-By Nyay Bhushan

A combination of factors is changing the face of Indian film distribution and production, according to industry observers. A major development is the steady growth of multiplexes—at about 700 screens out of India’s estimated total screen count of about 13,000—which is challenging traditional models of distribution while inspiring a new mindset in film production.

India produces the largest number of movies in the world, at over 1,000 titles a year across all languages, and also accounts for the highest admissions at about 3.5 billion tickets, almost twice that of the U.S., the second-largest market at about 1.5 billion. “But we are highly underscreened as compared to some of the mature markets,” notes Sanjeev Kumar Bijli, joint managing director and CEO of New Delhi-based exhibitor PVR Ltd., citing examples like China which produces “far fewer films each year and yet has 65,000 screens, while the U.S. has 36,000.”

This means that India has about 12 screens per million compared to 117 screens per million in the U.S. “We have to near the ratio of the U.S. to make up for the shortfall in the screen count,” adds Bijli, whose PVR Cinemas runs 101 screens India-wide and was the pioneer in introducing the multiplex culture there in 1997. India’s largest theatrical chain is Mumbai-based BIG Cinemas, which operates 186 screens and is owned by Reliance Big Entertainment, which recently funded DreamWorks’ exit from Paramount for $550 million.

“Average ticket prices in India are just about 50 cents [22.50 rupees] compared with the U.S. at $6.80. Hence, the size of India’s theatrical market is only $2 billion compared with the U.S. at about $10 billion,” says Smita Jha, associate director, media and entertainment practice, for New Delhi-based consulting firm PricewaterhouseCoopers India.

Yet multiplexes—where ticket prices can average about $2.50—can now account for over 50% of a major film’s theatrical revenues, according to Jha, with Pricewaterhouse estimates indicating that Indian cinema admissions will rise to 4.5 billion by 2011.

Indian film distribution is still fragmented, with the market divided across nine major territories which have local distributors with whom producers negotiate regional deals. Depending on a film’s budget and star power, deals could involve the distributor offering the producer a minimum guarantee amount along with profit sharing, which is in turn worked out with exhibitors. But with the film industry seeing more corporate players, the distribution game is changing.

“Producers are now dealing directly with major multiplex companies like PVR Cinemas and BIG Cinemas for distribution deals, while other cinemas, which are largely single-screen theatres, are handled by individual distributors,” says Jha.

Another major factor is the shift to digital cinema, given that India is already home to over 2,000 digital screens even though most of them don’t adhere to the Hollywood studios’ Digital Cinema Initiative (DCI) standards. Hollywood and international films only account for less than 10% of total box-office revenues, with the market dominated by local films which don’t have to follow DCI standards.

But the shift to DCI is now growing, according to Patrick von Sychowski, COO of Reliance Big Entertainment-owned Adlabs Digital Cinema. “India is seeing faster growth of DCI-grade 2K digital cinema in its multiplex sector than almost any other country in the world today, driven by farsighted exhibitors working closely together with integrators and service providers.”

While helping counter piracy, digital cinemas now allow films to open wide, “resulting in higher realization for the distributor in week one of the release,” observes Ashish Saxena, COO of PVR Ltd.’s Mumbai-based film distribution and production affiliate, PVR Films.

Mumbai-based Eros Entertainment India—owned by its London-based parent Eros International—is one of the major distributors of Indian films overseas, with recent forays in production and domestic Indian distribution. Eros Entertainment India executive director Biren Ghose says that overseas, “Indian content is fast becoming part of world cinema. In markets that are used to dubbed films such as Europe and Southeast Asia, the increased production values of Indian films and family entertainment sentiment means that new audiences are opening up all the time.”

While formulaic Bollywood and regional fare still dominates, the industry is opening up to new creative endeavors, especially evident in international filmmakers seeking India-based projects. Danny Boyle’s acclaimed Slumdog Millionaire is a prime example, given the strong Oscar buzz the film is already generating for its story of a young Mumbai slum-dweller who ends up winning the jackpot in a major TV game show. Top Bollywood actor Anil Kapoor—who plays the game-show host—says the film “has set a standard in how Eastern and western sensibilities can work together. It definitely opens the gates for Indian actors internationally. Danny has made a typical Indian ‘masala’ [spicy] movie—he has decoded Bollywood and created the right film for the right time.”

Another project is Jennifer Lynch’s upcoming Hisss, which revolves around the Indian legend of the snake woman, starring top Bollywood actress Mallika Sherawat. Billed as the first Hindi film (also shot simultaneously in English) from a Hollywood director, Hisss is co-produced by Mumbai-based banners Split Image Productions and Venus Films and is scheduled for release in mid-2009. “In the past, it’s usually been Western money coming to the East and vice versa, but there are rare creative collaborations,” says Lynch. “My pitch to mainstream Western audiences is that Hisss is a crazy, beautiful creature feature starring the most amazing woman you’ll ever see. The metamorphosis from snake to woman to snake again has not been seen in Hollywood.”

The production game is changing further, with Hollywood studios like Sony, Fox and Warner producing local content. But Kapoor feels that the studios “need to understand the essence of Indian cinema, which means cultivating the right talent. Also, the studio heads really need to come from a strong background of films rather than just being executives, because traditionally our industry is really run by key creative people who hail from film families.”

Nyay Bhushan is the New Delhi-based correspondent for The Hollywood Reporter.