Bollywood and the Global Credit Bubble

Editor’s Note: We are indebted to Mr. Raj Mundhe, an avid reader and an old friend, for bringing the Wall Street Journal article to our attention. Mr. Raj Mundhe, a noted Financial Advisor in metro Boston, has helped this blog on earlier occasions as well. For that, we thank him.

During our visit to Mumbai last December, we kept hearing the phrase America’s Sub-Prime or Housing Bubble. When we tried to explain to our friends that it was not a subprime or housing bubble and more importantly it was not America’s bubble, no body believed us.

What was our point? It was a credit bubble created by a massive expansion of money. This money flooded one asset class after another creating a series of bubbles all over the world. In America, it created bubbles in sub-prime, prime, home-equity loans, commercial real estate and in corporate loans. Globally, it created housing bubbles in the UK, Spain, Ireland, and Emerging European countries like Hungary and the Balkans. It also created bubbles in trophy assets such as Art.

Now a recent Wall Street Journal article points out that this money also created a bubble in Bollywood. The article by Eric Bellman titled
Slump Deflates Bollywood Bubble describes how the chill in global financing has stalled India’s recent film making boom. Perhaps, now our friends will believe us.

Let us be clear. Bollywood is NOT and NEVER was a bubble. Bollywood has produced superb films for nearly 8 decades without any bubble money. These films were made on regular size budgets and almost always made money.

But in 2007, bubble money discovered Bollywood. According to the WSJ article, “more than $700 million from abroad that was invested in Indian film and broadcasting through mergers and acquisitions last year, up five-fold from the previous year”. As the article describes, “In recent years, international studios, hedge funds and Indian media companies invested as India’s growing middle class watched more movies, bought more DVDs and paid for more cable and satellite television channels. Sony Pictures Entertainment Inc., Walt Disney Co., Reliance ADA Group and UTV Motion Pictures were visible in the market.”

The peak of this bubble was the first Hollywood production of a Bollywood movie “Chandni Chowk to China”,  a Bollywood kung fu movie set in China. The movie was a bust and barely made money after sale of DVD and Television rights. The article quotes Rohan Sippy, the producer of Chandni Chowk to China as saying that he had never seen so much money sloshing around Mumbai over the past few years. “It was crazy,” Mr. Sippy says, “Input cost went through the roof and actors were asking for five times what they were taking earlier.”

     (source – WSJ)                                             (A scene from Chandni Chowk to China)

Now that the global credit bubble has burst, so has the influx of money into Bollywood. According to the WSJ article, ” So far this year there has been only $25 million in foreign investment through mergers and acquisitions”. As a result, “this year has seen the release of 22 Hindi films compared with more than 100 Hindi films in the same period last year”, the article states. According to this article, Indian film industry could have its worst decline in revenues in a decade.

Our view is that Eric Bellman is wrong in his title. The slump has not deflated Bollywood, only the crazy bubblicious interest of Hollywood money in Bollywood.

Frankly, we are happy.
Bollywood will thrive regardless of the bubble. Unlike Real estate, the strength of Bollywood is in its people, its talent. Bollywood will go back to making classic Bollywood films in the classic Bollywood way, films that mesmerized audiences like us and films that made money.

Say good buy to the Bubble and say hello again to the old Bollywood.

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