Animation, the sunshine industry India?s creative minds have pinned great hopes on, is facing a new growth trajectory. Most of the animation studios in the country, big and small, are moving up the value chain, thereby shifting the focus from outsourcing to creation of intellectual property (IP) or home productions. Every studio is trying to get onto this new exciting bandwagon, but the roadblocks remain.
When an Indian studio works on any outsourcing project, it doesn?t pay any separate service tax since the billing is done in dollars or in other foreign currencies. Neither does the studio shoulder the onus of recovering the cost of production even though it pays an accumulative tax to the government at the end of every financial year.
But, no other costs and risks are involved besides that.
However, in terms of creation of intellectual property (IP), the tax regime is the same as it is for any live-action feature film. Besides, a live-action Hindi film can be completed and released within 6-8 months. A 90-minute animation film takes anywhere between one-and-a-half years and two years to complete, depending on the scale of production.
Foreign studios like Pixar, responsible for films like Finding Nemo, sometimes take over six years on a single project. Moreover, in case of a live action film, the producer sells various rights like distribution, music, overseas rights, DVD/home video, merchandising and so on, based on the equity of the actors in the film before its commercial release.
For example, a producer working with Shah Rukh Khan can easily sell these rights much before the completion of the project and, therefore, recover the entire cost of production using an actor?s brand equity. In addition, the producer can approach all the brands that the actor endorses for a seamless integration in film, which will also fetch a few more bucks. Modern retail has opened up various merchandising options for producers. The market was flooded by Om Shanti Om and Saawariya appa-rels, and gifts and novelties, when Shopper?s Stop and Pantaloons floated these products, respectively, during the previous Diwali.
But, as experts point out, for an animation film, ?you need to create the equity first in order to monetise equity?. The animated movie, Hanuman, created by Silver Toons, was a huge success and today, the market is flooded with Hanuman toys, books, DVDs and apparels. But all these happened after the box-office success of the movie. Who knew about Hanuman when it was being made? As a matter of fact, industry insiders say the studio was on the verge of shutting down when it was making the film.
Maya Entertainment Ltd, one of the oldest studios in the circuit, is currently working on a film which is yet to be named. The studio plans to release the film before the end of this year.
Jai Natarajan, executive vice-president, business development, Maya, says, ?It is extremely important to control the budget. In case of a live-action film with a Rs 30-40 crore budget, it takes about 3-5 years to break even. And the entire box-office recovery happens in the first two weekends. However, if one has a restricted budget, then the chance of recovery becomes higher. In terms of an animation film, one can sell the distribution halfway through the project and, thereby, can recover as much as 50% of the production cost.?
According to Nataraj, an animation film with a moderate budget of Rs 8 crore-Rs 10 crore can break even in 18 months? to two years? time.
Recently in a landmark deal, Crest Animation Studio and Lionsgate, one of the leading international independent film entertainment companies, has inked a multi picture partnership. This includes the commercial release of computer graphics-animated family film Alpha and Omega. Lionsgate and Crest are co-financing and co-producing Alpha and Omega, which is scheduled for release in 2010.
AK Madhavan, CEO of Crest Animation Studios, says, ?The potential is huge if the product is a success.
Especially huge profits can be expected from things like toys, apparels, merchandising and licensing.?
UTV Motion Pictures is currently working on three animation films?Arjuna, Alladin and Magic Carpet. Siddharth Kapoor, CEO, UTV Motion Pictures, says, ?We are very optimistic about recovering the cost of production. Apart from the distribution rights, we are sure that we will be able to sell the home video rights and telecast rights before the completion of the project.?
All said and done, no Indian animation studio today knows when it will break even?no matter how rosy the industry?s future looks. But everyone agrees that there?s a greater high in creating your own work rather than carrying out someone else?s creative brief.
Rising market size
According to the recently released PricewaterhouseCoopers report on Indian media and entertainment industry, the gaming, animation and visual FX segment is worth Rs 13 billion, having grown by 24% in 2007, over 2006. According to Nasscom, the animation industry is expected to be worth $950 million by 2009. The market size of the global animation industry (from the demand perspective) was estimated at $55 billion in 2005. The industry is expected to witness a compounded annual growth rate (CAGR) of 8% and is estimated to be $75 billion by 2009. Of the total animation market, about 40%-45% goes towards the cost of development.
Based on this, the global animation market (from the developers? perspective) was estimated at $25 billion in 2005, and is expected to increase to $35 billion by 2009. The size of the Indian animation market (from the developers? perspective) was estimated at $285 million in 2005. It is expected to witness a CAGR of 35% from 2005-2009 and increase to $950 million by 2009. Currently, activities at the production stage form a major portion of outsourcing, with post-production accounting for a small share. The entertainment sector contributes as much as 68 % of the total Indian animation market (from the developers? perspective). In entertainment, the share of fully animated movies is expected to increase significantly, from 15% in 2005 to 28% by 2009. In the pipeline:
* UTV Motion Pictures working on three animation films?Arjuna, Alladin and Magic Carpet
* Pixion is working on a full-length feature film called Mahayodhdha Rama
* Prana studios is working on Yashraj Production Kootchie Kootchie Hota Hai