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Ani

nimation is the rapid su

motion. Animation wor

different types of anim

computer animation. The first s

India, all the characters are Indi

The global animation industry la

US is the leader. Japan is a larg

and mature operating mechanis

the output value of the animatio

Indian market

The animation industry in India

by NASSCOM. The Indian anim

Currently, activities at the prod

production accounting for a sm

increase in future. The share of

percent by 2009.

Estimat

The Indian market is increasi

producers. The major driver be

ation Film Industry

ccession of 2D or 3D frames of artwork to cre

s on the principle of persistence of vision.

ations: traditional cell animation, stop motio

ccessful Indian animation film was The Jung

n and have Indian names as well.

rgely lies in Europe, the U.S., Japan and Sout

er exporter of animation content with a structur

. South Korea is second to the U.S. and Jap

industry.

as estimated to be at USD 460 million in 200

ation sector is expected to increase to USD 95

uction stage form a major portion of outsou

ll share. The share of post-production activiti

fully animated movies is expected to increase

d growth of Animation Sector in India

ingly being sought by North American an

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here exist three

animation and

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ed industry chain

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as per a report

0 million in 2009.

rcing, with post-

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European film

werful computer

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animation platforms and much l

Technology has made comput

animation industry is one of t

animation and computer graphi

animation content with some am

Globally, the animation industr

Many Indian animation compan

North America. The jobs mainl

etc. Indian companies have re

Intellectual Property Rights of

eventually have to shift to this m

Figure 1: Animati

Vertical Constituents of the

Client - Gives the brief comp

script.

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character and then animates

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include production jobs such as key framin

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odel to be able to move up the value chain.

n: Revenue from Domestic and off-shoring

Animation Industry

rising the concept, storyline and

of the Creative team and the ITaws each scene, sketches each

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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 films 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 films success depends to a

large extent on the appropriate promotion and marketing of the film. The distributor usually getsinvolved 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.

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Areas of Operation

The animation value chain is as follows:

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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IP creation

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Layout

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ScreenplayStoryboarding

Visual

Development

Lighting

Texturing

Sound

Effects

Music

ContentRepurposing

Digital

Management

Company

Promotion

Distribution

Video Release

DVD Release

Cinema Screening

TV ScreeningSales

Marketing & Promotion

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Customers

VFX (visual effects) & SFX (spe

outsourced work Hollywood fil

movies like Krrish, Dhoom 2,

performing VFX work in films. V

studios. In case of SFX. Indian

studios as well as on domestic p

As per the business models that

and seek different services.

Model I: The animation studio

studios. Such outsourced proj

Philippine, Taipei and India. Th

work i.e. the post-production p

labour rates which makes t

outsourcing. Some bigger anim

part of the project to a smaller st

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Indian animation studios

Indian animation studios

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s. The demand for VFX in Indian cinema is

etc. Tata Elxsi, EFX, Pixion are some of t

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tudios have been working on outsourced proj

rojects. However, this lies largely in the area of

animation studios operate on, they have differ

will outsource the labour intensive production

cts are done mainly in the Asian countries

e work involves a lot of ink, paint, compositi

ocess of animation. The main driver of this

ese small studios an attractive destinatio

ation studios winning large scale projects in

udio elsewhere. Such partnership can exist bet

and abroad

and advertising firms

and foreign TV channels/ film producers

nimation is done, wherein experts from m

d abroad come together to execute specifi

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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,puppets, clay motion, objectanimation

Films 20%Direct DVD 40%TV Broadcast - 20%

Basic level

2D simulation - crowd simulation,skeletal animation

Films 50%Direct DVD 100%TV Broadcast 70%

Medium level

3D simulation motion capture Films 100%Direct DVD 100%TV Broadcast 100%

High level

Television advertisers Animated characters are becoming increasingly popular foradvertising and brand promotions. Animated ads cost about the same as live action

commercials. Example, Amul girl, Chintamanifor 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 servicesoffered 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

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domestic animation studios an

working in the following areas:

A few companies have entered

distribution of animation films as

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Market Potential

Various revenue generation op

domestic market. The need for

television sector has also provid

now trying to exploit this opport

several training houses for buildi

Thus, the animation production i

industry for the country. Indian d

valuable experience and improvi

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is outsourced from overseas.

targeted at creating skill

manpower for the

animation market to

match up to globalstandards.

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 studiosanother reason to move

up the value chain and

increase revenues by

focusing on IP

ownership instead of merely con

With IP development in place, s

from the high return on investm

attractive ancillary revenue strea

portunities are now available to ICT solution

nimation and special effects related work in th

ed a boost to this segment. Numerous softwar

unity. Animation studios have also grown in n

ng skilled manpower to serve this market.

ndustry in India has the potential to grow into

esign studios have established their credential

ng their skill sets in this high potential global in

of Indian animators with the English languag

esides, a number of initiatives are underwa

centrating on outsourced projects.

tudios can create their own full-length feature

nt from box office and CD/DVD collections apa

m (just as in the case of Hanuman- 2004).

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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 beovershot. 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%

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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 valuechain.

3D is a relatively new industry (it began with Pixars 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$12.5million 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

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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

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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 butanimation 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

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head. They report to the proje

show. This is the typical hierarc

the complexity of the show or th

hardware or software issues the

are common to all projects.

The animation team comprises

A project has a Main/Lead A

expressions. The In-between or

Animator. There are also Juni

Designers. Typically, the co

storyboard, recorded dialogues

work on linedrawing, colour fillin

The basic organisation system o

Issues and Problems

1. Lack of quality training

many institutions are out

2. Attrition and poaching

as software. Poaching

manpower.

3. There is also a loss of ex

4. Very little awareness of c

5. Price undercutting In

outsourced projects thus

6. Lack of fine art status

focus on technical aspec

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t head. There is also an executive or line p

hy for a particular project, but it keeps changi

e project. The heads of departments report to t

y interact with the technology head. The IT tea

f the following:

imator who draws the main character, its

Clean-Up Artist fills the gaps in the drawings d

or Artists, Layout Artists, Background Artist

plete pre-production package, including t

and exposure sheets come from the client. I

g, motion and detailing and send them to the cl

f an animation studio is as follows:

due to insufficient training institutions and c

ated.

loss of experienced professionals to competin

within the industry results from low avail

perienced professionals to other industries suc

areer in animation

ian animation studios compete with each

offering services at lower costs leading to low

Traditional dominance of outsourcing work

s, rather than content creation

port or incentives

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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 IPowner.

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.

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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.