Hollywood’s reliance on Bollywood signals a shift

Bollywood drew its name from its US west coast predecessor but in another twist in the global business world it will be Bollywood staking Hollywood. By time this article goes to print Anil Ambani and his Mumbai based Reliance conglomerate will have taken a major stake in Steven Spielberg’s new movie-making venture. Producer, director and writer Spielberg has widely been called the most influential person in film history. He is the winner of 3 Oscars, 109 other awards and 75 nominations. He has been involved in many of the biggest grossing films ever produced.

In a heralded 2006 deal, Viacom’s Paramount Pictures purchased Spielberg’s DreamWorks for US$1.6 billion. However, in a story that could have been a movie script (or a classic lesson in mergers and acquisitions) Spielberg and his team and Paramount’s management encountered personal differences, despite widespread commercial success.

Spielberg had wisely put some outs in his contract (for himself and others) and last year signalled that he (and presumably his team) planned to leave Paramount. Public comments by Viacom’s chairman that Spielberg’s departure would be “immaterial” to Paramount did not serve to bring them closer together.

Entertaining ambition

Reliance, with its varied businesses, such as power generation and telecommunications, had been on the Hollywood hunt for a while. It eschewed tie-ups with major studios, and instead, focused on creating production pacts with talent-led groups. Reliance’s deals with Hollywood mega-stars such as Tom Hanks, Nicholas Cage, George Clooney, Jim Carrey and Brad Pitt, ultimately opened the door to Spielberg and DreamWorks.

Spielberg, among the wealthiest filmmakers in the world, is reportedly looking for US$1 billion in equity and US$1 billion in debt. He is said to require US$1 billion to break away from Paramount. Anil Ambani has promised to deliver the cash. Reliance will provide around US$500 million in equity and an additional $500 million in debt for a major stake in the new company (exact details were not available at press time). The unit would own and produce its films.

The distribution deal is still open with majors such as Universal, Disney, Fox and even Paramount jockeying for a seat at the table, including an investment in the deal.

A blockbuster deal?

What does a completed deal mean?

For Hollywood, it spells a deep source of funding in India and a huge potential market that only local film companies have been able to successfully crack.

For Bollywood, it guarantees a place at the table with the best in global filmmaking and an entry into a world of quality rather than quantity filmmaking. (Ernst and Young reports that Bollywood makes 1,000 movies that gross US$3 billion. Hollywood makes 600 movies that gross US$80 billion.) Bollywood will gain access to a film industry with a highly developed production, marketing and development system. Revenues in India are growing fast along with income so those lessons can be eagerly applied at home.

For Anil Ambani and Reliance the deal represents another step on the road to creating a global media entertainment empire and an acquisition lesson from the Paramount breakup in terms of how or how not to work with Spielberg.

For Spielberg, the deal promises a break from Paramount, deep pockets and perhaps a return to his roots in filmmaking.

Where Paramount is concerned, the effects will not be felt momentarily due to a US$1 billion box office gross this year so far, along with a pipeline of films. However, clearly, a diversion of management attention to staff contracts, new films unravelling, how to proceed with current Spielberg deals and future direction will occupy the company. On the whole, the Spielberg deal paid for itself and helped in a turnaround at the studio.

For the entertainment industry, this could be the beginning of an acceleration of deals bringing Hollywood and Bollywood together. In the last year Sony, Warner Brothers, Viacom and Walt Disney have all made Indian deals. In addition, Indian companies, such as UTV have produced films for the US market. Lessons from the sophisticated US film industry are now being applied to home markets in India and around the rest of Asia.

Investments in Hollywood involving a series of players, from the Japanese, to the Germans, to investment funds, have been fraught with risk and loss. DreamWorks will have to realize that Reliance is not just a source of capital, a replacement for funds caught up in financial woes or another series of foreign investors. Reliance is a global major with ambitions of its own. Will future conflicts arise? Stay tuned.

Wayne Rogers is a senior advisor in the international law firm of Sonnenschein Nath & Rosenthal, where he specializes in international trade and cross-border transactions. He may be reached at +1-202-408-6478 or wrogers@sonnenschein.com.