For your viewing pleasure: Digital Cinema – Aravind G R

A quick number crunching gives me a figure of 25-50%, this is the ‘proportion’ of opening weekend collection to the total gross a movie makes through its theatrical run. Now, if I’m a producer (studio in case of Hollywood), I would focus most of my energy & money to make sure that these 3 days work out well for me.

If I want to cash in on these three days, I better maximize the number of theaters I’m running my movie in. But, there’s a problem- each movie print costs about 3-10 lakhs, limiting my ability to cover the entire country at the same time. So, I usually try to use them multiple times, it goes to the multiplex in the city for the first few weeks (months, I hope) and then I ship the same ‘print’ to tier-2 towns like Raebareli.

To the rescue

Now this is creating two problems for me, even though the weekend market for me is a potential 4000-5000 screens (I produce bollywood blockbusters); I can barely afford 1,000 prints. Also, by the time these 1000 prints reach Raebareli, most kids there have already bought pirated camera prints of my movie on CD’s for 20 bucks.

Along came technology to my rescue. I can reach Raebareli & Chicago the same day and each ‘print’ costs me a few thousand rupees.

Distribution today happens over the airwaves; encrypted digital copies (Mpeg files) of movies are delivered directly to multiple screens (through VSAT). The exhibitor then unlocks the files before playing the movies; I also get to keep a track of how many times the movie was actually shown, lending me better control & accountability.

The digital projection & storage systems do cost 4-10 times more than film based projectors, so naturally the exhibitors resisted. Many companies (third parties) in the past have taken up the job of setting up digital systems for exhibitors and have come up with many models over the years to counter the cost issue and have seen varying degrees of success.

Cinema models

There are two basic models that have been adopted (a) D-Cinema (b) E-Cinema:

D-Cinema: The funding (to go digital) could come from a party within the system or outside. Within the system major studios who were convinced about the digital system agreed to finance (partly) the purchase of digital equipment through the Virtual Print Fee (VPF), a funding mechanism where it pays the savings it makes from digital prints over film prints.

In India, Scrabble Entertainment finances (major part) the DT equipment purchase (& installation) and recoups this investment from the negotiated VPF that the studio pays it ,each time a digital print is released to the exhibitor. The company founded by Ranjit Thakur & Manmohan Shetty (Adlabs/WalkWater), in return also gets exclusive rights to exhibit the movies from the studios at these screens.

E- Cinema: UFO Moviez (UFO), part of the Valuable Media Group finances & installs digital equipment & recoups the investment by charging a  per screening fee. UFO also manages the distribution (MPEG-4 video format) based on VSAT technology, so in essence it is a supply chain for movies across the 2000+ screens it has converted, aiding the production houses to reach all such locations simultaneously without investing heavily on film prints (opening weekends!). The equipment is not necessarily of the highest quality and has found takers mostly in single screen theaters in C&D centers.

Then, D or E?: The lower cost & the fact that UFO could invest heavily in purchase & installation of digital (quasi-digital, in most cases) equipment has worked well .The company has achieved significant strides by converting 2000+ centers in a span of just 2-3 years. They have essentially changed the game of distribution and will be a very disruptive force in the entertainment industry.

However, we at Viedea believe the way forward is more towards enhancing the cinema viewing experience and hence higher quality (DCI Systems) systems would find more takers. We expect many more companies to join this bandwagon once (a) the studios start the VPF discussions in full swing and (b) the noise around un-availability of DCI compliant equipment settles.

PS: I just read that Golmaal 3 made $25 mn in its first weekend. That’s as good as any Hollywood movie!

Costly to miss the ‘tech’ business in organised retail – The Editor

Deep slumber will kill anybody in times of competition. Indian retailers and technology companies better wake up soon because I observe that Wal-Mart, in India, is picking up the pace in netting all their potential Small and Medium businesses or ‘suppliers’- as we call them in retail parlance- in to adapting their retail supply chain technology called ‘Retail Link’.

This not only builds Wal-Mart’s supply chain, but Indian SMEs get a foothold in to becoming global suppliers to the largest retailer in the world.

Wake up Indian retailers

Personally, I feel this was the way to build any retail business, which our home grown retailers ignored. There was too much money spent in building the front end brand, without really offering quality to customers. What consumers got was the experience of modern retail discounting, but they were denied of the experience of low price plus quality.

So the argument about middleman being the scourge of organised retail- often cited by big Indian retailers- is doused by Wal-Mart, which is creating a silent revolution among its Indian suppliers. It is the technology stupid! Nobody wants to miss out on the organised retail business which is going to be at least $ 60 billion by 2015 and the total retail market’s size is estimated to be $ 600 billion in the same period.

Believe in sharing

We at Viedea know of several technology companies, even with their small size, who understand that the retail business is of technology integration which facilitates the ability of the warehouse and the supplier to deliver in to the store on time.

It is time that Indian retailers worked with retail technology providers constructively, may be even forge a partnership or engage them to build proprietary software that can be integrated with vendors for best practices.

What is unfathomable in my mind is the pace at which Wal-Mart is building the supplier base; it will certainly gobble Indian retailers if FDI opens up in this country in organised retail. This is impressive on Wal-Mart’s part because it realises that if India needs to be big on the balance sheet at Bentonville- USA then Indian suppliers have to comply with their processes completely or be dumped.

They are eager to teach some other aspiring Indian about compliance issues. Indian SMEs are averse to change, but when forced upon- they will innovate. By following such action Wal-Mart has been able to maintain strict control over purchase orders, inventory keeping and logistics management.

They have passed this value to consumers. These processes flow like a river between the suppliers, warehouses and the cash and carries – all thanks to technology.

Taking the fight to Wal-Mart

TCS, Oracle and SAP have been coaxing Indian retailers to implement their software or partner with them, but Indian retailers do not want to let data flow through such technology because it allows an insight in to cash management, which is a dark secret that is only in the diaries of promoters.

Now you do not want vendors to create a furore for untimely payment if everything is on record, do you? This is where Wal-Mart wins, while the others loose. Will Indian retailers wake up to the need of technology integration? Do call us if you want to be awakened.

Internet startups: The path to success – Alap Bharadwaj

With the e-commerce and internet space gaining steam over the past few months, the Viedea team decided to put together a business development exercise that focused on the new entrants into this arena. After speaking to in excess of 30 companies, analyzing their business models and understanding their challenges, I noticed some important trends.

1. The “me too” bane: I’m not sure if there is a dearth of good ideas out there or that Indian entrepreneurs lack creativity, but an increasingly large trend that has taken over the internet space is the proliferation of clones of successful websites from the west.

For example the success of Groupon in America has led to a slew of discounted, daily deal, group buying services based websites in India jostling for market share in an arena where they can only be 2 to 4 players that will succeed in the long term.

In my opinion if you cannot significantly differentiate your offering or provide a compelling platform, the mere aping of a foreign trend will lead to nothing but a failed venture.

2. Hygiene Factors: It still surprises me, how many aspiring Internet business fail to get the nuts and bolts right. You log on to a website that promises you the sky and the earth, but are unable to navigate, search, order, browse in a clear manner. When site design turns out to be poor a visitor is even less inclined to return.

The attitude that “if craigslist did it with plain forgettable site design, so can we” has got to go. Craigslist is a one in a billion company, and that story will probably never repeat itself.

A clean, crisp and engaging design is a must and should not be put off for later. Other factors like 100% functioning payment gateways, customer service numbers, bill generation, clear transparent reporting of extra charges etc are also overlooked just because entrepreneurs believe the “concept” is strong. The concept will get a venture no-where without the hygiene.

3. Business Plans: In today’s world of venture capital investments and blockbuster IPO listings it still surprises me that most young internet companies fail to build out strong forward looking business plans.

As an investment banker the question I look forward to asking most entrepreneurs is where will you be in five years in terms of revenues, profits, manpower resources and funding?

The largely collective lack of enthusiasm to provide an answer to this question is only second to the slipshod, half baked, not thought through, generic response of “$100 MM company”, in terms of disappointing interactions one can have with a burgeoning company.

Vision and holding your company to that vision are key in terms of success not only in driving business but also attracting investors and raising funds, even if the vision is realistic and conservative.

4. Angel Investment: Another surprising trend is the misplaced confidence most entrepreneurs in this space have in the belief that their ventures will be able to raise venture capital funds.

The tech world is not what it used to be and VCs are done splurging on anything and everything remotely connected to the Internet. Unless you are a second or third time entrepreneur with at least one very successful exit behind you, the odds of raising venture money are slim at best. Why so many entrepreneurs miss out on raising money from high profile angel investors is beyond me.

Angels are much more inclined to part with money for first time entrepreneurs, plus they bring in much needed experience on both the operational and execution fronts. Finally the value a high profile Angel adds to your company becomes immediately visible once the venture approaches VCs for their Series A.

Most VCs feel a much larger degree of comfort with an industry veteran on board and this actually leads to an acceleration of the entire fund raising process.

There are many tiny things that differentiate a successful venture from another, but making the four on top are taken care off will go a long way in ensuring the growth and success of young internet companies.

Ethics in our business – Uday Disley

If one ever thought about ‘ethics in I banking’ being an oxymoron, think again. It’s no different from all the other businesses out there, which are vulnerable to ‘ethical dilemmas’, on a daily basis. One might ask, if we are immune to questions of ethics.

No sir, sorry, most of often than not, we keep asking ourselves ‘whether we are in the right profession at all’, thanks to some unreasonable situations. So how do we go about life, well, without asking unnecessary ‘existential’ questions, our sagely stance has always been that, ‘this too shall pass’ and a chapter addition to the ambitious autobiography that one hopes to write.

If you ask any seasoned I Banker, he/ she would tell you that, one becomes wiser with experience, better if it is a bad one.

Our dilemma

Sample this, a client (prospective) has sub $1 Million in revenues, says that revenue is booked in one entity and expenses are booked in another, wants a minimum $12 Million to sell and says he is sitting on an offer already.

It gets even better, the promoters and their investors would like their purchase consideration to be paid overseas or if possible in cash. The best of us would say this person has smoked something very potent, but the tragedy is that, the deal is possible, at least theoretically.

The ethical dilemma is whether this deal is straight enough for us to be involved in or is this a opportunity for us to showcase our skills in structuring a complex deal. The big aside also is if this client’s thought process is like this, there is a good chance that we may never see our fees.

As has been our experience with some far thinking clients who have enough intelligence to think far in their business, but end up spending considerable amount of it on finding loopholes in the system and doing the disappearing act when it comes to paying their advisors.

So would ethics override anything that we do in business, well some very successful businesses seems to think so. The Narayan Murthys, Tata’s, Premji’s etc. at least have demonstrated remarkable success in not paying bribes, but only as we know it, but let’s face it we are not them until we are them.

Our cynicism

Recently there has been so much talk about corruption in the public domain, that one can only get more cynical about ethics, worst being that, one tends towards believing that nothing is straight forward in business at all levels (be it a huge scam or your day to day kickbacks).

Even we do get cynical about these things especially when you see some fellow I bankers fall in this trap, but our stance has always been to stay away from ‘Bad deals’ or ‘Unreasonable situations’. On the view that there will always be people who will take up these kinds of deals, well good luck to them and their ecosystem, we are happy to work with client’s who value what we value, even though the number is small.

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