June 19, 2008

Why India’s Reliance Is Going Hollywood

Over the past 18 months, executives from Hollywood studios have been reaching out to their Indian counterparts in Bollywood, Mumbai's answer to Tinseltown. Studios such as Walt Disney (DIS), Sony Pictures (SNE), and Paramount have signed deals with ambitious Indian entertainment companies eager to take advantage of the booming Indian economy.

The No. 2 movie in the U.S., The Happening, was co-produced by Fox Searchlight and Mumbai-based UTV Motion Pictures, which financed half of the film's $57 million budget. On May 18, a division of Reliance Big Entertainment, a unit of India's giant Reliance group of companies, signed deals [BusinessWeek, 5/12/08] to produce and develop movies with A-list actors Tom Hanks, George Clooney, Nicolas Cage, and Brad Pitt. "If you have global ambitions, then Hollywood is the right starting point," says Rajesh Sawhney, president of Reliance Big Entertainment.

Now, comes possibly the biggest Indian move into Hollywood yet. Steven Spielberg and David Geffen's DreamWorks SKG is in talks with India's Reliance Big Entertainment, part of the Reliance ADA empire owned by Anil Ambani, to spin off a new movie joint enterprise. The $1.5 billion debt-equity deal, which Reliance is expected to partly finance, came after weeks of speculation that DreamWorks' team was looking for private equity after telling Viacom's (VIA) Paramount Pictures last year they intended to bolt from their three-year deal.

Soros Holds 3% Reliance Stake

Reliance insiders claim that the deal is "yet to be structured and too premature," but investment bankers in India believe the Reliance funding in DreamWorks could largely be private equity. In exchange, Reliance may pick up a stake in the new DreamWorks venture, and also sign a pact to make movies.

If the deal goes through, it will be DreamWorks' second association with an Indian company. In January, DreamWorks Animation (DWA), an independent unit set up four years ago, tied up with Paprikaas Interactive Services, an animation house based in Bangalore, for creative and technical services. The first animation alliance by DreamWorks outside the U.S., the partnership is part of the studio's pact with Thomson (TMS), the $9.3 billion French media house, to have a dedicated studio in Bangalore. Thomson's entertainment business arm Technicolor holds a controlling stake in Paprikaas.

DreamWorks' talks with Reliance come at a time when the Indian conglomerate, a fairly new entrant into the business, is firing on all the entertainment fronts. In February, George Soros invested $100 million for a 3% stake. The company said it would use the money for expansion. "We want more of every bit of the entertainment pie," says Reliance Entertainment Chairman Amit Khanna. "To be a significant global player, we believe that we need to raise the bar and aspire more."

Soros already owns the rights to 59 of DreamWorks' older films, which his Soros Strategic Partners bought in 2006 from Paramount Pictures. [Paramount continues to distribute the films for Soros.]

Casting a Wide Entertainment Net

Reliance scripted its Hollywood entry more than eight months ago. Last year, Reliance invested [BusinessWeek.com, 4/15/08] in Phoenix Theatres, a Knoxville [Tenn.]-based film management company. It bought Burbank [Calif.]-based Lowry Digital Images, a film imaging and restoration outfit, in April. Early this year, Reliance, which owns more than 170 cinemas in India, quietly acquired 250 cinemas from mom-and-pop operators in 28 cities in the U.S. including San Jose, Chicago, and Washington, D.C.

The U.S. isn't the only country where Reliance is expanding. In May, it bought a chain of 25 cinemas in Malaysia. Like the purchases in the U.S., the Malaysian cinemas were targeting the large Indian diaspora and also other Asian communities such as the Chinese, Koreans, and Japanese. The plan is to exhibit Bollywood movies, as well as regional Indian films in languages like Telugu and other Asian languages.

Reliance may be a newcomer, but it has already shown it can command attention from the film industry's elite. At the Cannes Film Festival last month, Khanna [an erstwhile Bollywood director and lyricist] announced that Reliance was spending $1 billion to develop films over the next two years. It struck deals with the production houses of eight Hollywood actors including Clooney, Pitt, Hanks, and Cage. The deal, brokered by Hollywood's Creative Artists Agency, allows Reliance to pay for the development of scripts and gives it the option to fund up to half the cost of making any film it develops -- and thereby reap half the profits. The films would then likely be distributed by Hollywood studios, with Reliance retaining some foreign rights.

Reliance's global aspirations cut across every business category, with interests in power, telecom, and financial services, as well as music, broadcasting, social networking, and gaming Web sites. Reliance, India's second-largest telecom player, is also currently in merger talks [BusinessWeek.com, 5/27/08] with South Africa's MTN to create a $63 billion telecom juggernaut with 116 million subscribers, larger than AT&T (T) and many European players. In its bid for MTN, Anil Ambani's company is fighting against a rival bid by Reliance Industries, controlled by his elder brother Mukesh Ambani, with whom he has had an ongoing feud.