Is Hollywood encroaching on Bollywood?

I've seen statistics that domestically produced films capture up to 95 percent of the Indian home market.  While I've always doubted the veracity of the numbers, there is no doubt that most Indians prefer Indian movies.  But might this change in the foreseeable future?

I see two reasons to be (relatively) pessimistic about Bollywood.  First, theaters in the wealthier suburbs show a higher percentage of Hollywood movies.  A look at the Delhi movie pages showed an English language presence of about one-third, although one of these movies (the fun Bride and Prejudice) was Indian in its cast and partly in style.  Removing that movie would bring the total Hollywood presence down to about a quarter.

If India continues to develop, the Hollywood style might find greater favor with the new middle class.  It is in the rural areas where Indian films capture the entire market, and of course development brings urbanization.

Second, movie traditions based upon music usually protect their home markets well against foreign competition.  Musicals don't travel well abroad, and the production of music has long been more decentralized than the production of film.  But for how long will Indian film remain a dominant means of marketing Indian music?  Won't radio, cassette players, CDs, MP3s, and other innovations capture an increasing share of the music market in India?  (Recall that in the U.S. movies often generated hit songs forty years ago, today they hardly ever do.)  And if music becomes less central to Indian movies, will those movies then prove more vulnerable to Hollywood or perhaps other external suppliers?

If Hollywood becomes more important within India, will cultural diversity go up or down?  Many Indians will have more choice but a national tradition would become weaker.  And Bollywood is not the entirety of Indian cinema.  Bollywood often outcompetes the more regional Indian issues, such as are filmed in Tamil.  If you were a small-scale regional Indian moviemaker, would you rather compete with Hollywood or Bollywood?