The total revenues of the animation production services sector in the country, according to Nasscom, grew by more than 20% during the year to close at an eminently respectable Rs 1,300 crore. The main areas of opportunity turned out to be 2D and 3D animation production for TV programs, theatrical feature films, game cinematics and advertising films. Though animation services did find several domestic takers, the majority of the revenues came from outsourcing contracts making this sector the next hot area after IT services and BPO.

Add to this the distinct domain of digital visual effects (VFX) for feature films, TV programs and advertising films, a segment that, in addition to outsourcing work, also saw the emergence of a viable domestic market. While the size of the domestic VFX market for feature films and advertisements was pegged at Rs 100 crore, VFX for TV programs fetched another Rs 10 crore for the kitty. While animation and VFX enjoyed their places under the sun, gaming too emerged as a serious market totting up nearly Rs 250 crore in revenues. All in all, FY 2004-05 was a watershed year for the entertainment and animation industry: fuelled by the elixir of IT, all the sectors combined totaled revenues of Rs 1,700 crore, making it yet another of tomorrow's sunshine industry.

TV Wants Both 2D, 3D
Demand for animation production services from India zoomed in FY 2004-05 owing to the emergence of an organized animation production sector, with state-of-the-art infrastructure, capable of providing quality work required for international TV programs at substantially lower costs. This was of paramount importance since TV programs were estimated to have accounted for nearly 80% of the total animation production services revenues at more than Rs 1,000 crore. Billing rates during the year for animation production services of Indian animation studios ranged from $2,000 to $5,250 per minute, depending upon the nature of complexity for 2D animation work; for 3D CGI animation the bar was raised from $4,500 to $7,000 per minute of work.

These billing rates in FY 2004-05 of some of the larger, established animation houses represented an increase by upto 30% for 3D CGI animation and at least 50% for 2D animation work. Still, in the studios of some of these marquee players like Crest Animation, Maya Entertainment, jadooWorks, Animation Bridge, USL, Visual Computing Labs (from Tata Elxsi stable), Paprikaas Studio, a typical half hour 3D Computer Graphics Image (CGI) animation TV episode costs between $70,000 to $100,000 to produce; at the same time this costs between $170,000 to $250,000 for production in the US and the European markets.

Within the TV programs segment, 3D CGI animation accounted for an increasing share of the total revenue-in FY 2004-05, the number crossed Rs 260 crore with Indian studios bagging at least 11 major contracts for 3D CGI animated TV serials. During the year, traditional 2D animation studios like Toonz Animation, UTV Toons, Escotoonz, DQ Entertainment, Color Chips and Pentamedia Graphics added 3D animation capability to strengthen their offerings in the global market and to earn a share of the opportunity in 3D animation work.

Though the flow of production work for 3D animation TV programs coming into India exceeded that of 2D animation programs, it is premature to write the 2D's epitaph. Not only did 2D still garner a greater share of the overall pie, even the market for 2D animation was growing. More than 70% of all new shows at the MIP Junior or Annecy markets (toon heaven for kids), during the past two years, were still based on traditional 2D animation. Even prime time TV in North America still airs mainly traditional animation. However, with the theatrical market already having a predominance of 3D animation, it's clear that studios and channels would soon look at a 3D transformation.

With the industry standing at the crossroads between 2D and 3D, the normal trend noticed during FY 2004-05 were productions that mixed both-mainly 2D animation characters with 3D background. Subsequently, many of the erstwhile 2D specialists like Color Chips, Escotoonz Entertainment, Pentamedia Graphics and Toonz Animation as well as 3D experts like Crest Animation and Animation Bridge joined the bandwagon and started hawking their expertise in projects involving both 2D and 3D.

Another trend noticed was the emergence of some small-sized studios like Animagic India, Sriven Multitech, Synergy Images, Aufait Technologies in Mumbai, Hyderabad and Chennai that provided specialized services to the larger, full-fledged 2D animation studios. Typically, these studios have a size of 10 persons, and are established by individuals experienced in working with larger studios, servicing overseas clients. What perhaps further encouraged the mushrooming of these smaller studios was that 2D had a definitive and fairly large domestic market-not only pure 2D, Indian channels also aired and commissioned the 2D-3D mixed productions.

Other than projects for TV, advertising films that accounted for 3-4% of the animation services production market grew at a rate higher than 300% in FY 2004-05. The game cinematics segment accounted for less than Rs 5 crore during the year. Feature films was an emerging sub-segment; a very few number of players addressed this area of opportunity in FY 2004-05. The most significant project in this sub-segment in FY 2004, was 'X and I', a 3D animated feature film, being produced by Paprikaas Studios for a European studio. Pentamedia Graphics completed and released during the year 'The Legend of the Buddha', a 90-minute animated feature film. The film combines 2D and 3D animation, where the characters are in 2D, and the backgrounds are set in 3D. This film was produced with support from the Economic Development Board of Singapore. The film qualified for the Oscars in 2005, and was a contender in the 'best animated feature film' category. Pentamedia also produced 'Gulliver's Travels', which is due for release in 2005. This film has 3D treatment involving both key-framing animation techniques, and motion-capture technology. In what was an encouraging sign for small- and mid-sized independent animation studios in India, Animagic India's 'Raju & I' has won the UNICEF Regione Campania Prize at the prestigious Cartoons On the Bay Festival in Italy. It was amongst 14 films selected in this category and the only one from Asia.

Visual Galvanizer for Bollywood
Another area of opportunity during the year was digital visual effects (VFX) for feature films, TV programs, and advertising films. The size of the domestic VFX market for feature films and advertising films was Rs 100 crore, while VFX for TV programs had an opportunity size of around Rs 10 crore. Approximately 100 domestic films used digital visual effects in 2004. One half of these were Hindi films, and the balance, regional films. The nature of digital visual effects services provided for domestic feature films included color correction, effects such as dissolve, repair of damaged negatives, and titling. Pricing of digital visual effects for the film sub-segment depended on the seconds of shots for which the effects were developed (one shot corresponds to the length of film from camera start to stop), the level of quality, and complexity or work involved. The fees per assignment of digital visual effects ranged from Rs 50,000 to Rs 5 crore. At the low-end of the price band, the services were usually for low budget films, where the level of quality was not a major concern for the producer.

The main players competing in this market were Prime Focus; EFX (a division of Prasad Studios); Visual Computing Labs (a division of Tata Elxsi), Maya Entertainment, and Rajtaru. Maya Entertainment aspired to go international with digital visual effects services. Its home production 'The Rising', a period feature film shot separately in Hindi and English and slated for release in 2005, would showcase its efforts in the overseas market. It even went Hollywood way with work on XXX-2. The VFX projects for VCL in FY 2004-05 included a Tamil film, Boys, (which featured a CG created girl); and Hindi feature films such as Dhoom, Boom, Chupke Se, Krishna Leela, and Freaky Chakra. Besides, Synergy Images of Bangalore also created a CG character Zampano for a new Bollywood movie-Friends Forever. Digital Intermediary or Digital Grading, a color correction technique used to capture the depth and brilliance of colors was also introduced during the year. Khakee, Lakshya, Malayalam movie-Police, and Telugu film-Sri Anjaneyam were some of the first movies to go for digital color grading.

In digital visual effects, an emerging opportunity is digital restoration and coloring. The Hindi feature film classic 'Mughal-EAzam' (1960), which was re-colored by Indian Academy of Arts & Animation (IAAA), was released in theaters worldwide and even did fairly decent business. The entire colorization was completed in a year's time at a cost of about Rs 2.5 crore. Other black-and-white movies that were planned to go for color soon included Afsana, Ek Hi Raasta, Sadhana, Dhool Ka Phool, Kanoon and Gumraah.

In FY 2004-05, the size of the digital visual effects services market for the TV sub-segment was estimated at Rs 5-10 crore. It was estimated that at least 40 TV programs, with weekly episodes, use graphic visual effects. The size estimation assumes an average fee of Rs 25,000 per episode for digital visual effects services. In domestic TV serials, budgets for visual effects are increasing. Maya Entertainment did stellar work for two popular serials on Star TV, mainly "Sonpari" and "Shararat". The demand driver for digital visual effects services in the TV sub-segment was that producers of TV programs started viewing quality of visual effects as a means to differentiate among channels. Fees for developing digital visual effects services have, however, been declining. TV program producers such as Cinevista and SAB TV established an in-house department to develop digital visual effects, to keep costs low.

Games India Played
During FY 2004-05, India emerged as a key one-stop destination for game development with research firm AC Nielsen estimating the Indian gaming market to hit Rs 220 crore in revenues. Of this, console gaming contributed Rs 150 crore with the remaining Rs 70 crore coming from PC gaming. However, wireless/mobile gaming emerged as the new star on the horizon with revenues of around Rs 30 crore. However, with piracy still rampant, domestic market in gaming was yet to take off during the year. All of the big Indian game development companies have distribution and marketing partners abroad and 75-80% of their turnover for the year came in from the international market only.

A typical game title during FY 2004-05 took around 24 months to make and had a production budget of $4-10 mn. The game industry came under increasing pressure to reduce development time and cost of production. Reason enough for major publishers and studios to look at outsourcing development to India. The Indian market had 4 to 6 large game development companies with 50 seats and more, while there were another 100 odd small game developers with 5 to 10 seats, which were dedicated to developing for the wireless. Leading Indian game companies like Indiagames, Dhruva Interactive, Paradox and Mobile2Win developed games for a range of platforms such as PC, console, wireless and online. Two relatively new segments to emerge during the year were massively multiplayer online games (MMOG), which has been a highly successful business model in Asia, as well as online gaming, where developers create a concept, develop a game and then license it to an Internet portal.

Development of computer games is capital intensive, and involves two to three years of investment cycle; development budgets, therefore, varied with the level of complexity of a game and its scale. An 'A' list title, for instance, that involved a development budget of $500,000 to $3 mn, if developed in India, costs between $6-7 mn, if developed in the US. The cost of a game engine was anywhere between $100,000 to $1 mn, depending on the level of sophistication of the engine. The Indian players active in this sub-segment included Milestone Interactive Software and Gayatri. In general, Indian players had a low presence in this market. Overseas game publishers or developers were not outsourcing the development work for an entire game to Indian players. The level of outsourcing during the year would be only around 10-15% of a game. Typically, the nature of work outsourced from India included cut scene animation for game cinematics, single level design, or a specific sequence of a game.

India has carved a niche for itself even in the console market dominated by giants like Sony's PS 2, Nintendo's Game Cube and Microsoft's X-box. Sony's PlayStation platform has a 50% share of the global console game market; Nintendo is ranked second, closely following Sony; and Microsoft is a relatively recent entrant with its X-box platform. Indian players like Maya Entertainment started developing a game for Sony Playstation while Milestone Interactive Software also developed a game for the console market. Indian companies catered to online-only game sites as well, with titles delivered via download or streaming technologies rather than on a disk. Big names such as AOL, MSN and Yahoo joined the likes of Shockwave and RealNetworks to offer online gaming communities and many of their development work was outsourced to India.

Activity in Indian MMOG market started in mid-2004, with the release of the beta version of 'Ragnarok', developed by a Korean company. The title was launched in India by a Philippines-based company, which has been licensed to sell this product. During the year, there were no Indian companies addressing this sub-segment. The market size of wireless/mobile games in India was estimated at Rs 30 crore in FY 2004-05. The estimation was based on the total number of downloads of games during the period, as downloads accounted for 90% of the ways games for cellular mobile phones are accessed. It was estimated that, on an average, there were 200,000 downloads of games via GPRS network of the cellular mobile players-Orange, Airtel, Idea, and BPL. The market size estimation assumes an average charge per download of Rs 50. The two large mobile telecom players in the CDMA space-Reliance Infocomm and Tata Indicom-also started charging for game downloads during the year.

Players addressing this market include Paradox Studios, Indiagames, Dhruva Interactive, and Mobile2Win. Indian players have entered this market during the past two to three years, and have established a body of work in original game development. In wireless gaming, a key driver for growth was that gaming became an increasingly important component in mobile telecom service providers' revenue generation strategies-it aided in the development of value added revenue streams, besides basic voice services, and text messaging. There was also recurring opportunity of making games due to the rapid rate of wireless device specifications changes.

Players like Dhruva Interactive and Paradox Studios have also been attempting to create domestic demand for wireless games, keeping in mind the price sensitivity and the choice of games for Indian audiences. On the PC gaming front, however, piracy still eroded profits for Indian game distributors like CyberMedia Digital, Aladin Infotech, Sujata Infotech amongst others.

Rajneesh De