The Hindu Business Line : Riding the Crest on a new wave

CREST Communication Ltd, among best-known Indian names in computer generated animation, is still some distance from revisiting profitability. Despite the studio it owns in California, Crest's Worli office is truly a long distance from Hollywood and its trend setting animation movies.

Yet asked about the company's future, its Vice-President (Corporate Strategy & Finance), Mr Abhay Bhalerao, could not resist reference to Pixar's role in the recent exit of Mr Michael Eisner from Walt Disney's chairmanship. The innovative animation studio, which raked in $2.5 billion worldwide from its last five films, announced in January that it would talk to other companies for distributing its films starting 2006.

The weakening Disney-Pixar link had featured in a November 2003 letter written to Mr Eisner by Mr Roy Disney, Walt Disney's nephew, ahead of Comcast's hostile takeover bid. Post-CEO Mr Steve Job's statement that Pixar would seek other distributors, the issue was again discussed at Disney's March 2004 shareholders meeting in Philadelphia. On March 4, Mr Eisner was removed from the company's chairmanship.

Next to the $25-billion Walt Disney, Pixar is small. But in some ways, along with bigger topics like the Comcast bid, the tail did wag the dog. Which is the sort of promise Mr Bhalerao sees evolving at Crest as it navigates its way from the international television software market to the home video segment and further on to the haloed theatrical space.

Instances like Pixar's worth to Disney are the only way to communicate animation's commercial punch. Little else captures the spin in animation company genes - software by definition, creative in content and entertainment by business.

Even if, a dash of red be on the balance sheet?

Crest had reported a net loss of Rs 0.88 crore for the year ended March 2003 on net sales of Rs 18.03 crore. During the September 2003 quarter, net loss stood at Rs 1.12 crore and in December quarter it was down at Rs 0.58 crore. Mr Bhalerao is hoping for a return to black in fiscal 2004-2005.

According to him, the company's production cost in CG animation is roughly 20 per cent of the US cost. Typically, of the pre-production, production and post-production stages in filmmaking, it is the second that is outsourced to companies like Crest. Rich Crest Animation, the studio it acquired few years ago in California, helps Crest along in the whole process and even if American costs are factored in for the studio's participation, Crest's production cost is at best about 40 per cent of the US cost.

On the other hand, competitors in computer generated English animation such as Korea, Taiwan, Philippines and Ireland are costlier than India and in cases, not as adept in execution. However, a player to watch out for is Israel.

Crest is already 75-80 per cent international in revenue. Its focus is on the overseas market and the geography of choice is the US, advantage being single window access to diverse market tastes.

In animation, Mr Bhalerao argues too much of America (weak economy notwithstanding) is actually a hedge, for American tastes are more global when it comes to re-runs than products made for other markets. That way, the company has stayed clear of the Japanese animation market, big in size yet specific in its cultural appeal.

What he is really excited about is the quality in Crest's work, it meriting nomination for awards abroad. This has cemented its reputation in television software and enhanced the chances of acceptance for entry into home video, a more demanding product segment given its status as a retail, purchased product.

Home video production cost is several times higher than that of animated television software, but so is resident margin. At the top of the pie, computer animated films cost $60-100 million with equally attractive margins alongside. From a capital investment point of view, graduation costs are not terribly steep and the company would not have to wait long to recoup and profit from foray into home video or theatrical space.

In fact, Mr Bhalerao says Crest is already discussing a couple of theatrical projects.

Given this, the allusion to Pixar gains interest. Its capabilities found a shorter route to the mass market (and importantly, popular acceptance) through its distribution tie-up with Walt Disney.

Crest is at present doing work for independent producers, but Mr Bhalerao concedes similar alliances can't be written off. "It may be something we will have to look at in the future. When, I can't say,'' he said.

For the moment, Crest has enough on its palate.

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