Wall Street effect: Bollywood tightens its purse strings

A man walks past movie posters on display at a multiplex cinema in Mumbai in this July 23, 2007 file photo.

MUMBAI (Reuters) - As the world reels under the weight of the worst financial crisis in the U.S. since the Great Depression, the ripple effect is being felt in some unexpected quarters - the glitzy, starry world of Bollywood.

With banks becoming weary of giving out credit and lending to each other, Bollywood too is tightening its purse strings, citing lesser funds and an increasingly cautious audience, for whom entertainment could go down the priority list as they become more thrifty spenders.

"India may not be under direct threat, but the ripple effect of the global crisis is definitely reaching us in the entertainment industry. We have to cut costs, and make sure that we don't spend in areas that may not always be necessary," says Shailendra Singh of Percept Picture Company, which currently has as many as nine projects on the floors.

Singh says his company's mandate is to bring down spending and go in for projects that will get the audience's approval. "We can't now afford to experiment with tastes or make films that the audiences may not approve of. They are also going to be careful of the kind of money they spend on entertainment. If I make a bad film, my consumer will think twice before he spends Rs.300 on that product."

Bollywood is one of the largest film industries in the world, with a very loyal audience, and one that has attracted a great deal of foreign investment in the past few years. Major studios like Warner Bros, Sony Pictures and Walt Disney have all entered the Indian market in the last couple of years.

On the other hand, India's own Reliance ADA Group has entered into multi-million dollar deals with big Hollywood names such as Steven Spielberg's DreamWorks to start a new $1.2 billion film company.

However, the present financial slowdown in the west has also slowed down Bollywood's funding. Siddharth Roy Kapur of UTV Motion Pictures, which has a deal with Will Smith's production company, agrees that the global financial turmoil will affect the entertainment industry in India, especially those companies which have foreign funding.

Even local production houses may have to think twice, says analyst Farokh Balsara of Ernst and Young. "Those who want to raise money the public route will have to re-think their strategy before launching an IPO, because frankly the situation that was six months ago is now a thing of the past. They will either have to rethink their strategy or just change the timing."

But it's not all doom and gloom. The crisis at Wall Street could also trigger off a host of opportunities for Indian entertainment companies, says Balsara.

"This phase could also trigger off a spate of acquisitions by Indian companies looking to build their assets abroad. For example, a multiplex chain in the U.S. could now be going at a much lesser rate due to the sub prime crisis and this would lend an opportunity to build an entire network in that country. Indian entertainment and India as a whole are still seen as a sound investment and that image won't be shaken any time soon," he added.