When The Happening, M. Night Shyamalan's controversial sci-fi horror film, opened on June 13, many movie fans turned to the reviews to see what critics had said about it. Among them was Ronnie (Rohinton) Screwvala, managing director and founder-CEO of UTV Software Communications (UTV), a Mumbai-based media and entertainment company that co-produced the film with 20^th Century Fox. Unlike most movie producers in India, UTV is an integrated company that operates across four divisions -- or "verticals," as Screwvala calls them -- movies, television, broadcasting and interactive (which includes animation and computer gaming).

Incorporated in 1990, UTV has expanded rapidly since it went public on the Bombay Stock Exchange (BSE) three years ago. In February, Disney's Southeast Asian subsidiary announced that it would double its stake in UTV from less than 15% to more than 30%. UTV's broadcasting division also has been very active -- it recently launched UTVi, an English business news channel, to compete with CNBC in India.

Screwvala, who was in New York City earlier this month, spoke with Knowledge@Wharton about the company's strategy in India's rapidly globalizing media and entertainment business.

Knowledge@Wharton: Friday the 13^th of June saw the opening of The Happening, which UTV co-produced with Fox. How did that deal come about?

Screwvala: The film business is just one of our verticals. We have wanted for some time to make inroads into the English language market, because I think that over time such films can cross over into the international market. The Namesake, [a film based on a novel by Pulitzer Prize winner Jhumpa Lahiri] is the best example of that. Director Mira Nair and I had been speaking for some time about doing something together. We met up and said, "Let's do it," and then we went to Fox together. Subsequently, we did the same thing with M. Night Shyamalan. I had been thinking about doing a film with an India connection -- and Shyamalan has an India connection because he was born there. I had been thinking about doing something with him for the past five years. That is how the conversation started -- and we decided to get involved with The Happening.

Knowledge@Wharton: How does UTV structure its deals with Hollywood studios?

Screwvala: Well, we have only dealt with them twice -- once for The Namesake and then for The Happening. We don't have a long-term strategy about wanting to be in Hollywood or hoisting our flag here. We are very selective. We like working with certain people -- and that is what we do.

The way we structure our deals is to work closely with the director. It is imperative to work with a studio because the way the film is marketed is crucial. In this particular genre of The Happening -- which is sci-fi horror -- we wanted to work with a studio that had a strong international presence; Night's movies do as well internationally as they do in the U.S. We also wanted a studio that understood the sci-fi horror genre, and Fox is top-of-the-line in that regard. Night was excited, as we were. We first signed a deal with Night, and then both of us went together to Fox.

Knowledge@Wharton: How did the Fox deal differ from the one you have with Disney?

Screwvala: Disney is an equity investor in UTV. They have put in $230 million and we have put in $100 million -- the total deal is worth $330 million. They now have 32% voting rights. It is an equity relationship. In contrast, Fox is a co-producer relationship.

Disney is looking at growing in emerging markets -- and for them India is an important market. They also recognize how important it is to partner with a local Indian company. Our discussions with Disney began 15 months ago when our children's channel, Hungama, became the No. 1 children's channel in India. It began with a chance phone call when they called to ask if there was something we could do together -- and eventually it led to their acquiring the children's channel [in February 2006] and taking an equity stake of 14.9% in UTV. Another 15 months later they invested in UTV again, and increased their stake from 15% to 32%, having paid more for that than they did the first time.

How Hungama became the top children's channel in India is interesting because we were up against, not just Disney, but also Time Warner's Cartoon Network. It was an illustration of the fact that for any company that wants to grow in emerging markets, localizing content is the key. When we first started looking at children's programming, people asked us why we wanted to enter that market. It was viewed as a small niche. Still, we were encouraged by the fact that we had just done the most popular children's game show for the largest network, Star TV -- and it had worked. The team that had come up with the concept for Hungama was very clear that content drives demand -- if the demand isn't broad-based, it will always remain a niche. At that time, children's programming represented a 1% market share; today that has grown to 6% to 7%. That is because we have grown the market.

We started with Doremon and Shin-Chan, two animated Japanese shows that were funny and resonated with Asian audiences. We also had Hero, a local language live action program. With these programs we moved to the No. 1 position in just 18 months.

Knowledge@Wharton: How can you succeed at localizing content? For example, Sesame Street has experimented with localizing content with Galli Galli Sim Sim. How does your approach differ from theirs?

Screwvala: Sesame Street's approach didn't go down well at all; it didn't strike a chord with its audience. Localization, to me, means that the content has to originate locally.

I think differently about localization than about adaptation or translation. There is a huge difference between these three concepts. If we had taken Shin-Chan and tried to adapt it for India, it would not have worked; we just took the show as it was and dubbed it. When we did our local, live action Hero, if we had done that as an adaptation, that, too, would not have worked in that context.

Galli Galli Sim Sim is an adaptation, and in my view that is why it hasn't worked. If they had localized it by saying the show was meant to teach children English, that might have helped. After all, Sesame Street is primarily for teaching English to pre-schoolers. If you look at market research on children's TV channels in India, it's kids aged eight to 14 who watch those shows. If you provide programming for children aged two to six years, you will alienate those aged eight to 14. You will never get any traction. You have to remember there's a fine line between localization and adaptation. For example, take the comedy show Friends -- friendship is a universal concept, but if you were to take those relationships and adapt them to a different culture, it wouldn't work because those relationships are not real in places like India.

Knowledge@Wharton: Going back to your deals with Fox and Disney, how do you protect UTV's interests in dealing with Hollywood?

Screwvala: I don't think of them as "Hollywood" but as individual media companies. Disney and UTV have a relationship because they like our television model, our movie model, our interactive and gaming model, our broadcasting model and our Internet model. With Fox, The Happening is much more high profile right now, but in the overall scheme of things, that is not what we are looking at -- we essentially look at integrated media plays.

The question of "protecting" UTV's interests does not arise because if both sides have an equitable relationship, protection is not necessary. We believe we have certain strengths -- and as long as those are recognized and we can take two plus two and make 22, that would be great. There could be differences of opinion even if two companies are equal partners.

Maturity in most of these relationships descends into discord when the element of control becomes an obsession. Therefore, when one is looking at a structure, most people don't want to give up 51% because they don't want to cross a mental barrier that says they are giving up control. But we are here to create wealth -- I would much rather do that with a larger partner.

That was a crossroads that we had already crossed -- UTV as a company and myself personally. For me, scale is more important than control. Once you start thinking about scale, performance is going to count in any case because we are a public limited company. Whether Disney thinks I am a good CEO or the rest of the shareholders think I am a good CEO is equally bad or good -- because I have to be accountable for my performance. The other thing that comes about when you cross the 51% threshold in shareholding is that of overall accountability in that context -- and therefore management versus shareholding. If I think I am not the right person to lead the company at the next level of its growth, I could just continue to be a shareholder.

So in dealing with the studios, if we are equal partners in perpetuity, there needs to be a certain transparency. Like Disney, we have had a very long relationship with News Corp.; they were among our original shareholders so there's a comfort level there that goes back to 1995.

Knowledge@Wharton: In order to raise funds for UTV's films and other activities you took the company public and you also raised money on London's Alternative Investment Market. That is different than the way at least some Bollywood movies were traditionally financed -- by money from dubious sources in the underworld of Mumbai and the Persian Gulf. How are movies financed these days? What is the trend?

Screwvala: The situation doesn't exist any more -- and it almost did not exist before except for a very small minority of instances. Perhaps 2% to 5% of people in the film industry raised money that way.

When you make a movie, you don't have a balance sheet, so you don't have collateral. As a result, you are borrowing cash at a high interest rate -- and your lenders tend to be people who are ready to write off the amount. Those are sometimes people for whom the money would have come very easily -- the people whom you refer to as "dubious sources." That is true enough -- but it can happen in real estate or any other industry. The balance in the media industry has tilted 110% towards transparent sources of funding. We would not have entered the business if we had thought that was not the case. There could be a small percentage of deals that are done in dubious ways but that does not disallow people from doing business through normal channels.

Knowledge@Wharton: How do you evaluate a film's commercial potential while it is still at the script stage?

Screwvala: The script obviously has to move you -- whether it's a comedy or a drama or whatever. The second element is the director's vision. The third is the whole package, and how it looks when all the elements come together -- the scale, the budget, the star cast, etc. And then, most importantly, who is your audience -- whom are you targeting to reach through the movie. Once you think through these four elements, you then put it through a litmus test. You say, 18 months from now, you are going to make this movie for this core audience -- and you ask yourself what will be their likes and dislikes and whether those are likely to change or not change.

Consider how this process worked in the context of our film, Rang De Basanti, which had an offbeat script but was a huge hit. The thought process, in retrospect, looks visionary -- but it wasn't that at all. It was a high-risk concept but we knew that if it worked, it could be very, very big. The script had all the recipes for not being a commercial success. It had only men, no women; it had no love story; and all the heroes died at the end. Some 30% of the film was a period flashback -- it referred to the era of Bhagat Singh [an Indian revolutionary who fought against the British empire] about whom most Indian youth know very little. But the director's vision of what he wanted to communicate -- and the story through which he expressed that vision -- made it work.

We walked in not knowing what to expect. We finished the first half and thought we had made a fresh, different kind of movie -- and then realized that the second half was completely different than the first. But when you take an original script with a strong director's vision and an intense actor like Amir Khan, you know you have a fantastic fighting chance.

Knowledge@Wharton: Can marketing salvage a bad film?

Screwvala: Marketing can take a reasonably successful movie and turn it into a super success, but it can't make a good movie into a very good movie. Nor can it make a bad movie into a good movie.

Again, it's about branding and perception. Fundamentally, this business is about content, about building a brand around that content, marketing that content, and effectively distributing that content. Let's be very clear -- for the commercial success of a movie today, the right box office weekend is almost as important as getting the script right.

Knowledge@Wharton: One of the most serious challenges that confronts media companies is holding on to their intellectual property. Some 80% of Indian films are pirated -- and often available to be downloaded over the Internet -- within a few days of their release. How are you and UTV responding to this situation?

Screwvala: It's nice to keep discussing this at conferences and on the lecture circuit -- but let's talk about the ground reality. In every business there is a certain amount of leakage. There are look-alike cars for some of the world's most premium brands; that is a different kind of piracy. We need to figure out how to tackle it in our own business.

When we analyzed the impact of piracy on UTV, apart from looking at enforcement, we saw that after a movie was released, all the other rights were available in two or three years. We decided to shrink those cycles to three or six weeks, so the DVD comes out within four to six weeks of the movie's release instead of after six months or one year. The movie gets released on television in three months instead of three years.

The more we contract these periods, the more we limit the impact of piracy. Second, if the consumer knows that in four weeks he can get a good copy of the movie, chances are that he will want to watch that; if he thinks he is not going to wait for six months just because he doesn't want to spend three and a half hours watching it in a theater, chances are that he will wait for the DVD release.

Piracy is a big challenge for us in the U.S. but because Hollywood has such a strong lobby, their IPRs (intellectual property rights) get protected much more than those of foreign language films. This is true not just for Indian movies but also for French films and those from other countries. The best thing we can do here is to partner with a studio and to use that studio's lobbying power not just to protect the property but also to get top shelf space, not worry about Wal-Mart, and so on.

All these things are practical solutions. Of course, piracy is a menace -- but we entered this business knowing it was one of many risks.

Knowledge@Wharton: The reason that the time cycle between a film's release and its availability on DVD or television is as long as several months is to allow the producers to recover their investment, since the cost of making the first copy is so high. Does shrinking the cycle allow you to capture enough value on your investment?

Screwvala: Yes, it does. These days, with the large number of prints that are released simultaneously, you capture most of the value of a theater release within the first four weeks. You finish that life cycle there.

People look at VOD (video on demand) and pay-per-view within two weeks of the theater release. There's a certain segment of the audience that will not watch the movie in theaters, so you might as well catch them in the second week at home. Airlines now show in-flight movies within three or four weeks of their release. That isn't a problem because if you like a movie, you may watch half of it during the flight and then fall asleep -- but then you'll go back and finish watching it later. In that sense, airline in-flight movies are a good example of teaser marketing as well as a great revenue source. That is how you can take a negative and turn it into a positive.

Knowledge@Wharton: What changes do you see in India's media and entertainment industry? What has been the impact of globalization?

Screwvala: Globalization has had a fair amount of impact -- but what we are doing at UTV is not just because of that. We are investing heavily in multiplex theaters because of the need for infrastructure. We should have had that infrastructure 10 years ago, but we didn't. That applies as much to roads and airports as it does to multiplexes.

We see tremendous changes in the population segment aged between 16 and 34. The culture is changing -- this group has disposable income and as a matter of priority wants to spend it here and now, rather than save, save, save, which was the DNA of India's middle classes 10 years ago. As a result, the amount of money being spent on leisure and entertainment is going up. In the past, 11% of income was spent on leisure and entertainment, now it is 20%. That isn't happening because of the older generation -- they are still in the "save, save, save" mode -- but because of the younger generation. Another impact is that in India we were never prepared to pay for content, we only paid for brands. You could pick up a pirated DVD, and people didn't mind the bad quality. Now that is changing -- and people are willing to pay for content. The main effect of globalization is that around the world, people are more aware of what is going on in India. You don't have to tell people any more where India is on the map.

Knowledge@Wharton: Turning from films to television, you have just launched UTVi, a business channel that goes head-to-head against CNBC and also competes with NDTV Profit. What is your strategy in taking on these entrenched incumbents?

Screwvala: NDTV Profit is a marginal player, so primarily UTVi will compete against CNBC. If we want to be in broadcasting, we need to identify the right verticals. For example, we decided kids' programming was one such vertical, and we took on the Cartoon Network, and we became No. 1 in that market. Whether we can repeat that success still remains to be seen.

In business news, the first mover has become the market leader -- CNBC has 85% of the market. Somebody had to go after that. That's why we identified the gap. In the initial phases, the way we will differentiate ourselves is through our content and our coverage. Our research tells us that the Indian consumer is looking for a more holistic approach to business news. They don't just want coverage about the stock market; if stocks do badly, people lose interest in such coverage. Today there is a different audience that wants to be more aware of business trends as a whole, and not just stock market news.

We don't expect CNBC will drop as our coverage of business news goes up. For me, it is more about growing the whole market. That is the best way for us to productively take on the market leader. We will combine business news coverage with some entertainment, a bit of razzmatazz. CNN worked in India because it had brand names like Larry King. We will find our own Oprah and our own Larry King.

Knowledge@Wharton: Broadcasting in India is becoming increasingly competitive, with Viacom having invested in TV18, which operates CNBC, and NBC's investment in NDTV. How does UTV plan to compete against these global players? How will this competition shake out?

Screwvala: All these companies have entered the general entertainment space. For the next five years I don't see any clear winners emerging. But people have to be there because it's a good space and a growing market. Some years ago, 60% to 70% of the market was for general entertainment -- which has now plateaued. Now the growth is in genre specific content categories such as children's programming or business programming.

Knowledge@Wharton: UTV is said to have one of South Asia's largest animation studios. What kind of animation projects are you working on, and where is your work in animation headed?

Screwvala: UTV has gone through a complete transformation in the past two years -- and I'll give you some context before I answer your question on animation.

We listed the company three and a half years ago on the Indian stock exchange, and anyone who bought our stock at that time was buying into a television production house. Since then, we have more or less completely moved out of the so-called services business, where we were at the middle end of the value chain. In movies, for example, we now control our destiny -- we have a studio model and we can directly reach consumers through our own theaters, DVDs, television channels, etc. In broadcasting, we are at the top end of the value chain. In gaming, we market our games through retail channels or directly to mobile phones. That is why we decided that in animation, too, it made no sense for us to provide outsourced services to other companies. There's a lot of proliferation of such providers in India. My view is that the outsourced services model with India as a destination is archaic. Everyone is looking at animation in the same way they look at the IT industry, but that is not going to happen. There are very, very sophisticated animation providers in Korea, China and Singapore, and Indian providers will not be able to match their services.

In the past five years, our costs have gone up in quantum leaps, and the cost advantage India used to have has shrunk. The gap has come down from 1:5 to 1:1.5. We may be a bit cheaper, but in terms of speed we are seven years behind China and 10 years behind Korea. In the outsourcing business, it is nice to be able to say that we are an English-speaking country, but that is not enough. I think there may be one or two Indian boutiques that may do well in this space, but that does not make an industry. That is why projects like Shrek 4 are going to Singapore -- which is an excellent place to attract talent, and the government is willing to give a 25% grant to anyone who goes there. But that's a different model, and India doesn't have such a model.

That is why during the past year we have turned our model around in animation. As in our other businesses, we asked ourselves how we could move up the value chain. We decided not to be an animation studio any more; we will make our own animated movies. If we did not have an existing movie business, we could not have done it. We have some interesting animated movies in the works, and our work there dovetails neatly with our movie division. In that sense, we are like Disney. Disney's animation studios make the company's own movies -- and we will do the same thing. We have three movies on the floor, which are quintessentially Asian.

Knowledge@Wharton: What keeps you up at night?

Screwvala: The scorching pace at which we have grown and at which we want to grow for the next three years. It's a very, very competitive field -- and implementation is key. You may think you have the best strategy, but that could be blown apart. All day you have to be in implementation mode, and at night you have to introspect about being proactive. If you aren't proactive but just reactive, you won't be able to keep up that pace. You constantly have to be aware of the environment and what's out there. This is a very fast-growth environment. The biggest downside to balance all the upsides is that things are constantly changing. If you have a team that wants stability, you can try and keep things constant for them but then your business will suffer.

Knowledge@Wharton: As the CEO of UTV, what is the biggest leadership challenge you have faced and how did you overcome it?

Screwvala: There's no single challenge -- it is an ongoing process. At the end of the day, the decision-making process cannot be too consensual. In our kind of business it is very difficult to do that. You can do a little bit of market research and so forth, but eventually you have to go with ... I won't call it your gut, but with a refined risk-taking imperative. My best example would be the Disney deal. That was a huge cross-roads situation for UTV, but at the end of the day, we basically let them come in as a full partner. Now, it's que sera sera, whatever will be, will be. We have opened up that door. The alternative would have been to find another partner in broadcasting, yet another partner in gaming, manage five different relationships, and divide and rule, so that there isn't a threat to the parent company, and see where things go later on. But I think it takes a lot more clarity of purpose to do that. That is not a decision anybody else can guide you on, because at the end of the day you will have to live with the consequences over the next 10 years, or maybe less.

Knowledge@Wharton: What is your long-term vision for UTV?

Screwvala: Clearly there is no reason why we can't have global media and entertainment companies coming out of India. We are trying to prove that they can -- and will -- come out of India.

The way that India is looking at the globalization phenomenon is unique. There's been a massive change in our psyche. We are doing things we couldn't have done 10 years ago, when the balance of payments situation was bad and the rupee was weak. Most importantly, we did not have the mindset or the confidence that we could go out and represent ourselves in front of the world. But that mindset has changed. It doesn't really matter now who owns Jaguar or Land Rover -- an Indian company can acquire those brands as easily as a company from anyplace else. There is absolutely nothing to stop us.

There are companies that operate in mature markets in a certain way, and a company can come out of the emerging markets and shake up that mindset. It doesn't matter if it's Disney, DreamWorks, Lions Gate or News Corp. -- so what if they are $40 billion enterprises? The way people have built their businesses in India has been very, very different. We know how to do a lot more with less.