A Long Overdue Economic Analysis

The Indian movie industry is the largest in the world, releasing about 800 movies every year like clockwork. The largest slice of this particular pie, in turn, is the Hindi movie industry, which alone releases a few hundred movies annually.

It is my educated and perhaps generous guess that only about five to ten percent of Hindi movies released in any particular year is worth watching. The rest, in my studied opinion, is little more than raw, steaming sewage. Moreover, it is vast quantities of, raw, steaming sewage.

Anybody with a passing interest in economics would be surprised by the dynamics of the market for Hindi movies. How, we must wonder, can a bunch of people produce and sell copious amounts of garbage with monotony at what appears to be far above the market-clearing price? It would be understandable if the market was a market for garbage (there do exist markets for garbage), but it is not. It is a market for entertainment.

The market for Hindi movies is a relatively free market without any externalities that I can see. For example, there are no constraints placed on the movie industry by the government to limit quantity. It is a private market and laws of supply and demand should operate well enough. On the demand side, consumers are free to choose the amount and type of movies consumed. In any free market, the price mechanism should ensure that the cost of a product is close to the equilibrium price where all products clear the market.

So how much are you, the consumer, prepared to pay for raw sewage? A cursory modeling exercise would suggest that unless you happen to deal with the stuff, the market-clearing price for raw sewage would settle at zero. But surprisingly, this is not the case in reality. Consumers in India regularly pay upwards of Rs. 50/- for the price of a movie ticket. There is even a thriving black market for tickets which suggests that demand actually far outstrips supply in many cases. People are chugging it down and asking for more! Consider further that renting a video in India costs Rs. 15/-. Renting a Hindi video in the US costs $1. Both are sums that we happily pay. There is a huge difference between the predicted market-clearing price and the observed market-clearing price. Why is this so?

In any economic analysis, there are two sides: a supply side and a demand side. There seems to be some consensus among thinking people that it is the supply side of the Hindi movie industry that needs fixing. We all, on occasion, have agreed heartily that the assorted producers, directors, scriptwriters, songwriters, etc. of Bollywood are drooling idiots who wouldn't know a good movie if it came up and bit them on their blubbery behinds. Let us examine this proposition more closely.

In any market for goods and services, suppliers will only supply as much as the market is willing to consume. If demand is low, prices are close to zero and suppliers are forced to get creative in order to increase demand. In the case of the Hindi movie industry, demand is obviously not low and hence suppliers have no incentive to change their methods. On the contrary, the existence of black markets suggests that there is an artifical price ceiling and that prices of tickets could actually be far more if they were allowed to float freely. The supply side of the Hindi movie industry is thus functioning quite well, thank you very much. It is not the source of the problem.

The problem, therefore, must be on the demand side.

What makes up the demand side in this instance? The demand side is us. We, the paying public, who rent these movies and throng to the theaters; we who sing mind-shrivelling songs like Didi Tera Dewar Deewana and What is mobile number, what is your style number and Ande Ka Fanda (I will personally slap anyone who ever sings that song aloud in front of me; that's a promise). It is we who watch, against our better judgement, Devdas and Om, Jai, Jagdish. Do we, I ask in all sincerity, retain the mental makeup of a ten-year old well into our middle ages?

And are the moviemakers really stupid? No, they are pretty smart cookies. They have correctly figured out that whatever swill they serve up will be gratefully consumed by the Indian public, almost regardless of class, caste, religion and levels of education. And that their profit, regardless of quality, is assured. They are not in it for the giggles.

So the next time you are watching a rented Hindi movie and you throw down that remote in disgust and yell at the screen, "What is the guy who made this bloody movie smoking? Is he f**king stupid?", remember that the answer is: No, HE is most certainly not stupid.

Footnote: My apologies to anybody who actually liked Devdas, the movie. I personally thought it was an awful rendering of a pretty good novella.