Animation: Still a virtual reality?

You want excitement? Animation industry has it around every corner. It is a thrilling, though slightly precarious place to be. According to
NASSCOM, total revenues of the animation production services sector in India are estimated by industry sources, at between $200 million and $300 million in 2004. The sector is estimated to have grown at a rate of over 20% during the year. 

Demand for animation production services from India is growing with the emergence of an organized animation production sector, with state-of-the-art infrastructure, which is able to provide the quality of work required for international TV program production, at substantially lower costs. For instance, a typical half-hour 3-D CGI animation TV episode can cost $70,000 to $100,000 to produce in India, as compared with $170,000 to $250,000 in the US (This includes only the cost of animation production, and not that of the entire project, which would include pre- and postproduction).

Industry sources estimate that Indian animation studios bagged contracts for around 11 new animation TV series projects in 2004. Around mid- 2004, at least nine animated TV serials aimed at the US and European markets were in production at various studios in India.

During the 2003 to 2004 period, production services projects for 10 to 15 animated TV serials were successfully completed and delivered to overseas producers.

Some prominent examples include:

• Crest Animation delivered a high-end 3-D animation series 'Jakers! The Adventures of Piggley Winks' for the US-based Mike Young Productions. Also nearing completion is 'Pet Aliens', a 26-episode series
  for Turner's Cartoon Network.
• The animation studio of Maya Entertainment Ltd. delivered 'The Tale of Jack Frost', a special TV program for Zoo Films, UK.
• JadooWorks delivered two 3-D CGI animation TV series, one for Wild Brain, and the other for a large entertainment company in the US. It also delivered
  'Mucha Lucha!', a Flash animation TV series for Warner Bros; and 'Multi Colored Jackal' for S4C Channel of UK.
• Animation Bridge, with Future Thought Productions, delivered 20 episodes of 'The Three
  Amigoes', an anti-HIV public service series.

Opportunity areas

The main areas of opportunity have been animation production services for TV programs, theatrical
feature films, game cinematics, and advertising films. In 2004, TV programs are estimated to have accounted for around 70% to 80% of the total revenues. 

Game cinematics, advertising films, and theatrical feature film accounted for the balance sub-segments.

Advertising films, which accounted for 3%-4% of the market, grew at a rate higher than 300% in 2004, over a relatively small base. The game cinematics category is estimated to have accounted for less than $ one million in 2004.

Feature films is an emerging sub-segment; a very few number of players addressed this area of opportunity in 2004. According to an industry source, the most significant project in this sub-segment in 2004, was 'X and I', a 3-D animated feature film, being produced by Paprikaas Studios for a European studio. The significance of the project is that it is the first time that an Indian studio has been assigned an entire project, from pre-production, production to post-production.

Another distinct area of opportunity is digital visual effects (VFX) for feature films, TV programs and advertising films. According to Maya Entertainment Ltd CEO, Rajesh
Turakhia, the size of the domestic VFX market for feature films and advertising films is Rs 100
crore, while VFX for TV programs would

have an opportunity size of around Rs five crore to Rs 10 crore. In digital visual effects, an emerging opportunity could be digital restoration and coloring. The Hindi feature film classic
'Mughal-EAzam' (1960), which was re-colored by Iris Interactive of Chennai, was released in theaters worldwide. 

Supply

The number of new entrants into the industry has increased, due to the increasing flow of outsourced animation production services projects into India. Around 40 to 60 new studios have been established between 2002 and 2004. It is estimated that in total, at least 70 studios are active in the long form TV and feature film animation at present.

However, availability of animators and the incremental supply of animators continue to remain low relative to the demand level. One estimate has it that that there are around 10,000 animators proficient at 'broadcast' quality of work across various studios in India. However, experts estimate that India has only about 3,000 to 4,000 animators who can handle the quality and complexity level of international projects, given that these
projects are time bound and efficiency is the ultimate benchmark in that production environment. This is where the talent pool falls short of the current requirement of the industry.

Prices

Billing rates for animation production services of Indian animation studios range from $2,000 to $5,250 per minute for 2-D animation work; and $4,500 to $7,000 per minute for 3-D CGI animation (This is only an indicative band of rates; actual rates may increase for more complex projects, and conversely may be lower for simple or repetitive work.). There are instances of rates quoted by individual studios for complex 3-D CGI
animation work that were as high as $12,000 per minute.)

The billing rates vary from low-end to high-end depending upon the complexity of work entailed by the project on 30 or 40 parameters, such as the number of characters in the story, the level of complexity of modeling, texturing, rendering, and animation. Hence, billing rates are nonstandard, and vary from project to project.

The pricing a 3-D CGI animation project is a highly complex exercise, in which the chances of erroneous estimations are high. This is because such projects involve taking into account the effort involved for a diverse set of artistic disciplines, such as lighting, camera, effects, which are then integrated through a technological process.

In 2004, the billing rates of the larger, established animation studios in India were reported to have increased by up to 30 percent for 3-D CGI animation work, and at least 50 percent for 2-D animation work.

Key trends

Increasing flow of 3-D animation projects in TV programs segment. In 2004, total revenues from 3-D character animation work have been estimated at $50 million to $60 million, with a bulk of it from TV programs. An increasing number of TV programs in the US are being based on 3-D animation. Although the flow of production work for 3-D animation TV programs coming into India, has exceeded that of 2-D animation programs, the market for 2-D animation production is growing. However, studios and channels are looking at digital content, even for existing characters, in the future. 

Buyers focus on specific studios to outsource animation production

Rather than looking at generic, country specific advantages of low labor cost, language and communication skills, producers and studios in the US and other western countries are becoming highly specific about which animation studios to contract work to. These producers are evaluating specific studios for creative, project management, and financial capabilities.

Niche services companies are emerging in the2-D animation market, providing specialized services to lead players. During the 2002 to 2004 period, a collection of small-sized studios has emerged, which provide specialized services to the larger, full-fledged 2-D animation studios. Typically, these studios have a size of around 10 persons, and are established by individuals experienced in working with larger studios, servicing overseas clients. These studios have mainly come up in
Mumbai, Hyderabad, and Chennai.

Some overseas studios have established animation production base in India 

US-based Prana Studios established a production base in Mumbai in 2003. In 2004, Applied Gravity headquartered in New Zealand established its studio in
Hyderabad. 

Issues and challenges

• Delivery capability of animation studios

The delivery record of many of the Indian animation studios has not matched client expectations. Most Indian animation studios have not been able to deliver on time, consistently. Demand growth for animation services from India is constrained by studios' capacity to deliver.

• Manpower shortage is constraining growth

Industry sources estimate that the number of animators that become available for employment each year, trained by private training institutions, would be around 1,500 to 2,000. However, these individuals would have to undergo further training in studios, before they become capable of taking on actual production work.

An adverse outcome of the relatively low size of the talent pool in relation to the number of new studios entering the business, has been the sharp increase of almost 40% in animator salary rates.

.Studios traditionally specializing in 2-D animation are adding functional capability in 3-D animation; specialized 3-D animation studios are planning to concentrate on higher value services. 

These include Toonz Animation, UTV Toons, Escotoonz, and DQ Entertainment. 

While these studios would have the advantage of well established fundamental artistic skills such as drawing, these players would have to add on information technology (IT) management capabilities.

Setting up a pipeline for 3-D animation production process would require the IT management team to understand the process of 3-D animation production, particularly the complex, compute-intensive stages of the process such as rendering. This would be a critical input for estimating the capacity required for each of the components of IT required for the production process - workstation hardware, software, and network infrastructure.

Another important requirement is the level of technical support required for the production process. Through the animation production life cycle, there is intensive transformation of data at each stage, and high volumes of data exchanged between different software platforms, under various operating software environments, such as Windows, UNIX, or Linux.

• Studios are focusing on improving operating capability

Animation studios are attempting to develop operating capability at three levels - artists; processes; and technology. Studios are extending the concept of animator training from focusing on bettering vertical skill sets (such as modeling, and animation), to a more broad-based fine arts education. 

Crest Animation Studios, jadooWorks and Maya Entertainment have initiated R&D efforts to develop software plug-ins that would automate certain repetitive tasks in production. 

Outlook

Total revenues of the animation production services sector in India is expected to continue to grow at over 20%, due to the continued growth in number of projects. 

Efforts by certain players to take on higher value projects, and realization of back-end revenues from co-production contract arrangements, would add incrementally to total revenues. Players such as Toonz Animation,
jadooWorks, Paprikaas Graffiti, Rainbow Media, Greengold Animation, and Moving Pictures produce original content. This model could begin to mature, as increased penetration of locally originated content would give rise to marketing and distribution opportunity.

TV programs sub-segment is expected to continue to hold the highest growth potential in terms of volume of work, with the focus of most players on that market. The contribution from the subsegments
of gaming cinematics, VFX services for feature films, and advertising films, is also expected to grow.

Activity in the theatrical sub-segment is also expected to begin with at least one studio in India expected to begin complete animation production work for a feature film.

RAHUL GUPTA

MUMBAI