I am not a huge fan of Aamir Khan's films. Don't get me wrong - I think he is more talented than the other two Khans of Bollywood, Shah Rukh and Salman, and some of his films like 3 Idiots and PK have entertained me more than the mindless capers the other two have made: Chennai Express, Happy New Year and Kick. I am hardly a connoisseur, but I know Aamir's films are far from perfect. The gaps are easy to pick.
What fascinates me about Aamir is his business sense, which many businessmen would do well to imbibe. In a recent interview to Business Standard, he gave a glimpse of the astute - and fair - businessman in him.
Aamir said that he is like a street performer, who goes around with his hat at the end of the performance and gets paid only if he has managed to entertain the audience. Thus, he does not demand any payment upfront from producers; instead, he takes a cut from the profits after all the expenses have been accounted for.
If the film does not recover its cost, he makes no money. The principle of equity is unmistakable in this. If the film does well, everybody makes money; if not, everybody takes a hit and it's not just the producer who is left holding the can.
This lesson he learnt from observing his father, Tahir Hussain, who produced about a dozen films in his career. Even if the film flopped, the lead actors and the director would walk away with their full fees. There was never any downside for them. Whether they gave it their best or not, their full payments were always guaranteed. This is patently unfair.
By linking his compensation to the net profit, Aamir ensures that he gives it his best shot. It makes him work doubly hard on the movie, which starts with choosing the right script and ends with innovative marketing. That's the reason why he does few films - one in two years or so. In the interview, Aamir compared himself with a handloom worker: till there is one thread in the loom, nothing else can be loaded on it.
Few actors in Bollywood have the courage to do it like Aamir. However, this is the template that Indian businessman must follow. There have been umpteen cases of loss-making companies paying their promoters obscene salaries. Owners frequently manage to extract high dividends even though the company cannot afford it. There is some kind of a mercenary mindset at work here.
At one time, most business houses had managing agencies. And their companies used to pay an annual commission to these agencies for managing them. In good times or bad, the agencies always got their money in full. Till it was abolished 50 years ago, it was a well-oiled system that decoupled the promoters' compensation and their performance.
Not just Indians, even multinational corporations prefer to frontload their benefits. In December 2012, Business Standard had studied 75 companies that paid royalty to their overseas partners, which showed that growth in royalty payment between 2007-08 and 2011-12 (209 per cent) was far ahead of sales growth (80 per cent) and net profit growth (31 per cent).
In another study released around the same time, Institutional Investor Advisory Services, a proxy advisory firm, came across several cases of companies skipping dividends but paying royalty to their overseas promoter. In at least one instance, it found a loss-making company sending royalty payment abroad.
While calculating returns on a film, Aamir is conservative. He looks at just box-office collections and not television rights. It is fashionable in Bollywood to include television rights in all revenue projections. For Aamir, it is the icing on the cake. His conservatism is not out of place. In recent months, the market for television rights has taken a severe beating, which has sent the projections of most producers awry. Many of them grumble that they miscalculated and overpaid their actors and directors.
Such conservatism in business projections is welcome. Some businessmen like to stretch targets just to build hype. Invariably, the performance falls short of the target. And then there is chaos. The biggest example of this you will find in retail. Companies often book big retail space in anticipation of overoptimistic footfalls. Maybe they are misled by their front-line executives who want to grab higher budgets. That's why you see so much churn inside malls. Stores are forever changing shape and size, invariably getting smaller and compact.
Aamir's attitude towards family, too, is an example Indian businessmen could emulate. When his Aamir Khan Productions was making Dhobi Ghat, an artful film directed by his wife, Kiran Rao, Aamir capped the budget at Rs 5 crore. And though he acted in it, he refused to promote it as his film. Knowing that it had limited appeal, he went in for a selective release. "I can't tell my audience, 'This is my son; please watch his film,'" Aamir said in the interview.
How several Indian business families have been done in by the father's misplaced faith in the ability of his son(s) needs no elaboration.
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
