Telugu film producers vs digital service providers: A lowdown on the feud that could bring film industry to a grinding halt

Hemanth Kumar

Feb,06 2018 16:29:18 IST

Will Telugu Film Chamber Of Commerce issue a diktat to producers and theatre owners to not release any new films from March 1? That’s the question that’s on everyone’s mind in the Telugu Film Industry right now. In fact, several producers are said to be in a rush to release their films before February 16 so that there’s enough time for their respective film’s run at the box-office, if things go wrong from March 1.

And to add fuel to fire, even Tamil Film Producers Council (TFPC), led by Vishal, is said to have responded positively to Telugu Film Chamber of Commerce’s request to support them. However, it’s not yet clear if Tamil Nadu too will see a similar situation that’s looming large in Andhra Pradesh and Telangana.

It was in December last year when news first broke out that an ad-hoc committee consisting of Telugu film producers had been discussing with the digital service providers (DSPs) such as UFO, QUBE, PXD, Scrabble on a wide range of issues. It was during these discussions that the producers took a strong stand that they won’t release any new films from March 1 if the DSPs don’t agree to their demands. The bone of contention between the two parties is said to be VPF (Virtual Print Fee), which the DSPs collect per theatre per week, and also the revenue generated from advertising at cinema halls.

For representational purposes only. Image from Reuters

For representational purposes only. Image from Reuters

Addressing the issue couple of months ago, producer Suresh Babu had said, “In Hollywood, when digital cinema was first introduced DCI (Digital Cinema Initiative) allowed digital companies to charge VPF (Virtual Print Fee) because of the equipment and maintenance costs etc. The idea was to implement this for five years and after that, VPF should cease to exist. But in India, several theatre owners became dependent on digital service providers like UFO and Qube to install and maintain projector systems and other infrastructure. For that reason, these digital providers are collecting huge sum as VPF from us. That's wrong. In the near future, it’ll lead to a huge war between all the stakeholders involved.”

Regarding the advertising revenue generated from cinema halls, Suresh Babu pointed out that instead of playing movie trailers, the DSPs are airing more ads of national brands which is ruining the movie-viewing experience.

While all these issues that the Telugu film industry has brought up are legitimate, sources in the know opine that no concrete efforts are being made to solve the issues amicably between the two parties. Apparently, when the film producers demanded that DSPs reduce VPF in C-centres, the DSPs were, in fact, willing to work on it and asked for a list of those centres. Soon, the producers’ committee sent a list of 200 areas classified as C-centres, it didn’t quite solve the issue: “There are different groups within the film industry like Telugu Film Chamber Of Commerce, Telangana Film Chamber Of Commerce and so on. There’s no sync between these groups on several issues. And even when this list of 200 C-centres were given to DSPs, the groups had different names in mind,” says a source, adding, “Incidentally, some of the theatres in this C-centre were recently renovated which means that the producers and theatre owners see good revenue potential there despite less population. But the producers have been adamant that DSPs consider the population census only instead of revenue potential to classify something as a C-centre," said Babu.

That’s not all. The advertising revenue from theatres has increased manifold over the past few years, and today, everyone is fighting for a share of the same pie. Several years ago, a select few players in the market foresaw potential in advertising and they struck long-term lease agreements with several theatres in Andhra Pradesh and Telangana. As a result, the theatre owners would get a fixed-income as part of the advertising revenue, whereas the company handling these ads would walk away with bulk of the money.

Later, when the digital players like UFO and Qube introduced a system to measure the reach of ads, it suddenly became a lucrative option for several national brands. The potential increased nearly 4-5 times of its original value, and theatre owners too are believed to be quite happy with this new system. However, it has clearly not gone down well with few parties who have lost out on a major revenue source to DSPs.

To make things more complicated, in November 2017, UFO and Qube announced that they are going to merge and this new entity will control more than 80% of the screens in the country. According to a report published in Business Standard, UFO owns the advertising rights to about 4,000 screens out of the 5,100 it has digitised in India. And Qube has the ad rights to 3,300 screens, largely in South India. Together, the combined entity will have 7,300 screens from which they make s 287 crores in ad revenues. Last year, advertisers spent Rs 1,500 crore reaching the 998 million Indians who watched films in a theatre, and it looks the UFO-Qube is aiming to push its ad revenue to Rs 400-500 crores, which is huge money. Moreover, a joint-entity like UFO-Qube could also mean less hassles for the producers since they don’t have to make separate copies of the film for each of the DSPs, which in turn, reduces the cost and effort in the last minute.

On the other hand, the clout which UFO-Qube now has has led some producers and distributors to be wary and there are murmurs within the industry that these two DSPs have monopolised the whole system, forcing everyone to toe the line. Considering their reach, there’s no way that producers can bypass them and approach someone else, in an attempt to bring the costs down.

Talking about the costs involved, on an average, DSPs charge close to Rs 8000 as VPF per week per theatre in the first week of a film’s release, and there after, the rates keep dropping every week. For a medium-budget film aiming to release a film in 500 theatres, the VPF costs alone comes to Rs 40 lakhs. Even if a film is a blockbuster, with a run of more than 4 weeks, the VPF charge is unlikely to exceed Rs 1-2 crores, which in the larger scheme of things, doesn’t feel like a staggering move. At one point of time, during the discussions, the DSPs reportedly had a different proposal - If we reduce the VPFs in C-centres, can we increase it in A-centres which have high revenue potential to compensate? The answer from the producers was a resounding ‘no’.

Apart from the big players in the market like UFO and Qube, there are quite a few other DSPs like K Sera Sera Digital Cinema Pvt Ltd, PXD, Scrabble among several others that are offering services to theatres. And there’ll always be new players emerging from the shadows every now and then. “If you have enough money to invest, it’s not that hard to start a digital service provider since you can buy the DCI-compliant equipment from the market. What separates one player from another in the market is the additional benefits like anti-piracy measures, forensic marking, encryption, and quick maintenance through on-ground staff that the company offers beyond just screening the film. And such services cost money,” a source says.

With Tamil film industry too joining the fray to stop new releases from March 1, it’s just a matter of time before everyone starts feeling the heat. There’s also a rumour within the industry that all these discussions are just an excuse to make way for another digital service provider, which will be more in favour of film producers and stand out as an alternative to the bigger players in the market. But for now, it’s all about who’s going to blink first at the discussion table.

Updated Date: Feb 06, 2018 16:29 PM