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 20th 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 at Wharton about the company’s strategy in India’s rapidly globalizing media and entertainment business.


Knowledge at Wharton: Friday the 13th 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 at 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 at 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 at 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 at 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 at 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 at 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 at 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 at 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 at 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