Animation Film Industry

nimation is the rapid succession of 2D or 3D frames of artwork to create an illusion of

motion. Animation works on the principle of persistence of vision. There exist three
different types of animation
animations:: traditional cell animation, stop motion animation and
computer animation. The first successful Indian animation film was The Jungle Book based in
India, all the characters are Indian and have Indian names as well.

The global animation industry

try largely lies in Europe, the U.S., Japan and South Korea wherein
US is the leader. Japan is a larger exporter of animation content with a structured industry chain
and mature operating mechanism. South Korea is second to the U.S. and Japan with respect to
the output value of the animation industry.

Indian market

The animation industry in India was estimated to be at USD 460 million in 2008 as per a report
by NASSCOM. The Indian animation sector is expected to increase to USD 950 million in 2009.
Currently, activities at the production stage form a major portion of outsourcing, with post-post
production accounting for a small share. The share of post
post-production
production activities is expected to
increase in future. The share of fully animated movies is expected to increase significantly to 28
percent by 2009.

Estimated growth of Animation Sector in India

The Indian market is increasingly being sought by North American and European film
producers. The major driver behind this shift is the availability of low cost, powerful computer
animation platforms and much lower labour rates as compared to North America and Europe.
Technology has made computer animation available to the common person and hence the
animation industry is one of the fastest growing industries
industries.. Movies are increasingly using
animation and computer graphic special effects. The bulk of the outsourcing happens for 2D
animation content with some amount of 3D content.

Globally, the animation industry can be classified as: Outsourcing and Content Ownership.
Owne
Many Indian animation companies are working on outsourced projects from the west, mainly
North America. The jobs mainly include production jobs such as key framing, in-betweening,
in
etc. Indian companies have realised the potential of content developm
development
ent and ownership of
Intellectual Property Rights of the animation. Outsourcing companies in India will, therefore,
eventually have to shift to this model to be able to move up the value chain.

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Figure 1:: Animation: Revenue from Domestic and off-shoring

Vertical Constituents of the Animation Industry

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Client - Gives the brief comprising the concept, storyline and

script.

Production house – Comprises of the Creative team and the IT

division. The creative team draws each scene, sketches each
character and then animates them on the computer. The IT
division has to convert the story board to models, backgrounds,
texture. The models are then p pictured, clothed, animated and
composited. The company must have sufficient IT set up and
creative competence. IT infrastructure includes software as well
as hardware. One of the main challenges is optimization of CPU
power of servers and infrastructure. The entire team, including the producer, the animation
director, the backgrounds director, department heads, production coordinator, animators, etc,
work in synchronization with each other.

The producer may also be the distributor of the film. Typically, when major studios get involved
early in the production, they finance most or all of the animated film’s development and
production budget and also handle distribution. In return, they receive all rights (including the
copyright) and control all creative, marketing and distribution decisions. While filmmakers can
benefit financially from the guaranteed exhibition and broad audience reach provided by such
deals, final compensation may be far less than expected once significant studio fees and
expenses are deducted.

Production Business Models 1

Services Description

In-house studio The producer provides the story for the film. The studio takes care of
development and production support, financing and business resources,
and distribution resources. The producer receives a fee and sometimes
profit sharing, but the studio owns the IP for the film, and has creative
control.

Negative Pick up The producer provides the story, development, financing and final delivery
of the film. The studio provides development and production support,
business resources, and distribution resources. The studio receives a
distribution fee and profit sharing, and has distribution rights. But the
producer owns the IP for the film, and has creative control (although the
studio may maintain right of final cut).

Distribution only The producer provides a finished film. The studio provides distribution only.
The producer retains complete creative and distribution rights. Distribution
rights are “licensed” to the studio in exchange for a licensing fee paid to the
producer.

Distributor – The distributor is responsible for the marketing and promotion of the film. The
various modes of distribution to the end consumer are video, DVD, cinema screening, TV
screening, etc. In a highly competitive industry such as this one, the film’s success depends to a
large extent on the appropriate promotion and marketing of the film. The distributor usually gets
involved only after the completion of the film and funding for production comes from elsewhere.
In this scenario, the distributor takes approximately 35% of gross distribution revenues returned
from the theaters, and then deducts expenses before remitting the remainder to the producer.
 Areas of Operation

The animation value chain is as follows:

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IP creation IP development Modelling Lighting Promotion

Script preparation Funding Character Rigging Texturing Distribution
Character design Scheduling Voice Recording Sound Video Release
Story Integration of Layout Effects DVD Release
conceptualization Process Animation Music Cinema Screening
Equipment Screenplay Content TV Screening
Provider Storyboarding Repurposing Sales
Visual Digital Marketing & Promotion
Development Management
Company

The areas of operation for Indian companies lie mainly in the production and post-production
areas of the value chain. Indian companies work on outsourced projects from North America.
Indian studios are also working on conversion of 2D content to 3D. Indian companies focus on
outsourced projects and so there is very little attention paid to developing on own IP. Training
institutes have started offering creative training but still these are very few in numbers.

In terms of activities across the value chain, some animation studios are focusing on moving up
the value chain.

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special/sound effects)– Indian studios have been working in VFX on

VFX (visual effects) & SFX (special
outsourced work Hollywood films. The demand for VFX in Indian cinema is increasing with
movies like Krrish, Dhoom 2,, etc. Tata Elxsi, EFX, Pixion are some of the major studios
performing VFX work in films. VFX work is also done for TV advertisements and series by small
studios. In case of SFX. Indian studios have been working on outsourced projects from foreign
studios as well as on domestic projects. However, this lies largely in the area of post-production.
post

As per the business models that animation studios operate on, they have different requirements
and seek different services.

Model I:: The animation studio will outsource the labour intensive production work to smaller
studios. Such outsourced projects are done mainly in the Asian countries such as Korea,
Philippine, Taipei and India. The work involves a lot of ink, paint, compositing and scanning
work i.e. the post-production
production process of animation. The main drive
driverr of this model is the low
labour rates which makes these small studios an attractive destination for animation
outsourcing. Some bigger animation studios winning large scale projects in turn outsource a
part of the project to a smaller studio elsewhere. S
Such
uch partnership can exist between:

• Animation studios in India and abroad

• Indian animation studios and advertising firms

• Indian animation studios and foreign TV channels/ film producers

Model II:: Modularization of animation is done, wherein experts from multiple

mul animation
companies situated in India and abroad come together to execute specific function in the
production value chain. Such partnership can be seen between:

• Indian animation studios and foreign TV channels/film producers

 • Animation studios in India and abroad

Model III: The animation studio owns the intellectual property rights to the content and
generates revenues from the content itself or by means of ancillary revenues.

Services offered Platform Distribution Percentage Skills needed

Stop motion – paper cuts, Films – 20% Basic level

puppets, clay motion, object Direct DVD – 40%
animation TV Broadcast - 20%
2D simulation - crowd simulation, Films – 50% Medium level
skeletal animation Direct DVD – 100%
TV Broadcast – 70%
3D simulation – motion capture Films – 100% High level
Direct DVD – 100%
TV Broadcast – 100%

Television advertisers – Animated characters are becoming increasingly popular for

advertising and brand promotions. Animated ads cost about the same as live action
commercials. Example, Amul girl, ‘Chintamani’ for ICICI.

Game Asset Creation – Game asset creation involves the development of sets, props and
characters for games in different platforms. Unlike game development, which requires a set of
programmers in addition to animators, many animation studios undertake game asset creation.

Interactive CDs/DVDs – Educational and informational animated products are often published
directly on DVD with a majority of these products being geared towards children and young
adults.

Establishing Business Activities

Till a few years back, Indian animation studios merely served the outsourcing needs of foreign
studios and dealt with low-end production jobs. Studios are now realizing the potential of
integrating across the value chain and cashing in on the numerous revenue opportunities.
Indian animation studios are now servicing various channels such as feature films, TV
programs, advertisements/commercials and computer games. Animation services are also
assuming importance in niches such as film titling, special effects, web entertainment programs,
TV broadcast graphics, 3D modeling and background development. The extent of services
offered by an animation production company includes those in animation production services,
co-production and content creation.

According to a NASSCOM study, the forces that will determine the progress of the Indian
animation sector are technical training to produce skilled manpower, low costs of animation
production, demand generated from Indian television channels and the development of
domestic animation studios and training centers. Indian animation co
companies
mpanies are currently
working in the following areas:

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A few companies have entered into IP creation (concept creation stage of value chain) and
distribution of animation films as well.

Animation Process Flow Chart 1

Market Potential
Various revenue generation opportunities are now available to ICT solution providers in the
domestic market. The need for animation and special effects related work in the growing Indian
television
n sector has also provided a boost to this segment. Numerous software companies are
now trying to exploit this opportunity. Animation studios have also grown in number along with
several training houses for building skilled manpower to serve this market.

Thus,
hus, the animation production industry in India has the potential to grow into a major exporting
industry for the country. Indian design studios have established their credentials abroad, gaining
valuable experience and improving their skill sets in this h
high
igh potential global industry.

India benefits from the familiarity of Indian animators with the English language when the work
is outsourced from overseas. Besides, a number of initiatives are underway in the country
targeted at creating skill
manpower for the
animation market to
match up to global
standards.

Indian content
developers also have
exposure and access to
rich heritage of
traditional literature. This
would offer the potential
for content-based
partnerships. This gives
Indian animation studios
another reason to move
up the value chain and
increase revenues by
focusing on IP
ownership instead of merely concentrating on outsourced projects.

With IP development in place, studios can create their own fullfull-length

length feature films and benefit
from the high
igh return on investment from box office and CD/DVD collections apart from the highly
attractive ancillary revenue stream (just as in the case of Hanuman - 2004).
Major Players and their Brief Profiles
TV Films DVD Ads Internet Gaming Training

Crest Crest Crest Crest Crest Crest Crest

DQ DQ DQ DQ DQ DQ DQ Centres
for Learning
Ittina Ittina Ittina Ittina Ittina Ittina
(Takshaa)
Penta Penta Penta Penta Pentamedia Pentamedia
media media media media (Purple Graphics
Drop)
2NZ 2NZ 2NZ 2NZ 2NZ MAAC
Toonz Toonz Toonz Toonz Toonz Toonz Toonz
Pixion Pixion Pixion Pixion Pixion Pixion
Colour Colour Colour Colour Colour
Chips Chips Chips Chips Chips
Paprikaas Paprikaas Paprikaas Paprikaas Paprikaas Paprikaas
TATA TATA TATA TATA
ELXSI ELXSI ELXSI ELXSI
Future Future Future Future
Thought Thought Thought Thought
Rhythm & Rhythm & Rhythm &
Hues Hues Hues
Red Red Chillies Red Chillies
Chillies
Toonz Toonz

Animation Studios in India

Animation studios in India are concentrated in Mumbai, Bangalore, and Hyderabad. Amongst
them are DQ Entertainment, Crest Animation, Tata ELXSI, Pentamedia Graphics, 2NZ, etc.
They have been positioned as an animation company for feature/TV/home video/online
games/VFX, outsourcing services through visual computing labs divisions, etc. Most of these
companies are funded by international equity partners and have international presence in the
form of offices and studios in different parts of the world. They also have different divisions such
as animation, gaming, new media, Crest Animation Studios (CAS), Crest Animation Production
(CAP), Visual computing labs – 2D, 3D, Special effects, pre-production, production and post-
production services, etc. They have to their credit projects such as Iron Man, Twisted Whiskers,
Maryoku Yummy, Pinky & Perky, Distribution of Pet Pals & Ratman, Bratz, Arthur, Jakers! The
Adventures of Piggley Winks, Unilever, Ariel, Maggi, PepsiCo, Lifebuoy, Coke, VFX for films like
Thoda Pyaar Thoda Magic, etc and turnover running into millions.
Investment and ROI

Investment
Companies need to invest in video studios, digital cinema facilities, animation and special effect
studios, DVD and CD replication service providers, teleport facilities and outdoor shooting
facilities.

Studios also have to invest time and resources to train new animation graduates before they
become skilled enough to be productive. This adds to their cost even as there is the risk after
training that the worker may be poached by another studio.

A major investment in the value chain goes towards animation software licenses. Since a
majority of the studios in India are small, they can only afford a limited number of licenses which
again limits their capacity. Up gradation may be required to more advanced software versions
which further add to the studios’ cost.

There has been an increase in complexity of the process due to bigger projects and a need for
more sophisticated visual effects. This requires an up gradation of studio storage infrastructure.
There are computer-intensive applications that are used by digital content creators.
Compromises have to be made on creativity when there is not enough infrastructure to support
it. Companies wanting to switch to the ‘in-house production’ model, have to invest large sums ($
100-120 million) required for a feature film.

Some Indian animation studios are seeing a revenue opportunity in converting old two
dimensional animation into the three dimensional format for foreign audiences. This requires a
budget of approximately $400,000 for remaking each episode.

The script writer has to be very careful while writing script for the movie because if there are too
many objects in the frame, there will be heavy animation required and budget might be
overshot. Some animation studios are outsourcing the script writing work to US studios to get
the exact emotions within the budget constraints.

Huge investments are required if companies have to set up a studio of the level of Walt Disney.
Currently in India, studios are small or medium in size in terms of infrastructure, equipment, and
manpower.

Salary paid to editor is around Rs 50,000 and increases to around a lakh. Master print costs Rs
50,000. Prints are copied and then released from the master print. Marketing expenditure is
spent on all four screens - theatre, TV, mobile and Internet.

ROI
A particular product brought once is used for other projects as well. RoI is based on the man
hours used and the number of people involved.

Box office collections - 60-75% revenue

Satellite TV rights - 15%

Merchandising - 15%

Home video - 5%

High revenue potential and return on investment in original property (IP) development.
Animation content in the domestic market is growing as Indian studios develop their own IP.
This helps build a revenue stream for the future and assists studios in moving up the value
chain.

3D is a relatively new industry (it began with Pixar’s Toy Story in 1995) and 2D has been around
for a hundred years. There is no lack of content to convert from 2D to 3D. The market for
conversion of 2D animation into 3D is estimated to be between $1 billion and $2 billion.

Market prices of inputs, selling prices of the business products

The production budget for Indian animated movies is predicted to increase from approximately
US$2.5 million from previous financial year to about US$7.5million in 2012. Similarly, the
average revenue from a good animation movie will increase from US$7.5 million to US$12.5
million during the same period.

The cost of production of a half an hour animated programme in the US is around $250,000-
$400,000. In Korea and Taiwan it is around $110,000-$120,000 while in India it would be
$60,000. 1 A 3-D animation film can cost US$70,000 to produce in India, half the price of same
product in the US. Animators charge about $125 an hour in the US while in India, they cost $25
an hour. The average cost of setting up an animation studio in a city like Pune or Hyderabad is
approximately $5-$7 million.

Resource Requirements

Finance: The investment required depends on the scale of operations of the studio. Depending
on the size of the project and the technology to be used, the financial resources differ. For
example, some of the products for online compositing cost from Rs.35 lakh to a few crores for a
standalone workstation. Similarly, the software used also drives the cost in terms of cost of
software licenses, employee skill development, server up gradation, etc. If the investment is
large, it has to be amortised over a period of time. It is not economically viable to buy a product
for a single transaction — it must be utilised for many projects. Measurement of ROI boils down
to man-hours used.

Technical: In order to compete with the best global digital animation houses, it is necessary to
deploy state-of-the-art hardware and software.

Since animation primarily deals with software, security concerns from the data perspective are
possible. There is a need for networks based on multi-firewall protection along with daily
backups and external backups. Constant up gradation to advanced techniques for different
animation value chain activities such as compositing must also be done to match up to global
standards. Other software such as project tracking software may also be required depending on
the level of operation of the studio. Another challenge is the huge and continuous capital
requirements. Technology keeps changing, so there is a need to constantly update the
hardware and software. Yet another challenge is the optimisation of the CPU power of the
servers and IT infrastructure. Plug-ins, proprietary software available with vendors, or in-house
software helps in resolving this issue. Processes such as rendering use a lot of CPU power.

Consider the example of the film ‘Hanuman’ released in the year 2004:

Investment

Budget – INR 10 crore

IP = owned by Percept Picture company

160 artists (including 40 digital artists)

ROI: Theatre collections grossing about Rs 30 crore (including the

Telugu dubbed version)

Ancillary revenues = Rs 6.5 crore

Comics - Licensing the ‘Hanuman’ character to Delhi-based Diamond

comics

Merchandising – Apparel, stationery, kids accessories, toys

Music – Partnership with Times Music

Product placement and promotion on TV shows

Skill Set Requirements

There is a lack of quality resources, limited training institutions and high attrition rates amongst
current skilled manpower. While there are 10,000-odd animators in the country presently, there
is a demand for at least 50,000. About 1000-1,500 animators are churned out every year but
animation studios feel that they need additional training to match international quality
benchmarks.

In India, majority of the animation companies are small in terms of number of employees. More
than half of the companies are small with less than 40 artists. Some medium size companies
employing from 40 to 100 artists are into high quality work and have started creating their own
IP. A handful is large studios employing more than 140 artists and take up most of the
outsourced projects. These are well established in the domestic and international markets and
have been around for a longer period.

A number of institutes have come up offering courses in animation training. Some known
institutes are MAAC, Whistling Woods, Industrial Design Centre, IIT, Mumbai, National Institute
of Design, Takshaa, Colour Chips Institute of Entertainment & Media Arts, etc. Out of these
institutes, very few offer training in creative development, which is the need of the day.

Studios also have to invest time and resources to train new animation graduates before they
become skilled enough to be productive. This adds to their cost even as there is the risk after
training that the worker may be poached by another studio.

Animators must have excellent creative and artistic abilities - a flair for drawing, sketching or
caricaturing (preferably a degree in graphic/applied/fine art), a good sense of humour and an
eye for detail. Good knowledge of conventional 2-D animation and handling current animation
and multimedia software i.e. ANIMO, MAYA, 3D Studio Max, Adobe After Effects, Tictactoon,
Flash, Giff Animator, ULead and good compositing softwares like Adobe Photo Shop, Adobe
Illustrator, etc. is required. While 2-D animation has almost stagnated globally, Flash and 3-D
animation, being much more realistic are the upcoming trends.

The skill-set required for 3D animation is far more intricate than for 2D and animation houses in
the US, UK and Canada are on the lookout for alternate low cost production centres for 3D
animation. For the Indian animation industry this is an excellent opportunity. While an animator
can do an entire 2D frame on his own, an entire team of artists have to work in tandem to get
the lighting, composition, modelling and rigging right to compose a frame in 3D.

Management Practices and Organizational System

Once the complexity of a particular project is determined, a project structure is planned. The
core team includes a project head, creative director, technical director, animation supervisor,
background lead supervisor, animation lead and composing lead. Each one of them is
responsible for their verticals including the modelling head or background head or composting
head. They report to the project head. There is also an executive or line producer for each
show. This is the typical hierarchy for a particular project, but it keeps changing depending on
the complexity of the show or the project. The heads of departments report to the CEO. For any
hardware or software issues they interact with the technology head. The IT team and resources
are common to all projects.

The animation team comprises of the following:

A project has a Main/Lead Animator who draws the main character, its movements and
expressions. The In-between
between or Clean-Up Up Artist fills the gaps in the drawings done by the Lead
Animator. There are also Junior Artists, Layout Artists, Background Artists and Character
Designers. Typically, the complete pre pre-production
production package, including the blueprint or
storyboard, recorded
rded dialogues and exposure sheets come from the client. Indian artists then
work on line drawing, colour filling, motion and detailing and send them to the client via satellite.

The basic organisation system of an animation studio is as follows:

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Issues and Problems

1. Lack of quality training due to insufficient training institutions and courses offered in
many institutions are outdated.

2. Attrition and poaching – loss of experienced professionals to competing industries such

as software. Poaching within the industry results from low availability of quality
manpower.

3. There is also a loss of experienced professionals to other industries such as software.

4. Very little awareness of career in animation

5. Price undercutting – Indian animation studios compete with eac eachh other to acquire
outsourced projects thus offering services at lower costs leading to low quality output.

6. Lack of fine art status – Traditional dominance of outsourcing work plus educational
focus on technical aspects, rather than content creation

7. Minimall government support or incentives

 8. Government regulations are not very favourable for animation production.

9. Cheap cost cannot become competitive advantage.

10. Limited domestic demand for animation. The demand is restricted to a few animation
feature films which have fared well at the box office.

Key Trends and Future Perspectives

Going forward, the film animation sector is poised to grow. Some of the trends that will be
witnessed are as follows:

Increase in budgets: The production budget for animated movies will increase from USD 2
million-USD 2.5 million to USD 5 million-USD 7.5 million. The average realizations for a good
animation movie will increase to USD7.5million - USD12.5 million.

International releases: Indian animation movies will release in the international markets. Due
to this, the split of revenues will change. Currently, India box office accounts for 60%-75% of
revenues, satellite TV rights 15%, merchandising 15% and home video is 5%. In the next 2-3
years, India box office will account for 40% of the total revenues, 20% from satellite TV rights,
15% from foreign consumption, 10% from merchandising and 5% from home video sales.

Increase in alternate revenue streams to serve as RoI for animation studios: A reduction of
duties on consoles is expected resulting in reduced prices. Better quality mobile games and
enhanced skill sets will result in a rise in mobile game outsourcing deals. Higher revenue
shares, third-party contracts and end-to-end development of mobile games will lead to better
revenue realization for mobile game developers, thereby increasing ancillary revenues for the IP
owner.

Improvement in skill sets: In India, the skill sets will develop to produce high quality work. The
animation companies will produce 3D animation and provide services across the value chain.

Set up of captive units: Due to cost advantage, adequate skill sets and domestic market
growth, international studios will set up captive centers in India.

Change in IP ownership: Rights of animation will be retained by the developer instead of the
TV channel. The developer will be able to exploit alternate revenue streams such as
merchandising and sale on digital platforms.

Consolidation: The industry is expected to go through consolidation with smaller players being
acquired by the bigger companies.

Emergence of new and upgraded courses: Courses on skill up gradation are being launched.
These courses will be targeted at professionals that have already spent 2-3 years in the
industry.
Also there will be a rise in the post diploma courses for specialization. Standalone management
courses in animation will be launched. There will be special courses for mid- level and top level
management.

Foreign demand: Customized content companies will increasingly service the foreign market.
They may undertake acquisitions or enter into alliances in order to establish presence in foreign
countries.

Some recommendations are:

1. Set up animation parks similar to software technology parks.

2. Increase audience interest in animation

3. Co-production tie-ups with countries such as Canada to develop animation content, and
arrangements with producers or studios in the US.

4. Explore newer opportunities for the use of animation, for example, in documentaries, etc.

5. Develop India as a destination for animation.

6. Strengthen the interface between local studios and producers.

7. Showcase Indian animated feature films and works in major international animation
markets and festivals.

8. Develop infrastructure for animation product development.

9. Set up more training centers to produce skilled manpower to serve the needs of the
Indian animation industry.

For further information entrepreneurs can contact following training institutes:

• Maya Academy of Advanced Cinemaics, Mumbai

• Takshaa- Academy for the Artists, Bangalore
Business Profile of Animation Film Industry

Prepared by Mudra Institute of Communication Ahmedabad (MICA)

For Department of Science & Technology (DST), Technology Bhawan, New Mehrauli
Road, New Delhi – 16

Note: Various references have been used in the preparation of this profile. For further details please contact the Institute.