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Business Daily from THE HINDU group of publications
Monday, Mar 15, 2010
Vertical integration of service chain is key
Kamal Haasan and G.B. Prabhat on the priorities of the media and entertainment industry in the tech era..

G. B. Prabhat

Kamal Haasan

 

K. Bharat Kumar

If you were as intrigued as we were, by famed cine actor Kamal Haasan's articles on technology and media convergence a fortnight ago in these columns, you'd want to read this interview with him. The artist donned his businessman's hat for eWorld. Accompanying him was G B Prabhat, Founder & CEO, Anantara Solutions, who co-authored the articles. The duo intends collaborating to take advantage of the impact of technology on, and the globalisation of, the media & entertainment industry.

Dr Kamal Haasan, you had written, "Content development is going to become more and more interesting for my company... I have been preparing for this change and am already in transition." Please could you elaborate on what your company is doing?

Kamal Haasan: Out of sheer nostalgia, or vested interests, some people are still sticking to old ideologies. The problem mostly is because of confusion that prevails and the kind of reading you will have to go into, to understand it. It's easier to stick to old methods, otherwise I cannot find fault with them and they are not my opposition gang, as I see it. It is very easy to convince them and bring them to the main flow.

When you say `them', whom do you mean?

KH: (Smiles) Then, I'll have to say it, confess it's most of the industry. That's why I can't afford to call them the opposition or shout them down. You have to be a unified voice to make progress seem palpable. I mean, in money terms. You can't wait for it to change. They have to understand what we are trying to do. It is the way to go and if we delay it, we are going to lose out on opportunities.

So, what gave you the insight now? The Internet, of course it's an emerging platform, it's been evolving for some time. So why 2010?

KH: It's now looming straight with all the (possibilities), smashing all old time arguments, vested interests. Like for example, the theatre people, about 20 years ago, they didn't even want to convert to DTS (surround sound). I was part of that meeting, even then. The late D Ramanujam, the doyen in our industry, arranged for it in his office and we brought in all the theatres. There was resistance then.

I was screaming for vertical integration about 20 years ago. We must vertically integrate, otherwise we are now operating like successful shandies.

In your industry, how would you define vertical integration?

KH: Vertical integration - from top to bottom, the flow, work flow should be transparent and the systemic efficiency should be apparent.

GBP: In simple terms, it is the integration of the entire service chain. As it were, the most significant elements are - production of content, namely, the making of movies, the distribution of the content, the display of the content...

KH: ...and sales itself, which is what feeds everything. That narrows it down to a very small hole at the bottom of the box-office where two hands exchange the money...

GBP: That's very cottage-industry, very fragmented. He (Kamal) has a vision of backward integrating even the production of talent, which will go into the production of content. As opposed to the West's very professional arrangement of vertical integration, even if they are resident in multiple enterprises, the fact is that they work in an orchestrated supply chain. The analogy is the auto industries' integrated supply chain as it were in America, and as it did not exist in India. Now, the automotive supply chain is as integrated in India as it is in the US. So, the transformation the Indian auto industry underwent, to move from a fragmented supply chain to a vertically integrated supply chain is the transformation that he is talking about.

KH: Ultimately, it all turns to money - hard cash. So, we'll have to start the integration from content development to customer satisfaction. It seems simple - what is customer satisfaction here. In the automobile industry; you show the speed of the car going from 0 to 60 in so many seconds. So many things are in numbers, but in entertainment, it's very emotion-centric. Almost close to a religion. The industry needs a cohesive outlook. (So far, it's been) "every man for himself". Now the time has come, because the technology is ambidextrous in its reaching the audience. And you can do so many things and all the more we'll have to lay down the rules, understand the platforms and exploit it. For which, it has to be vertically integrated.

You both have talked about technology and convergence in your articles. How could convergence help the producer reach out to a set of viewers? Some of the movies run very well in cities but not so well in rural areas. But because of convergence in technology and distribution media is it even possible to make the delivery and the content itself more suitable for a larger audience?

KH: When you do that, you are talking about sheer genius - Mozart. When you say, he was not aiming for the poor people, rich or anything. He just made great music, and great music will reach out, and I didn't know anything about western music. But Mozart touched me, I didn't understand, but the noise - harmony, cacophony, whatever it is , it's not like my carnatic music , absolutely different., but still it touched me. The movements when it suddenly went down, suddenly came up and I'm used to a continuous noise, all that sort of breached the barricades of all culture, all ramparts of culture were broken down, and that's what a true good artist will do.

So, what you are saying is content is king?..

KH: Once again, I always say - what about the queen? Multiples of the king alone is no good. So, I would say that, presentation is critical too. The theatre, the platform, the technological platform all become part of the presentation. What is happening right now will all change. Video as believed by the industry, is a lesser earning cousin of the theatre. I disagree. It could be an equal earner. The reason why we have not done it is: There is no cohesive voice saying that we should harness that market as well. We only fear that market. First, it came in as piracy. Instead of encompassing it into our repertoire, we kept it outside. We outlawed it. By outlawing it, we've lost that revenue and pirates are working it all out. I know of several people who watch movies first on Torrent and since the buffering is bad they come to the theatres. Video downloads could act as trailers.

GBP: Today, the cell-phone installed population in India is 500 million, one in every two Indians on an average owns a cell-phone. So, there is absolutely no problem about reaching cell-phone content to participants in nooks and corners of the country. Now, let's take a movie like My Name is Khan, it's probably a movie that an average person would understand the first time he watches it. Maybe not all can understand it very well. The movie opens saying the protagonist is affected by something called the Asperger syndrome, which is actually a sub-class of autism. It enhances capabilities in one dimension, and self-absorption in another dimension. Now, what if you could create a Web site about this movie that had auxiliary information - what is Asperger, for example? That may not interfere with their movie viewing-experience, but would enhance the value of the movie.

This is just as a good book provides a glossary for the structure of the plot. The reader should have the liberty to break off and refer to the glossary whenever he wants to. The book does not sully the proceedings by including the information in the main stream. So, for instance you could build very clever Web sites to tell you about Asperger and about the accomplishments of a person with the syndrome.

Such downloads on your mobile, at 50p or Re 1 per download, would enhance the value of the movie-watching experience.

KH: If such content is made; it would reach out to even a guy in Rajasthan, ploughing his field, waiting for rains. But he knows they did something to Khan. Our Hari Katha is the same thing, with technology. Balakrishna Shastri did to the Ramayan and the Mahabharata whatever the Internet is doing to My name is Khan.

GBP: In future, the theatre could mean the physical confines of the theatre that you visit, but sometimes it's your cell-phone or the personal device on which you watch movies. It can even be a virtual screen, which means very efficient real-time distribution mechanisms, which permit you to watch a movie at your convenience. The act of watching movie in your space, in your time at your place can be very significantly enabled, so it's not merely the support for enhancing the viewing experience, but the core act of distribution itself will be revolutionised soon. Because, the economy of the scale of digital distribution is so vastly attractive that if you should try to resist it, you will be stabbing yourself in your own belly. So, we see that technology, in addition to an enhanced viewing experience by providing auxiliary information to enhance viewing experience, will also abet the task of co-distribution. This will happen far sooner than any one of us expects.

Isn't it simple to just do what you think is right and when you drive efficiencies and revenues, the industry will follow suit?

KH: That's why I talked about the need for cohesion. Some parts of the industry think that the old way of watching films is a good way. Why should we change it? There are people who strongly believe that black and white photography is the best photography. That's because of a love for something. That's loyalty. I don't say you will have to dispense with loyalty for the sake of business. But we need progress.

GBP: Take the concept of supply chain. In the auto industry, it would involve primary distributors, customers that consume, Tier 1 suppliers, the tier 2 suppliers who supply to the Tier 1 chaps, and the proposition for the entire industry is formulated - who should enjoy what part of the returns. It is clearly laid down as to what the customer, the distributor, the OEM and the component maker are all entitled to. It is orchestrated with a strategy for all of the chain, without necessarily undermining the strategy of the individual firm that participates in the supply chain. It is establishing congruence between the goals of the individual participant in the supply chain with an overarching supply chain strategy and you mentioned the word "cohesion". That's the most important part. The missing element here is professionalism.

Here, the orthodoxy has a known and an established way of doing business. Take, for example, talent production or financing. We don't have film institutes that are the best in the world. We are nowhere close to the corporate financing. The movie is never the collateral in financing. The movie itself is deemed to be a zero value asset.

KH: Even a poultry industry is trusted with more than cinema industry. Unless we are vertically integrated, we can't get anywhere close to something called future receivables.

GBP: Vertical integration in this case means evolving a product, in the financial sector, specifically geared towards the entertainment and the movie making industry, in which the assets produced at all times are going to be intangible, and the participants today are competitively disadvantaged because they are forced to believe that the core production of theirs is worthless. So unless you pledge collateral from some other source...

KH: Brick and mortar is still (in) fashion.

But the software industry struggled to get collaterals and loans early on...

GBP: But they have come out of it. The software industry is now very well vertically integrated. Working capital for the software industry when I started my career was a pipe dream. It just didn't exist. In fact it is actually good news here because the digital entertainment economy is at the moment underpowered. With its remarkable size even now, imagine how much more that engine can be turbo charged with structured financial engineering. So, we need reforms on several fronts, some of them legislative, some of them industry-leading initiatives.

KH: When we keep shouting about vertical integration, it sounds like levelling the field. That's not it. We respect the undulation. It has to be that way, there are certain areas that will make less profit and those that make more. The people with vision will broaden their spectrum, and income will increase.

But, Prabhat, earlier you have talked of the Toyota business model: Make less of a car to make a better car. Doesn't that apply here?

GBP: It does. We are not saying that the movie industry transform itself into a financial services industry, but can banks and lending institutions develop appropriate hooks into this industry, such that the act of prudently financing movies. It is still from inside the movie industry. It (ought to be) from the outside. Like the Toyota model, somebody takes care of the finances. Twenty years ago in the software industry, project management in the industry was next to witchcraft. Only a few people knew it, certainly there was no institutionalised curriculum for it. We all laboured and suffered through it. Today, it is inconceivable that you will pick anybody for a software company who does not come in properly trained in software project management, which is the evolution that the educational institutions have undergone to support vertical integration, with good educational content.

KH: Take the number of 5 Star hotels and look at the catering institutes and technologies. If you take that number and look at number of theatres and number of films produced, and the number of film institutes, it's disproportionate and it's unfair to an extent, because we should have so many management experts, and we are neglecting the most important part of the chain link - the management itself. There is special management training for this, skill required.

GBP: The movie industry has a core supply chain - content production, distribution, and consumption by the customer. There are also the support industries - educational and finance support industries. Vertical integration would mean the coming together of these industries in a concerted effort to service the supply chain.

Google, about a month ago, launched broadband services with offerings that are several hundred times more than the existing broadband, which is reasonably good for an uninterrupted movie-viewing experience, so several hundred times and several million more customers' means that the average digital consumption is constantly on the increase. Look at just what happened to cell-phones in the last 10 years, you know we still say, India is a poor country, according to all notions of poverty, between 300-400 million people in India live below the poverty line.

My point is one in two owns a cell-phone. So, the right conclusion to come to is that the cell-phone has breached all levels of poverty, it doesn't matter, and once an access mechanism breaches all levels of poverty, content follows shortly.

KH: Your question on B and C centres is answered here. Content can also do that, when I was saying Mozart, it is not excluding the management and all that. Genius will not (overshadow) the final dispersal technology. So, the idea of management, the system, vertical integration and all that will still hold good. But it's technology, innovation that breaks through all these barriers. The longevity of the content will increase if you make it available in various platforms. Like the way you heard Ramayana - you did not hear it in full the first time. Snippets. that's how you will in future see a film.

KH: The future audience will be different. For example, originally our Bhagavathas (singers) were very worried about singing into the mike, because they said it would take away from "my personal, individual charm". The man, the magic of holding 50 people in an audience, was more important. Now, with all the technologies and my industry accepting that we are going to be available in many platforms - (that realisation) would facilitate faster integration, because you will see many methods of earning money, for the same content.

Is this just a peek into the future or is your company doing something now?

KH: we are going into Maiyam, which is a digital thing. Not to be mistaken for a competition for online versions of magazines. This is something else altogether. To begin with, its Kamal Hassan-centric, but it will become a centre from where you could access various things. We are not just aggregators of other material, but soon I see a time when the Internet will also be a platform of viewing my content.

As to content being developed by your company for mobile phones, can you give any examples?

KH: we are right now thinking on the audio front which is do-able straight away, and streaming. My company is already into the digital arena.

In the form of?

KH: The film itself. "Unnaipol Oruvan" was shot on Red One, and now after Red one has enhanced its CMOS chips. Now, it will work at 1800 ASA [shutter speed, the film speed]. On the dispersal front, if we vertically integrate and we have a single voice, digital technology will bring in more profit. The print is already an expense we can do away with. Given its costs and our not being able to use it after two years or so, again money has to be ploughed in, even if the movie was successful. There was a time when "Haridas" print was released here, ran for a year and then they shifted it to another theatre. They repaired the print and sent it to rural areas. Somebody with vision, like Mr Vasan, increased the number of prints to 13. When he did it, they said it was ridiculous, madness, but he did it. But now, 100 days, 175 days is all in the past. Already. It is how much you take in the first week itself that matters.

But now that you have gone digital, am sure you see a day when from a central hub you decide that at 3 p.m., in this theatre, this movie would be beamed from a central hub. You don't need to run with the print.

KH: Globally, it's already there. In India, it can come within a matter of a year.

GBP: DRM plays an important role here. It means many things - Faciliates archiving, it's no longer archived in the form of films, not physical media, they are all very very high-resolution digital files, quite bulky today and with the increasing richness of storage, compression techniques, and with the decreasing storage costs, clearly cost of storing a movie is rapidly on the decline. Two, there are some 100 versions of a movie. Take, for example, The Terminator. We all tend to believe it is one movie. It is one movie in the eyes of the consumer who sees the movie, but in the eyes of the industry that is managing it, it's 100 movies. There is content edited for India, the India version of Terminator is very different from the German version of the movie or from the US version. For Germany, there is an English version of Terminator, with German subtitles, and there is a German dubbed version as well. And when you manage the system, you recognise the two as two independent entities.

The most significant problem today is Royalty and syndication management. Your royalty earnings on movies come from accurately and efficiently managing these different versions. For example, royalties in India have to stem from the Indian version of the movie. Royalty from Germany has to stem from the German version. So, there is a way by which you have to keep track of what movie has gone to what region and how many copies and across how many shows it's being viewed. That is Royalty management. The next part of DRM is distribution management, which is the part that he was talking about: how far into the distribution chain can you reach?

With direct digital distribution all the way from studios, to the theatre in which the movie is being screened is an eminent possibility today, you can even monitor ticket collections. DRM controls the number of tickets issued per show. So, there is no question of anybody is either wilfully or accidently misrepresenting the fortunes collected at any point.

What is the Government's role? Would you demand software-industry like tax sops?

KH: The Government's role will have to be defined by us. They are not experts, can't expect them to be experts in my field as well. They will put in very intelligent IAS officers, who will quickly read up on it and find out, but the actual user will have to tell them what is ailing them.

GBP: We have to advise the government, the government is not a voice in itself. At least three areas need reform: Financial regulation, for financing the movie industry. See, the legislation cannot come from the industry, you can't say what is deemed legal or illegal. The governing legislature for funding to this industry, in which assets are virtual, in the potential value, rather than retrievable material forms.

The second is in Intellectual Property Rights (IPR). There is no law yet. The software industry lobbied for about 10 years and has specific stipulations on penalties in case someone possessed an illegal, or pirated or unauthorised copy of software. Now, by extension, maybe the general IPR Regime of India may be used to interpret what it should cost in case of violations; there isn't a specific IPR Regime applicable for the entertainment industry.

The third area for reform is in education. It's fine for Kamal to go launch a screen writing workshop, which he did recently with IIT, as part of the vertical integration effort. But it's quite another for the Government to bless a curriculum and say this is Degree-worthy, this shall be deemed to be earned. Now you can have any number of private institutes sprout up now in collaboration with the best institutes in the world all of them will have to struggle without formal recognition from the Government.

Since you seem to learn from everything you do, how do you visualise education as a `fun' thing for the masses?

KH: Actually, educating oneself is like pumping iron. No pain, no gain in body-building. It's like that, educating one's self, very painful. It would have been much easier if I had had education to suit my choice of pursuit in life. The only education was available was what my father and forefathers did. I don't have one of my own - at least it wasn't near enough home.

I went to the college and pulled out my voice and told them this. For such a leading institute, they don't have screen writing as one of their faculties. Masters in English literature will not suffice. We are vying for the visual medium.

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