow is a series of movements from
one agency to another, five such channels will be discussed.
The structure of channels can be described and measured by
charting the following:
1. The participating elements in the channel in
succession in the direction of the flow.
2. The direction of the channel (forward to user,
backward from consumer).
3. Duration (one time, or repeating channel).

4. Magnitude (units of flow through the channel.

Question 2: Why have these channels taken existing

 

structures?

The answer to this question will put into perspective
the explanation of the present system by examining how it is
affected by:

1. The goals of society and the goals of channel

members.

2. The inputs that are required to achieve the

purposes served by the system.

3. The results or outputs that are obtained by the

system.

4. The constraints that limit the ability of the

system to attain its purposes.7

 

7E. D. Jaffe, "Towards a Systems Approach to Domestic
Marketing Abroad--A Case Study of Israeli Food Distribution"
(unpublished doctoral dissertation, University of Pennsylvania,
1966).

The Analytical Aspect

This part of the research will be essentially a
problem in logistics. It is the process inherent in a
distribution system that moves products from their producer
to their consumer. Such a system, viewed in a comprehen-
sive manner, includes a significant portion of the activity
which takes place in the channel of distribution, especi-
ally that concerned with transportation and storage, the
physical product flow, and the inventory maintained in the
channel.

There is essentially one important question to
which an answer will be sought in this section.

Question 3: How much marketing is performed since

 

the procurement of raw film to when it is released for
screening as a motion picture?

This part of the study will be quantitative.
Whether tangible of intangible, whether observed easily or
with difficulty, the functions of marketing play a crucial
role for motion pictures. The cost of performing them
represents a substantial part of the cost of arranging for
consumers to see showings of films at convenient times and
places.

Although much has been written about "heavy" or
"large" costs imposed by marketing in all areas of business,

very few attempts have been made to devise measures of the

10

. 8
work done for comparison with costs incurred. In order to
find out how much marketing is done in the motion picture
industry, it will therefore be necessary to devise measures

as well as to apply them.

The Evaluative Aspect

 

This aspect of the proposed research will deal with
two significant questions:

Question 4: How efficient is the functioning of a

 

marketing channel in India's motion picture industry?

The answer to this question will make some sort of
evaluation of the effectiveness with which the firms in
the motion picture industry perform their marketing tasks.
Having determined in some combination of senses how much
marketing is done, it goes on to see if it can come to some
meaningful conclusions as to whether the marketing func-
tions performed are really necessary and whether they are
performed with a tolerable degree of efficiency. In parti-
cular, it looks at the industry's organization to see
whether matters are so arranged as to minimize the amount
and cost of each function performed. Also it asks whether
the assortment and sequences of functions performed are such

as to reduce the overall cost of marketing to a minimum.

 

8Reavis Cox and Charles S. Goodman, Channels and
Flows in the Marketing of House-building Materials (Phila-
delphia: University of Pennsylvania, 1954), 3 Volumes,
mimeograpned.

 

 

11

Question 5: How would common porposals for change

 

affect the marketing of motion pictures in India?

There has been a lot of talk lately in the industry
about the necessity of increasing government controls, the
crippling effects of the star—system, nationalization of
theaters, new methods for amortization of films, etc.- In
order to answer the question of how proposals such as these
will affect the marketing of motion pictures, a two-step
approach is needed. First, some of the common proposals
for change will be identified and listed, and second, an
evaluation will be made of how these proposals, if imple-
mented, could change the marketing practices in the industry.
This prediction objective is the most difficult of all the
framework objectives to achieve, because it is based on
uncertainty. Its usefulness and applicability will be

determined by the thesis research.

Conceptual Framework and Methodology

 

A scientific approaCh to problem solving requires a
theoretical framework. Once the objectives of the study
are determined17aframework is then needed to guide subse-
quent analysis. Selecting the appropriate framework is an
extremely difficult task. Unfortunately, a ready-made
theoretical framework will not be available for all situa-

tions. It may be necessary for the analyst to modify an

12

existing framework or develop a wholly new one.

There are traditionally three major ways of
organizing a marketing study: the commodity approach, the
institutional (or structural approach), and the functional
approach. The first concentrates on the distribution of a
single product or a related group of products, the second
treats the different types of organizations engaged in
marketing, and the third deals with the major specialized
activities that are performed in distribution. However, it
should be noted that these objectives are neither com-
pletely parallel nor mutually exclusive.

In relation to the purposes of this study, there
are two reasons why a commodity approach is beneficial.
One is the usual argument that dissimilar products are
marketed in significantly different ways-—ways which are
determined by the characteristics of the goods. Normally
we could say that this view is misleading. Although there
may be differences in specific details, in a broader con-
text the similarities between the marketing techniques of
different products usually outweigh their differences.

But in the case of motion pictures there is no general
agreement even in the broader context. We have already

delved into the "good/service" dilemma in detail earlier.

 

9Frank R. Bacon, Jr. and E. J. McCarthy, "Scientific
Problem-Solving in Business and Economics" (unpublished
material, MSU, 1972).

13

Then there is the argument about motion pictures being
works of artistic expression unlike a bag of potatoes, and
it will be unfair and too harsh to lump them with market-
ing of consumer goods such as automobiles or butter. Even
professionals like Roland Vaile, E. T. Grether and Reavis
Cox have called the problems appearing in the motion pic—
ture industry very peculiar.10

The other argument in favor of the commodity
approach in the study of Indian marketing is not the commonly
used one described above. No matter what commodity is chosen
to trace the pattern of marketing, essential processes of
buying, selling, negotiations, financing etc. and their
existing trade practices are the outcomes of general economic
environment in the country. The resulting picture of market-
ing environment which will emerge from any such study will
be also applicable to any business research based on India.
So a concentration on one good can lead to a better under—
standing of Indian distribution in general while giving focus
to the study.11 For the purposes of this study, therefore,

it is decided to concentrate on the marketing of a particular

product--motion pictures.

 

10Vaile, Grether and Cox, Marketing in the American

Economy, p. 155.

11Similar views were expressed by Leon V. Hirsch in

the book Marketing in an Underdeveloped Economy: The North
Indian Sugar Industry (Englewood Cliffs, N.J.: Prentice
HalI,Fl961), p. 13.

 

 

 

14

Within the framework of concentration on a single
commodity, the study can be approached from the point of
view of institutions or of functions. The former has
the advantage of presenting a clear picture of market
activities but can be somewhat pedestrian as it moves from
one level to another. The functional approach has analy-
tical strengths but is best used only after one has a
specific idea of market structure. The difficulties of
this approach are compounded because there is no general
agreement as to what the functions of marketing are.
"Lists of functions offered by different writers vary as
much as the lists of instincts which once were so prevalent
in psychology.12

In the study of domestic marketing systems abroad
one has to always guard against mistakes caused by the
use of familiar terms in unfamiliar or variable ways. We
find ourselves asking repea edly, "Are we really talking
about the same things here, or does it just seem to be so
because we use the same words? Do the terms we use here
in the U.S. have the same connotations in India? For these
reasons, if we are going to make effective studies of
domestic marketing systems we are going to have to throw

off the shackles of conventional ways of thinking about

 

12Wroe Alderson, Marketing Behavior and Executive

Action (Homewood, Illinois: Richard D. Irwin, Inc., 1957),
p. 23.

 

15

marketing and experiment with new approaches such as the

"flow-approach."l3

The Flow-Approach

 

The most fundamental analysis we can make of market-
ing will be based upon a consideration of what marketing is
supposed to do. The functional approach gives us our best
instrument for making such analyses. Conversion of this
approach into a flow analysis in turn enables us to describe
clearly what agencies participate in the work of marketing,
what they do without regard to what they are called, how
much of each task they do, the places where they do it, and
the sequences in which they do it.

The flow-approach can most easily be described by
looking at the physical aspects of distribution. We know
that the goods consumers use reach them from a wide variety
of scattered sources. So they must be moved physically
from the places where they originate as raw materials
through a number and sequence of places where they are pro-
cessed and eventually be carried to the places at which they
are consumed. Periods of movement alternate with periods
when the goods are held somewhere for processing or merely

kept in storage pending the next step in distribution or

 

13This approach was first suggested by Professor
Reavis Cox and Charles S. Goodman in "Marketing of House-
building Materials," The Journal of Marketing, Vol. 21
(July 1956), 36-61.

 

15

marketing and experiment with new approaches such as the

"flow-approach."l3

The Flow-Approach

 

The most fundamental analysis we can make of market-
ing will be based upon a consideration of what marketing is
supposed to do. The functional approach gives us our best
instrument for making such analyses. Conversion of this
approach into a flow analysis in turn enables us to describe
clearly what agencies participate in the work of marketing,
what they do without regard to what they are called, how
much of each task they do, the places where they do it, and
the sequences in which they do it.

The flow-approach can most easily be described by
looking at the physical aspects of distribution. We know
that the goods consumers use reach them from a wide variety
of scattered sources. So they must be moved physically
from the places where they originate as raw materials
through a number and sequence of places where they are pro—
cessed and eventually be carried to the places at which they
are consumed. Periods of movement alternate with periods
when the goods are held somewhere for processing or merely

kept in storage pending the next step in distribution or

 

13This approach was first suggested by Professor
Reavis Cox and Charles S. Goodman in "Marketing of House-
building Materials," The Journal of Marketing, Vol. 21
(July 1956), 36—61.

 

16

processing. Correspondingly the goods are sorted and
re-sorted as the circumstances of handling, processing and
consumption may require.

It is our belief that the other functions of market-
ing can similarly be converted into flows for purposes of
analysis and measurement. Buying and selling, for example,
we can think of as a flow of authority over goods passing
from hand to hand as the various processes of manufacturing,
distribution, and consumption are accomplished. Or we can
think of a flow of communication, with selling impulses mov-
ing in one direction and orders to process or distribute
goods moving in the other direction. Similarly we can
think of the flow of financing as taking the form of capital
being produced in the country's financial institutions or
being saved by individuals and then being moved into the
hands of manufacturers, distributors, consumers and all
others who need it in the performance of their marketing
functions. Using the flow analysis, we can undertake to
find out what agencies take part in each of the flows, the
sequence in which they do it, and how much of the work each
does.

Perhaps the most important merit of the flow analy-
sis is that it makes possible (at least in principle) the

measuring and counting of much (though perhaps not all) of

17

the work done in marketing.1
Another virtue of the flow approach is that it
introduces the element of structure in the way data is put

together.

Application to our Specific Problems

 

In the descriptive aspect of this research, flow-
approach will be applied to trace the movements of ownership,
physical possession, communication, financing and payment
from agency to agency in the motion picture industry. Thus
a "flow chart" will be drawn for each of the five flows dis-
cussed above. Often goods, people and information move
along established channels and in recognizable patterns.
Tracing their flows will help us recognize and delineate
these patterns, thus increasing our understanding of the
arrangement of relationship among goods and people in geo-
graphic space.

To illustrate how some of these charts look,

Exhibit I shows the physical flow of non—metallic cable.
The diagram shown is of a channel with typical forward

flow. This example is selected from Marketing in the

 

 

4Reavis Cox, "The Search for Universals in Compara—
tive Studies of Domestic Marketing Systems, in American
Marketing Association Proceedings on Marketing‘and Economic
Development, ea. by Peter D. Bennet (Chicago:, AMA, 1965),
pp. 143-162.

 

 

18

EXHIBIT I
An Illustrative Flow Diagram

(Physical Flow of Nommetallic Cable)

 

 

 

(ii_.ii_i.,m Cable Manufacturing Plant J

; i i

\i I: |‘\ R\\~
/' x‘ \
ZR 1 J, R

(F—————“" T\4__.. Distributor's Warehouse

 

-__ifl>V

 

 

 

 

 

Retail Store

1

   

 

 

l J,

 

 

 

 

 

 

 

 

 

 

+L—______MEC\<T———[ Contractor's Stockroom
’ ' ' c
C C \‘ f \

I__.l: \ /
z a r
2 4’ «y . 2
‘ i
\r } Building Site ‘<._~jz______sl/

LEGEND:

Processing or
Storing Plant

L__1

[7:53 Railroad Car
A

xiii:

 

Independent
Trucker's Vehicle

Contractor's Vehicle

19

American Economy by Vaile, Grether and Cox.15 The answer
to Question 1 will contain such illustrative flow charts
which will identify the movements through geographic space.
Flow of physical possession and ownership are typically
forward in the sense that each change normally takes the
product farther away from the producers and closer to the
consumers. Flow of payment is typically backward in the
sense that a payment is usually made to someone at an
earlier stage in the sequence of processing and handling.
Flows of communication and financing typically go in either
direction.

Question 2 will be approached with the explanation
objective to determine why the channel structures described
in the answer to Question 1 evolved as they did. Channel
structure is determined by the goals of society and of
channel members, the inputs of effort and resources required
by the channel system, and constraints which limit the
ability of the system to attain its objective. A historical
perspective will be taken in this part. The goals of the
government at the macro level and the goals of the producers,
distributors and exhibitors at the micro level will be dis-

cussed. Constraints posed by rapidly changing audience

 

15Vaile, Grether and Cox, Marketing in the American
Economy, pp. 124-131. This book contains other such dia-
grams for flows of ownership, promotion, ordering, payment,
negotiation, financing and risking in Chapter 5.

 

20

tastes, technical know-how, government regulations, etc.
will be forthcoming for each channel system.

A single enterprise usually "administers" the
channel. It initiates, coordinates and controls most or
all of the activities undertaken. Davidson and McCarthy
use the term "channel-captain" to identify this leadership
role, which Fisk describes as follows:

Marketing channels are usually under the control of a
single firm in the sense that a single enterprise
directs the allocation of resources for all agencies
in the channel without interfering with the objectives
of independent agencies which participate in the
channel flows. These decision makers do not set
goals for other firms in the constituent marketing
channels, but they do decide what kind of agencies
shall be combined to form Ege distribution network
for systems they organize.
For each of the channels discussed in Question 1, an attempt
will be made to identify the channel captain.

No solution is found in current marketing literature
to what is meant by the inputs and outputs of marketing.
Another difficulty is in measuring the intangibles of market-
ing called "effort" and "satisfactions." It is not con-
sidered within the scope of the prOposed study to solve the
above problems. However, it must determine whether channel

structure can be adequately explained in the absence of

input-output data. Therefore, the question to be answered

 

l6George Fisk, "The General Systems Approach to the
Study of Marketing," in The Social Responsibilities of
Marketing, ed. by William D. Stevens (Chicago: AMA,
December 1961), p. 210.

 

 

21

is: To what extent do the goals of society and of channel
members, as well as constraints to the system, determine
channel structure?

The analytical aspect of the proposed research
requires devising measures for marketing work. The problems
associated with measuring marketing efficiency constitute an
important part of the literature on channel management.
Some authors are concerned with macro-analysis, while others
have developed analytical approaches that can be used by
individual firms. Barger, Cox, Stewart, Dewhurst, Field,
Lough, and Gainsbrugh, among others, have estimated the
magnitude of total marketing costs in the U.S. economy.l7
These aggregative studies constitute a useful point of
departure for the channel analyst. The analysis of operat-
ing efficiency in a channel, however, requires different
analytical techniques and more refined measurements of pro-
ductivity than those used by macro theorists.

Writers who are concerned with the measurement of
channel efficiency have usually followed one of three
approaches. The first group has developed check lists or
marketing audit forms that can be used by the producers to

evaluate the performance of designated channels. The

second group of writers has been principally concerned with

 

17For a brief summary of these studies see Paul D.
Converse, Harey W. Huegy, and Robert V. Mitchell, Elements
of Marketing (Englewood Cliffs, N.J.: Prentice-Hall, Inc.,
1958). pp. 742-745.

 

22

applying accepted distribution cost accounting techniques
to channel problems.18 The final group has undertaken to
develop specialized measurement of channel efficiency for
specific problems. It is this third approach which will

be most useful for seeking an answer to Question 3.

Reduction of Marketing to Measurement

 

The basic problem in reducing marketing to measure-
ment is to find units of marketing that are both meaningful
and countable. The most commonly used unit, of course, is
the monetary unit. This can be done in absolute terms,
as when the cost of marketing for a given firm or industry
in a given year is said to be so many millions of dollars.
It can also be done in relative terms, as when marketing
costs are said to absorb half of the consumer's dollar or
to require 35 percent of the consumer price as a combined
gross margin for wholesalers and retailers.

To this researcher's knowledge, so far no signifi-
cant attempt has been made in India to divide the total
cost,incurred in the process from procurement of a raw film
to its screening in movie theaters as a feature,into pro-
duction costs and marketing costs. In India, the film

business is run on the basis of black money (undisclosed

 

18Bert C. McAmmon, Jr. and Robert W. Little,
"Marketing Channels, Analytical Systems and Approaches," in
Science in Marketing, ed. by George Schwartz (New York:
John Wiley & Sons, 1965), p. 360.

 

23

for tax purposes), and the real figures of expenditure
incurred in production are seldom given out. Hence a true
economic study may be very difficult.19
While monetary units of measurement would be useful
for many purposes, they would not serve well all the
objectives of this study. What we are proposing to embark
upon is an endeavor to find out how much marketing is per-
formed in getting these motion pictures to the audience,
how effectively it is performed, and the most likely results
of applying various proposals for improvement. For such an
analysis, the Rupee's (Indian monetary unit, 1 Rupee = 13.3
cents approximately) worth is not a sufficiently informa-
tive measure. The difference between alternative ways of
performing a marketing task depends not only upon monetary
costs but also upon the numbers of units of work to be done.
Computations in monetary terms may obscure conclusions as
to differences in what we may call the "real" work required.
Furthermore, managerial controls very often must be
imposed in real terms rather than in monetary ones. There-
fore, it is necessary to define indicators that vary with

20
the units of work performed and which are countable.

 

19These remarks were made by Mr. Arvind Kumar, the
Editor of Madhuri, India's leading fortnightly film magazine
in Hindi in 818 correspondence with this researcher.

This part of the research is heavily influenced
by the methodology suggested by Prof. Reavis Cox and Charles
Goodman in their study Channels and Flows in the Marketing
of House-building Materials.

 

 

24

Indicators of Marketing Work

 

Efficiency is a relation between work done and
results achieved. For some purposes, such as the intangible
flow of promotion, money eXpenditures may be the only
measure of work done, so cost and revenue may serve well
enough as input-output ratios. There are many situations,
however, that require more direct comparisons of effort
eXpended with results produced. Here, a search must be
made for measures of work done other than money spent and
measures of results achieved other than gross or net revenue
obtained.

The need for analyzing the complete channel rather
than some assortment of its constituent parts derives from
the almost limitless number of combinations and sequences
in which particular marketing processes can be passed
around among places, agencies, and times. So, the quantity
of marketing work can only be determined accurately in
monetary or real terms by making a complete survey of all
aspects of procurement, production, processing, distribu-
tion and exhibition wherever they are found and from the
aggregate of efforts thus described subtracting the effort
required for change of form. To conceive marketing in con-
iventional terms as commencing only when the "movie" has
been finished may prevent meaningful comparisons between
alternatives and present a distorted view of the marketing
work that must be performed to provide films for movie

theaters.

25

Three real indicators of the marketing work have
been chosen to be counted in this study:
1. The number of days taken to procure the filmL_

process it and move it into the theater. Here movie pro-

 

duction is also considered as a kind of processing. The
time involved includes the time normally spent by the film
in the operating inventories of producers, lab processors,
distributors and the time spent in transportation.

2. The rupee-days of investment accumulated in the
film as it moves from first procurement to final screening

at the theater. A rupee-day is defined as the owning of

 

one rupee's worth of film for one day.

3. The number of owning and non-owning business

 

entities that participate in procurement, processing and

handling the film as it moves from place of procurement to

 

the movie theater. Here the non-owning agencies include

 

both those who act as agents to bring about transactions
and others, such as processing laboratories who have operat-
ing control over the film owned by others. An entity is
construed as a legal business unit together with any
affiliates in the same ownership.

Two monetary indicators of marketing work will also
be counted:

4. The publicity expenses, measuring the magnitude

 

of the flow of communication from the producer to the

 

audience through the marketing channal and the media.

 

26

5. The interest paid by the producer in providing
the time utility to the film as a measure of the magnitude

of flow of financing in the channel.

Movement Through Space

 

Most obvious of the various flows is the physical
movement of the film through space. It starts out at the
government agency from which the producer buys the imported
raw color film stock. From this point of procurement it
then moves physically through a succession of processes and
on to the movie theater. The third measure is an indicator

of the amount of work done in moving the film through space.

Movement Through Time

 

Another flow of the film is through time. The
functions of procurement, processing and marketing are
spread over periods sometimes short but often long. Film
must be carried through these periods in the sense that at
every instant it must be in the physical possession of
someone and under the ownership control of someone.

The burdens imposed by the flows through time take
a number of forms, among which the costs of investment,
storage and risk are important. Measures one and two give
some indication of the size of these burdens. Counts based
upon them permit meaningful comparisons between different
films. They also permit some evaluation of whether the

total time required is as short as it could be and of the

27

extent to which investment and storage are concentrated in
those parts of each flow at which accumulated values are
lowest.

Much of the work of marketing is associated with
bringing together business entities not only in the sense
of an actual flow of transactions but also in the develop-
ment of relationships that may become routinized once they
have been established. Taken together, three ways of count-
ing will provide the basic data used in measuring the
marketing work done in real terms. The intangible flows
such as promotion and financing will be included in the
two monetary measures of the cost of marketing.

Application of the counting procedure outlined
above to a specific situation entails soliciting a sample
of "films" to be studied and tracing each one of them from
the point of procurement to the theater along some meaning-
ful channel or set of channels. The data will be assembled

into flow charts.

Methods of Obtaining Data and the Use of Statistics

 

In 1970, a total of 396 films were produced in India.
Of these, 102 films were in Hindi--a majority of them pro-
duced in Bombay. Sixty-four films out of these 102 films

were in color.

 

21This data is from the Indian Motion Picture Almanac

ed. by B. Jha (Calcutta, India: Shot Publicatibns, 1971),
p. 858.

 

28

For the purposes of this research, we are interested
in the measures of marketing work done in a "typical"

Indian film. A "typical" film will be defined as the one
which is produced in Bombay, on an average of two and one-
half hours long, thirteen reels or more, and shot in color
in Hindi. These are the films most popular with the masses.

A list will be made of all the Hindi films released
in Bombay in the year 1972. Then on the basis of our
definition of a "typical film," the population will be
defined from which a random sample will be drawn. The size
of the sample will be determined by cest and time considera-
tions. Itis highly unlikely that it will exceed ten.

Because of the lack of both significant previous
work in this field and a body of generally agreed upon
theory by which to structure this work, it seems the study
will be most effective by concentrating on direct observa-
tion and personal interviews.

For each film selected in the sample, a set of data
will be obtained for the three indicators of real work done
and two monetary measures of marketing costs.

On the basis of the set of five averages based on
a sample of size n, 95 percent confidence interval estimates
will be made for the true population parameters correspond-
ing to each of the three real indicators and two monetary

indicators.

29

Since the population from which the sample will be
drawn is finite, if the sample size will be more than 10
percent of the size of the population (defined as the
"typical" Hindi films released in Bombay in 1972), a finite
correction factor will have to be used.

Assuming that the population is normally distributed
(an assumption that may be checked using the test for
normality), since the size of the sample is going to be
small (n<30), "'student's' t distribution" will represent
the distribution of the sample and "t" statistic will be
used in calculating confidence intervals for population
parameters.

The statistical calculations will be applicable
only to the analytical aspect of this study.

Secondary sources of data for descriptive statis-
tics will be the libraries of Film Institute of India, Poona;
Ministry of Information and Broadcasting, New Delhi; and
the offices of the following leading film journals of

India: Madhuri, Filmfare, Star and Style, and Screen.

 

Reasons for the Choice of Industry and Country

 

The Indian film industry, which is regarded as one
of the important medium-scale industries of the country, has
made considerable progress in the field of technology and
production during the last six decades without much assist-

ance from the government. India ranked second among the

30

film-producing countries of the world in the matter of
feature film production in 1970, because that year she
produced about 396 feature films of which about 84 were

in color and the rest in black and white. The Indian

film industry feeds over 7,000 movie theaters in the
country. In the absence of TV, except in Delhi and Bombay,
cinema is the most powerful media of mass entertainment
and communication in India. Its impact on the common
people is, therefore, very great. The estimated capital
invested in the industry is about Rs. 110 crores (approxi-
mately 146 million dollars) of which about Rs. 50 crores

is accounted by the investment in the over 7,000 cinemas,
Rs. 25 crores in the studios and laboratories and the
balance, Rs. 35 crores, in the production of pictures.

The industry provides employment for about 150,000 persons.22
The estimated annual collections in the box office are
about Rs. 130 crores (approximately 173 million dollars),
and the entertainment taxes levied by the state government
are estimated around Rs. 45 crores.23 In addition, the

film industry is earning about Rs. 4 crores per annum from

 

2Statistical data in this section is primarily
based on the Annual Report of Indian MQtiQn Eigtures Export
Corporation Ltd., 1970, and the speeches of its chairman,
Mr. A. M. Tariq.

2

3Numbers used in India: a lakh = 100,000 (written
as 1,00,000 in India), and a crore = 10,000,000 (written as
1,00,00,000 in India).

31

film exports which is to a great extent offset by the import
bill of Rs. 4 crores of raw film (except black and white
positive manufactured in the country), studio equipment and
parts thereof. Indian films are exported to nearly 100
countries of the world.

For an industry of this magnitude and stature and
for the vital role it plays in the growth of a developing
economy, the lack of research in its marketing operations
is glaringly evident. Much has been written in sociological
journals about the content of motion pictures, their effect
on youth and children, and their attitudinal-behavioral
ramifications. Creative people revolt against the idea of
calling it an industry because they have their doubts
if any industry can entertain you, make you laugh, or weep
or think.24They regard cinema as an art form. Whereas
these views are valid, they only tell part of the story.
How can it be denied that the business of producing, dis-
tributing and exhibiting films is an industry?

Motion pictures should be visualized as an equi-
laterial triangle, the three sides of which are Art, Tech-
nology and Business. Each corner of the triangle repre-
sents an interface having an impact on society which is the
center of the triangle (see Exhibit II). The synergy

between the three should be realized and stressed.

 

24K. A. Abbas, from a Souvenir Issue (Bombay:

Indian Motion Pictures Export Corporation Ltd., March 1970),
pp. 77-790

 

32

mmmcfimsm

 

 

mommumucH mmocflmsm mommumucH

mmoaoccoma

wmmcfimsm\pn4

 

 

 

 

 

 

 

wumfloom \Xfi

 

 

 

fimommumucH hmoHocgomB\uH¢

 

 

mmmcwmsm Ucm mmoHocnomB .uud mo
monochm d "muumsccH endpowm cowuoz one

HH BHmmem

33

Basically, any industry-~and the motion picture
industry is no exception-—is an area of activity that iden-
tifies and defines direct or indirect human needs or wants
and then systematically sets out to produce a product or
service that satisfies those needs. It must be able to
sell those products or services for more than they cost,
or the industry is not viable.

Systems that produce motion pictures, like all
systems, accept inputs, process these inputs, and provide
an output. Our inputs are peOple, stories, and physical
materials--all of which are produced by tools and facilities.
The processing of these inputs we call "production." The
output is the motion piCture product, in the form of sound
film or tapes. Our primary markets are theaters. Our
customers whose wants and needs must be satisfied are the
people who patronize those theaters. The outstanding weak-
ness of the motion picture business system is the lack of
an effective feedback loop from our markets back to our
inputs.

Consider for a moment the men and technologies
responsible for manufacturing the superb films and tapes,
cameras, micrOphones, amplifiers, other sound recording and
transfer equipment, projectors, editing machines, printers,
film processing machines, just to name a few. And consider
the men who use and operate all of these, with consumate

skill, to produce the picture and sound records that become

34

the final motion picture. Obviously, then, we have an art/

25
technology interface. Marketing of all these technical

 

equipments used as facilitating equipments for motion pic-
ture production, distribution and exhibition represents the

business/technology interface.

 

These areas have received adequate attention in
engineering, applied sciences, technical and business

journals in some form or the other. It is the art/business

 

interface which has unfortunately been neglected by serious

 

researchers and scholars. For this reason, focus of the
proposed study has been directed to this interface.

There have also been other reasons for selecting
India as background for the study of marketing of motion
pictures than those mentioned earlier. First, many of the
marketing studies to date are of developed countries. It
would be a significant contribution to marketing literature
if more could be learned about how marketing is performed
in developing countries. Second, few integrated marketing
studies have been made in India. Third, India is fortunate
in comparison with many other developing countries in pos-
sessing a broad range of statistical data relating to its

economy. Fourth, this researcher, being a native of the

 

25Wilton R. Holm, "Technology's Role in Motion

Pictures and Television," Journal of the Society of Motion
Picture and Television Engineers, Vol. 81, No. 7 (July
1972), 509-51li

 

 

35

country, is likely to encounter less obstacles by way of
easier accessibility to information, more cooperation and
good contacts than any outsider.

Contribution of This Study to
Mafketing Literature

 

Although improvement in the efficiency of marketing
is a key factor in economic development, its crucial role
has not generally been appreciated. This has been due to
a lack of understanding of the marketing function in the
developing countries and to the difficulty of transmitting
marketing skills in technical aid programs. Basic to any
attempt at improving the efficiency of marketing in develop-
ing economies is an understanding of just how the present

system Operates. This study is an attempt towards such an

 

understanding.

 

The growth of international transactions and opera-
tions demands greater knowledge of foreign marketing.
SuCh knowledge benefits from being gathered in a systematic
and comparative manner that helps establish what is "univer-
sal, related and unique" in marketing systems.

The needs for comparison in marketing rests pri-
marily on the realization that all research is comparative,

eXplicitly or implicitly. Comparison of marketing systems

 

26J. Boddewyn, "A Construct for Comparative Market-
ing Research," Journal of Marketing Research, Vol. III (May
1966), 149-153.

 

36

demands a conceptual framework to establish what must be
compared. As Bartels put it, "Comparative analysis requires
viewing all marketing systems, including our own, from a
methodological framework to which each may be related
before the systems are related to each other."27

As has been explained earlier, it is the opinion of
this researcher that "the flow approach" suggested by
Reavis Cox is such a methodological framework. Variations
in the ways flows are organized and interrelated provide
a very convenient basis upon which to compare different
systems of distribution.

But before comparative marketing studies can be
made with a standard methodological framework such as "the
flow approach," it is necessary to build a foundation of
literature devoted to domestic marketing abroad using the
same framework. Gathering data on how marketing is per-
formed abroad is a necessary prerequisite to comparing
marketing systems with one another. Once such studies are
available, comparisons then can be made from the literature
at hand, or from hypotheses developed from these studies.

This research will make a contribution in building this

 

foundation of literature.

 

 

27Robert Bartels, Marketing Theory and Metatheory

(Homewood, Illinois: Richard D. Irwin, Inc., 1970), p. l99.

 

37

Even though flow approach to the study of marketing
was first suggested by Professor Cox eighteen years ago
and its merits were discussed in a number of articles in
the marketing journals, it did not become very popular as
a research methodology for doctoral dissertations and
other studies. It is both unfortunate and surprising,
because Professor Cox and Goodman used it very imagina-
tively and successfully in their study of the marketing of
housebuilding materials. They wrote, "What we discovered,
we believe, will interest students of marketing both for
the substance of its findings and as an eXperiment in
research methodology."28 A modified version of this
approach was used by E. D. Jaffe in 1966 in his disserta-
tion studying Israeli food distribution.29 It is an
objective of this study to develop some methodology based
on this conceptual framework for making studies of domestic
marketing abroad, in light of the special problems to be
encountered by a particular industry in a particular
country. The methodology developed is then put to test by
a study of motion picture marketing in India.

The need for an adequate conception of marketing for

comparative studies points to the close relationship between

 

8Cox and Goodman, "Marketing of House-building
Materials," p. 36.
29Jaffe, "Towards a Systems Approach to Domestic
Marketing Abroad."

38

Comparative Marketing and Marketing Theory. These two
branches of discipline are bound to remain closely linked.
The development of marketing theories will provide alter-
native conceptual frameworks for comparative studies on
the one hand. On the other hand, such studies will help
validate (or invalidate) proposed marketing conceptions,

hypotheses and theories. This research is an attempt

 

towards such validation.

 

The comparative approach is bound to influence all
types of marketing studies, as well as the teachings of
marketing, once it is acknowledged that all research is
comparative and that learning benefits from the examina-
tion of any marketing system in light of common analytical
categories.

Courses in the comparative analysis of marketing
systems need materials that might not be published by U.S.
governmental departments and divisions of the United
Nations.31 The literature in international marketing needs
research not only dealing with international trade and
flow of goods between countries but also dealing with the

marketing of godds and services within countries outside

 

 

3OJ. Boddewyn, Comparative Management and MarketingI
Text and Readings (Glenview, Illinois: Scott Foresman & Co.,

 

196%, pp. 97-122.

1 .

Donald F. Mulvihill, ed., "Preface," Domest1c
Marketing Systems Abroad, An Annotated Bibliography (Kent,
Ohio: The Kent State University Press, 1967).

39

the United States. This research will also make a contri-

 

bution in this area.

 

The market of the 70's for an increasing number of
products does not stop at Los Angeles and New York City.
Bombay or Beirut are as near as the nearest jet, or even
the nearest telephone. The result is the rise of the
multinational corporation and the accompanying maturation
of international marketing. Less often is cultivation of
foreign markets a separate activity, more and more it is
taking its place in the mainstream of marketing.

Practitioners as well as teachers of American
marketing are displaying an ever increasing interest in
how goods and services are distributed in other countries.
The leadership taken by the American Marketing Association
in establishing an International Marketing Federation and
the publication by an AMA subcommittee of a bibliography on
domestic marketing systems abroad are concrete indications
of this interest.

So it has become important to understand and com-
pare the manner in which a single marketing concept is

applied in different countries.33 One of the oldest

 

32Dr. Steuart Henderson Britt, "Foreward," in
Bertil Liander, Vern Terpstra, Michael Y. Yoshino, and A.
A. Sherbini, Comparative Analysis for International
Marketing (Boston: Allyn and Bacon, Inc., 1967), p. xv.

33Stanley J. Shapiro,"Comparative Marketing and
Economic Development," in Science in Marketing, ed. by
George Schwartz (New York: John Wiley & Sons, 1965),
pp. 398-429.

 

 

 

40

concepts in the literature of marketing is that of the
channel of distribution. Breyer was one of the earliest
developers of the concept of the channel and long ago
applied it to the analysis of marketing problems.

The channel problem is clearly one of the major
managerial problems in marketing. Virtually every basic
textbook in marketing talks about it. Describing pre-
cisely what the channel structure is at any time, eXplaining
why it came into existence, and predicting what it is going
to become--these are intellectual problems that challenge
the most able analyst. Yet the concept of the channel
remains vague and uncertain in much of the use made of it.
This concept must be clarified and refined if it is to
serve as a solid base for a theory of marketing, for the
collection of statistics designed to test hypotheses for—
mulated on such a theory, or for the devising of principles
to be followed in the management of channels.

The central theme of this research is the channel
concept and it is seeking a clarification of this concept
in the light of a particular industry in a particular

country. However, the concept being so general, implica-

 

tions may transcend beyond geographical boundaries and

 

 

Reavis Cox, Wroe Alderson, and Stanley J. Shapiro,
Theory in Marketing (Homewood, 111.: Richard D. Irwin,
1964), p. 11.

 

41

§pecific commodities and thus make a contribution towards

 

forwarding the frontiers of knowledge in general marketing

 

theory by identifying "Universals."

 

CHAPTER II

BRIEF REVIEW OF LITERATURE

Introduction

 

It is indeed a difficult task to single out studies
from the available literature which have direct bearing on
a piece of research such as the one undertaken in this
thesis. Nevertheless, there are conflicting reasons for
this. On one hand, since the subject has no clearly
defined boundaries confined to any one particular discipline,
there is plenty of written material interspersed throughout
a wide Spectrum of the fields of behavioral sciences,
economics and mass-communications, which may have some
relevance to this dissertation. On the other hand, since in
a limited sense it is original research, there are no pre-
ceding studies which are directly applicable to this subject
matter without modification.

To resolve this conflict, the available literature
is organized in four major classifications: (1) Studies of
domestic marketing abroad, (2) Studies using "flow-approach"
as a theoretical framework, (3) Studies based on marketing
in India, and (4) Studies dealing with the economic aspects

of the motion picture industry.

42

43

Since this thesis investigates the application of
"flow-approach" to the marketing of motion pictures in
India, these four categories taken together form the uni-
verse of which this research is a subset. Therefore, a
review of books and articles under these classifications
should delineate the present state of art in this universe.
For the sake of precision, relevance and brevity, only
those writings are reviewed which have direct relationship

to the subject matter of this dissertation.
Studies of Domestic Marketing Abroad

The literature on marketing of goods within
countries outSide the United States has grown considerably
in the past ten years. An evidence of it is a three-fold
expansion of the bibliography on "Domestic Marketing
Systems Abroad" compiled by Mulvihill from the time of
first publication in 1962 to the time it was revised in
1967.1 Much of this growth is an extension of interest in
international trade. It grows out of the desire of many
American companies to enlarge their operations overseas.

Much of the literature on domestic marketing

abroad combines observations by perceptive travellers with

the results of inquiries among a few informed people and a

 

1Donald F. Mulvihill, DomeStic Marketing Systems
Abroad: An Annotated Bibliography (The Kent State Univer-
sity Press, 1967). First publication in 1962.

 

 

44

survey of the easily available published materials. Most
of it, however, does not dig very far beneath the surface.2
These superficial types of what can be called tourist
reports leave most of the important questions unanswered.
In this enormous eXpansion of literature, only a few
studies are published under the title of domestic marketing
abroad, and these have been fragmentary. Also, most of
these studies are geared to the point of view of the Ameri-
can Executive with the idea of foreign trade in mind. For

example, a study by Dunbaugh of Marketing in Latin America

 

has its primary objective to delineate present day Latin
America as a market for goods and services for the American
exporter.3 Its purpose is to help top management make
decisions on specific Latin America marketing problems.
This preoccupation with international trade results in a
lack of depth in the study of domestic marketing itself.
How marketing can contribute to economic develop-
ment has been the subject of several studies.4 Leon Hirsch

has focused on this in his study of marketing in the North

 

2Reavis Cox, "The Search for Universals in Com-
parative Studies of Domestic Marketing Systems," Compara-
tive Marketing Systems: A Cultural Approach, ed. by
Sommers afid Kernan (New York: Appleton-Century Crofts,
1968), p. 12.

 

3 . . . .
F. Dunbaugh, Market1ng 1n Lat1n America (New York:
Printers Ink Book Company, l960).

 

4Shapiro, "Comparative Marketing and Economic
Development," pp. 398-429.

45

Indian Sugar Industry.5 Hirsch's thesis is that although
improvement in the efficiency of marketing is a key factor
in economic development, its crucial role has not generally
been appreciated. This has been due to a lack of under-
standing of the marketing function in low income countries
and to the difficulty of transmitting marketing skills in
technical aid programs.

Liedholm examined India's comparative advantage in
iron and steel production. Even though not strictly a mar-
keting study, it presented analysis providing an indication
of whether import substitution or even the development of
eXport surplus in steel were sensible policies for India
to pursue.6

Comparisons of similarities and differences in
marketing processes of two or more countries has also been
a popular subject of research in the recent years. In
most cases the comparisons have been made with marketing
systems in the United States. Most researchers seem to be

impressed more by differences than by similarities between

 

5Leon V. Hirsch, Marketing in an UnderdevelOped

Economy: The North Indian Sugar Industry (Englewood Cliffs,
N. J.: Prentice Hall, Inc., 1961).

6Carl Liedholm, The Indian Iron and Steel Industry:

 

 

 

An Analysis of Comparative Advantage. Monograph: M.S.U.
International Business and Economic Studies, Division of
Research, Graduate School of Business Administration, East
Lansing, 1972.

 

46

what they see abroad and what they remember of home. Some-
times, unfortunately, the comparison carries with it the
connotation that what is different is necessarily backward.
It is unfair, because the differences in marketing practices
may reflect differences in value systems rather than mere
failures to take advantage of "modern" technologies.

An important exception to the rule of emphasizing
differences is in studies about communist countries. In
looking at Russia and China, researchers seem to seek
reassurance that the capitalist system can hold its own
against their way of organizing economic systems. It is
comforting when someone notes that as the communist coun-
tries start to become affluent they too find it necessary
to advertise or to re-introduce profit motive as a govern-
ing force in management.

Of the studies using comparative approach, studies
of distributive systems in Great Britain and North America
by Hall, Knapp, and Winsten and Robert Bartels' collection
of studies on wholesaling in fifteen countries deserve
Special mention. Lady Hall and associates did an exhaus-
tive study of structure and productivity of various distri-

8
butive outlets. This study is noteworthy for the

 

7Cox, "The Search for Universals."

8Margaret Hall, John Knapp and ChristOpher Winsten,
Distribution in Great Britain and North America (London:
Oxford University Press, 196l).

 

47

methodology used in reconciling the establishment classi-
fications in the American and Canadian censuses with those
used in the British census.

Bartels' efforts are concentrated towards putting
together a conceptual framework from which all marketing
systems can be viewed and compared to before they can.be
compared with each other.9

Another person who has been pushing the frontiers
of comparative research is Boddewyn. He suggests that a
comprehensive definition of marketing should encompass and
relate the various concepts of actor, process, structure,
function and environment. Comparative marketing research,
he says, should focus on discovering and explaining market-
ing similarities and differences in various places, times
or sectors among one or more of these elements, their rela-
tionships, changes and strains.1

Many of the studies of marketing in other countries
only talk about how a particular institution of marketing
such as retailing or wholesaling operates in another
environment. Most of them fail to define what these terms

mean in their proper context. Goldman in his study of

 

9Robert Bartels, ed., Comparative Marketin :
Wholesaling in Fifteen Countries (Homewood, Illinois:
Richard D. Irwlh, Inc., 1963f.

10J. Boddewyn, Comparative Management and Marketing,
Text and Readings, pp. 97-122.

 

48

Soviet Marketing tells us that the basic functions of
retailing and wholesaling seem to be indispensable in any
but the most primitive societies. He writes:
Whether in India or a pure Marxist state, retailing
and certain wholesaling activities must be carried out
even in the early years. At the second stage of
marketing development, a whole new range of activities
connected with market research and merchandising
becomes important and vital even though such actiyities
lead to an increase in the cost of distribution.

Unfortunately, he is not eXplicit at all about what
these activities are, what these terms mean, or why the
activities in question must be performed.

After taking a cursory look at volumes of publica-
tions on international marketing, only a few mentioned above
were chosen for brief review because they influenced the
formulation of this research significantly in some form or
the other. All of them without exception fall into our
concept of domestic marketing abroad. Even though the
majority dealt with a segment of the marketing system rather
than its entirety, they pointed towards the lack of a con-
sistent methodological framework which could be used to
study domestic marketing systems abroad. This was by far
the most significant contribution of the above mentioned

studies to this research. Bartels and Boddewyn each sug-

gested frameworks that brought this problem to focus.

 

11Marshall I. Goldman, Soviet Marketing: Distri-
bution in a Controlled Economy (New York: The Free Press
of Glencoe, 1963), p. 201.

 

49

Reavis Cox's article about the search for universals in
comparative studies of domestic marketing systems made it
evident that the most fundamental analysis we can make of
marketing will be based upon a consideration of what
functions it is supposed to perform. This resulted in an
interest in flow analysis which was then used to introduce
the element of structure in the way data have been put
together.

Studies Using "Flow-Approach"
as a Theoretical Framework

 

Central to the flow-approach are the concepts of the
distribution channel and the marketing flows. It is based
upon a study of flows in distribution which is in turn an
adaptation of the functional approach to the study of
marketing. It was as early as 1957 that Wroe Alderson
described distribution channels as organized behavior
systems that direct and support the movement of goods and

12

services from producer to user. Later Breyer and

Balderston identified the channel of distribution as a

 

 

13
system. Breyer referred to "type," "enterprise" and
12Wroe Alderson, Marketing Behavior and Executive
Action,
13

R. Breyer, "Some Observations on Structural
Formation and Growth of Marketing Channels," and F.
Balderston, "Design of Marketing Channels," in Cox,
Alderson and Shapiro, Theory in Marketing_(Homewood, Illi—
nois: Richard D. Irwin, 1964).

 

50

"business unit" channels, depending upon whether identi-

fication was made by "types" of concerns, by "ownership,"

 

or the pperating unit of an enterprise. An attempt was

 

then made by George Fisk to integrate the above channel
concepts into an overall framework of marketing behavior
which he called the "systems approach." According to Fisk,
the systems approach, originally outlined by Alderson, had
as its focus the organization of marketing processes and
channels to achieve goals via inputs that produced outputs
under constraints.l4

Alderson's thinking proved complementary to that
of Ralph Breyer and Reavis Cox. Breyer studied the channel
organization in more detail than others and Cox emphasized
productivity, efficiency, and utility. Professor Cox and
his colleague Professor Goodman converted the functional
approach into a flow analysis to study the marketing of
house-building materials and reported its findings in
1956.15 They emphasized the need for analyzing the com-
plete channel rather than some assortment of its constitu-

ent parts by tracing the various kinds of marketing flows

through the channel.

 

l4Fisk, "The General Systems Approach to the Study

of Marketing," pp. 207-211.

5 . .
Cox and Goodman, "Marketing of House-bu1ld1ng
Materials," Journal of Marketing, 37—61.

 

51

Their framework which Cox termed as the flow-
approach was an interesting eXperiment in research

16 Cox and Goodman later used the method in

methodology.
two comprehensive studies done for a National Trade Asso-
ciation. But it wasn't until 1965 that Reavis Cox sug—
gested flow analysis as a better approach to seek generali-
zations about marketing that can be applied to every

society of which we have any knowledge. He argued that it
was better than the institutional approach which was pre-
dominant in the studies of foreign marketing systems. If
censuses of business or similar data are lacking, the
institutional approach is unworkable unless the researcher
is prepared to undertake elaborate quantitative surveys.
Hall, Knapp and Winsten's study cited earlier serves to
illustrate the difficulties raised by the institutional
approach when it is applied to studies of domestic market-
ing abroad or to comparisons between marketing systems.
Also, the commodity and managerial approaches are deficient.
The commodity approach presents only descriptions and the
managerial approach is not applicable to countries that are

not "business" oriented.l7

 

16For a detailed description of flow approach see
Chapter I, pp. 11-13.

l7Jaffe, "Towards a Systems Approach to Domestic
Marketing Abroad . . ." p. 26.

52

Unfortunately, in spite of the merits of flow
approach in the search for universals in marketing over the
traditionally used approaches described earlier, it almost
went unnoticed by scholars. At least it did not suddenly
become popular as a framework in future research studies,
as evidenced by the doctoral dissertations which have come
out since then. To my knowledge, the only thesis which has
used this methodology so far was written by Jaffe under the
guidance of Professor Cox in 1966.18 Therefore, the only
two studies which can be reviewed in this section about
literature on flow—approach are by Cox and Goodman and by
Eugene D. Jaffe. Both of them have played a very important
part in setting up the infra—structure on which this thesis
is based.

Cox and Goodman's study examined the nature and
scope of the distributive tasks involved in getting build-
ing materials to builders and their contractors. It
studied in detail the marketing embodied in the material
that goes into a specific, carefully selected, illustrative
house. An overall picture was then put together from a
wide-ranging study that showed for some forty-three
materials of different types the channels of marketing
actually used, alternative channels employed in the market

place, and possible reductions in the amount of work done

 

18Ibid.

 

53

that might result from the use of different marketing
methods. The study attempted to devise countable indica-
tors of marketing work in order to find out how much
marketing was performed in getting these materials to the
building site and how effectively it was being performed.

The objective of Jaffe's thesis was to apply a
systems approach to a study of marketing of food in Israel.
It consisted of identifying and analyzing marketing
channels each comprised of five flows: communication,
ownership, physical possession, financing and risking.

This study was based on "type" channel analysis. "Type"
channel analysis charts the flows of a whole class of goods
(not individual products) and describes and analyzes the
number and distribution of marketing agencies and the
functions they perform in getting goods and services from
producer to user.

It should be noted that the two studies under con-
sideration have both dealt with products which are primarily
"goods" with "service" support. This dissertation extends
the application of flow approach to a product which is pri-

marily a "service" with "goods" support.19

This posed
unique problems requiring modification of framework in

reducing marketing to measurement by suitable choice of

 

19See Chapter I, pp. 1—4 for the eXplanation of why
"motion pictures" are defined as such.

54

indicators of marketing work. Also, in contrast to Jaffe's
thesis which dealt with "type" channel, this research
focuses on "aggregate" channel comprising of all the "unit"
channels which participate in marketing a specific commodity

or service. "Unit" channels are distinguishable by speci~

 

fic flows consisting of the same acts of marketing repeat-
edly performed by successive agencies for identifiable
goods or services which undergo the marketing processes.
Five ppi£_channels each representing one of the five flows
of physical possession, financing, ownership, payment and
communication will be discussed for motion pictures in

subsequent chapters.

Studies Based on Marketing in India

 

In 1960, Boyd and Westfall reported that marketing
was probably the least developed aspect of the Indian
economy. It was considered a wasteful activity. Losses
from poor physical distribution were undoubtedly large, as
were losses resulting from the failure of the marketing
system to integrate consumer wants with production resources.
The greatest waSte, however, came from the failure of mar-
keting to furnish the force necessary to start the economy

on a period of growth.20 Since then, India is probably

 

20Ralph L. Westfall and Harper W. Boyd, Jr.,
"Marketing in India," Journal of Marketing, Vol. 25 (October
1960), 11-17.

 

Iii‘ll‘ ll. .

55

one of the few examples among all the poor countries where
marketing has received at least some attention. But even
now, much remains to be done to adopt the marketing concept
fully. Marketing is the key to the optimum use of pro-
ductive resources. A nation with limited resources such as
India is compelled to make the most effective use of its
resources. It is here that marketing can help. When market-
ing is ignored, resource allocation is left to the whims of
those who own the resources. Since a seller's market often
exists in the developing countries, producers pay little
attention to marketing. This is harmful to both the present
economy and to future development. It is not inaccurate to
state that marketing, or rather the lack of it, more than
anything else is the root cause of poor growth performance
in developing countries.

Even though the importance of marketing to develop-
ing countries cannot be overstressed, marketing knowledge
and practice in India continue to be neglected for the most
part. Officials in the country do not seem to appreciate
the underlying significance of marketing in their develop-
ment. Also, hardly any efforts have been directed by
academicians to study marketing in India. The result is
only a handful of studies scattered in the marketing liter-

ature on this subject.

 

21Subhash C. Jain, "A Consumption Society at Grass
Root Levels," Columbia Journal of World Business (May-June,
1968), 43-48.

56

To date, only three full-length research studies in
marketing have been based on India. Walters wrote his
thesis on fertilizer distribution by administrative order
in India. He sought a normative solution to what happens
when a government tries to substitute its own decisions
for those of the market place in determining who shall
consume what quantities of a commodity.22

Leon Hirsch's study of the marketing practices in
the North Indian sugar industry has already been discussed
in the section on studies of domestic marketing abroad. He
also wrote an article on wholesaling in India.23 India,
one of the world's large developing countries, is described
by Hirsch as a combination of Eastern and Western marketing
practices, a study of transitions from a primitive to a
more culturally and conceptually advanced system of distri-
bution.

In 1972, Raval did a comparative study of c00pera-
tive marketing of agricultural produce in India and the

24 .
United States. He investigated the similarities and

 

22J. Walters, Jr., "Distributing Fertilizers by

Administrative Order in India," Journal of Marketing, Vol.
24, No. 3 (Jan. 1960), 70-72.

23Leon V. Hirsch, "Wholesaling in India," Com ara-
tive Marketing: Wholesaling in Fifteen Countries, ed. by
Robert Bartels (Homewood, Illinois: RiChard D. Irwin, Inc.,
1963).

 

 

24D. S. Raval, "A Comparative Study of Cooperative

Marketing of Agricultural Produce in India and the United
States" (unpublished Ph.D. dissertation, George Washington
University, 1972).

57

dissimilarities in the philosophy, history, structure,
functions, financing and business methods of cooperative
marketing in both these countries.

These studies mentioned above have made a signifi-
cant contribution to this research. They have given a
periodic frame of reference to the general marketing system
of India in the context of which marketing of motion
pictures in India could be examined.

Studies Dealing with the Economic Aspects
of the Motion Picture Industpy

 

 

Such studies are useful to review because they
describe the business functions and economic activities
involved in making a motion picture as opposed to the crea-
tive functions. To a person with little knowledge of how
the movie industry is organized, they serve as a good
starting point to indicate what to look at while gathering
data about this industry. Unfortunately, whereas the
literature on creative aspects of the industry is plentiful,
economic studies are hard to come by.

Most relevant of such studies to this dissertation
will obviously be a research on the economic aspects of
India's motion picture industry. The only such study ever

undertaken was by Jain in 1960.25 The study dwelled a great

 

25Rikhab Das Jain, The Economic Aspects of the Film

IndUstry in India (New Delhi, India: Atma Ram and Séns,
1960).

 

 

58

deal on the organization, employment and production aspects
of the industry. The role of marketing and its efficiency
were only briefly touched upon. Being very dynamic, this
industry has been in a constant state of flux and has
changed a great deal since 1960. Numerous new problems
have arisen with stringent government controls. New tech-
nology has had its impact and the audience tastes have
changed a great deal. Even though a bit outdated now,
Jain's work is the only one of its kind published so far
and provides a background to familiarize an outsider with
the workings of the industry.

The motion picture industry of India has followed
very much in the footsteps of Hollywood in the past, so it
is interesting and worthwhile to examine how much attention
this industry has received from business researchers here
in the U.S.

So far only five doctoral dissertations have been
written related to this industry. In 1934, Barrett wrote
his thesis in economics on the organization of the motion
picture industry.26 The study attempted to analyze the
struggle for economic control of the motion picture industry
by the various groups involved: producers, distributors,

exhibitors, and investment bankers.

 

26Rex P. Barrett, "The Organization of the Motion

Picture Industry" (unpublished Ph.D. thesis, University
of Missouri, 1934).

59

Then, after a lapse of thirty-four years, another
study was made of motion pictures exhibition in 1968.
Lamson did an economic analysis of quality, output and pro-
ductivity. The central concern of his dissertation is the
development of a conceptually valid output time series for
motion picture exhibition--described as a service industry.27

In 1969, Basti investigated the impact of the
American motion picture industry on the United States
Balance of Payment.28 Industry derived about 55 percent of
its annual income from abroad. Probably no other major
United States industry is so heavily dependent on foreign
markets for its well being. The net contribution of this
industry to the United States Balance of Payment ranges
from $250 to $290 million annually. At this point, it may
be interesting to note that in India, the film industry
ranked the eighth largest with an eXport of almost Rs. 50
million in 1969.29 It is hard to believe that both here

and in India, an industry of such gigantic dimensions has

been neglected and ignored by academicians and scholars.

 

27Robert Doave Lamson, "Motion Picture Exhibition:
An Analysis of Quality, Output and Productivity" (unpublished
Ph.D. thesis, University of Washington, 1968).

28Abdul Z. Basti, "Impact of the American Motion
Picture Industry on the United States Balance of Payments"
(unpublished Ph.D. thesis, University of Colorado, 1969).

These figures provided by Indian Motion Pictures
Export Corporation, Ltd.

60

Also in 1969, Musun wrote his thesis on the market-
ing of motion pictures. He took an institutional approach
in describing the marketing management concepts in the
motion picture industry. The scope of his dissertation
extended from an analysis of marketing opportunities to
the planning and execution of marketing programs, a review
of trade practices and marketing restraints, an isolation
and description of key variables affecting picture sal—
ability, and a presentation of existing decision making
practices.

In 1971, Garrison did a study of uncertainty in the
decision processes in new product launching such as motion
picture production.31 He chose motion pictures because
the results of new product decisions in this industry are
sufficiently immediate and distinct as to be measurable.
Heuristic and normative models were presented to provide an
understanding of information gathering and the flow of
communication in the industry, of the search processes used,

and of the decision criteria employed to screen proposals.

 

30Musun, "The Marketing of Motion Pictures."

31Lee C. Garrison, Jr., "Decision Processes in
Motion Picture Production: A Study of Uncertainty"
(unpublished Ph.D. thesis, Stanford University, 1971).

61

Conclusion

 

This concludes the review of literature relevant
to the subject matter of this thesis. Admittedly, the
interpretation of what is relevant is very ambiguous indeed.
Some criterion therefore had to be agreed upon in order to
decide what is to be included in a chapter such as this.
Criterion of selection here had been as follows: all
studies which gave direction to this research either by
suggesting a framework or methodology of its own, or by
pointing towards a gap due to the limitations of existing
approaches, have been included. Also included are those
which provided the necessary background on which the found-
ations of conceptuations of this research are based. A
number of others were looked into and eliminated, although
it is acknowledged that some of them may have subconsciously

influenced and shaped the thinking of this researcher.

CHAPTER III

BACKGROUND INFORMATION ON THE INDIAN FILM INDUSTRY

Introduction

 

Until very recently, the western filmgoers have not
been aware that India is one of the most prolific film-
making nations in the world. In fact, India has been one
of the three largest movie producers in the world for more
than 20 years. As early as 1958, India outranked the
United States in feature film production and was second only
to Japan. (See Table 1) In 1971, for the first time it
rose to the eminent position of the producer of the largest
number of commercial feature films.1 The total quantity of
production in 1972 fell by some 25 films as compared to
1971. Still, the output of 409 films is very high in com-
parison with most other countries and may again make India
hold the record as the world's topmost film-producing

country.

 

1Here a commercial feature film is defined as a
standard 35 mm. film with a minimum length of 2000 meters.
Documentaries, 8 mm., 16 mm. and short films are not
included in this comparison.

2At the time of writing, data for long film pro-
duction in the U.S. and Japan in 1972 is not available.

62

63

TABLE 1

NUMBER OF FEATURE FILMS PRODUCED

 

 

 

Year India Japan U.S.A.
1954 264 288 303
1955 271 336 305
1956 296 369 337
1957 295 330 .378
1958 295 369 288
1959 312 345 223
1960 324 423 211
1961 297 398 254
1962 319 378 174
1963 305 361 155
1964 304 326 181
1965 325 490 191
1966 316 437 168
1967 333 410 215
1968 350 494 294
1969 367 494 290
1970 396 423 200+
1971 433 419 200+
1972 409 - -
Note: In this table, Japan considers a minimum length of

2000 meters, U.S. considers a minimum length of 2500
meters, and India considers a minimum length of 3400
meters as "feature." Running time of 1000 meters of
35 mm. film is 36 minutes.

Source: This table has been formulated from various issues
of various sources. They are:

a) Up to 1959: "Basic Facts and Figures: Inter-
national Statistics relating to education, culture
and mass communication," UNESCO publication.

b) 1959-1969: Statistical Yearbook, United Nations
Publications.

 

c) 1969-onwards: International Film Guide, ed. by
Peter Cowie, London: The Tantivy Press.

 

64

The quantitative progress of the industry is more
striking if one considers the odds against which it is
Operating. Shortage of raw stock and heavy burden of
taxes, strict controls of imports and ever increasing
duties and tariffs, lack of availability of financing from
nationalized banks and impending threat of government.take-
over, strict censorship code and inadequate number of exhi-
bition outlets are only a few of the grievances the
industry is suffering from. Add to this the acute electric
power shortage and spiraling costs of production, and it
remains no small wonder how an industry can survive under
such chaotic conditions. But survived it has for more than
sixty years and despite the continual cries of despair it
has grown steadily into the enviable position it commands
today. It is therefore important to take a brief look back
at the origins of Indian cinema for a better perspective of

the factors which have sustained its growth.

A Brief Historical Perspective

 

India, having produced its first motion picture way
back in 1897 and its first feature film several decades
earlier than some countries on both sides of the Atlantic,
has had a lively, though intermittent, dialogue with the
cinematographies of the world for well over seven decades.
About fifteen years after the introduction of the cinemato-

graph in India, on May 18, 1912, the first feature film

65

made in India was shown. This film was part British in its
birth having been photographed by British cameramen. But
almost exactly a year later Dada Saheb Phalke's "Raja
Harishchandra" was released in Bombay. This was truly a
pioneering attempt, because Dada Saheb not only wrote the
script, designed the sets, prepared the costumes, perforated
the imported negative, directed the actors, cranked the
camera, processed and printed the exposed film, edited the
positive print, but he also marketed the film himself
taking the print from place to place in a bullock-cart.3

It was the dedication—cum-foresight behind these
earlier ventures which opened up the path for others to
tread on and within a few years a flourishing new industry
was built up that has not only supported itself on the
strength of public patronage but also earned substantially
for the public exchequer by way of taxes. After the first
world war, the industry entered a boom period and by the
end of that decade India was producing around thirty-eight
films a year.

The great success and the increasing popularity of

the motion pictures led the government to pass the first
act known as the Indian Cinematograph Act of 1918, which

required examining and certifying films as suitable for

 

3Hameeduddin Mahmood, "Sixty Years of Indian
Cinema," The Hindustan Times Weekly, Sunday, June 4, 1972.

 

66

public exhibition. The Indian film industry grew up in a
colonial setting, but in the 1920's it was outproducing
Great Britain. The twenties were remarkable in other
aspects too. The socio-political awareness was trickling
into films. The economics of the industry was growing
unwieldy. In 1923, entertainment tax was first introduced
and ever since taxation is one certainty the industry
always had in its highly speculative business. The first
film inquiry committee set up in 1928 to probe all aspects
of the industry foresaw the strangulation of the creative
artist and demanded protection. Over 700 films were pro-
duced in the twenties--all silent.

The beginning of the thirties witnessed many tidal
developments. Production swelled to more than 170 in 1930
and 246 in 1931. Then in 1931, talkies landed with a thud.
They sounded the death knell of the silent films. From 246
in 1931, their number came down to a bare 7 in 1934, and
faded out completely by 1936.4 With the advent of sound,
the Indian film fastened exclusively on musical forms and
became unique in its extensive use of songs and dances. It
had other serious consequences. It gave birth to regional
films in more than ten regional languages in the mid 30's.
Cinema started relying on literary metaphor rather than on

cinematic idiom, and the theater-in-cinema came back. The

 

41bid.

 

67

creative collaboration of lyricist, music director and
singer came to play a dominant role in films and has since
emerged as the biggest motivation for an average moviegoer.

Cinema houses emerged rapidly during this period
and many studios came into existence. The initial cost of
equiping studios and cinema houses for sound was taken up
with a new zeal, as the industry believed that talkies were
to provide more profits and stability. Even though it
caused a rise in the cost of production from Rs. 15,000 to
Rs. 125,000 per movie, the box office collections for the
industry increased from Rs. 200,000 in 1913 to Rs.
10,000,000 in 1931. The thirties marked the birth of
producing concerns who had technicians, artists and camera-
men on their payroll. Film production showed a constant
increase and the industry, now firmly established, started
consolidating.

The early forties were the period of the second
world war. Though the war did not spread onto Indian soil,
the country felt the shortage of raw materials. The infla-
tionary tendencies increased the prices tremendously. As
a result, the cost of production of the feature film went
up four times and the collections at the box office increased
three times. No doubt, the film industry enjoyed some sort
of economic prosperity, but it was wiped off to a large
extent by increases in costs and taxation. To meet the

acute shortage of raw films, the government restricted the

68

length of feature films to 11,000 feet (3,350 meters) and
the distribution of raw film production by 48 percent at
the end of 1945. The exhibitors found it difficult to stay
in business due to heavy taxation and as a result the
number of cinemas was reduced from 1,265 in 1930 to 1,136
in 1941.

World War II ended in September 1945 and soon after
the control on the distribution of raw films was lifted.

By the end of 1946, all the restrictions imposed on the film
industry during the war period were withdrawn. On August 15,
1947, the country won its independence from the British
rulers and this marked the beginning of a new era in the
history of film production in India.

The inflationary boom of the war period made the
industry somewhat prOSperous financially. It led to an
enormous increase in production two years after the war.

The number of picture-goers tremendously increased and the
black market in cinema tickets (scalping) started in spite
of the best efforts of the government and the cinema manage-
ment to stop it. The unexpected rise in production acti-
vities created scarcity of raw films and shortage of studio
space, technicians and artists. This resulted in the system
of "free-lancing" which is still prevalent in the industry.
The cost of materials increased and the rates of interest
became exorbitant. The Cinematograph (Amendment) Act of

1949 made the censorship more strict and the entertainment

69

tax was increased again. The increased taxation created
the practice of the receipts and payments in the film
industry in "black" to avoid the payment of excessive taxes.
This rather unique phenomenon, called "black money,“ has
been a part of the Indian economy in various commercial
sectors including the movie industry ever since and can be
attributed to a large extent to the irrational, inequitable,
unfair taxation policy. More on this will be discussed
later in the appropriate section.

The fifties brought confusion and dismay for the
movie industry. The second Film Inquiry Committee in 1951
recommended institutional arrangements for training in film
crafts and techniques, for financing films, for marketing
them abroad and for state recognition of extraordinary
achievements in motion picture arts and sciences. However,
the Government in its preoccupation with other development
projects in the early years of independence set these pro-
posals aside, and it was not until the early sixties that
these recommendations were implemented. As a consequence
of this, State Film Agencies, such as the National Film
Awards Institution, The Film and Television Institute of
India, National Film Archive, Film Finance Corporation and
the Indian Motion Picture EXport Corporation, came into
existence.

In the late fifties, the Indian film industry ranked

second in respect to capital investment, fourth in respect

70

to the amount of wages paid, and fifth in respect to the
number of people employed among the entire industrial
sector of the country.

The sixties brought the color era. The number of
color films made annually rose from 12 in 1963 to 75 in
1970. In a short span of two years, this number more than
doubled with the production of 178 films in color in 1972.
The sixties also brought attention to the problem of incom-
plete films. They accounted for a significant portion (at
times as much as 30 percent) of the capital investment in
the industry and,un1ess completed, amounted to "sunk cost."
Indian films also established a regular market for export
in many countries of Asia and Africa. Songs from Indian
films, often criticized by Indian musicologists as hybrid
and westernized, are Afro-Asian radio favorites. A few
have proved hits in the Soviet Union also.5

The industry firmly settled down in color in the
seventies. Whereas black and white movies still outnum-
bered those in color (ratio 1.3:1), most of them were in
regional languages. Of the three major production centers,
Bombay, Madras, and Calcutta, Bombay was the undisputed
leader in color production. In 1972, 77 percent of all

films made in Bombay were in color, followed by Madras with

 

5Erick Barnouw and S. Krishnaswamy, Indian Film
(New York: Columbia University Press, 1963), pp.‘151¥l53.

 

71

31 percent and Calcutta with only 8 percent in color.
Films made in Bombay transcend all regional boundaries and
have great following all over India. They are the focus
of this study.

With an estimated capital of Rs. 1.5 billion
(approximately $200 million), employment for over 170,000
people, and with a revenue yield of over Rs. 530 million
(approximately $71 million) to the various state govern—
ments by way of entertainment tax alone besides show taxes,
levies, income tax and wealth tax every year, the movie
industry certainly ranks as one of the major industries of
the country in the seventies.

The Indian film industry can take justifiable
credit for its impressive track record in spite of many
unfavorable circumstances. It developed mostly under the
laissez-faire system and its haphazard growth was caused
by the absence of careful and proper planning. Much reli-
ance on individualism; lack of organization and cooperation;
multiplicity of controlling authorities; excessive taxation;
dependence on foreign markets for raw materials; and
absence of any clear cut policy in regard to direction, pur-
pose and regulation on the part of government have all
affected its healthy development. Historically, the
industry has weathered severe storms and survived innumerable
crises without much external SUpport, and, in spite of its

legitimate current woes, it is eXpected to retain its

72

position as a principal leisure time activity in the lives
of millions who cannot afford any other form of entertain—

ment.

India's Movie-Going Public

 

No marketing study can be meaningful without a
discussion of the consumer. It is the aim of every indus-
try to develop an understanding of how the market for its
product or service operates. For India's motion picture
industry this understanding has been all the more crucial,
because if it was not for public patronage, it would have
been dead by now. Steadily increasing annual attendance
figures at the cinema houses (see Table 2) have saved it
time and again from the brink of financial disaster and
attracted new aspiring producers to risk their investments
in the hOpe that their film will be the box office hit of
the year.

India is seventh largest and the second most popu-
lous country in the world. According to the 1971 census,
only 29 percent of its population is literate. With such a
high rate of illiteracy. it is no surprise that audio-
visual impact of cinema has provided the best medium of
information, instruction and entertainment. Besides this,
entertainment has always been a prime sociological necessity
of life, next only to food, clothing and shelter. Motion
pictures in India provide the cheapest and in some places

the only source of entertainment.

73

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74

In India, other forms of leisure time activities
such as social gatherings, night clubs, restaurants, bars,
theatre, opera, poetic symposiums, outdoor games, tele—
vision, hi-fi systems, etc. are only available to a pri-
vileged few because they are too expensive to afford for
the majority of people.

With the price adjusted per capita income of less
than Rs. 400 (approximately $54.00) per year, it is not
hard to understand why only 12 million radio receivers were
owned by the public in 1971. The number of television sets
in operation was much less-—a meager 25,000. Considering
a huge populace of 550 million, these figures are almost
insignificant.

Newspapers and periodicals cannot provide much
leisure time occupation to those who cannot read or write.
In 1970, their total circulation in all languages was
approximately 29 million.6 Compare these statistics with a
weekly attendance figure of more than 40 million for the
movies and it becomes apparent how strong a hold films have
on India's teeming millions. As Professor Humayun Kabir,
an ex-minister for Scientific Research and Cultural Affairs,
Government of India, once said:

Films, as a medium of entertainment, have come to
acquire a definite position of importance in our

society. In whatever light, favorable or otherwise,
one might view them, the fact remains that a very

 

6All statistics from the Government of India publi-
cation India: A Reference Annual 1971-72.

 

75

great number of people willingly submit themselves

to their hypnotic spell and thus are directly influ-

enced by them.7

As an outcome of industrialization and of changing

economic and social pattern, there is a relative increase
in leisure for the working population of India. For the
non-working population which in rural India is close to
60 percent of all persons, there is no end to discretionary
time. The popularity of cinema is due to the fact that it
brings some relief from the daily anxieties of life for the
common man by lifting him to a make-believe or an imaginary
world of fantasy. For this reason, the so-called "escapist
fare," commonly known as "formula film" in India, is very
popular. This also accounts for the heavy dose of songs and
dances in Indian films, especially those made in Bombay and
Madras. Plenty of free time available to an average movie-
goer has resulted in the normal running time of an Indian
movie to be much longer than that of films made elsewhere
in the world. Many would feel short-changed if they did
not get two and one-half solid hours of unrealistic melo—
drama for their money, sprinkled with at least eight songs
and a variety of dances, and a triangle of hero, heroine
and villain engaged in various plots and subplots. This is
clearly reflected in the thematic classification of Indian

films produced from 1954 to 1970 in Table 3, notwithstanding

 

7Quoted from Tarachand Barjatya, A Handbook Detail-
ing Some of the Problems of the Indian Film Industry (Bombay:
Rajshri Pictures Pvt. Ltd., 1960), P. 3.

 

 

76

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77

the fact that any definite division may not be exclusively
worked out in all cases.

There have been no scientific demographic studies
of the movie-goers in India since 1960. But on the basis
of discussions with various exhibitors, the findings of
that survey still seem applicable in general. The follow-
ing conclusions were drawn at that time from a survey of
2,000 randomly chosen respondents.

1. Women go to movies less frequently than men,
the younger group is better represented than the middle-
aged, and single persons go more often than the married.

2. The persons belonging to lower income groups go
to movies more often than the others. Children go more
frequently than adults, but less than young peOple, and
children of the families in the lower income bracket go
more than children of families in the higher income bracket.8

Since motion pictures are so popular in the low
income groups and in the rural areas, there has been a con-
siderable growth of touring cinemas in India. These are
mobile units with projection facilities for 16 mm. and 35
mm. films, and they travel from village to village showing
various feature films for a particular period of time. The
number of permanent exhibition facilities has also consider-

ably grown from 2,940 in 1953 to 4,750 in 1971 (see Table 2).

 

8
Rikhab Das Jain, The Economic Aspects, p. 23.

 

78

Even though in absolute numbers the increase is substantial,
in proportion to the increase in population during the same
period, the growth is hopelessly inadequate.

In 1970, with a population of 550 million, India had
only 7,140 cinemas whereas the United States had more than
twice as many theatres (14,420) with less than half as many
peOple (200 million). Even a small developing country like
Argentina had over 1,600 cinemas with a population of little
over 20 million. The scarcity of cinema houses in India has
resulted in various malpractices in the exhibition sector of
the industry. These problems are discussed in a later
section on current trade practices.

In 1971, the estimated gross collection at the box
office was Rs. 1.5 billion ($200 million), approximately 0.4
percent of India's total annual personal expenditures. The
1970 box office receipts were up over the previous year's by
20 percent, and 1971 receipts were further up by 15 percent
over 1970.

Such a steadily growing vast potential market for
the product of this industry is probably the only plausible
eXplanation for so many new people being lured into film
production and distribution every year, in spite of the
multitude of economic hurdles to overcome even before getting
off the ground. Even those who vehemently oppose calling
film—making a business enterprise and insist on it being

only a medium for expression of creativity have to meet the

79

test of market acceptance for economic survival or get
lost in the rapid turnover of film—makers. Yet, each
comes with the belief that he has the right marketing mix
to meet the entertainment needs of the market, and each
has the fond hope of getting rich quick by making the
phenomenal film of the year with the largest market share.
The facts that last year only 10 percent of all films
released showed any profit and that only another 10 per-
cent managed to break even do not somehow seem to matter.

This emphasis on individualism is a unique char-
acteristic of the motion picture industry distinguishing
it from all other major industries in the country. Whereas
others function in a very closely knit organized setting
on a long—term basis, the structure of the motion picture
industry is what Alderson has defined as an ecological
system.9 The members of this system are not associated in
a merely random fashion as in the case of an atomistic
system, nor are they as rigidly connected with each other
as in the mechanistic system.

The following section will take a look at this

organizational structure.

 

9Alderson, Marketing Behavior and Executive Action.

 

80
The Organizational Structure

Alderson states that one of the characteristics of
operating systems is division of labor which is defined as
the assignment of operating functions to individuals or sub-
groups within the larger group. Division of labor by
stages of the process involves successive levels in diStri-
bution channels. In discussing the elements of structure in
operating systems, Alderson defines "seriality" as the state
of being arranged in a sequence of steps and stages, with
the process under consideration flowing from one stage to
another.10

The operating system under consideration here is
the motion picture industry in India. Its underlying struc-
ture involves sequential arrangement of the three stages of
production, distribution and exhibition. A typical film has
to go through all these stages before it reaches its
audience. Each stage also has its own organizational struc-
ture and functions. In this section, first the entire
operating system will be discussed and then the structure in
each one of the three stages will be outlined in the exhi-
bits that follow.

It is the aim of every producer to gain a release

for his film in all areas which constitute his potential

 

10Alderson, Ibid.

81

audience. As with many other goods and services, the
target markets of a motion picture are usually geographi-
cally scattered. It is the function of the distributor to
bridge this gap between production centers and potential
market locations where the audience belong. The distributor
came as an intermediary due to the increase of production
activities and increase in the number of cinemas in the
country. Through him, the supply and demand of motion
pictures are linked.

Bombay is the production center for "Hindi Films."
Their potential market is all over the country. Therefore,
they need wider distribution than regional-language films.
Traditionally, India has been divided into six distribution

11 An addi-

territories to cover all exhibition outlets.
tional territory is assigned for "overseas" distribution.
If a producer could sell his film to all these territories,
he would have achieved extensive distribution. The distri-
butors from each territory are then responsible for arrang-
ing the screening of the film in various movie theaters in
their circuit so located that as large a percentage of the
potential audience as possible is reached.

Exhibit III shows the sequence of operations that

an average Hindi Film has to go through in order to get

 

11A detailed description of the "territories" is
given in the following section on Current Trade Practices.

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83

mass distribution. The channel is usually the same even
though the members of the channel may be different. That
is because release of each film is like an introduction of
a new product to the market. All negotiations between
channel members are considered strategic transactions
since they pertain to non-recurring situations. Even-.
though the functions performed each time may remain
unchanged, the negotiations cannot usually be routinized
because each film is considered a different product. The
acceptance of one by the market does not automatically
ensure the success of another even though the same group
of people may be involved in its making. Alderson's struc-
tural postulate Of marketing which states that effective
management of any operating system requires the largest
prOportions of the systems Operations being routinized does
not seem applicable to the motion picture industry.

There are more registered production companies in
Bombay than there are films produced annually. Each film
production becomes a new project. The producer hires a
number of people who perform different functions necessary
for the completion of the film. Each of these people hired
by the producer may be working simultaneously in other movie
projects also with other producers because Of the free-
lancing system.

A group of peOple working together on a film form

a "production unit." As stated, members of a unit usually

84

belong to many other such production units. Once the pro-
duction is complete, the unit disbands and another venture
from the producer requires a new set of negotiations to put
together the same unit or a different one.

Similar is the case in distribution. The producer
seeks out distributors for the seven territories mentioned
earlier. Each time a movie project goes into Operation, a
new set of negotiations are made with the distributors or
all together different distributors are sought. Because of
this highly individualized nature of business, it is mean-
ingless to outline an organizational structure which is
based on the number of people involved. Alliances in the
motion picture industry are short-lived, but no matter who
the members of the alliance are at a particular point in
time, the functions performed usually remain the same.

For this reason, the diagrams of organization
structures presented in Exhibits IV, V, and VI are really
charts of functions required to be performed in each of the
production, distribution and exhibition sectors of the
industry.

Organizational Structure in the
Production Sector (Exhibit IV)

Production of motion pictures is an extremely com-
plex Operation. A number Of different skills and variety
of talents are engaged in narrating a story on celluloid.

It takes the right combination of literary talents,

 

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86

histrionic abilities, musical skills, technical expertise
and business acumen to make a "winner." No business needs
as much creativity in so many diverse fields as the busi—
ness of film production .

The producer is the origin Of all such activities.
He is the person who governs its creation from the time of
its conception until it is ready for showing in theaters.
He coordinates the creative elements from the standpoint Of
financial management. He picks a story, signs the major
stars, contacts the financiers, negotiates with the distri-
butors and hires peOple to fill the key positions in the
production unit. In India, it is hard to get financing for
a film without a few well—known names heading the cast.
Therefore, it is not the director who selects actors for
key roles, it is the producer. Stars are signed even
before the director is selected so that the movie can have
financial backing.

Every unit has men called executive producers or
production managers. Their functions are varied: keeping
track of the days when stars are available for shooting,
contacting studios about availability of stages, running
around appropriate government authorities for permits to
buy raw stock, booking recording studios for song-
recording sessions, arranging for preview theaters to show
the rushes to distributors, and even bringing refreshments

for the stars on the sets—-they do all kinds of chores.

87

Normally, these people are relatives of the producer.
Nepotism abounds in India's movie industry.

Motion picture production requires the sequences
to be grouped according to sets and filmic punctuation,
because the shooting is never done in the logical sequence
of the story. The story writer after finding an idea.
develops it to a clear and logical end, and then the script
writer prepares a careful scene-by-scene narrative as it is
going to be filmed. The dialogue writer then provides the
required dialogues for the scenes. Most of the time, the
same person performs all three functions.

The team of music director, lyricist and the play-
back singer is indispensable to Hindi films. Songs from
a film are almost as much a "box Office" attraction as the
name of a big star. Successful music directors command
very high prices. The lyricist writes a song to depict a
character's state Of mind,and the music director provides
the symphony which sets the mood of the audience towards a
particular scene. The music director works in close col-
laboration with the director because he must share the
emotion the director is trying to convey in order to trans-
form it into appropriate music. Usually, catchy tunes are
first set by the music director who then invites the song
writer to write a song on the tune. SO big is the impact
of film music in India that its music industry publishes

little else but records of film songs.

88

The film is made step by step as the director
visualizes it. He is concerned with continuity, camera
angles, control of action and nmmerous other factors that
affect the pace of presentation of the story. He usually has
a technical staff to advise him about things which need atten-
tion to represent the appropriate time and place of the.story.
For example, if the story is set in the background Of 19th
century India, the research staff furnishes the information
on costumes, hair styles and such other things consistent
with that time. Since a typical Hindi film invariably has
dances and a climax fight between the hero and the villain,
dance directors and fight director almost always are part of
the production unit. They work in close cooperation with the
director. All other actors, except the major stars, are
normally chosen by the director for various roles.

The director has a few assistants who keep in touch
with the extra—suppliers for any scene which may require a
number of people without any speaking roles. They also carry
various COpies of the scripts to be handed out to the actors
and actresses just before the shot. Since the major stars
are always working on a number of films at one time, they
almost never read the detailed script before coming to the
shooting. Assistant directors also act as clapper-boys.
Their primary function is to make sure all the required
things are ready before the camera goes into motion.

The director of photography, camera man, and their

assistants work long hours to translate the director's ideas

89

into concrete images. They cannot sit around between "takes"
playing cards like others as they have to arrange for the

next shot. The director of photography not only has to super-
vise the filming Of endless retakes during the day, but also
has to sit and watch the previous day's rush prints after
everyone is gone. Under him work the electricians, who
illuminate the sets with dozens of lights to get the effect
the director wants.

The production designer supervises the construction
of sets as designed by the art director. He also looks after
the wardrobe needed for various characters in the movie.
Hairdressers and makeup men usually report to him for pur-
chase Of things needed to do their work. Many big stars
these days bring their own makeup man and hairdressers but
the producer has to pay for them.

The technical director is responsible for hiring the
sound engineer, recordist, special effects director and
editors. If any special sound is needed in a scene such as
the roar Of a lion, the special effects man will provide
the tape for it. They also film animation, a presentation
of titles, and provide information on trick-photography.
Editing is a job of utmost importance and requires a close
SUpervision by the director. In many cases, the director
himself does the editing. Then synchronizing the soundtrack
with the lip movements on the screen requires a good deal of
technical skill. The responsibility for all these functions

rests on the technical director's shoulders. He also acts

90

as a liaison with the processing lab.

Once the film is completely processed and various
prints are made, the production unit disbands, and now it is
again the producer's turn to complete negotiations with dis-

tributors from various territories for an early release.

Organizational Structure in the
Distribution Sector (Exhibit VT

 

 

All distribution firms in India are either proprietor-
ship or partnership concerns. Some have nationwide organiza-
tion, but most are single units. There were some 1,200 com-
panies employing over 10,000 persons in the motion picture
distribution business in 1970. The estimated capital invested
in films that year was more than Rs. 350 million ($47 million).
Most of it came from the distributors. In India, they perform
two important functions: (1) they help finance the films by
giving advances to the producers during production; and (2)
they help secure release of the films in important exhibition
outlets in their territory.

Distributors are equivalent to wholesalers. These
are the middlemen in marketing who add time, place and pos-
session utilities to a product.

Every distribution firm has a general manager. He is
in charge of the overall activities and decision making pro-
cesses of the business. It is his responsibility to decide
which films the firm should provide finances to, which films
are to be released when, and what the terms of contract with
individual cinema-owners are going to be. He normally has a
number of peOple employed to assist him in making these deci—

sions by gathering all pertinent information.

91

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92

One important function is to select those movie
producers whose projects the company may be interested in
backing. Persons responsible for this keep an alert eye
on various announcements of films being launched by pro-
ducers seeking finances. They look at the star cast, the
story, the reputation of the producer and use their judge-
ment towards the success potential of the film. If it is
a new producer, they insist on seeing a few reels of the
film already shot before making any decision. A list of
such projects is provided to the manager upon whose approval
money is advanced to the producers in return for the
exploitation rights of their films upon completion in the
distributor's territory.

The next important function is to schedule the
release of films available with the distribution firm at
various theaters. Acute shortage Of movie theaters in
India has made it very difficult to get a release when
desired in the apprOpriate location. There are always more
films ready for release than there are movie theaters free
to show them. For these reasons, it is extremely important
for a distributor to keep a constant on-going relationship
with some key theater owners in his territory.

Post-production publicity of the film is the distri-
butor's responsibility. Depending on the terms of agreement,
he may later deduct the amount from the producer's share of

collections, but initially it is to be accounted for and

93

paid by the distributor. Therefore, every distributing
concern has men in constant touch with various publicity
firms who prepare and place newspaper ads, print posters,
paint billboards and make large wooden hoardings to be
mounted on sites in high traffic areas. Outdoor advertis-
ing is most common in India. It is indeed hard to find a
wall facing a street in Bombay which is not covered by
announcements of "coming attractions."

To account for collections at the box office is
also the distributor's responsibility. His men, in close
cooperation with the theater owners, calculate among other
things the state government's share of the weekly collec-
tions (entertainment tax), the theater rental for the week,
and the "overflow."12 In fact, distributors can be called
the accountants for the industry because they keep track
Of not only their own revenues but also the producer's,
the exhibitor's, and the government's.

There are many other miscellaneous functions to be
performed in a distribution firm. Many movies have re-runs;
many prints are given on loan to other territories. Film
processing labs are to be contacted if more prints are
desired. Some men are assigned to these tasks and to keep
an inventory of all films whose exploitation rights are

owned by the firm.

 

12These terms are explained in the following section
on Current Trade Practices.

94

The schematic diagram in Exhibit V shows the
arrangement of functions just described. In the Exhibit,
these functions are grouped under various departments. It
is not intended to convey the impression that all distribu-
tion firms have these separate departments. Nevertheless,
they all have to perform these functions regardless of their
organizational structure.

Organizational Structure in the
Exhibition Sector (Exhibit VI)

 

 

This is the largest sector of the induStry from the
point of view of capital invested and number of persons
employed. In 1970, there was an estimated capital invest—
ment of more than Rs. 500 million ($67 million) in the
exhibition sector employing more than 90,000 peOple.

Growth of cinemas in India has been very slow. On the

basis of recommendations of various film inquiry committees
appointed by the Government of India from time to time,

there should have been one cinema for every 20,000 popula-
tion. Working on this ratio, today India should have close
to 28,000 movie theaters, whereas the latest available
figures show only 7,400 (see Table 2). This severe shortage
has virtually made the exhibitor the kingpin of the industry.

Most exhibition firms are also proprietorship or
partnership concerns. Generally, the management pattern
followed is that of centralized direction and control with

the word of command going directly from the top to the

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96

concerned department. The general manager is the overall
in charge for administrative and technical supervision.
Under him are seven major departments performing a variety
of functions.

The technical department is responsible for the
trouble—free functioning of the sound system, projectors,
curtains, lights, etc. The electric power shortage in the
country has forced many big theaters to use their own
generators so that essential functions can be continued.
Air conditioning is important to movie theaters because it
becomes an additional motivation for the man in the street
to take refuge from the intense Indian heat during the
summer. The technical department employs engineers to keep
these Operations running smoothly.

The accounting department is responsible for work-
ing in close cooperation with the distributor's office to
calculate the entertainment tax, the theater's rental (on a
percentage basis or a fixed amount per week), and the left-
over to be paid to the distributor whose film is running at
that time. Also, it has the responsibility for acting on
purchase requisitions from other departments.

The scheduling department has liaison with various
distributors on dates of release and terms of agreement.

It decides whether the same film should continue for
another week or a new one be released.

The booking department runs the box Office. A

97

number of booking clerks sit in different windows selling
different priced tickets before each show. All seats are
reserved so they have to keep track of which seats have
been sold in advance and which are available at the time of
the show. Advance booking is a common practice to avoid
disappointment at the door. It is the responsibility of
the head booking clerk to decide how many days before the
announced release of a film advance booking should open.

The publicity department places the daily newspaper
advertisement about the current program at the theater.
They also arrange the displays on theater premises. It is
common to have huge life-size plywood cuts of different
postures of the stars mounted on prominent locations over
the theater entrance. The amount Of effort spent by movie
theaters in India on what is called "point-of—purchase"
advertising is just unbelievable. Many times when a big
film's release is announced, even special tickets are
printed with pictures of scenes from the film. All these
functions are performed by the theater's publicity depart-
ment.

The amount of traffic through the premises of the
theater being very large, a security and maintenance depart-
ment is needed to keep things in order. Gatekeepers and
ushers see to it that only ticket holders come in. Watch-
men, parking lot attendants, plumbers, carpenters, and
janitors are necessary for any establishment heavily used

by the public.

98

Food service providing popcorn, snacks, soft drinks,
ice cream, etc. are essential during intervals. Most
Indian films, being at least two and one-half hours long,
have a fifteen minute break for intermission. Usually the
theater management subleases this soda fountain business
in return for rent and a percentage of the revenue.

Before screening the regular feature, it is manda-
tory for every theater to show a few shorts provided by
the Films Division, Government of India. It is also manda-
tory to play the national anthem at the end Of each show.
Advertisers like this Opportunity of capturing an attentive
audience, so a number of advertising shorts are also shown
before the feature. This is additional revenue for the
theater.

Exhibition of movies in India has so far been a
very profitable business. Scarcity of cinema houses and
increased film production has made the task of the distri-
butor very difficult. Many films have to wait for months
to get a release in a choice theater. This amounts to
increased costs because of interest expense on blocked funds.
Theater owners do not hesitate to eXploit their favorable
situation in dictating terms to the distributors.

There are a variety of reasons why more cinemas are
not coming up in the country. These and other issues will
be discussed in the following sections on current trade

practices and the Government's role.

99

Current Trade Practices

 

In this section, trade practices currently prevalent
in the motion picture industry in Bombay are discussed.
Bombay film producers have their own unique ways of conduct-
ing business somewhat differently from those of regional
film producers. As mentioned earlier, there are a number of
other production centers in India specializing in producing
various regional language films. These films, however, have
very limited markets, primarily confined to specific regions
(where the spoken language is the same as the language of the
film). On the other hand, Hindi films have nationwide appeal
since their language is understood by the majority of people.
Bombay is called the film capital of India for two reasons:
(1) it is the leading production center for Hindi films, and
(2) quantity wise, films made in Hindi top the list of films
produced every year. (See Table 4)

The first hurdle every producer has tO overcome in
order to get his movie project off the ground is to arrange
for capital. There are very few producers who can completely
finance their own films: most have to rely on capital
available from outside sources. Surprisingly, for such a
speculative business, there is an abundant supply of it--
but at exorbitant rates of interest (36 percent or more per
annum). It is probably the glamour Of the industry and the
relatively quick turnover of invested capital that attracts

many money lenders.

100

TABLE 4

CLASSIFICATION OF FILMS PRODUCED
ON THE BASIS OF LANGUAGE

 

 

Language 1965 1966 1967 1968 1969 1970
Hindi 97 100 82 72 100 102
Tamil 56 62 65 68 70 76
Bangali 29 3O 25 29 29 34
Telugu 50 37 61 76 59 71
Marathi 14 12 2O 17 16 20
Gujarati 5 2 3 3 6 5
Kannada 22 21 24 36 44 37
Malayalam 31 32 39 35 31 44
Punjabi 5 4 5 2 4 1
Others .19. .19. .._.9. .12. .2. __6
Total 325 316 333 350 367 396

 

Source: Indian Motion Picture Almanac: 1971 (Calcutta,
India: Shot Publications), p. 857.

 

The entire amount estimated for the making of a film
is not required right at the very start of production.
Unlike other manufacturers, it is possible for the producer
to start and carry on the production of the picture with a
relatively small amount and to manage the funds as it makes
progress. Usually, the financier provides no more than 20
percent Of the estimated cost of production. His risk is
covered in one of two ways:

1. The producer transfers the "negative" of his
completed film in the name Of the financier. He sends a
letter to the processing laboratory authorizing the with-

holding Of the negative in the name of the financier until

lOl

his investment is recovered with interest. It means that
no monetary transactions for the film can be made without
the financier's consent.

2. The producer gives a lien on a particular terri-
tory to the financier. It means that when the processing
laboratory delivers the prints to the distributor for the
mortgaged territory, first the financier is paid with
interest from the delivery amount, and then the remaining
amount, if any, is credited to the producer's account.l3

With the initial working capital (partly from the
financier and partly from the producer's own resources),
preliminaries, such as hiring various members of the unit,
paying the signing amount to the stars, purchasing some raw
stock, renting equipment, etc., are taken care of and the
film gets into the production stage. With a few reels com-
pleted, rush prints are made to be shown to prospective
distributors. The estimated budget is presented and nego—
tiations are held with various distributors to represent
seven territories. These territories are not along state
'lines. Historically, these circuits developed around main
production centers according to transport convenience.

Even though production centers relocated, the distribution
circuits have remained the same for no other reason but

tradition.

 

l3 . . .
Laboratories in India act as more than mere pro-

cessing plants. They collect, pay, deliver and store on
behalf of the producer.

102

The seven distribution territories are as follows
(see Exhibit VII):

1. Bombay circuit: This includes the state of

 

Gujarat and part of Maharashtra (the districts excluded are
Akola, Amravati, Bhandara, Buldana, Nagpur and Yeotmal,
which belong to C.P.C.I.), Union territories of Goa, Daman
and Diu, and Dadra and Nagar Haveli.

2. Delhi-U.P. circuit: It has the states of Uttar

 

Pradesh, Haryana, Himachal Pradesh, Jammu and Kashmir and
the Union territories of Delhi and Chandigarh.

3. C.P.C.I. circuit:l3 States of Madhya Pradesh,

 

Rajasthan, and some districts of Maharashtra (mentioned
under Bombay circuit) are included in this territory.

4. South circuit: It includes the states of

 

Tamil-Nadu, Andhra, Mysore, Kerala, and Union territory of
Pondecherry.

5. Bengal circuit: It comprises the States of

 

West Bengal, Assam, Orissa, Bihar, Meghalya, Nagaland,
N.E.F.A., and the Union territories of Manipur, Tripura
and Andaman Islands. It also includes the neighboring
countries of Nepal and Bhutan.

6. East Punjab: It includes the state of Punjab.

 

7. Overseas: All other countries except Nepal and

Bhutan.

 

l4C.P.C.I. stands for Central Province and Central
India. U.P. stands for Uttar Pradesh.

103

EXHIBIT VII

Present Territorial Distribution

    
       
 
      

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104

The rights of eXploitation of the film in each

territory are given on a minimum guarantee basis. Almost

 

nobody now sells his film outright to a distributor. A

minimum guarantee is the amount of money a distributor must

 

pay to a producer in order to obtain the distribution rights
of his film for a given circuit regardless of how the.film
does at the box office in that territory. This ensures the
producer at least partial and sometimes full coverage of his
risk. Fifty percent of the agreed amount of minimum guar-
antee the producer collects during production. When a dis-
tributor is signed for a territory he is required to make

a down payment to the producer. Then as the film progresses
installments are paid. The sum of down payment and install-
ments does not exceed fifty percent of the minimum guarantee
until the picture is complete. The remaining fifty percent
is paid by the distributor at the time of delivery of prints.
There is no standard operating procedure for determining the
amount of down payment and the number of installments. Each
distributor is treated differently and a number of subjective
factors come into play. Nevertheless, there is a generally
accepted procedure for calculating the amount of minimum
guarantee for each circuit. The percentages shown below

are based on the exploitation potential depending on the
strength of the target market in each territory. Each terri-
tory does not have the same number of people who are likely

to see a Hindi movie. For this reason, percentages in all

territories are not the same.

105

It should be kept in mind, however, that the follow-
ing breakdown is based on the judgement of distributors in
business for many years. It is not an outcome of scientific

research conducted by the industry.

Minimum guarantees for:

Circuit Percent
Bombay 18.0
Delhi-U.P. 18.0
C.P.C.I. 15.5
South 11.0
Bengal 15.5
East Punjab 8.0
Overseas 14.0

 

Total budget presented by the producer 100.0

This total budget usually includes all the estimated costs
of production plus 5 to 7 1/2 percent producer's margin.

The advance amounts paid by the distributors add
to the working capital needed to complete the film. If
the loans from the financier, advances from distributors
and personal finacial resources of the producer are not
enough, quite often the processing laboratories, raw stock
suppliers, studio and equipment renters come to the producer's
rescue by extending credits for the payment of services
rendered. The laboratory, with whom the producer has gone

into a contractual agreement about the processing of his

 

15Percentage breakdowns are on the basis of data
provided by Rajshri Pictures (Pvt.) Ltd., Bombay, a leading
nationwide distribution firm.

106

film, at times provides financing up to Rs. 100,000 in the
form of raw stock. The producer is expected to pay 12 per-
cent per annum interest on the amount borrowed. The
laboratory's risk is minimal because they have possession
of the negative. They can refuse the release of any
prints if the amount is not paid according to agreement.

Once the film is complete and all accounts are
cleared usually twelve prints are released to each territory
upon collection of the remaining fifty percent of minimum
guarantee (called delivery amount) from the distributors.
The release date in various territories may be different.
The first week of release is considered most important.
Big films may get a simultaneous release in twenty-five
theaters in big cities and then be withdrawn from all the
rest except one or two theaters after the first week. For
these big releases, distributors need more than twelve
prints during the first week. It is a matter of mutual
understanding between distributors to borrow the extra
prints from the territory which has a different date of
release. The charges are nominal (Rs. 500 per extra print
per week), and it is more a friendly gesture of favor in
the expectation of a return favor when the other distributor
needs it.

The exhibitors usually charge a fixed amount per
week as their rental. Due to the shortage of theaters in

India, they can dictate their terms and get away with it.

107

They take a big chunk out of the box office collections.
As an example, the following figures are presented for a

leading cinema house in Bombay:15

Rate: 4 shows per day, 28 shows per week, all full house

Rs. Percent
Gross collections at box office 125,000 100
Entertainment tax 65,000 52
Net collections 60,000 48
Theater rental 35,000 28
Balance 25,000 20

So a very small percentage of the total box office collec-
tion gets to the distributor. After the film's first run is
complete in a territory, the distributor's accounting
department adds up the total amount collected from all exhi-
bition outlets after payment of rentals and taxes. Twenty
percent of this amount the distributor keeps as his commis-
sion. From the remaining eighty percent, after subtracting
the minimum guarantee paid by the distributor and all the
publicity expenses incurred by him, what is left over is
called the overflow. This overflow is then divided equally
between the producer and the distributor.

There are some theater owners who state their terms

and conditions in a different manner. They charge as weekly

 

16Its name is being withheld on specific request of
the theater management.

108

rental fifty percent of the net collections (total box
office receipts minus the entertainment tax) or a fixed
protection amount, whichever is higher. The protection
amount acts as a sort of minimum guarantee for the exhi-
bitor. It is designed such that the theater owner does
not share the distributor's losses but has a part in his
profits.

From the foregoing description of the trade
practices in the movie industry, it would seem a surprise
why every industrialist in India does not go ahead and
build a theater. After all, which other business could be
more lucrative than the one with guaranteed income and
almost no risk? The following section on the government's
role throws some light on the reasons for cinemas not mush-
rooming in India. It discusses the interaction of the
government with business aspects of the film industry at
each of the three stages of production, distribution and
exhibition.

The arm of the government dealing with creative
aSpects of the industry in the form of censorship, state
awards, training at the Film and Television Institute, etc.
is not the subject of inquiry in this thesis, and, there-
fore, any discussion of that is purposely omitted from the

next section.

109

The Government's Role

 

The overall controlling authority in matters con-
cerning the motion picture industry is at the central
Government level in the Ministry of Information and Broad-
casting. There are a number of agencies at the State and
local levels also responsible for licensing and taxation of
businesses engaged in production, distribution and distribu-
tion of motion pictures.

The first encounter of a film—maker with the
government is in the planning stages of production. It is
necessary to present a letter from a processing laboratory,
stating that it has taken the responsibility for processing
of the proposed film, to the Joint Chief Controller of
Imports and Exports (J.C.C.I.) in order to get the permit
to purchase raw stock of negative film, sound film and
positive film from authorized importers. Sometimes it is
also necessary to attach consent letters from important
members of the production unit informing J.C.C.I. of their
agreement to work in the proposed film. This is required
to distinguish a genuine producer from a bogus one. Almost
all raw stock being imported is dispersed in controlled
quantities. A permit is helpful in preventing bogus pro-
ducers from buying raw stock and selling it at extremely
high prices to the genuine ones. Also, all the raw film
is not released at once. It is released in small quantities

upon filing a consumption report of the previous usage.

110

The permit is not released unless the producer
signs a bond promising replenishment of the amount of
foreign exchange used by the export earnings of his film.

All raw stock is channeled through Indian Motion
Picture EXport Corporation (IMPEC), an agency of the
Ministry of Information and Broadcasting. Over and above
import duty, the producer has to pay two and one-half
percent service charge to IMPEC.

Once the film is completed, there is an excise levy
on eXposed film. Depending on the number of prints taken
from the negative, excise duty is paid by the producer to
the Central Government. Then the film has to be passed by
censors, again a central subject in India, for which fees
are to be paid by the producer. These taxes cannot be
passed on to the consumer. They have to be absorbed in the
cost of production.

Once the film is released in a theater, all box
office collections are subject to entertainment tax. This
tax is collected by the State Governments and the amount of
taxation varies from State to State. It is levied at rates
varying from 25 percent to 150 percent of the net admission
rates. The price of a ticket is calculated as the sum of
the net admission rate and the entertainment tax. Even
though this tax is paid by the consumer, it increases the
price of the ticket and adversely affects the demand. On

top of entertainment tax, most local governments charge a

111

show tax levied on collections from each show.

In a recent decision taken by the Government in
1972, all film eXports have to be channeled through the
State Trading Corporation (an agency of the Central Govern-
ment under the Ministry of Foreign Trade). Two and one-
half percent commission is to be paid in advance by the
exporter on the face value of the eXports.

Following is a list of different kinds of taxes
paid by the motion picture industry to the various levels
of government. These taxes are applicable to the motion
picture industry only. Other taxes, such as income tax,
wealth tax, prOperty tax, sales tax, etc., which are common

to all other industries also, are not included in this list.

»Taxes imposed by the Central Government

 

1. Import duty

2. IMPEC service charges

3. Excise levy on exposed film

4. Censorship fees

5. Export commission

6. Rentals on documentaries and newsreels supplied

to the theaters for mandatory exhibition

Taxes levied byythe State Governments

 

1. Entertainment tax

2. Licensing fees for cinemas

112

Taxes charged by local governments

 

1. Show tax

The relationship between the government and the
industry has always been anything but cordial. Although
the importance of films as the most powerful medium of
mass contact has been recognized unanimously by all quarters
of the government, no move has been made to assist the trade
in taking care of its legitimate grievances.

One problem the industry has had for years is the
lack of institutional finance. No banks or government
bodies would invest in a film production under any condi-
tions. Financing available from private sources is at
prohibitive rates of interest. It is often argued that
film production involves considerable risk; but even movie
theaters which provide gilt-edged security for an investor
because of its land, building and equipment, are not
financed by banks or government agencies.

Another problem is the scarcity of cinema houses
due to the rules governing licensing of cinemas in various
states. All licensing rules should be administered by one
single authority to enable quicker decisions. At present,
as many as eight different authorities have to accord
sanction before construction can begin. It takes an enor-
mous amount of time and causes a lot of difficulties because

of the unnecessary bureaucratic red tape. It is not unusual

113

for an applicant to pay his licensing fee and wait for two

years to even get a "no from the authorities.

Motion picture industry in India is the most heavily
taxed industry in the country. Not even a small percentage
of the tax revenues earned from it are ploughed back to the
industry for its benefit. Recently the state of Punjab
took over the ownership of all cinemas in the state, and it
became a matter of grave concern for theater owners all over
the country. By setting such a precedent, the threat of
nationalization started looming over the industry. Most of
the industry's ills can be attributed to shortage of cinema
houses and their shortage is due to lack of availability of
prOper financing, threat of nationalization, and an excessive
amount of bureaucratic lag in getting licenses. Time and
again, industry's back has been broken by extremely heavy
taxation.

The Government is responsible for many of the
industry's current woes. In spite of earning handsomely
from it without much effort, the Government in its priori-
ties has not given the industry its rightful place. Instead,
it has been used as a milch cow and it is still waiting to
be recognized by the government as a legitimate industry.
It is not considered an art, for then it would not be taxed,
nor an industry, for then it would be financed. It is
probably the moralistic Gandhian philosophy that has influ-

enced the national leaders to think of entertainment as a

114

luxury rather than an important social necessity for the

people.

CHAPTER IV
CHANNELS AND FLOWS: THE DESCRIPTIVE ASPECT
Introduction

In order to find out how much marketing is per-
formed in India's motion picture industry, it is necessary
to understand the arrangement of relationship among indi-
viduals and institutions engaged in those activities and
functions which are within the sc0pe of marketing. In the
first chapter, it was suggested that these functions can be
converted into flows for purposes of analysis.1 It is our
endeavor in this chapter to present schematically the pat-
terns of flows of ownership, physical possession, communi-
cation, financing and payment. In the preceding chapter,
functions performed within the organizational structures of
production, distribution and exhibition sectors of the
industry were outlined. For an understanding of the func-
tions performed between the sectors, it is important to
restructure the participating elements in succession in
the direction of the flow under investigation. When all the

five flows are charted in this manner, the existing

 

1Chapter I, p. 16.

115

116

structure of channels in India's motion picture industry
clearly emerges. Then factors responsible for the exist-
ing structure of the channels are identified by examining
the environment in which these channels operate. As
Bartels put it, "Distributive systems are indigenous to
their environment."2

This chapter attempts to provide answers to the
first two of the five questions undertaken by this research
in its effort to describe, analyze and evaluate the market-
ing of motion pictures in India.3 These answers underlie

the descriptive aspect of this study.

Physical Possession Flow

 

Exhibit VIII shows the flow diagram of the indi-
viduals and agencies involved in the physical possession
of the film. It starts out with three different kinds of
raw films which are needed to make the finished "release
prints." The negative film is what is known as camera
original. It is the one loaded in the camera when scenes
are being shot. Usually the "audio" is recorded on a

quarter-inch magnetic tape and then transfered to a sound-

film which can be edited and synchronized with the picture.

 

2Robert Bartels, "The Dimensions of Marketing
Thought," in Kelley and Lazer, eds., Managerial Marketing:
Perspectives and VieWpoints (Homewood, Illinois: Irwin,
1958, p. 411.

3These questions are listed and eXplained in Chapter
I, pp. 7-11.

 

 

117

EXHIBIT VIII

Channel for Physical Possession Flow

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

m
o
‘3.
m Raw stock supplier
o f.
-H 0 .
> o
'84 ‘HEOA a
-. 7 :2o.
3. fl muaouq 8
O 0 m o
g‘ o 1(2 " ~
0 o
O ‘ Producer m
g‘ . I m
o V
3 °° I | s
E a I . ' 5-1
H j I Cinematographer | M
m c | I -H
8 F L a l g
B 8 ""' Editor | 8
m -
S 1 Q l , l 9'
1 Y J
>1 Laboratory .I<
(D o
mmmon
>¢U+Io -
vac): ~u
wr4mamuq
f a m$4u1
M Q:: V

 

 

Distributor for
one territory

 

 

 

t
(13,000
ft.)

m
g.
C

prin

1

 

 

One exhibitor
in that territory

 

 

 

NOTE: 1. This diagram is based on information provided by
Mr. Wadia of Bombay Laboratories (Pvt.) Ltd, a
leading firm in the business of motion picture
processing and sound recording in India.

2. This flow is primarily a movement through geo-
graphic space even though every movement through
space is also a movement through time, because
each has some lapse of time associated with it.

118

The third kind of raw film is known as positive raw film
on which printing is done from the processed negative.
The edited positive and the edited sound film are then
synchronized and put together to form the release-prints
with sound track. On the average 80 reels of negative
film are needed in the making of one motion picture about
13,000 feet long in its finished form. Each reel of raw
stock contains 1,000 feet.

The producer after obtaining the necessary permit
from J.C.C.I. purchases a total of about 80,000 feet of
raw negative from the raw stock supplier in various install-
ments as needed. The film is then passed to the cinemato-
grapher who loads it in his camera for the shooting. The
eXposed reels are then given to the processing laboratory
for development of negative. The editor picks up the
developed negative for sorting and returns it to the
laboratory for rush-prints after editing the NGs.4 He then
also edits the rush-prints which are given to the producer
from time to time by the lab for showing to the distributors
how the film is progressing.

The sound film and the positive film are supplied

directly to the laboratory by the raw stock supplier on

 

4In the jargon of the film industry, NGs are "not
good" takes. The director takes each shot a number of
times and then keeps the best one for final print. The
editor discards the NGs. The ratio of NGs to "good takes"
varies from director to director. On the average it is
about 5 to 1.

119

instructions from the producer. Since the audio recording
is continuously going on while the negative is being shot,
the footage requirement for sound film is almost the same
as that for negative film. The requirement for positive
film is much higher. For nationwide distribution usually
about 60 release prints are necessary. So at the rate of
13,000 feet for the length of a finished release print,
780,000 feet of positive film is needed for this purpose.
Over and above this, 60,000 feet of positive film is needed
for rush prints while filming is in progress and another
10,000 feet is kept for miscellaneous reasons such as
making "trailers" etc. for advertising purposes. An average
commercial Hindi film, therefore, may require close to
850,000 feet of positive film.

The interaction between laboratory and the editor
is very frequent. After the editor has completed editing
of the rush prints in final form, the laboratory provides
one finished print to the producer for showing to the
censors. Their suggestions are forwarded to the editor
along with the print in order to incorporate the changes
recommended by them. Once this is taken care of, the labor-
atory releases an average of twelve prints per major

territory.

 

5Out of the seven territories mentioned earlier,
"overseas" usually gets 16 mm. prints. They are not included
in the sixty prints mentioned here. Also East Punjab and
South are quite often lumped together for distributing twelve
prints. Each of the other four territories get twelve prints
each, making a total of sixty prints.

120

Thus each territory gets 156,000 feet of film, which
the distributor divides among various theaters--each one
of them getting one print (13,000 feet) for screening.

The flow diagram shown in Exhibit VIII outlines
the movement of the film from production to release. The
participating elements in this diagram are those who actu—
ally take physical possession of the film. Even though
the direction of the main flow is forward, there are some
auxiliary backward flows to facilitate certain functions as
eXplained earlier. The diagram shows only one distributor
and one exhibitor for lack of space. It is applicable for
every distributor and every exhibitor in the country. The
magnitude of flow in terms of the length of film is shown
in the diagram for an average film. The duration of the
flow depends on the number of films produced every year.
For each film it is a one time flow. Each time the same
set of events and the same flow is repeated.

The "channel captain" for the channel, from which
the flow of physical possession takes place, is undoubtedly
the "film processing laboratory." It is the enterprise
which administers, coordinates and controls most of the

activities undertaken in this channel.

Ownership Flow

 

The ownership flow is one of the intangible flows of

marketing through the distribution channel. It has been

121

defined as a succession of transfers from one person to
another of ownership rights over goods as they move from
extraction through processing to consumption. This parti-
cular flow is extremely important in distribution because
the successive owners that appear in it make the most mean-
ingful decisions concerning what shall be done with and to
the goods involved.

The ownership flow is strongly influenced by whether
or not there is a tangible product. Whereas it is quite
easy to identify the transfers of ownership for products
which are primarily goods with service support, it is an
extremely difficult task to even understand this flow for
products which are mainly "services" with "goods" support.
For pure services, a true ownership is impossible because
what is produced cannot be owned. Buying and selling remain
extremely important, but the flow problems become different
from those created by tangible goods.

These difficulties in delineating the ownership
flow for those products which are towards the service end
of the "goods-service" continuum, arise primarily due to
the fact that the term "ownership" has been conventionally
defined in a very narrow fashion to include only transfer

of title. Leases and rentals are quite common now even for

 

6R. Cox, C. Goodman, and T. Fichandler, Distribution
in a High Level Economy (Englewood Cliffs, New Jersey:
Prentice Hall, Inc., 1965), p. 34.

 

 

122

such "hard" goods as automobiles, and it does not involve

transfer of title.7

The owner, however, transfers to the
renter a degree of control almost equal to that of owner-
ship. The principal difference is that control passes not
permanently and irrevocably, but for only a limited period,
after which it reverts back from the renter to the owner.

The flow of ownership should therefore include
transfer of control and transfer of the responsibility and
authority for making the major economic decisions. The
participating elements in the ownership flow are those who
face the direct consequences of making these decisions.

The members of this channel divide the fruits of success
and share the risks of failure.

With the definition of the term "ownership"
broadened in this manner, the peculiar difficulties encoun-
tered in the transfer of control for the motion picture in
India can now be discussed.

From the point of view of consumers, motion pictures
are primarily services with goods support. Physical com-
modities used in the performance of the services can best

be considered as having been marketed to the service agency

rather than to the consumer.8 The service agency in this

 

7"Hard" goods refer to those products which are pri-
marily goods with some service support.

8R. Vail, E. Grether, and R. Cox, Marketing in the

American Economy_(New York, N.Y.: The Ronald Press Co.,
1952), p. 164.

 

 

123

case is the theater which performs the service of providing
entertainment for its customers.

The primary task of transfering the ownership
breaks down into two parts: first, to set up a sequence of
ownership; second, to determine how wide a span shall be
covered by each successive ownership in the channel. The
idea of span covers both the number and the variety of units
embraced under a typical ownership at any level of the
channel. When a film moves from one ownership level to
another, it is likely to be dispersed among a larger number
of ownerships so that there are more individuals sharing
the risk.

Transfers of ownerships in a channel become more
complicated when contracts of various sorts are used such
as agreement which provides for a reversion of ownership
rights after a specified period and arrangements under
which the seller retains some part of the rights which
ordinarily would be passed along to the new owner.

As mentioned in an earlier section on Current Trade
Practices, the complete transfer of ownership is almos: no'
existent these days in India's film industry. Producers
and distributors engage in such contractual ownership trans~
fers as the ones discussed above. If by ownership of a
film it is meant to find out who owns the master negative
from which prints are made, the answer will be either the

producer or the financier, depending on what kind of

124

agreement has been made between them for payment of the
loan. But it is more worthwhile from the marketing view—
point to define the ownership of a film as the control
over the right to exploit its market potential. In that
case the distributor comes into the picture.

When the film's production begins, the only owner
is the producer. Then he borrows money from the financier.
The financier will not take part in the ownership flow if
all he had to cover his risk was a lien on a particular
territory. A lien does not entitle him to ownership. It
is like being a tailor who has made a suit for a customer
who does not pay. All that tailor can do is to withhold
delivery of the suit until his bill is settled. He cannot
use the suit himself. It is a different thing, however,
if the producer transfers the "negative" rights of his
film to the financier in order to borrow money. In such a
case, the financier does exercise total control on all
monetary transactions and economic decisions until such
time as his loan is recovered with interest. After that
the ownership goes back to the producer. Such a contrac-
tual relationship between the producer and the financier
is indicated by the dotted lines in Exhibit IX.

The flow of ownership is primarily a movement
through time. Movement through space also takes place
because different owners are located at different places

in the geographic space. At time T1’ the producer procures

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126

the raw stock from the apprOpriate source. From that

point in time until time T2, when the film is completed and
prints given to various distributors, the ownership belongs
to the producer except for the situation described in the
preceding paragraph.

From time T2, when the distributors pick up their
prints for exploitation in their respective territories to
the point in time they recover their minimum guarantee,
their publicity expenses, and their commission, the owner-
ship belongs to the distributors. This is because until
then the producer has no share in the revenues and he does
not make any financial decisions. In Exhibit IX this point
is shown as T3.

Only to simplify matters, it is assumed that all
distributors recover their minimum guarantees, etc. in the
same amount of time. It is usually not the case. Some may
never get to T3. Nevertheless, conceptually, the flow of
ownership takes place in this fashion even though the value
of T3 may differ from distributor to distributor. Typical
calculations for T3 are shown in Appendix A.

After T the "overflow" begins, which was defined

3!
as the revenue left over after deducting the minimum guar-
antee, publicity expenses, and distributor's commission.

If T4 represents the time when the first run of the film in

all territories is over, then between T3 and T4, the owner-

ship is joint between the producer and distributors from

127

each territory. As explained earlier, the overflow amount
is divided equally between the producer and the distri-
butor.

Very often there is a stipulation in the contract
between producer and distributors about a time period after
which the exploitation rights for the film revert back com-
pletely to the producer. Suppose that point in time is
indicated by T5. If the film reaches point T4, all the
minimum guarantees are covered and most publicity expenses
have also been taken care of. From T4 to T5, the producer

usually gets about 40 percent of additional net collections

 

from reruns, etc.9 These calculations are also shown in
Appendix A. After T5, the ownership flows back to the
producer.

Now that we have discussed the sequence and span of
the flow of ownership in the channel, it is important to
identify its direction, duration and magnitude. In "time
space" the direction of movement is forward, but in "geo-
graphic space" the movement is circular for the flow of
ownership. It starts with the producer and gets back to
him after a period of time. From the distributor's point
of view, the duration of the channel is "repeating" because

each one of them is a participant in such a flow with many

 

9"Net collections" refer to the amount left over
from box office receipts after paying entertainment tax and
theater rental.

128

producers. From the producer's angle, it is a one-time
channel because with each new film, a new set of distribu-
tors may be sought. The channel participants may change
but the flow takes place in the same manner. Since we
defined "ownership" as the right to exploit the market
potential for a film, it is meaningless to measure the
"magnitude" of flow through the channel. Perhaps the
magnitude at the distributor's level could be measured as
the number of films for which each distributor has the
rights of exploitation at one point in time, but such a
measure will be irrelevant to the channel representing the
flow of ownership for one film.

The distributor takes the maximum amount of risk in
the channel. The producer's risk is at least partially
covered by the minimum guarantees, but if the film does not
run for T3 amount of time, the distributor has to bear the
consequences. Therefore, the distributor is the most active
participant in the channel in order to avoid sustaining a
loss. He administers the channel by controlling most of
the activities undertaken. The distributor is the channel
captain in the ownership channel.

Exhibitors are conspicuously absent from the owner-
ship channel because they normally charge fixed rentals
and do not share the risk. Peculiarity of the nature of
the product of the motion picture industry has resulted in

a unique ownership channel quite different from those

129

commonly found for tangible durable goods. Nevertheless,
the flow does take place and the control and authority
over making major decisions does get transferred from one

participating element to another in the channel.

Financing Flow

 

Film-making in India is an eXpensive proposition.
It requires huge capital outlays and no established finan—
cial institutions such as banks and insurance companies are
willing to participate. A typical Hindi film made in color
with popular stars can cost anywhere from Rs. 3.5 million
to Rs. 6.0 million. Very few individuals can put together
that much money on their own and take the complete risk.
The question of arranging finance, therefore, is of vital
importance to anyone who wishes to produce a film.

The motion picture industry in general, except in
state—controlled economies operates on borrowed funds.
In India, its system of financing is very haphazard and it
is governed by anything but economic principles. A number
of subjective forces come into play, and it takes all the
persuasive skills of the producer to accumulate capital and
receive credit. In such a state of affairs it is no small
task to even detect, let alone identify, a channel through
which the flow of finance takes place. There are as many
ways of raising funds as there are producers, so in exact

terms no generalizations are possible. For these reasons,

130
it would be presumptuous to even attempt suggesting phe-
flow chart for financing of motion pictures. However, it
is possible to present a flow diagram representing the
agencies and individuals involved in providing capital and
extending credit to the producer in order that his film
gets completed. Exhibit X is such a diagram. The per-
centages shown on the chart are not totally arbitrary.
They are rough estimates based on information collected by
this researcher from a number of producers. What is pre-
sented in the flow diagram is what was found most frequently
in the data. Nevertheless, a word of caution is necessary
right at the outset in order to avoid putting absolute
faith in the numbers given here. The percentages can vary
a great deal depending on the reputation of the producer,
his previous successes, his relationship with the people
involved and his contacts with prominent personalities.
Our inability to get exact numbers should not, however,
undermine the importance of systematically following the
sequence of the flow of financing.

There are two ways a project requiring a large
amount of working capital can be financed. One is to
borrow funds from others to run the project and the other
is to get the services of peOple involved in the project
on credit until such time as the project starts bringing
in revenues. A producer uses both of these methods to get

his film completed. The turnover of capital in the motion

 

131

EXHIBIT X

Flow of Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 Beginning of project _‘p_.___ Producer's
j 5% own resources
“2% 2% I
a
O
H
fi Financier ,
u 20%
8
a I...‘..___ Film-stars
g 10%
g Laboratory
{ .4 Distributors
| 50%
l
I
I
I I<p_u___. Studios and
l 6% equipment
: suppliers
L. __________ a»4
7% (r
I 100%
Y. Completion of the film
Note: 1. Financing for a film is done in one of two ways:

a) by providing capital;

b) by extending credit.
Those agencies and individuals who provide capital
are connected with solid lines to the flow in this
diagram. Those who give some or all of their ser-
vices on credit are shown connected with broken
lines.

2. This is only a flow chart for finance and not 323

flow chart.

132

picture industry is relatively fast. Therefore, extension
of credit from film stars, studio owners, equipment sup-
pliers and processing laboratory owners for their services
can be a very crucial factor in the successful completion
of a film.

The flow diagram shown in Exhibit X is drawn for
the period extending from the time the producer purchases
the raw stock to the time the film is completed and prints
are ready to be delivered to various distributors. In this
movement through time, a number of activities related with
financing take place.

To start with most producers use some of their own
resources to purchase a story and sign the artists for key
roles. The signing amount is only a small fraction of the
payment the stars receive when the film is completed.

The producer then goes to the laboratory to sign a
contract for developing of negative and processing of
print. For this he has to pay a signing amount of Rs. 2000
in order to get a letter required for obtaining the permit
to purchase raw stock. At this point in time, the labora—
tory can provide financing up to Rs. 100,000 in the form of
raw stock needed at the rate of 12 percent per year, if the
producer so desires.

The producer, now equipped with raw stock and the
promises of work from key members of the unit, goes to the

financier who may provide working capital, usually up to

133

20 percent of the budgeted cost at a rate of interest of

36 percent per year. Even though this amount is shown in
the diagram as a lump sum payment at one time, it is
usually given in various installments as the film pro-
gresses. The distributors start providing advance payments
totaling up to 50 percent of the budgeted cost in various
installments after seeing a few "rushes" from the film.
This is not considered a loan and no interest is charged
for it.

Now comes the credit part of financing. This is
usually provided to established producers by film stars,
studio owners, cameras, lights, and other equipment renters
and the laboratory. The amount paid to major stars in a
typical Hindi commercial film is a substantial part (as
high as 33 percent) of the total budgeted cost. If they
agree to take only part of it during the shooting and the
remaining after the film is completed and delivered, it can
amount to as much as 10 percent of the financing of the
film. Similarly if the laboratory does the processing work
on credit and agrees to wait until the film is delivered
to the distributors for the collection of its bill, it can
be a great help to a producer with a tight working capital.
Whereas a reputed producer enjoys these credit facilities
and can launch a film with as little as only 5 percent of
its budgeted cost from his own resources, a new producer's

financing burden can be as high as 25 percent. The

134

difference is mostly accounted for by lack of availability
of credit.

Once the film is completed and prints delivered
to various distributors, from the delivery amount received
(sometimes as high as fifty percent of the budgeted cost
of the film), the producer starts paying back his loans.
This delivery amount, which has been explained earlier as
the difference of the minimum guarantee and the advance pay-
ment by the distributors, is decided upon in the very early
stages of production between the producer and the distri-
butors. If for some reason the actual costs run higher
than the budgeted cost, the resulting loss is incurred com-
pletely by the producer. It is important for the producer
to complete a film as soon as possible and get an early
release, otherwise the mounting interest charges can be
‘sufficient to throw the budget off its delicate balance.

The participating elements of the channel are shown
clearly in Exhibit X. Beyond the point in time when the
film is completed and delivered to the distributors, there
is really no flow of financing. Almost all the risk then
belongs to the distributor. No more financing is required
for the film's release from outside sources because once it
is shown in the theatre, returns are instant and revenue
keeps flowing in from box office receipts. In this matter,
motion pictures differ considerably from consumer goods

which once sold to the retailer can sit on the shelf for a

135

long time before gradually picking up sales. On the con-
trary, if a film in India does not draw full houses in its
first few weeks, it never will cover its costs. It is very
unusual for any new film not to attract a capacity crowd

at least during the first week of its release. The patron-
age gradually tapers off in the succeeding weeks.

The direction of the flow in geographic space is
"backward" because most of the financing comes from the
distributor who is at a later stage in the sequences of
Operations than the producer in the making of a film. Also
the laboratory, which again comes at a later stage in the
sequence of operations, provides financing to the producer.
The magnitude of the flow is given in percentages. Rupee
figures are not used here for the budgeted cost of a film
because they vary a great deal from one film to another.

The duration of the channel is "one-time" and the channel
members disband once the project is complete. A new

project requires a new set of negotiations to form a channel.
The channel captain is again the distributor who in conjunc-
tion with other distributors from other territories provides
the bulk of the flow of financing in the motion picture

industry.

Flow of Payment

 

In the ultimate analysis, it is the movie-goer who

pays for his entertainment and by doing so collectively

136

provides the source of funds from which the government, the
theater owners, the distributors and the producers receive
their respective shares according to pre-arranged terms.

The flow of payment originates from the movie-goers and
works its way backwards to the producer. There are a number
of leakages on the way in this pipeline and unless the input
to it is substantially large, the leakages may be sufficient
to drain the flow completely and the other end may not even
receive as much as a trickle. Exhibit XI graphically shows
the manner in which this flow takes place, the stages at
which the leakages occur, and the amount of flow required

at the input end in order to even get to the output end.

The input to this system occurs when the movie-goers
go to a theater and purchase tickets, thus contributing to
the weekly box office receipts donated by "B" in the exhibit.
The state and local governments have the first claim from
these receipts in terms of the entertainment tax and the
show tax and it is represented by "T." The remaining amount
(B-T) is the magnitude of the flow of payment at the stage
when comparison is made between the weekly protection figure
(P) demanded by the theater and fifty percent of this
amount (B-T). If 0.5 (B-T) is greater than P, the theater
charges this amount as its weekly rental and the remaining
amount 0.5 (B-T) flows to the next stage of the channel.

On the other hand, if 0.5 (B-T) is less than P, a check is

made whether (B-T) is less than P, because if it is, not

 

 

137

EXHIBIT XI

Flow of Payment

 

 

 

 

 

 

 

 

 

 

    

 

 

 

   
   

 

 

 

 

 

  
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movie
Goers
B
State and local 4, T )
government
B-T
,
Yes Is No
‘4 .5(B—T)>P ”*—
B-T
I .5(B-T) Yes 15
Theatre (B-T)<P
A
l
I
_._._._._4”\_ _________ _J
r‘
I (P-B-T) B-T
| P
l
I
I B-T-P
l
I either
I .SIB-T) I=.5(B-T) V
I or fl
I=(B-T-D)
I
I
I II
I m
| R-kilzlj’jzl'n
I R
I Yes Is NO
| ‘ RgMG+A+.2R r
R R
I ‘ II
L_<_ MG+A+.2R .4;
‘W Distributor “ “
9
k v
50
‘y.50
Note: The dotted flow takes place only Producer

if (B—T)<P.

 

 

 

138

only the entire amount goes to the theater owner, but also
the distributor for the territory has to put up the differ-
ence (P-B-T) shown by the broken line in the Exhibit. If
(B-T) is equal to P, the whole amount for the week goes to
the theater owner as rental and the magnitude of the flow
is zero after this point in the channel. If, however, B—T
is greater than P, the magnitude of the flow after the
theater rental payment for the week is B-T-P. Let us
denote the magnitude of this flow, whether it is .5 (B-T)
or (B-T-P) as I. It represents the income from one theater
for one week after paying taxes and rental. If the film
has a first run for "n" weeks in one theater, (ZIj, j=l, n)
represents the total income from this theater at this stage
in the flow of payment. More commonly, a film is released
in many theaters in a territory to reach its potential
audience, and in each one it has a first run of certain
number of weeks which may vary from theater to theater.
Suppose the film was released in "m" theaters in this terri-
tory having a first-run of "n" weeks in each theater (n
being a variable); the term §Z Ij, j=1, n represents the
total amount collected from :11 theaters in the territory
at the end of their first run after paying their rentals
and the government's share of taxes. This amount is
denoted by "R" and it is the magnitude of the flow of payment

when it reaches the distributor from the territory. If the

value of R is less than or equal to the sum of minimum

139

guarantee (MG) advanced by the distributor to the producer,
the advertising expenses (A) and the distributor's commis-
sion (20 percent of R), then this amount in its entirely
goes to the distributor. If, on the other hand, R is
greater than the sum mentioned above, the amount (MG + A +
.2R) goes to the distributor and the remaining amount 0,
known as the overflow, is divided equally between the pro-
ducer and the distributor. (See Appendix B)

The participating elements in the flow of payment
are identified in the flow chart presented in Exhibit XI.
The government is shown in the diagram away from the main
channel because it is only a recipient from the flow and
not a participant in it. The direction of the channel is
obviously "backward" because it starts from the consumer
and works its way back to the producer. The duration in
at least part<1fthe channel is "repeating" even for one
film because the calculation for "I" is done on a weekly
basis. The diagram shown in the exhibit is only for one
territory. Exactly the same flow process takes place in
other national territories also and the producer is a parti-
cipant in all those "Os." To extend this concept to all
territories, the receipt of payment by the producer on a
nationwide basis can be represented by the following mathe-
matical expression: (S 0.501 ' where O 2 0). The magnitude
of flow in the channellhis been pointed out at various

stages in the diagram as well as in the preceding discussion.

140

The channel captain in the flow of payment is the exhi-
bitor because he is the one who receives, controls, and
coordinates the distribution of revenue earned at the box
office as a result of payment by the movie—goers.

The flow diagram presented in Exhibit XI is a
faithful reproduction in an organized manner of the informa-
tion gathered by this researcher regarding the flow of pay-

10 The

ment from a variety of sources in the film industry.
industry, however, uses no flow chart or computer facilities
to calculate its distribution of income. No previous
attempt has been made to study it as such, and no theoreti—
cal models are available to ease its toilsome accounting
efforts. A lot of cheating goes on, and the producer has
little more to rely on than the distributor's spoken word.
Except for the variable "B," which can be fairly accurately
estimated from the counterfoils of the printed tickets sold
at the box office, all of the variables are susceptible to
manipulation by members of the channel. And manipulated
they are quite frequently to absorb the "black money" pay-

ments. How it is done is a matter of subsequent discussion

in an appropriate section.

 

loMr. Tarachand Barjatya, the proprietor of a large
vertically integrated firm engaged in production, distri-
bution, and exhibition of Hindi films, was one such source
who was extremely cooperative.

141

Communication Flow

 

Promotional impulses, aimed at getting a desired
favorable response towards a film from various participating
elements in the channel, primarily constitute the intan-
gible flow of communication. These impulses are sent
through a variety of media, but a somewhat unique situation
exists in the case of the motion picture industry, its
product being an extremely potent medium itself.

As communication theorists would point out, the
task of disseminating information for the source becomes
much easier when the receivers are eager to receive it.
The motion picture industry in India enjoys such eager
receivers, as evidenced by increasing circulation and con—
tinued pOpularity of fan magazines, film periodicals, and
gossip columns. There were some 315 of these in publication
in 1972 dealing exclusively with the subject matter of film-
1ife ranging anywhere from the announcement of a new produc-
tion venture to the affairs of a popular movie star. So
high is the "cinema-consciousness" in the Indian masses that
few topics of common interest will generate more participa-
tion in any social gathering than the subject of movies.
"Word of mouth" advertising, therefore, becomes an essen-
tial element of the communication mix of a motion picture
in its effort to reach the potential audience.

Exhibit XII represents the flow diagram according

to which the flow of communication takes place in India's

142

EXHIBIT XII

Communication Flow

 

Show Cards

AL

 

}————————W Show Cards I
[——————4>{Rush Prints}—————1 Previews
I

 

 

 

 

 

 

I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[4,. Producer .1 W'O°M’ Distributors w'O’M° 7 Exhibitors
' Trade JournalsP___j
m
S 3 Advertising P.O.P.
3'; P.R.o. Agencies Displays
3 I \
‘1
Paper
. Pilm Publicity
Periodicals If Agents
I
Billboards Contests
and and Sales Newspaper
Poster Promotion Program
Makers Gimmicks Announcements
s
M L I
g ’ Outdoor Radio
8 Advertising Commercials Trailers
m
I I ‘ I

 

 

 

 

T H E A U D I E N C E

W.O.M. . w.o.M. ,

 

 

 

 

Note: w.O.M. denotes Word of Mouth; P.R.O. denotes Public Relations
Officer; and P.O.P. is Point of Purchase.

143

motion picture industry. Not only are there promotional
impulses moving within the industry between its three
sectors, but also a great deal of effort is made by each
sector for communicating to the public.

When the film is in its production stage, a great
deal of communication takes place back and forth between
the producer and the distributors by word of mouth (W.O.M.).
Also during this time, under the producer, a member of the
production unit known as the Public Relations Officer (PRO)
is active releasing stories and incidents about the shoot-
ing to the various film periodicals for publication.
Through them, fans and readers around the country become
familiar with the name of the film and start looking for-
ward to its release. While the film is being shot, still-
photographers employed by the unit prepare a number of show
cards from the "highlights" of the film. With the help of
these show cards and "rush prints," the producer tries to
convince and persuade various distributors about the
quality of his project in order to obtain minimum guarantees
for territorial eXploitation rights of the film. He may
also advertise the names of important members of the pro-

duction unit in trade journals such as The Film Industry

 

and Kay-Tee Reports circulated among the members of the

 

industry in order to attract inquiries from distributors.
Once the film is completed and delivered to the

distributors, they engage in heavy pre-release publicity.

144

In fact, the bulk of the advertising budget for a film is
spent prior to its release. After the release it is
mainly at the mercy of word—of—mouth communication between
the movie-goers. The distributors usually take out full
page ads in a number of film periodicals announcing the
date of release through the help of what are known as Paper
Publicity Agents.ll They charge the distributor a fee for
preparing layouts and also get commission from the media
for buying space. Distributors also employ the services of
billboards and poster designers and printers for outdoor
advertising, a medium used extensively by the film industry
in India. Some producers of big-budget films also use
advertising agencies to prepare radio commercials and to
devise contests and other sales promotion gimmicks before
and after the release of their film during its first run.
Communication between distributors and exhibitors
takes place in three ways. Word of mouth, of course, is
most predominant. Also, distributors present showcards to
be used for display purposes on theater premises and make
arrangements to show "previews" of the film to theater
owners in order to persuade them to release the film in

their theater.

 

llThis researcher interviewed two such individuals
prominent in Paper Publicity: (a) Mr. Colin Pal of
"Up-to-Date Publicity," and (b) Mr. V. P. Sathe of "Bombay
Publicity."

145

The exhibitors promote the film to movie-goers in
three ways: they screen the trailers of coming attractions
to lure the audience; they put up the point-of—purchase
displays on theater premises in the form of life-size
paintings, cuts and photographic "blow-ups;" and they
advertise their program announcement every day of the week
in local newspapers.

Once the film is released, the most overpowering
influence is "word-of—mouth" communication among the
audience. In this respect, motion pictures once again
differ considerably from tangible consumer products.
Whereas the acceptance or rejection of a consumer product
by one individual may not have a substantial influence on
the choice of another individual, films require collective
appreciation because they are expoSed to a number of people
at one time. The "feedback" in terms of audience reaction
is usually provided in the form of letters to the editors
of "film magazines" and from published "reviews" of the
film by various critics.

Communication flows are very important for the
marketing of a motion picture because the right promotional
mix can sometimes make the difference between a "hit" and a
"flop." The flow being intangible, it is impossible to
measure its magnitude except in monetary terms. As much as
25 percent of the cost of production of the film may be

budgeted for publicity expenses in India. An accurate

146

estimate is very difficult to get because this is the
account commonly used to absorb most of the eXpenses
incurred due to black-money payments. Thus the income
statements of production firms presented for tax purposes
almost invariably include an inflated figure for publicity
eXpenses.

The direction of the flow of communication is "two—

way,’ with promotional impulses typically moving forward
from producer to the movie-goers, and their reaction flow-
ing backward as feedback to the producer. The duration

of the channel is repeating with messages going back and
forth constantly between the participating elements of the
channel. The channel captain in this flow is the distribu-
tor because it is his responsibility for the most part to
publicize the film not only to movie—goers but also to
various theater owners in his territory.

Factors Responsible for the Existing
Structure of’ChanneIs

 

 

Once the present structures of the channels carry-
ing the five flows are clearly outlined, the next logical
step is to find out why these channels have evolved as they
did. A historical perspective in the preceding chapter
attempted to trace the environment in which these various
channels took shape. But an eXplanation of the present
structure of channels discussed in this chapter should also

include an examination of the goals of society and of channel

147

members, the inputs of efforts and resources required by
the channel system, the result of these inputs, and the

constraints which have been instrumental in determining

these channel structures.

In a democratic process, the government elected by
the peOple sets up the goals and objectives of the society.
Prime Minister Mrs. Gandhi recently stated that profit
motive cannot be accepted as the criterion for directing
economic growth in India. She advocated a policy of self
denial by those who were better off than the rest of their
countrymen.12 India's economic goals have been set along
socialistic lines, in which the profit motive of the
"better—offs" is subservient to the service of the large
majority of the economically backward sections of the
society. In simplistic terms, the philosophy which
regards "self denial" as a great virtue expects those who
have succeeded in meeting their basic needs of food, cloth-
ing and shelter to deny themselves the satisfaction of
other higher Maslovian needs and work towards the satisfac-
tion of the basic needs of their fellow men. In a society
whose leaders believe in this philosophy, the sociological
needs of an individual such as entertainment and leisure

get a very low status in the Government's scheme of

 

2Excerpt from a speech given by Mrs. Indira Gandhi
to the annual general meeting of the Federation of Indian
Chambers of Commerce and Industry in April, 1973.

148

priorities. Therefore, it is small wonder that India's
commercial film industry, whose primary aim has been to
satisfy these "unfavored" needs, has received a "step-
motherly" treatment from a Government whose goals are not
quite compatible with the goals of the industry.

No one can deny the existence of profit motive in
the film industry, but being an interface of art and busi—
ness, it consists of commercialism as well as dedication.

If the industry were given some assistance by the Government
to stabilize itself, there would perhaps be a greater sense
of dedication and less of commercialism. Instead, it works
under a number of constraints which have forced the channels
to take their existing structures. In the following para-
graphs we shall take a look at each one of the channels
discussed earlier in this chapter from the point of view of
the constraints which shaped them.

The structure of the channel for physical possession
flow evolved in its present form because of the restrictions
on the import of raw stock for the motion pictures. The
shift in audience tastes towards color films forced the
producers to buy color stock which is not produced in the
country. Shortage of foreign exchange necessitated require-
ment of a Permit to be issued only at the assurance of a
laboratory that the producer is genuine. These constraints
resulted in the emergence of the laboratory as the channel

captain, engaged in administering, controlling and

149

coordinating the entire channel, and not merely an agency
employed to process the film.

The flows of ownership and financing developed
under the adverse conditions of the unwillingness of tradi-
tional financial institutions to provide capital for the
working of the industry. Increased taxation, high rates of
interest and the rising costs of production made it impos-
sible for a producer to generate enough capital on his own
to produce a film. The risk had to be shared with and
divided among a number of distributors who became the pri-
mary source of funds in the industry. This resulted in the
currently prevalent practice of minimum guarantees and the
distributor emerged as the channel captain actively adminis-
tering both the channels of ownership and financing.

The acute shortage of movie theaters in the country
has made the exhibitor the most powerful member of the
channel through which the flow of payment takes place.

He can demand his terms and participate in the profits
without sharing the risks. The government, trying to
squeeze as much as possible from this superficially pros-
perous industry, has diverted a large part of this flow
towards the state treasuries in the form of entertainment
taxes. The construction of more new theaters in the
country has been hampered by the low priority status
assigned to giving licenses for this purpose by the govern-

ment in accordance with the goals it has set for the society.

150

The communication flow has taken its present shape
because of the geographical separation between production
centers and exhibition outlets. Distributors are the
middlemen bridging this gap. They are close to the pro-
ducers as well as the movie-goers in their territory. They
are in the best position to know the available release
dates in a theater as well as the expected completion date
of a forthcoming motion picture. It is not surprising,
therefore, that the distributors administer, coordinate and
control the communication channel which carries the flow
of information about a film to various individuals and
agencies participating in the channel.

The aggregate channel with the production and
marketing efforts of producers, distributors and exhibitors
provides a creative input to a society in the form of
motion pictures aimed at satisfying the entertainment needs
of its members. The need exists even though its satisfac-
tion is not given high priority by those responsible for
determining the goals of the society. For this reason the
industry operates in an unfavorable environment which
results in peculiar channel structures for its survival.
The results of this industry's input to the society could
be divided in proportion to the input efforts of its indi-
vidual members if there were no constraints. These con—
straints ultimately determine the various channel structures

and provide the perspective for the understanding of why the

channels evolved as they did.

151

Conclusion

 

This chapter started out with the stated objective
of providing the descriptive aspect of the study of motion
picture marketing in India. In order to do this, two
questions needed to be answered: (1) What are the existing
structures of channels in India's motion picture industry?
and (2) Why have the channels taken these existing struc—
tures?

The flow charts outlining the channels of physical
possession, ownership, financing, payment and communication
attempted to answer the first question. Then, the preced-
ing section attempted to answer the second question by
explaining the present channels in the light of those
objectives, inputs and constraints which have been instru-

mental in giving the channels their existing structures.

CHAPTER V

MEASUREMENT OF MARKETING:

THE ANALYTICAL ASPECT

Introduction

 

The analytical aspect of this study is concerned
with the measurement of marketing work performed in the
span of time stretching from the procurement of raw film
to the screening of the completed motion picture. During
this period a number of activities take place, some adding
form utility to the film and others essential for pro-
viding the time, place and possession utility to it.
These latter activities appear to be of special interest
to us in order to separate the production costs from the
marketing costs, although one could perhaps argue that
utility is an "all or none" proposition from the con-
sumer's point of View. Each of these activities taken
separately have no utility to the consumer. For example,
a finished motion picture not finding proper release
facilities or an unfinished film with an established dis-
tribution network is of little use to the movie-goer for
the satisfaction of his entertainment needs. All of
these conditions must be met by the film in order to have

any utility for him.
152

153

If we take this vieWpoint, it becomes unnecessary
to try to distinguish productionfrom marketing, and the
word marketing then takes a broader, more general mean-
ing to include production as an activity within its
spectrum and not separate from it. It is even more
difficult to draw a line between the end of production
and beginning of marketing for products which are primarily
services with some goods support. As pointed out in
Chapter I, a motion picture is regarded as such a product
by its consumers (the movie-goers).

Motion pictures are viewed collectively by a number

 

of people at one time. The price of the product to them is
the amount they pay for admission tickets. This price is
not determined on the basis of the producer's cost plus

the middleman's mark—up. If that was the case, as with

most tangible consumer goods purchased individually by

 

households, it would be relatively easy to separate the
production and marketing costs from the per unit price of
the product. In a somewhat unique situation of the motion
picture industry, where the admission charges are usually
fixed and based on such considerations as willingness and
ability to pay, the sole determinent of whether a film

will break even is its ability to attract a large number

of people. Therefore, different measures of marketing
costs and different indicators of marketing work are neces-

sary instead of the traditionally used figures calculated

154

by the "per unit price minus per unit cost of production
approach" for most consumer goods.

In the first chapter, three such indicators were
suggested to count the number of units of real_work per—
formed, with a belief that the task assigned to marketing
takes the form of organizing and regulating a number of
different but related flows. Also, there are monetary
indicators of the dimensions of marketing work such as the
costs of publicity, financing and transportation, and the

distributor's commission.

Real and Monetary Indicators

 

Three real and two monetary indicators were
selected to measure the amount of marketing work performed
in the movement of a film from the point of procurement to
the place of screening. They are as follows:

1. The number of days taken to procure the film,

 

process it and move it on to the theater.

 

This is an indicator of the overall dimensions of
the job in real terms. Data was collected for each member
of the sample by counting the number of days elapsed
between the date of application for raw stock to the date
of release in the Bombay circuit. It not only includes
the actual time required in planning, shooting and pro-
cessing of the film but also the waiting time caused by

bureaucratic hold-ups at the government level, lack of

155

availability of immediate shooting dates from free-lance
artists (who work in many films at one time), and the
delay in release due to the heavy demand for limited exhi-
bition facilities.

2. The rupee-days of investment accumulated in the

 

film as it moves from first procurement to final screening

 

at the theater.

 

This is an indicator of the opportunity cost
involved by measuring the size of funds tied up for a
period of time when they could be utilized elsewhere.

As mentioned in Chapter IV during a discussion of
the flow of financing, the entire amount estimated for the
production of a motion picture is not required right at
the very start of production. Capital is borrowed and credit
is forwarded as and when needed at various stages of pro-
duction. Also, not all the available funds require pay-
ment of interest on them. To overcome these difficulties,
preliminary data analysis was done which resulted in the
following simplication:

Let 'T' be the span of time extending from the
date of application for raw stock to the date film is ready
for censor certificate and let 'F' be the total funds
invested in the film during this period taking into account
all capital eXpenditures regardless of the sources of these

funds.

156

This amount F is divided into a number of install-
ments fl, f2, f3, . . ., fn borrowed at different points in

time t1, t2, t3, . . ., t respectively, measured from time

n
t=0 representing the date of application for raw stock.
After time T, all the available sources of funds have been
utilized and the film is ready with an invested capital of
F. Let T' denote the time lag between censor certifica-
tion and the first premiere in Bombay circuit.

Then, the total rupee-daysCNEinvestment =

Initial data analysis indicated (Exhibit XIII)
(0+T)
2

fl.(T-tl)+f2-(T-t2)+f3o(T-t3)+...+fno(T-tn)=F F.

NIH ..

So a simplified measure of the indicator for
capital tied up in a film in real terms is given by:
F‘(T/2+T') rupee-days. This data was also collected for
each member of the sample.

3. The number of owning and non-owning business

 

entities that participate in procurement, processing and
handling the film as it moves from place of procurement to

the movie theaters.

 

The data for this indicator was obtained with the
help of physical possession and ownership flow charts (as
illustrated by Exhibits VIII and IX in Chapter IV), for
each member of the selected sample. The non-owning agen-

cies include those who act as agents to bring about

' 3|.qu

 

White. 7"

12

10

157

EXHIBIT XIII

Measurement of Rupee—Days of Investment

E3

 

 

 

 

 

 

 

 

 

 

 

I?)

.C.‘

.54

(‘0

I-II

O

O

O

c;

O

r—I

><

U)

(I.

f3
4'
*2
f5
1‘4
f
0 2 4 6 8 10 12
Months
1' T.

t1 t2 3 t3 t4 t

158

transactions, such as the raw-stock suppliers, as well as
those who have operating control over the film owned by
others, such as the laboratories. An entity is defined
here as a legal business unit together with any affiliates
in the same ownership. In real terms this indicator is a
measure of the degree of vertical integration in the
channel. Higher the degree of integration, smaller will be

the value of this indicator.

N
i
X

In counting the number of units of this indicator,

 

we shall confine ourselves to only those theaters which
show the film for the first time in a particular geographi-
cal area such as an identifiable city or town. The follow-
ing example is presented to show how the value of this real
indicator is calculated.

Suppose for its first run a film gets a nationwide
release in seventy—two theaters, after being distributed
through six distributors by its producers. Also, suppose
the raw—stock supplier and the processing laboratory are
the only two non—owning entities participating in the flow
of procurement, processing and handling of this film.

Then,

the total number of units of Indicator No. 3 =

72 + 6 + l + 2 = 81

Now, if the producer had a vertically integrated

organization (commonly known as a "combine" in India's

film industry) which not only owns the production firm but

159

also has distribution companies in two territories and
controls six theaters for the release of his film in each of
the two territories, then these (1 + 2 + 12 = 15) units
are combined under one business entity.

In such a case,

the total number of units of Indicator No. 3 =

81 - 15 + 1 = 67 I

4. The publicity expenses.

 

Managing the flow of communication is a primary

 

function of marketing. The cost associated with it, there-
fore, is naturally a strong monetary indicator of the
marketing work performed.

The data available from the accounts maintained by
the distributors for tax purposes regarding publicity
expenses is almost always completely erroneous and mis-
leading. These amounts are highly inflated deliberately
for two reasons: (1) the "black money" payments to the
"stars" cannot get a direct entry in the account books,
and (2) the illegally paid high rate of interest cannot be
shown in the account books.

This researcher was extremely fortunate in over—
coming these difficulties and getting accurate informa-
tion about the required data because of his personal con—
tacts with some highly influential people in the industry.

It took a lot of convincing that accurate data was needed

160

for an academic study to be meaningful and that confiden-
tiality of the sources will be maintained. In the early
stage of this study it was anticipated that these problems
may force the researcher to settle for percentage estimates
of costs rather than actual amounts. Such a recourse was
not necessary once the initial rapport was established.

The data presented in this chapter about publicity eXpenses I
as the monetary indicator of marketing is in actual
figures. It represents the total amount spent nationwide

on multi—media advertising prior to the release of each

 

film selected in the sample.

5. The interest paid.

 

An uninterrupted flow of financing is imperative to
the successful completion of a motion picture. In facili-
tating transactions, transmittal of the burden of financing
and risking to various agencies in the channel is the task
of marketing. The amount of interest paid is the cost of
performing this task. Hence, it can be used as a monetary
indicator of the magnitude of work done by marketing.

However, not all the interest paid on borrowed funds
can be attributed to marketing. A significant amount is
paid for capital used in production, and that should be
regarded as production cost. Strictly speaking, only the
interest paid on funds required to perform marketing ser—

vices such as publicity, transportation etc. should be

161

used as an indicator of marketing cost. Since an important
function of marketing is to provide time utility, the amount
of interest paid for the waiting time after the completion
of production and before the release of the film should

also be included in this monetary indicator.

Unfortunately, the producers' account books did not
make such a distinction between the interest paid for pro—
duction and the interest attributable to marketing alone.
Data was only available for the total interest paid. It
is recognized that in its aggregate form this data is at
best a crude monetary indicator of marketing work. However,
it will be useful in comparing the overall efficiency of
Operations of one production firm with the other.

Although this amount is almost always manipulated
downwards in the producers' account books, the data pre-
sented in this chapter is accurate to the best of this
researcher's knowledge. The figures tabulated under this
-heading represent the total amount of interest paid on

borrowed funds for each film selected in the sample.

Other Possible Indicators

 

Distributors are the middlemen who add time and
place utility to the motion picture. So the amount they
charge as their commission should be attributable directly
to the cost of marketing. In spite of its usefulness as an

important monetary indicator, the data for distributor's

this Jfit

162

commission could not be used in this research for the
following reason.

The distributors charge their commission as a per-
centage of the revenue. Such an arrangement makes this
part Of the marketing cost go up with an increase in the
revenue. Since all members of the sample were randomly
selected from the films releasedi111972, some Of these
motion pictures had not completed their first run when this
researcher was collecting the data. Therefore, an accurate
account of the total revenue from the first run was not
available for all members of the sample. Distributor's
commission being twenty percent of this revenue, complete
data on this monetary indicator was not available at the
time of research.

Transportation costs can also usually be included
in the monetary indicators of the work performed by market—
ing. However, they are rather insignificant compared to
other marketing costs in the case of motion pictures
because of the relatively light weight and small bulk of
the product.

Exhibitors' theater rentals should also be included
in marketing costs, but since the revenue (R) for a film
(see Exhibit XI) has been defined as the amount remaining
after deducting taxes and theater rentals from the box
office receipts, they are treated as though they do not

affect the Operating statement in calculating the total

cost Of a film.

163

Table 5 is presented to give some idea of the allo-
cation of costs to the production and marketing functions
of a commercial Hindi film after its nationwide first run
has been completed. This film is not one of those randomly

selected in the sample.

TABLE 5

ALLOCATION OF TOTAL COSTS FOR A HINDI FILM

 

 

 

 

 

Head of Rs.
Expenditure X 100,000 Percentage
Production costs:
Star cast 12.0 21.0
Junior artists 1.5 2.6
Story and direction 3.5 6.2
Music 3.5 6.2
Raw stock 4.0 7.0
Laboratory charges 1.5 2.6
Studio, etc. 5.0 8.8
Total production costs 31.0 54.4
Marketing costs:
Publicity 10.0 17.5
Interest paid 3.5 6.2
Transportation 0.5 0.9
Distributors' commissions 12.0 21.0
Total marketing costs 26.0 45.6
Total cost of the film 57.0 100.0

 

Description of Population

 

From the very outset of this research it was
realized that its dimensions will have to be dictated by

time and cost considerations. It becomes necessary,

164

therefore, to make a precise definition of the population
which is both meaningful and manageable.

India produces films in many languages. When we
talk of India's motion picture industry in general, we
are talking about four hundred and some odd films made in
as many as ten different languages at three major produc-
tion centers of the country. The industry is quite hetero-
geneous because motion pictures made in different languages
at different production centers encounter different kinds
of problems. This is not to imply that they have no common
grounds at all, but differences outnumber the similarities
and few sweeping generalizations are possible. So a mean-
ingful analysis of the cost structure is not possible with-
out isolating a part of the industry which is homogeneous,
with one language and one production center.

Classification of films produced on the basis of
language was presented in Table 4, Chapter III. It clearly
indicated that films made in Hindi have always ranked
highest in the quantity of production. They also enjoy the
largest potential market as evident from Table 6. Hindi
films are not only seen by Hindi-speaking people but also
by many others throughout the country. Table 7 shows
Bombay as the leading production center for motion pic-
tures made in this language. IMPPA records indicate that
88.4 percent (92 out of 104) of these films produced in

Bombay in 1972 were in color.

 

165

TABLE 6

CLASSIFICATION OF THE POPULATION ON THE
BASIS OF LANGUAGE SPOKEN (1961)

 

 

 

 

 

 

 

No. of
Persons
Speaking
Language (in millions)
Hindi (includes Urdu, Sanskrit) 157
Tamil 30
Bengali 34
Telugu 38
Marathi 33
Gujarati 20
Kannada l7
Malayalam l7
Punjabi 11
Others (includes Assamese, Oriya, 25
Kashmiri)
Total 382
Source: India 1971-72, a reference manual, Publications
Division, Ministry of Information and Broadcasting,
Government of India, New Delhi.
Note: No such data is available after 1961.
TABLE 7
OUTPUT OF HINDI FILMS ACCORDING
TO PRODUCTION CENTERS
Year Bombay Calcutta Madras Total
1972 104 1 22 127
1970 88 1 13 102
Source: Based on data collected from the files of Indian

Motion Picture Producer's Association, Bombay
(IMPPA).

166

In defining the boundaries of a manageable but
meaningful population, the above-mentioned facts strongly
suggest the inclusion of Hindi films produced in Bombay in
color with an appeal to the mass market. Since this
researcher began collecting data in the last month of
1972, many films produced in 1972 had not been released
and very little data was available on their marketing
indicators. Because of this, data was collected for films
released in Bombay in 1972.

To summarize, the pOpulation consists of the follow-
ing characteristics:1 (1) motion pictures made in Hindi
language, (2) filmed in color, (3) having mass appeal, (4)
produced in Bombay, and (5) released in 1972 in the Bombay
circuit. The size of the population so defined is equal

to 85.

Selection of the Sample

 

In order to measure the magnitude of the marketing
work required to be performed in the motion picture
industry, we could count the three real and two monetary
indicators for each of the eighty-five members of the pOpu-
lation and calculate an average value for every one of

these indicators. Such an effort, even though possible,

 

1As pointed out in Table 1, all the statistics pre-
sented include only feature films with a minimum length of
3400 meters.

 

 

167

is not very practical due to cost and time considerations.
An alternate course of action is to select a random sample
which may introduce a certain amount of error; but if the
sample is truly representative, this error is small enough
for decision making purposes.

Our population of eighty-five, as defined in the
previous section, is quite homogeneous. In such a case, I
a truly representative sample can result by using the

simplest and most fundamental probability sampling method

 

Fh- “L ‘-
.. :v

known as "simple random sampling." If we were to draw a
sample of size ten from this finite population of eighty-
five, a simple random sample will be a sample drawn in such
a way that every combination of ten elements has an equal
chance of being in the sample selected.

Each member of the population was assigned a
number between 01 and 85 and no two members were assigned
the same number. This list of names and numbers would
constitute the sampling frame. We then turn to a table of
random digits in order to select a simple random sample of
ten such two-digit numbers. A list of random digits
generated by a computer is shown in Table 8. These digits
are combined in groups of five. It was decided to use the
second and third digits of each group of five. Since the
fourth and the seventh random numbers so chosen (99 and 93
from Table 8) are both exceeding the largest number in our

population (85), they are discarded. Therefore, the ten

168

members of this simple randomly selected sample are 65,
ll, 41, 05, 59, 32, 71, 21, 69, and 25. For reasons
stated earlier, their corresponding names will not be dis-
closed, and they will be referred to as films nl through

nlo in our data presentation.

TABLE 8

A TABLE OF RANDOM DIGITS I

 

 

 

1. 86569 7. 69343 I
2. 71395 8. 63256
3. 34198 9. 01164
4. 49944 10. 33151
5. 29§12 11. 3gg43
6. 95920 12. 4g§43

 

Source: Rand Corporation, A Million Random
Digits with One Hundred Thousand
Normal Deviates (Glencoe, Ill.: The
Free Press, 1955).

Note: The ten underlined pairs of digits
represent the numbers chosen in the
sample.

Statistical Procedure

 

The purpose of statistical computations in this
research is "simple informational reporting." We wish to
estimate certain characteristics of our fairly homogeneous

population of eighty-five on the basis Of data collected

169

for the simple randomly selected sample of ten. We wish
to state the range within which we are highly confident
that the true values of the chosen marketing indicators
fall for the entire population.

Our target population of eighty—five is "dynamic"
in nature. Since the number of films released every
year within the specifications of our target population
may vary from year to year, it is a dynamic pOpulation
over time. Here we are in a situation where we must
sample a past statistical universe and yet must make
estimates for a future universe which may have changed
over time.

Notwithstanding this problem of dynamic universe,
we can use the procedure of "confidence interval estima-
tion of the mean" for our computations. The application
of this procedure is based on three statistical assump-
tions: (1) random selection of the sample, (2) at least
"interval" level of measurement for sample data, and (3)
normal population.

The data needed for statistical computations is
presented in Table 9. The units of measurement Of all the

real and monetary indicators are in the interval scale

 

2Morris Hamburg, Statistical Analysis for Decision

 

 

Making (New York: Harcourt, Brace and World, Inc., 1970),
p. 243.

 

170

 

 

 

 

 

 

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mx ex mx mx ax x
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mZOHB¢BDQZOU AflUHBmHB<Bm mom <B<Q

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171

because not only can we specify equivalences and greater-
than relationship between numbers, but we can also Specify
the ratio of any two intervals.3 Also, as explained in
the previous section, a simple random sample has been
selected. Although no test was conducted to check the
normality of distribution of the population, it can be
reasonably assumed to be normal because it is fairly large
in size and quite homogeneous. Even if the population dis-
tribution is non-normal, the central limit theorem tells
us that the sampling distribution of the mean may be con-
sidered to be approximately normal for a large sample. If
the sample size is small, the sampling distribution of the
mean is close to a "t-distribution."

With these conditions satisfied, apprOpriate
statistical estimation technique will be used in the fol-
lowing computations to calculate a 99 percent confidence
interval estimate for each of the five selected indicators

shown in Table 9.

Computations

 

 

N = size Of the population = 85
n = size of the sample = 10
. . . . _/N-n _/85-10 _
f — finite population correction factor — N:T EI§§:T— — 0.95
3

For a detailed discussion Of the admissible opera-
tions on an "interval scale" level of measurement, see Sidney
Siegel, Non-parametric Statistics for the Behavioral Sciences
(New York: McGraw Hill, 1956), p. 28.

 

172

Since n < 30 and 0 (population standard deviation) is
unknown, t-distribution will be used.

degrees of freedom = n-l = 10—1 = 9

a = .01 since confidence interval is 99%,

So the critical value is4

t = 3.25

Ipterval Estimation for Production Cost

From Table 9,

II
b)
H
o
.5

Sample mean (i)
Sample standard deviation (8) = 5.24
62 = estimated standard error of the mean,
or the standard deviation of the sampling

distribution of means

=__5 =___. = —L——=1.75

5.24
I/n-l I/1o-1’ 3
Confidence interval:

i i t ° f ° 6

X

+

= 31.4 L 3.25 X 0.95 X 1.75

= 31.4

H-

5.395
= [26.0 to 36.8] x 105 Rupees
= [2,600,000 to 3,680,000] Rupees

= [2.6 million to 3.68 million] Rupees

 

4From t-Tables, Hamburg, Statistical Analysis,

 

p. 787.

173

Interval Estimation for Indicator 1

From Table 9,

 

Sample mean (i1) = 413.2
Sample standard deviation ($1) = 88.17
s
8_ -_-__1 = 88'“ = 29.39
x1 n-l 3

Confidence interval:

X1 3 t ' f ' ail
418.2 i 3.25 X 0.95 X 29.39

l+

418.2 90.74

[328 to 509] days

Interval Estimation for Indicator 2

 

From Table 9,

 

i2 = 47.4
52 = 14.48
5 l4 4
a}? = ._.__.2 = 8 = 4.83
2 n-l 3

Confidence interval:

- :t'f'd

= 47.4 3.25 X .95 X 4.83

H-

= 47.4 i 14.91

[32.5 to 62.3] X 107 Rupee-days

[325 to 623] million Rupee-days

174

Interval Estimation for Indicator 3

From Table 9,

x3 = 83.2
s3 = 17.56
S
8_ = 3 _ 17.56 5 85

 

Confidence interval:
1 t ' f ° 6-
X3
83.2 i 3.25 X 0.95 X 5.85

X3

 

= 83.2

H-

18.07

[66 to 102] units

Interval Estimation for Indicator 4

From Table 9,

R4 = 10.4
S4 = 2.65
624 = Efi_. = 2123 = 0.88

Confidence interval:

_ + . .
x4 _ t f 6R4

10.4 i 3.25 X 0.95 X 0.88

= 10.4 i 2.73

[7.67 to 13.13] x 105 Rupees

[767,000 to 1,313,000] Rupees

175

Interval Estimation for Indicator 5

From Table 9,

 

25:2.8
55 = 0.846
6.. S5
X5 = —— _—_ 0846 = 0.282
V‘n-l 3

Confidence interval:

‘ i t - f - -
x5 8x5

2.8 t 3.25 X 0.95 X 0.282

2.8 i 0.871

[1.93 to 3.67] X 105 Rupees

[193,000 to 367,000] Rupees

A Test of Hypothesis

 

During the course of this research, a very interest-
ing rule of thumb was suggested by some experienced pro-
ducers in response to a question about how the budget for
a film was estimated in its planning stages. On the basis
of their experience theyled found that the total budgeted
cost (which includes total production costs plus publicity

expenses plus the interest to be paid) for a film was

usually three times the budgeted cost for the "star cast."5

5The "star cast" for a typical commercial Hindi
film usually includes actors in the key roles of the hero,
heroine, comedianauuivillain. Also included are a few
important "character roles" almost always assigned to a
handful of well-known movie personalities.

 

176

In order to find out whether there is any statistical
validity to this claim, the following test of hypothesis
was conducted.

For each of the members of our sample, data was
collected for actual cost (not anticipated cost) of the
star cast and actual total cost for which budgeting is
done in the planning stages. This data is presented in
Table 10. The fourth column in this table shows the ratio
of the two costs. We wish to test the hypothesis that the
average value of this ratio for the entire population of
85 is equal to three.

TABLE 10

DATA FOR TEST OF HYPOTHESIS

 

 

 

 

Total Cost
Budgeted for
Cost "Star Cast"
(Y1)* (Y2) Ratio
Sample Rs. x Rs. x (Y)
(Films) 100,000 100,000 (Y=Y1/Y2)
n1 35.7 11.2 3.19
n2 45.1 14.5 3.11
n3 60.5 16.7 3.62
n4 40.0 13.5 2.96
n5 43.0 16.0 2.69
n6 38.5 14.2 2.71
n7 49.2 15.1 3.26
n8 43.4 13.2 3.29
mg 56.7 16.4 3.46
n10 33.3 9.8 3.40
Total _ 31.69
Mean (Y) 3-17
Standard deviation (8) 0-29

 

* Total budgeted cost = Total production cost
+ Publicity
+ Interest paid

Therefore, Y1 = X + X4 + X5 from Table 9.

177

HO: 0 = 3
H1: U 5‘ 3
given: = .01, n=lO, N=85, t=3.25, f = 0.95

sample mean (T) = 3.17

sample standard deviation (5) = 0.29
so, 6- = S = 0.29
y ‘Vn-I ‘yq03T
= 9&32- = 0.097

Critical values:

1 t - f ° _
u 8y

II
to
1+

3.25 X 0.95 X .097

H
w
H-

0.299

ll
OJ
1+

0.3

So the acceptance region for the null hypothesis is from 2.7
to 3.3.

Since our sample mean is 3.17, it falls in the
acceptance region. Therefore, we accept the null hypothesis
that population mean is equal to three.

In other words, the producers' rule of thumb that
the total budgeted cost is three times the cost for the
star cast is statistically justified. Perhaps an explana-
tion for such a relationship can be attempted in the
following manner. A big star cast film usually has big

sets, a big name music director and big overheads. The

 

178

completion time for such films also tend to be longer
resulting in higher costs because big stars do not usually
give quick shooting dates. All these factors taken
together result in a more than proportionate increase in
the total production cost due to an increase in the cost

of the "star-cast."

Interpretation

 

The statistical data analysis presented in the
preceding section can be interpreted as follows. An
average Bombay-produced Hindi film made in color for the
entertainment of the masses has the following character-
istics.

1. Its cost of production ranges from 2.6 million

to 3.7 million Rupees.

2. It takes anywhere between 328 to 509 days for

completion and release.
3. The opportunity cost for the film is equivalent
to tying up anywhere between 325 to 623 million
Rupees for a day.

4. Anywhere between 66 to 102 different business
entities participate in moving the film from the
place of procurement to movie theaters all over

the country.

 

179

The cost of communicating information about
the film prior to its release to the masses
nationwide ranges from 767,000 Rupees to 1.3
million Rupees.

Its producer pays anywhere from 193,000 to
367,000 Rupees in terms of interest on funds
borrowed for the making of the film.

Its total budgeted cost is usually three times

the amount paid to the star cast.

CHAPTER VI

EFFECTIVENESS OF MARKETING:

THE EVALUATIVE ASPECT

Introduction

 

The evaluation of how well the job of marketing is
being done is an extremely difficult task because no
standards have ever been established in the industry to
judge its efficiency. Being able to complete a film and
secure its release are no small accomplishments in an
industry which has more than twice as many registered pro-
ducers as there are films produced. Undoubtedly, those who
manage to achieve this goal are more effective in perform-
ing their functions than the producers who have to abandon
their films for lack of funds or unavailability of release
facilities. But even among those who do succeed in organiz-
ing the aggregate channel necessary to add form, time,
place and possession utilities to the film (they are the
peOple who constitute our population), some can do the job
more efficiently than others.

No consensus has yet been reached among marketing
scholars about the meaning of the term "marketing efficiency."

Perhaps no single definition of the term should even be

180

181

eXpected because marketing activities can be appraised
from a societal point of View as well as from the point of
view of the firm. In the case of production, efficiency
is defined as a ratio of output of physical goods to
inputs of resources used. The difficulty in using this
definition for measurement of marketing efficiency arises
from the fact that the output of marketing is intangible.
It refers to the amount of consumer satisfaction created
by the system. What then should be done to evaluate the
efficiency of marketing in the motion picture industry?
One thing is certain: we need to find an alternate, more
workable measure of efficiency than the traditional input-

output ratio.

The Meaning of Marketing Efficiency

 

To get a job done is being "effective"; how well it
is done determines its "efficiency." An immediate response
to the question of "How well is it done?" will be "Compared
to what?" This makes the word "efficient" a relative con—
cept which in turn suggests formulation of a set of criteria
to distinguish the "efficient" from the "inefficient."

Efficiency of a business firm can be relative in
two respects: (1) It can be relative to the performance of
other businesses in the industry at the same point in time,
and (2) It can be relative to its own performance in a past

period. In the case of motion pictures, measurement of this

182

second kind of relative efficiency is not very useful for
two significant reasons. First, the exogenous variables
faced by firms in this industry are known to change very
rapidly. Consumer tastes and preferences change quickly
over time; government controls, levies, duties, tariffs,
etc. seem to be on the increase every year; and technologi-
cal improvements are always forthcoming. Secondly, each
film project is started as a new business venture. The
turnover of producers in the industry is so high that there
are only a handful of producers who can appropriately call
themselves ongoing business concerns.

Considering these problems, it is more meaningful-
to concentrate our efforts in the direction of measuring
the efficiency of performance of a business firm relative
to the performances of other such business firms in the
industry at a given point in time. Since our interest is
marketing of motion pictures, it is more appropriate to
broaden this concept and use the term aggregate channel
(which manages the flows of marketing) in the place of
business firm. In other words, since each firm has its own
marketing channel, how efficiently one channel is perform-
ing relative to others in the same time period should be
our area of inquiry in the evaluative aspect of this
research.

There are two main marketing objectives common to

all members of our population: (1) To get a nationwide

 

183

release for the film--in every major city and town in each
of the six territories, and (2) To communicate persuasive
messages about the film to all members of its potential
audience prior to its release.

We are now in a position to arrive at a workable
definition of efficiency in terms of efforts required to
achieve common marketing objectives. We can say that of
two comparable marketing channels, the one which succeeds
in achieving the same objectives with less efforts is
efficient relative to the other channel. By the same token
of argument for a group of channels, marketing performance
of one member is efficient relative to the group, if the
amount of marketing efforts it requires is less than the
average effort required by the group to meet the same
objective.

In the previous chapter, we had agreed upon five
indicators to measure the amount of marketing effort
.exerted in an aggregate channel managing the flows of physi-
cal possession, ownership, communication, financing and
payment. After statistical analysis of the data, an inter-
val was constructed for each indicator representing the
limits of average marketing effort of the population to
meet its marketing objectives. According to the reasoning
presented in the preceding paragraph, these five intervals
should serve well as a set of criteria to compare with, in

order to separate the efficient from the inefficient at

184

this point in time. They can be updated every few years
to incorporate the effects of changes in the exogenous
variables.

To summarize, if the value of an indicator for the
aggregate channel of a film is less than the lower limit of
the same indicator for the population, then the channel is
performing the corresponding marketing functions efficiently.
The underlying concept is simple: if you are better than

average, you are efficient.

Sources of Inefficiency

 

The preceding section suggested a workable measure
of efficiency at the micro-level. The yardstick it pre-
sented takes the contemporary policies and practices
prevalent within the industry and in its environment as
given, without questioning the propriety of existence of
some of those exogenous variables. Within a given frame-
work, it sets a standard to judge the marketing efficiency
of each channel in the industry, but it does not take a
critical look at the possible sources of inefficiency in
the framework itself. Each member of the industry could
perform its functions better if at the macro-level industry
as a whole becomes more efficient. Here also efficiency
is a relative concept because it compares the existing
environment and its consequences with the ramifications of

a proposed environment for the industry. The industry is

185

considered efficient if it is operating under that environ-
ment which results in less marketing effort required by
all of its members to achieve their common marketing
objectives. With this in mind, the following discussion
critically examines some of the existing factors (both
internal and external to the industry) which have adversely

influenced the efficiency of its operations.

Lack of Integration

 

The most striking feature of India's industrial

 

development has been the concentration of ownership and !
control in few hands and in few establishments. But this
is not true of the motion picture industry; There are
1200 film producers, 1500 distributors and approximately
3000 theater owners. A three-tier arrangement of the pro-
ducer, distributor and exhibitor exists. The industry
cannot exercise any effective control over the channels
and its intermediaries at any level.1 The turnover of
people in the industry is very high. Most people lose
money and make an exit, but what keeps the industry going
is the constant influx of new people and new capital lured
by the glamour of the industry. This influx causes a

serious problem of coordination. The system of free

 

 

lAdige Dinkar Rao, "Marketing Research for the
Indian Film Industry," Star & Style (Bombay: July 20, 1973),
pp. 14-15. ‘_—

 

186

lancing adds to this chaos with every person trying to
enhance his own self-interest at the expense of the
industry. This chaotic, haphazard growth has seriously
hampered efficient Operation because no channel can routin-
ize its procedures resulting in regularized flows. Time
and efforts spent on negotiations would be much lower if
each new film did not require a new set of negotiations

for the formulation of a marketing channel.

Erratic Financing

 

The flow of financing in the channels is extremely
erratic causing increased marketing costs. Statistics show
that under the present economic set-up, most of the revenue
of the film is dissipated before getting to the producer
due to the huge cuts of taxes, substantial share of the
exhibitor and the minimum guarantee and commission accruing
to the distributor. As a result, the producer is involved
in a peculiarly inverted arithmetic which has no parallel
in any other industrial enterprise anywhere.2 Under such
topsy-turvy conditions, the problem of procuring finance
for his project becomes all the more difficult, and he
finds himself constrained to seek it at an almost suicidal

rate of interest. The value of Indicator 5 in Table 9 can

 

2Dilip Kumar, "The Ills of the Film Industry,"
Silver Jubilee Souvenir of Indian Talkie, 1931—1956
(Bombay: Film Federation of India, 1956), p. 17.

 

 

187

be considerably reduced if the industry should have avail-
able to it financing from banks, insurance companies,
investment corporations and the like. This could be pos-
sible by ploughing back some of the tax revenue earned

from the film trade into the industry itself.

Excessive Taxation

 

Sevin defines productivity of marketing as a ratio
of net revenue over marketing costs.3 Therefore, impedi-
ments to marketing efficiency are not only the results of
increased marketing costs but also of reduced net revenue.
A brief look at the magnitude of flow of payment is enough
to point out what a lion's share the state, local and cen-
tral governments take away from the revenues of the
industry in the form of a variety of taxes. From a large
inflow at the box office, only a trickle reaches the pro-
ducer. The motion picture industry in India is perhaps the
most heavily taxed industry in the world. Not only is it
bad in itself for the health of the industry, but it also
has been the root cause of a variety of malpractices in the
industry such as the black money payments. Excessive taxa-
tion and all its resulting consequences have done more harm
to the economic well-being of the industry than all other

factors taken together.

 

3Charles Henry Sevin, Marketing Productivity Analy-
sis (St. Louis: McGraw-Hill, 1965), p. 9.

 

188

Bureaucratic Controls

 

The slow-moving machinery of the government is one
reason for the high values of Indicators 1 and 2 resulting
in increased marketing costs. Members of an aggregate
channel have to clear with a number of overlapping authori-
ties to perform their functions. If the industry was made
a Central subject, it would ensure uniformity of taxation
(at present all states have different rates of entertainment
taxes resulting in considerable accounting problems) and
expedite matters due to the necessity of dealing with only

one Central regulating body.

Scramble for Stars

 

The costs of a great many films are unreasonably
high, not because the prices of all factors of production
have gone up, but because the stars, the music directors,
and some of the other functionaries who are in demand have
raised their prices beyond the reasonable limit. Our
research has indicated that one—third of the budgeted cost
of production is paid to a handful of so—called "stars."
Producers, particularly the new entrants to the field, are
to blame for this state of affairs. They plunge in with
fond hopes, over-eager to sign up well—known stars and
music directors in order to gain instant attention from
financiers and distributors. The high prices of the "stars"

pose quite a problem, and it becomes all the more oppressive

189

because "black" payments are also involved. The producer,
after paying fabulous prices, finds himself in the unenvi-
able position of having to prove by devious means, and not
very convincingly either, that he has actually "spent" the
money.

Because of this mad scramble for them and the free—
lancing system, these "stars" sign up a large number of
films at one time. It results in their being able to pro-
vide shooting dates to any one producer only after long
intervals of time. Not only do the total number of days
required to complete and release a film (Indicator 1)
increase considerably resulting in loss of efficiency, but
also a large amount of money is tied up for unproductive
waiting time while the amount of interest to be paid (Indi-

cator 5) keeps accumulating.

Scarcity of Theaters

 

It was pointed out earlier how scarcity of theaters
has resulted in exhibitors becoming "absentee landlords,"
participating only in the income without sharing the costs.
Shortage of cinema houses throughout the country causes a
bottleneck in the flow of films from the producers to the

movie—goers. Many producers have to wait for months after

 

4Tarachand Barjatya, A Handbook Detailing Some of
the Problems of the Indian Film Industry (Bombay: Rajshree
Pictures Pvt. Ltd., 1960). p. 17.

 

 

190

getting the censor certificate to get the films released in
major cities and towns. Unproductive waiting time always
results in higher costs reducing the efficiency of any

operation.

Ill-organized Territories

 

As pointed out in Chapter III, there is no logical
basis now for distribution territories to be divided the way
they are. Even though the States of the Union have been
reorganized, the distribution territories remain the same,
intersecting and crossing the State lines. Since entertain-
ment taxes are the responsibilities of the State govern-
ments, the same film running in the same territory pays
different rates of taxes at different theaters. This causes
accounting problems resulting in inefficiency due to delays

in the flow of payment.

Common Proposals for Change

 

It is a common practice among the industry people
to hold the government responsible for all of its problems.
It is also usual for the government to turn a deaf ear to
the industry's outcry and blame it for its own ills. The
unfortunate thing is that in their preoccupation with
accusing each other, neither does anything about implement-
ing recommended solutions to the problems. Committees are

formed by the government to study the internal problems of

.> W“: Win-v

191

the industry and prepare a report, only to find it collect-
ing dust on the shelves of the Ministry of Information and
Broadcasting. In the same manner, no sooner is an agree-
ment reached between the producers and the screen-actors
association on the number of films an actor should work in
at one time than it is broken by some unscrupulous person
initiating an avalanche of defectors on his side. There- l
fore, it is no surprise that the industry has Operated in
a constant state of crisis for well over a decade. The

only logical explanation of its sustenance is the influx of '

 

unwary new entrants who come into the industry with great fl
enthusiasm, stay until they get disillusioned, and leave

making room for another set of new unwary entrants. The

industry lacks coordination and a sense of unity. The

"each—man—for himself" attitude makes the channel function

more as a coalition than as a team.

In the preceding section and at various other
places in this thesis we discussed the factors responsible
for inefficient operation of marketing channels in the
industry. In some instances remedies were also suggested
and their effects evaluated. In this section, three most
recent controversial proposals are presented with their

pros and cons.

Method of Amortization

 

Recently the Film Federation of India concerned

itself with the perennial problem of amortization. Since

192

the motion picture industry is in the business of providing
an intangible product to the society, its depreciation is
known as amortization. The scheme of amortization adopted
by the government is 60 percent in the first year, 25
percent in the second year and 15 percent in the third year.
The industry's contention is that the films bring back most
of their returns within the first year of release. What
they fetch in the second and third years is insignificant
compared to the returns of the first few months. In view
of this, the scale of amortization should be changed in
order to afford the entrepreneur a slightly better margin
after payment of taxes. The industry's grievance is that
in spite of the majority of films "flopping" at the box
office, it is called upon to pay taxescninational profits
and losing pictures. The government favors the present
system because it brings in more tax revenue. The industry
wants 100 percent amortization in the first year and none
after that. This researcher suggests an intermediate
course which will keep the present scheme of 60:25:15, but
will provide tax refunds in the second and third years on
the basis of cumulative tax assessment. The following
example is presented to illustrate the arithmetic involved

in the three proposals: (See also Table 11)

193

TABLE 11

A COMPARATIVE ANALYSIS OF THE GOVERNMENT'S
CASH-FLOW USING THREE AMORTIZATION METHODS

 

Year Time Tax Interest Total
(After (Date of Income Income Income
Release) Release) Rs. Rs. Rs.

 

Present Method

 

 

 

 

End of first year t=1a 2,160,000 - 2,160,000 !
End of second year t=2 0 216,000 2,376,000

End of third year t=3 0 237,600 2,613,600 i
Comparison point t=3 Rs. 2,613,600 g

Industry Proposed Method

End of first year t=1 1,200,000 - 1,200,000

End of second year t=2 300,000 120,000 1,620,000

End of third year t=3 60,000 162,000 1,842,000

Comparison point t=3 Rs. 1,842,000

 

Suggested Compromise Method

 

End of first year t=1 2,160,000 - 2,160,000
End of second year t=2 ( —300,000)b 216,000 2,076,000
End of third year t=3 ( -300,000) 207,600 1,983,600
Comparison point t=3 Rs. 1,983,600

 

aTime (t=0) is the date of release of the film

bNegative tax-income represents tax-refund by the
government.

194

Suppose, the total costs to be amortized for the
film = Rs. 4,000,000

and let the income for the first, second and third
year after its release be Rs. 6,000,000;
Rs. 500,000; and Rs. 100,000; respectively.

Assume the tax rate on profit = 60%

According to the present method (favored by the government):

 

 

 

 

lst Year Rs;
Income 6,000,000
Less amortization 2,400,000
Profit 3,600,000
Tax 2,160,000

2nd Year 35;
Income 500,000
Less amortization 1,000,000
Profit ( -500,000)
Tax 0

3rd Year Rs.
Income 100,000
Less amortization 600,000
Profit ( -500,000)
Tax 0

Total tax paid by the industry Rs. 2,160,000

 

1

195

Government's tax-income from the film

(at the hypothetical interest rate

of 10 percent per year)

Interest income - lst year

Interest income - 2nd year

Total income earned by the government from
the film at the end of three years

after its release (See Table 11)

Rs.
2,160,000
216,000

237,600

 

2,613,600

According to the proposed method (favored by the industry):

 

lst Year
Income
Less amortization
Profit

Tax

2nd Year
Income
Less amortization
Profit

Tax

3rd Year
Income
Less amortization
Profit

Tax

Total tax paid by the industry

Rs.
6,000,000

4,000,000

 

2,000,000

1,200,000

Rs.

 

500,000
0
500,000

300,000

Rs.

 

100,000
0
100,000

60,000

Rs.

1,560,000

 

196

Government's tax-income from the film Rs.
(at the hypothetical interest rate
of 10 percent per year) 1,560,000
Interest income - lst year 120,000
Interest income — 2nd year 162,000

 

Total income earned by the government from
the film at the end of three years
after its release (See Table 11) 1,842,000

According to the cumulative tax-refund method (proposed by

this researcher):

 

 

 

 

 

End of lst Year 33;
Income 6,000,000
Less amortization 2,400,000
Profit 3,600,000
Tax 2,160,000
End of 2nd Year BE; Rs.
Cumulative income 6,500,000
Less:
lst year amortization 2,400,000
2nd year amortization 1,000,000 3,400,000
Cumulative profit 3,100,000
Cumulative tax 1,860,000

Tax refund 300,000

 

197

End of 3rd Year ' Rs.

 

Cumulative income

Less:
lst year amortization 2,400,000
2nd year amortization 1,000,000
3rd year amortization 600,000

 

Cumulative profit

Cumulative tax

Tax refund

Interest earned by the government on

tax money at the hypothetical rate
of 10 percent per year:

On Rs. 2,160,000 for one year

On Rs. 216,000 for one year

On Rs. 1,860,000 for one year

Total

Total tax paid by the industry

Total income earned by the government
at the end of three years from
the film (See Table 11)

Rs.

6,600,000

4,000,000

 

2,600,000
1,560,000

300,000

35;
216,000

21,600
186,000

423,600

1,560,000

 

1,983,600

Therefore, the proposed cumulative—tax—refund method

is truly a compromise approach. Using this method over a

total span of three years, the industry does not have to

pay any more taxes in absolute terms than what it is pro-

posing itself. From the~point of View of the government's

net income at the end of three years, this compromise

 

198

method certainly earns more than what the industry's pro—
posal has to offer, as Table 11 clearly indicates.

A similar cash-flow analysis is done for the indus-
try in Appendix C. It shows that using the proposed cumula-
tive-tax-refund method, the industry's cash-flow will
improve substantially at the end of three years. The
present method gives a net cash flow of only Rs. 214,400 at
the end of this period. The industry's favored method will
improve this amount to Rs. 986,000. The suggested com—

promise approach will result in a net cash-flow of Rs.

 

844,400 at the end of three years. So it is not substan-
tially lower than the industry's proposal.

This suggested compromise approach called the
cumulative-tax—refund method should be more acceptable to
the government than the present industry proposal because
it results in a larger net income for the government. It
should be acceptable to the industry because by doing so
their net cash-flow improves considerably as compared to
the present method. Also it results in a reduction of the
absolute amount of tax to be paid over this three-year time

period to the level the industry wants.

Nationalization of Theaters

 

Early this year the decision of the State Govern—
ment of Punjab to take over theaters within the State left

the industry apprehensive about similar takeovers of the

199

cinemas in other states. Yet most film-journalists
applauded the move and strongly recommended similar action
in other parts of the country.

It is true that the uphill increase in the rentals
of cinemas has been going against the interest of the film
industry as such, and that the existing cinemas have
enjoyed a kind of monopoly power that has been largely mis—
used to subvert producers to the mercy of the exhibition
sector. But despite these factors, the policy of state
takeover of theaters is hardly the answer. No government
will ever think of giving theaters on nominal rental when
cinemas have always been a major source of income to the
state without any investment or risk. Like many other
nationalized industries, government—controlled theaters may
well turn out to be another white elephant to the public
exchequer.

As proposed, if the decision to nationalize is left
to individual states, considerable confusion would occur.
The states of Mysore and Maharashtra have already rejected
such proposals at this time. Partial nationalization with-
out an integrated policy is bound to affect the nationwide
distribution system now controlled by the private sector
on several issues connected with uniform exhibition of
films. Nationalization of cinemas in one state has already

led to uncertainty all over the country and has stOpped the

200

inflow of badly needed investments for the construction of

new theaters.

Setting Up the Film Council

 

In March of this year, the government disclosed
that it was evolving a comprehensive national policy on
the film industry. It proposed to set up a film council
as the apex body for mobilizing collective thinking on the
problems faced by cinema in general and by the Indian film
industry in particular. Under the auspices of the film
council, it suggested the organization of a National Film
Corporation which would assume a variety of functions in
the field of import and export of films, augmentation of
facilities of distribution and exhibition at home and
abroad, and the harnessing of various schemes of incentives
with a View to aiding the process of regeneration of Indian
cinema.

This is truly a grand design encompassing every
aspect of film making, distribution and trading. Yet as
one film-journalist pointed out, there is a dreadfully
familiar ring to all this verbiage. Most industrialists in
India are very skeptical of such "apocalyptic visions" of
the government because they soon lead to complete govern-
ment take-over. The movie industry's skepticism, there-

fore, is not totally unwarranted.

 

201

Conclusion

 

The objective of this chapter was the evaluation
of marketing and its environment as it relates to India's
motion picture industry. It needed a three-stage approach:
first, the evaluation of the marketing performance of an
individual channel in the industry; second, the evaluation
of the environment internal to the industry; and third,
the evaluation of the environment external to the industry.

In the first chapter, it was proposed that the
evaluative aspect of this research should deal with two
significant questions: (1) How efficient is the function-
ing of a marketing channel in India's motion picture
industry? and (2) How would common proposals for change
affect the marketing of motion pictures in India.?

In order to answer the first question, it was necessary

to establish a set of criteria for efficiency by which a
channel's performance could be judged. To answer the
second question, we closely examined both internal as well
as external sources of inefficiency and discussed common
proposals for change affecting the operations of the
industry. On the basis of these evaluations, recommenda—
tions are made to improve the marketing efficiency of the

industry in the following chapter.

 

CHAPTER VII

SUMMARY AND CONCLUSIONS

Recommendations

 

Even though we have closely examined the interrela— *
tionship of the motion picture industry and the government

throughout this thesis, and often passed judgements from an

 

 

-_ 61:!" “Im- -n-.

outsider's point of view, yet the recommendations arising
from this research are meant only for the industry. The
government is not totally responsible for the chaotic con—
ditions in the movie business. There is a lot industry can
also do, even under the present unfavorable environment, to
put its house in order. The government does not need any
more recommendations when it already has volumes of reports
of various film inquiry committees urging immediate action.
Unfortunately, most such reports are good only for academic
purposes if their findings are not implemented. The follow-
ing recommendations are made to the industry with the
objective of improving the efficiency of Operations of its
marketing channels and creating an internal environment con-
ducive to the uninterrupted flows of physical possession,

ownership, financing, communication and payment.

202

203

1. There is an immediate need for both horizontal
and vertical integration in the industry. No matter what
business we are in, there is some minimum size below which
it cannot be Operated efficiently. Most economists have
recognized this fact. There are too many small producers
and distributors working with so little resources of their
own that even a minor setback can force them to abandon

their partially completed films, resulting in large economic

 

waste. This researcher is not proposing doing away with

competition. But instead of having 1200 different small

 

.‘rfi

producers, there could be 30 different production organiza-
tions, each having pooled resources of 40 small producers
and competing with each other for the share of the market.
Such horizontal integration is required at each of the
three levels of production, distribution and exhibition.
Then each such production firm could have affiliations with
an integrated distribution corporation which has the capa-
city to distribute its output nationwide through an inte-
grated exhibition firm controlling a number of theaters
around the country. A number of such vertically integrated
channels could compete with each other in an organized
manner and function very efficiently. These established
channels should be responsible for most of the industry's
output. Such an arrangement need not throttle individual
entrepreneurship if the government takes upon itself the

task of supervision for maintenance of competition. There

204

should be a similarly integrated corporation in the public
sector also. Any individual producer who wants to make
films and exploit them could do so under the aegis of any
one of such corporations.

2. The industry should make a sincere effort to
regulate itself. The trade associations of all the branches
of the industry should get together and form a central
nerve center for the entire industry with representation
from all the member associations. Such a top level policy—
making body should formulate a code of ethics for each area
of Operation of the industry. It should form ad hoc com-
mittees and hold hearings in the event of any dispute among
its members. It should also act as a lobbying organization
in the parliament representing the interests Of the industry.

3. The concept of COOperative advertising should
be introduced in the film industry. Under the present
system, it is the producer who ultimately bears the entire
cost of publicity. Only in those cases when the film does
not bring enough revenue even to cover the publicity
eXpenses does the distributor shoulder the burden. The
exhibitor does not participate in the advertising costs
even though he certainly benefits from it. Perhaps a
reasonable arrangement should require the exhibitor to pay
for all on-premise publicity and displays, the distributor
to pay for 50 percent of the cost of advertising attribut—

able to his territory, and the producer to share the other

205

50 percent as well as pay for advertising in the national
media.

4. The present allocation of distribution terri-
tories is totally outdated and has no logical reason to
exist. It intersects with state boundaries and creates a
variety of accounting problems for the distributor since
each state has its own rate of entertainment tax, sales tax
and publicity tax. Also two distributors in the same state
across a hypothetical territorial boundary can considerably
affect each other's business by their individual action.
For these reasons, a reorganization into four distribution
territories in place of the present six is recommended in
Table 12. The proposed division is on the basis of popu-
lation and along state lines. The territories can be named
the Northern—Western circuit, the Central circuit, the
Eastern circuit and the Southern circuit. The table shows
how each territory can be ranked on the basis of potential
market for Hindi films. This is determined by how many
Hindi—speaking people the territory has. A formula should
be devised for the calculation of minimum guarantees from
each of the proposed territories on the basis of three
factors: (1) proportion Of the population in the territory
which can understand spoken Hindi—Urdu, (2) number of per-
manent theaters in the territory, and (3) the ratio of
urban to rural population in the territory.

An attempt could not be made in this thesis to

206

TABLE 12

PROPOSED REORGANIZATION OF DISTRIBUTION TERRITORIES

 

 

 

 

 

 

 

 

 

 

Potential
1971 Market for
Population Hindi Films
Distribution Territory (Millions) (Rank)
1. The Northern-Western Circuit:
Jammu and Kashmir 4.6 2
Himachal Pradesh 3.4
Punjab 13.5
Chandigarh* 0.2
Haryana 10.0
Delhi* 4.0
Rajasthan 25.7
Gujarat 26.7
Maharashtra 50.3
Dadra and Nagar Haveli* -
138.4
2. The Central Circuit:
Uttar Pradesh 88.4 1
Madhya Pradesh 41.6
130.0
3. The Eastern Circuit:
Bihar 56.3 3
Orissa 21.9
W. Bengal 44.4
Meghalaya 1.0
Assam 14.9
NEFA 0.4
Nagaland 0.5
Manipur* 1.1
Tripura* 1.5
142.0
4. The Southern Circuit:
Andhra Pradesh 43.4 4
Mysore 29.3
Goa, Daman and Diu* 0.9
Tamilnadu 41.1
Pondicherry* 0.5
Kerala 21.3
The Islands* 0.1
136.6
TOTAL FOR ALL TERRITORIES 547.0

 

 

 

*Union territory

Note: Appendix D shows this reorganization on the
map Of India.

207

devise such a formula because data is not available for
factors (1) and (3) at this time from government sources.
It is the belief of this researcher that such a reorganiza-
tion of territories and determination of minimum guarantee
amounts on the basis of market potential will be more
equitable and will eliminate considerable confusion from
the flow of payment. It is also in accordance with the L
recommendation for horizontal integration because by reduc- 1
ing the number of territories it suggests reduction of the

number of independent distributing organizations.

 

.
I“ ‘:2.'~
'I

5. The present system Of payment of fixed rentals
or a minimum protection amount to the theater owners should
be immediately discontinued. No other industry has a
middleman who participatesijmprofits but does not share the
costs. The remaining amount from the box Office receipts
after the government has taken its share should be divided
on a percentage basis. The percentage figure should be
decided by a joint committee of distributors and exhibitors.
It may be useful to classify theaters into three types--
small, medium and large—-and have three different percen-
tages for the exhibitor's share depending on the type of
theater owned. Since a large theater owner in a big city
may have higher operating costs, he could be allowed a
larger percentage of the take. Once these three different
percentages have been agreed upon by the committee, they

should be uniformly applied throughout the country. An

208

arrangement of this kind will really make business Opera—
tions in the industry more efficient, because standard
Operating procedures can be formulated.

It is realized that such a recommendation will be
hard to enforce due to the heavy demand for theaters which
are in very short supply. But then, given a choice between
government take-over and percentage-agreement, they just
might prefer the latter.

6. The producers should seriously consider shorten-

 

ing the length of their feature films. The minimum length L
of a feature should be lowered from 3400 meters to 2500
meters. Not only will it save a lot of foreign exchange
(all color raw-stock is imported), but also production
costs will be reduced. A shorter running time will result
in more shows per day, so more films could find release
every year. It is surprising that no one in the industry
has proposed such an Obvious course of action even as a
temporary measure to handle the problem of delay in release
due to an extremely inadequate number of exhibition outlets.
7. The industry should switch to a computerized
accounting system for calculating the respective shares Of
the government, exhibitor, distributor and the producer
from the box Office collections. In the present system,
chances of human error are very high due to the large number
of variables involved. The producer has no resources to

keep a check on any such mistakes, deliberate or otherwise,

209

for every theater across the country in which his film

gets a release. The peOple emplOyed presently as account—
ing clerks can be trained to do key-punching or act as
input sources for the data bank. The flow-chart pre-
sented in Exhibit XI is a simplified model on which a
computer program can be based easily. A computerized
accounting system will expedite the flow of payment con-
siderably and will have the capability of providing day-to-
day feedback about the success (or failure) of a film to
all the members of the marketing channel.

8. Top priority should be given at the industry
level to market research on a continuing basis. The motion
picture industry in India is totally production—oriented.
No research is conducted to assess the audience tastes and
preferences for the kind of movies they want to see. There
is no market segmentation. Films are made to suit the
fancies of the producer, the financier and the distributor.
The only form of public opinion research is through the
traditional medium of box Office. If the film becomes a
"hit," a number of others based on a similar theme with
only slight variations are produced until the public gets
disgusted with such remakes. No surveys are conducted
even for a "hit" film to find out why it became successful.
The justification often provided for this pathetic lack of
research is that creativity cannot be repeated. What is

not realized is that channelized creativity guided by

210

market research can reduce the chances Of failure. The
advertising industryis a good example Of such creativity.
Market research should be helpful in delineating the movie-
goer's profile (both demographic as well as psychographic),
assessing the demand potential, and isolating those ingre—
dients of a film which were responsible for its success or
failure. The risks of innovation are as great as the
rewards. A large percentage of films fail in the market,
and a still larger number have to be dropped, at a great
cost, before commercialization.l The secret of successful
experimentation in making films to suit public taste lies

in adequate marketing research undertaken by the industry.

Some Opinions

 

In the last chapter two currently prominent pro-
posals for changing the conditions in the film industry
were discussed. They were the proposals for setting up a
film council and for nationalizing Of theaters in India.
In the light of recommendations made in this chapter, cer-
tain opinions can now be expressed about these proposals.
First, the idea of a comprehensive film policy
sounds very attractive and if implemented as proposed
should improve efficiency because it would necessitate deal-

ing with only one central authority. But too Often in the

 

Rao, "Marketing Research," p. 15.

 

211

past the promises of new policies and organizations have
been abysmally belied. Where action isn't taken, there is
nothing like using words as a camouflage. NO one quarrels
with the need for comprehensive guidance for the medium.
But what may happen with the establishment of a film
council is the addition of yet another bureaucratic obsta—
cle to quick and effective decision making. Second, to
solve the universally accepted shortage of cinemas in India,
the cinema has to be in both the private and public
sectors. The government rather than taking over should
compete with private enterprise. Healthy competition in a
stable environment is the only cure for chronic maladies

plaguing the film industry.

A Brief Review

 

The objective of this thesis was to study the
marketing of a service in a developing economy. A review
of marketing literature clearly demonstrated the need for
research in two areas: (1) selection of a consistent
methodological framework to study domestic marketing systems
abroad, and (2) building an adequate body of literature on
marketing of services. Both these areas of inquiry were
blended in the subject matter of this study. An almost
total lack of research on marketing Operations of the motion
picture industry providing the service of entertainment to

millions, coupled with the fact that India, a developing

212

economy, is the biggest producer of feature films in the
world,were two good reasons to undertake the task of study-
ing the marketing of motion pictures in India. The methodo-
logical framework selected tO organize the study was the
flow-approach which is based on identifying the aggregate
marketing channel managing the flows of physical possession,
ownership, financing, communication, and payment.
It was decided to eXplore the subject matter from
three aspects: descriptive, analytical and evaluative .
Answers to specific questions were sought in each of the
three aspects because it was realized that formation of
hypotheses is of little utility in a field where both
theory and knowledge are very limited at present. In all,
the study attempted to find answers to five questions:
x 1. What is the existing structure Of channels in
India's motion picture industry?
2. Why have these channels taken existing struc—
tures?
3. How much marketing is performed in the channel?
4. How efficient is the functioning of a market-
ing channel?
5. How would common proposals for change affect
the marketing of motion pictures in India?
The first two questions were answered in Chapter IV
by outlining the channels through which the five movements

of physical possession, ownership, financing, communication

213

and payment takes place. The concept of flow from the
place of procurement to the place of consumption was
extremely useful in identifying the channels. Identifica-
tion and explanation of the channels and flows constitute
the descriptive aspect of this research.

The third question deals with the measurement of
marketing effort in the channel. Real and monetary indi-
cators of marketing had to be defined in order to answer
this question. Chapter V was devoted to the analysis of
these indicators. Therefore, it constitutes the analytical
aspect of this research.

The last two questions were evaluative in nature.
The evaluation of performance required defining workable
standards for efficiency. Then sources of inefficiency in
the channel and its environment were isolated and the pros
and cons Of the effects of some common proposals for change
were evaluated. Chapter VI attempted to answer these ques-
~ tions and thus constitutes the evaluative aspect of this

research.

Suggestions for Future Research

 

There are many Opportunities for future research
even in the specific area of marketing of films in India's
motion picture industry. As pointed out in the section on
recommendations, there is an urgent need for probing the

tastes and preference Of the movie-goer in India. Also,

214

forecasting models for motion picture grosses and pre-
production planning are needed based on identification of
key variables which affect such grosses. Research is
needed to identify which medium of communication is most
powerful for the publicity of a film. Analysis of export
marketing of Indian films could be another interesting
area of inquiry.

In the broader area Of domestic marketing research,
there is need to apply the flow concept for many other
products in many other countries. When a substantial body
of literature accumulates, it should be possible to make
direct comparisons of marketing in two countries.

In a still broader context, there is tremendous
sc0pe for research in the area of marketing in service
industries. Only very recently, academicians have turned
their attention to the study of "service-marketing."
Research could be conducted to compare the marketing effi-
ciency of service industries with that of the manufacturing

industries.

Limitations of This Study

 

In this research, India's motion picture industry
was deliberately assumed to be synonymous with Bombay's
Hindi film industry. This was done to confine the research
to managable proportions. Even among Hindi films, the

universe was defined to include only the mass-entertainers.

215

There are, of course, a number of other kinds of films made
in India. There are low-budget art films and films pro-
duced in regional languages. There are other production
centers such as Calcutta and Madras. They share many con-
ditions with their Bombay counterparts but also there are
many differences.

Time and cost considerations necessitated drawing

a line. Hindi films were selected because their economic

 

and social impact is the greatest. Recommendations result-
ing from this research are only intended for the marketing

channels of Bombay—produced Hindi films.

A Closing Statement

 

Marketing of motion pictures in India is an exercise
in tolerance among adverse conditions. It is the story of
an extremely potent medium mistreated, misused, and mis-
managed. It is an industry sick and ailing but with a
glamorous front. Ironically, this glamor is both the
cause of its ruin as well as its survival. Seeing its
superficial glitter, the government does not believe the
industry is on the brink of economic disaster and keeps
increasing its taxes. Also lured by this glamor comes the
new producer with new resources and new ideas to make the
"phenomenal" film. If it wasn't for this new influx every
year, the industry would have died long ago. Turnover is
high, investors come and leave, but the show goes on, as

it always has, as it always will.

APPENDICES

216

APPENDIX A
DETERMINATION OF OVERFLOW

l. Calculations for time T3*:

 

Assume,
R = Revenue earned after the entertainment taxes and
the theatre rentals are paid up.
K = Minimum guarantee paid by the distributor.
A = Total publicity eXpenses paid by the distributor
before the film is released. (In the film
industry most of the publicity eXpenses are

incurred prior to release).

Distributor's commission 20% of R = 0.2R

Therefore,
Overflow (O) = R — (K + A + .2R)
Producer's share P = Q

2

but until such time that O > O, the producer's share = 0,
If, 6 5 0

then R - (K + A + .2R) 5 0

SO .8R - K - A f 0
so .8R 5 (K + A)

or R g 1.25 (K + A)

 

*T3 was shown in Exhibit IX, Chapter IV, p. 115.
217

 

218

So T3 is that point in time when the revenue earned after the
entertainment tax and theatre rental becomes greater than 125
percent of the amount paid by the distributor on minimum

guarantee and publicity expenses.

2. Incremental increase in producer's share

 

from additional runs

 

Suppose
R1 = the total revenue collected after entertainment
tax and theatre rental from the first-run Of
the film
Assuming that this was enough to cover the minimum guarantee
and publicity expenses and it provided an overflow
In that case, producer's share

01 _ R1 - (K + A + .281)
2

 

Pl=—-_.

N

Now,

increase in revenue earned from a
second run of the film

Suppose AR

AP = increase in producer's share from
the second run

Assuming that no new publicity eXpenses were incurred during
the second run,

If R2 = (R1 + AR) = total revenue collected after enter—
tainment tax and theatre rentals
from the time the film was first
released to the time the re-runs
were completed (in other words,
to-date revenue collected)

and

then,

219

 

therefore,

or

or

or

SO,

 

 

 

 

P2 =(Pl + AP): total producer's share from the time
the film was first released to the
time the re-runs were completed
(to-date producer's share)

P2 = 92 = R2 - (K + A + .2R2)

2
2
2 2
2
_ _ .8 (R - R )

2

AP = .4 AR

AP = 40% of AR

 

if the minimum guarantees and publicity expenses are

covered from the first run, the producer gets about 40% Of

additional net collection from re-runs.

 

APPENDIX B

GRAPHICAL DETERMINATION OF OVERFLOW

 

 

 

Rupees
X100,000
15 v- :-
0/2 f
14 4 ," Overflow
/ 0
2 L /2 .1.
13 .. X
x
\
12 “ 20%R
I
11 1) f
7
—"‘K+A
10 A
9 +
Minimum
8 ,_..___..____——— ———————+Guarantee
(K)
7 h
6 J
5 1
4
3 ”
__ __ __ __ Publicity
__ —_——__——— Expenses
2 t A
l 4
1 2 3 4 5 6 7 8 9 10 End of
Film's First Run
Release + Time (Months) in the
Territory

220

 

APPENDIX C

AN ANALYSIS OF INDUSTRY CASH FLOW

Assumptions

 

l. The exhibitor is not included in the industry
cash flow analysis because the revenue income discussed on
page 194 isthe amount after the entertainment taxes and
theater rentals have been paid.

2. Rs. 4,000,000 represent the total cost to be
amortized for the film. It does not include the producer's
margin or the distributor's profit.

3. The distributor's commission of twenty percent
is totally accounted for by his direct and indirect variable
costs of distribution.

4. Fifty percent of the cost of the film is a cash
outflow during the time of production. The other fifty per-
cent is paid out within one year after release of the film.

5. The interest rate at which money can be borrowed

or loaned is assumed to be ten percent per year.

221

222

TABLE 13

NET CASH FLOW BEFORE TAXES

 

 

Cash Inflow

Cash Outflow

 

to the from the
Industry Industry
Rs. X 1000 Rs. X 1000 Rs. X 1000
Prior to film's
release 0 2000 (2000)
One year after
film's release 6000 2000 4000
Two years after
film's release 500 0 500
Three years after
film's release 100 0 100

 

 

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BIBLIOGRAPHY

225

 

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Sathe, V. P. Publicist, Bombay Publicity, January 1973.

 

Segal, Mohan, Producer, Delux Films, Bombay, January 1973.
Sinha, Ajit, Producer, Bombay, January 1973.
Verma, L. N., Studio Manager, Bombay, December 1972.

Verma, Prakash, Producer, PeeVee Films, Bombay, December
1972.

Wadia, Hosi, Deputy Managing Director, Bombay Film Labora-
tories Pvt. Ltd., Bombay, January 1973.