By Rob Cain – Forbes Magazine

MUMBAI – India has the largest democracy in the world. A huge and fast growing middle class. It makes more movies than any other country, 1,500 to 2,000 annually. And its people are famously fanatical about those movies and their movie stars. By almost any measure, India should be the world’s highest grossing territory in theatrical revenue.

So why does India’s movie industry gross only $2 billion per year at the box office?

That amount is just a fifth of North America’s gross, despite a population more than three times larger. Less than a third the size of China’s industry. Even less than Japan’s, which has one-tenth the population that India has and far fewer movie screens.

Here are six reasons why:

*India is severely under-screened. With just 1 screen per 96,300 residents, it is the world’s most under-screened major territory. The U.S., by contrast, has 1 screen per 7,800 residents. China, which until recently was even less saturated than India, has been on a cinema building binge and now has 1 screen per 45,000 residents. With such a deep shortage of movie theaters and screens, many of India’s fanatical movie fans are simply unable to see movies in the theater.

*India’s movie theaters are sub-par. More than 10,000 of the country’s 13,000 screens are single-screen cinemas. The economics of these theaters are inferior to modern multiplex cinemas, which can charge ticket prices that are double those of single-screen theaters. And because they can operate more efficiently, multiplexes can generate higher capacity yields and revenues per seat. India clearly has an infrastructure problem.

*India’s film economy is splintered into several regional industries. Unlike North America, China, and most major territories, where the vast majority of films are distributed in a single language, India makes and distributes films in more than 20 different languages. The regionalization, and linguistic politicization, of the country’s movie business saps its overall strength. Average production and marketing costs are higher and profits are lower than they would be if India’s film industry were more integrated.

*Ticket prices in India are too low. It’s true that India’s population is mostly poor, but that doesn’t fully explain why its movie ticket prices are among the lowest in the world. It has a middle class of between 50 million to 100 million people who can comfortably afford to pay much more than the average ticket price of 150 to 250 rupees (US$2.25 to $3.80). Government regulations keep prices in some regions artificially low; in Tamil Nadu, prices have been fixed at a maximum of 120 rupees (about US$1.80) for years, making film production and exhibition there a risky proposition.

*Taxes are too high. Unlike any other business in India, movies must pay both an Entertainment Tax, which would seem to classify them as a frivolous activity, outside the ambit of a necessary service, and they must also pay Service Tax, which implies they are necessary. Businesses in India are normally taxed as either one or the other, entertainment or service. But according to the tax collectors, Cinema is somehow, inexplicably, both. India’s tax treatment puts the cinema business in a financial chokehold.

*Piracy is rampant, and government-supported. Every train in India teems with hawkers selling illegal DVDs. The Railway Police, who are supposed to apprehend these pirates, will happily ignore them for a modest bribe. The government owned internet service provider, Bharat Sanchar Nigam Limited (BSNL), which controls and sells all the bandwidth, receives sizable data revenues from illegal movie downloads. The BSNL website even promotes illegal downloads, advertising how one can get free movies on the internet. According to a 2013 article in WIPO Magazine (the journal of the World Intellectual Property Organization) the Indian film industry loses around INR 18,000 crores (US$3.34 billion) and some 60,000 jobs every year because of piracy.

Taken together, these factors constrict India’s movie industry so that it functions at just a fraction of its full potential. With concerted action, especially by India’s government, most of these impediments could be addressed and removed, to free India’s cinema business to perform at the level it deserves.

Courtesy Forbes Magazine