Time to short Facebook, buy Bollywood

(Fortune) -- Over dinner in New Delhi last week, a European business executive who has laid down some big bets on Indian media was questioning what all the ruckus about Facebook was about.

Every day, the Western media was filled with breathless talk of it, and of course Microsoft (Charts, Fortune 500) had recently agreed to buy a small slice of the company that valued it at $15 billion on paper. Whether or not you believe in that kind of extrapolation, that is an astonishing sum for a business that has a 23-year-old CEO and is only starting to generate revenues.

But the growing appeal of Facebook, I tried to explain to my dinner companion, is undeniable -- the popularity of the site is growing like gangbusters, the demographics of its users are great (lots of Ivy-leaguers, for starters) and, perhaps most importantly, it and its bigger, sloppier rival MySpace represent a potentially new way of organizing and distributing information on the Web. You can't refill your glass at a cocktail party on either US coast without somebody yammering about Facebook within earshot.

Here in the subcontinent, though, a little remove and a little jetlag can bring some fresh perspective. Two panels that I helped moderate at the Fortune Global Forum last week brought into sharp focus a fact that seems to elude many multinational media companies: that India could represent a "monetization opportunity" (to borrow the Silicon Valley argot) that is perhaps not as exciting as a Facebook or a YouTube, but may be a bit more bankable.

While the story is the same throughout most of the media in India -- from newspapers to radio to pure Internet companies -- nowhere is this more the case then in the Indian film industry, better-known to many as Bollywood.

PriceWaterhouse Coopers forecasts that India is going to have the fastest growing media and entertainment industry in the world, rising at a compound growth rate of 18.5% between 2006 and 2011. The film business alone is expected to double in size during that period, to some $4.4 billion.

And what is perhaps most uniquely fascinating about the movie business in India is how popular it is domestically -- some 95% of movie tickets sold in India are to see Indian films (this despite the increasing availability of dubbed versions of popular Hollywood films and the somewhat overdue arrival of multiplex theaters offering filmgoers much greater choice.)

That 95%, by the way, is roughly in line with how popular American films are in their home market, and dramatically different than how domestic films fare in a lot of other major markets. According to some academic studies, French and Japanese films sell only around 1/3 of the tickets in those countries, the domestic take at the box office is even lower in Britain.

So, you have a fast-growing domestic market and a culture that greatly favors Bollywood -- a word, by the way, that instantly conjures over-the-top romance, kaleidoscope colors, boy-meets-loses-gets-girl storylines, long running times and spontaneous eruptions of song and dance.

(The closest thing like this that Hollywood has produced recently is Disney's "High School Musical" -- which it is being adapted for the Indian market. And, as Rajjat Barjatya, managing director of filmmaker Rajshri Media pointed out, "Titanic" was in many ways a consummate Bollywood film; what it lacked in dance is made up for in Celine Dion crooning.)

Thus, the new new thing in Bollywood is that Hollywood majors are producing Bollywood films for the local market and then opening them internationally to feed the growing appeal of Indian cinema. Sony's (Charts) first Bollywood production, "Saawariya" (Beloved), opens internationally this Friday.

One curious byproduct of Bollywood's strength is that piracy of US films is actually less of a problem in India than it is in other Asian markets. In fact, both Mr. Barjatya and Amit Khanna, the chairman of Reliance Entertainment, claim there is more piracy of their product in the U.S. then of U.S films in India. (Mr. Khanna knows what he speaks of -- he is credited with coining the phrase "Bollywood" some time in the 1970s)

In sum, you have a powerful domestic market that, like much of India, is somewhat belated in modernizing, but doing so in a hurry. Direct-broadcast satellite, pay-television, multiplex theaters and home video are all fairly nascent markets in this nation of close 1 billion-plus, never mind all the emergent broadband and mobile distributors.

Which brings us to the Facebook/YouTube opportunity that Bollywood might represent. The Indian film industry claims that more people watch its films each year than watch Hollywood films globally. Yet through a combination of all the things mentioned above, plus the fact that the earning power of much of India is still a small fraction of their U.S. counterparts, Bollywood's total global revenues are estimated to represent a mere 2% of what Hollywood generates each year through its blockbuster machinery and all its ancillary revenue sources.

In other words, the eyeballs are there -- all that is lacking is the means to cash in ("monetize", if you must), and those are quickly taking shape.

Of course, Facebook and YouTube and whatever is coming around the corner will always have the potential to be the next Google (Charts, Fortune 500). Or they might be the next interactive television programming guide or instant messaging -- two of the most hyped up new advertising opportunities of the past few years that are already forgotten.

The moral of the story is that usage and audience don't always equal dollars. Facebook or YouTube or even Google may not be remembered 50 years from now, when their gray-haired founders look back on their youth. But something tells me that the beat and flash of Bollywood will still be going strong.