The Hindu Business Line : In animated discussion

Wikipedia tells us that the Golden Age of movie animation is said to be the period 1930-1940. Coincidentally, that decade was preceded by economic depression, saw gloomy political upheavals and was followed by a time of unthinkable brutality.

So, did the animation industry shine in that period? The logic here is that if you want to drown your sorrows, you either drink them down or go to the movies, or in today’s context, play software games to feel good! Is it any coincidence then that the Animation and Gaming business seems confident of huge potential just when the economic globe around them is tottering? For an insight into what the future holds, eWorld’s K. Bharat Kumar moderated a panel discussion at Nasscom’s annual meet on animation and gaming in Hyderabad last fortnight.

The participants were Biren Ghose, CEO, Kahaniworld; Charles Darby, CEO, Eyecube; Prashant Buyyala, MD, Rhythm & Hues; Nandish Domlur CEO, Paprikaas; A.K. Madhavan, CEO, Crest Communications (all making up the animation and visual effects side of the spectrum), with Ed Fries, Founder, FigurePrints; Rajesh Rao, CEO, Dhruva Interactive; Sashi Reddi, CEO, FXLabs; and Vishal Gondal, CEO, Indiagames bringing in the gaming perspective. Excerpts:

eW: In animation and gaming, where does India stand now? By the early 2000s, the India offshoring story was a given. How is it for your industries now?

Rao: India has been described in the past as a sleeping tiger and that applies to gaming now. We have a local market that is beginning to happen. When it actually does establish itself, it is going to be one of the top five in the world. Much of the work we have done so far has been preparation for the future. My company is in its 12th year of business. We, as an industry, have all the platforms — the mobile, the console, the PC, online gaming — all of them happening at the same time. The high-decibel push is creating a huge amount of awareness.

There is a fledgling business for outsourcing with India providing services to the global market. The gaming business is where Hollywood was maybe 30 years ago when it was breaking down the ‘all under one roof studio’ model and on its way to becoming more distributive. Our movie industry is completely distributed.

Gondal: Gaming is going to be the biggest entertainment business in India. The writing is on the wall. When television was introduced, everybody said, “Oh, God, the movie business is going to shut down and there is space for five or ten TV channels”. Today we have over 150 TV channels and another 150 channels are coming up and there is a market for everything. So new kinds of content and entertainment have been created, like the soap operas and the reality shows.

Gaming has just started. In India 40-50 per cent of the people are under the age of 22. Sixty per cent of all these young people are not watching Saas Bahu operas; BPO employees, for instance, are all on the Internet, they are all on social networks. If you look at Facebook data, the number one application is gaming. How do we get to monetise this? India has a huge piracy problem in gaming. So I think in the next five to six years, a big portion of what I call ‘the people who are not paying for games’ will come into the fold of paying for games. It will be a part of a micro-transaction or subscription or buying a console or on the mobile phone. Nokia, for example, has over 70 per cent market share in India. Everybody has played the snake game on Nokia. Nobody paid for it, for sure, because it came preloaded. It really is the time to invest in the gaming business. A number of corporates, Reliance and MTV, are investing in emerging markets. What happened in China and Korea is going to happen in India.

Reddi: Four years ago, when I started my company, I felt it was only a matter of a year or two before you will see a lot of games in India. And we started to build games like ‘Don’t do’, Archie comics etc. But I see now that it is going to take a little bit longer but the market will surely come around. It would probably take another three to four years before we see a market that is worth spending money to build games on. On the outsourced work front, the games outsourcing business is probably three to four years behind, say, the CD animation outsourcing space.

eW: A view from the animation and visual effects players?

Madhavan: I don’t think we will have to wait three or four years for this. I am more bullish on animation. In the last 5-6 years, what we have demonstrated to the world markets in terms of cost, quality and delivery schedules is fairly impeccable.

Domlur: I share this bullishness. The outlook for the industry is from offshoring opportunity but in time, Indian vendors would look at hybrid service models and deeper relationships with clients in the West, where people have started building captive units and are looking at partnerships to make that happen. It is evolving rapidly.

Another good thing to look forward to is the sizeable domestic industry, which may not look very keen now both in terms of the content being made and the budget, but as we go along and as the industry matures, I see a very, very strong domestic market that will shape up in about three to five years and it can surely be made into a long-term opportunity.

eW: Charles, despite all the difficulty companies face in starting a business here, you have set up a studio and got on with your work. Your view?

Darby: I want India to do more creative visual effects and to approach it from a slightly less IT-based viewpoint and from an artistic perspective. We provide a base for artists to approach the work in a different manner. For the next two or three years, we are going prove what that approach can produce. To me, the most important thing is to have an artistic viewpoint to all the work and to really push the aesthetic. A lot of work which is outsourced visual effects from the West is handed over as very basic work which you hope comes back looking okay. It is for us to prove that India can produce fantastic, believable, visual effects not only for third-party international films but also raise the bar considerably for domestic films. In just the top 10 per cent visual effects-driven films in India, we really want to show what can be produced on good budgets here but what would take very aggressive budgets internationally.

Buyyala: It is about collaboration and building partnerships in the industry. When we started as an American company and came to India and started a captive division over here, there was a lot of fear about outsourcing, jobs being shifted from the US to India and all those things. But the reality of the situation over the last six or seven years has been almost paradoxical from that point of view. A small example I can give you is that in the past six years we hired about 250 people in India. This has allowed the company to become more globally competitive, to get into new markets and new businesses. So by adding 250 jobs in India we have actually added 450 new jobs in the US. We won an academy award. That is just on the job side. On the economic side and on the creative side as well, we have been lucky to be able to work on some great projects doing some high quality work out of India and in collaboration with our teams across the world have been able to deliver quality work. We won an academy award this year — so that proves it.

eW: Any views on outsourcing to third parties versus captives?

Domlur: I don’t think we look at captives as competition at all. Over time, the kind of knowledge, know-how, processes and methodologies that these western partners or your clients bring to the table make the local industry very strong and prepare us to produce very high-quality content. So I would look at it as an opportunity. At least in the entertainment space, I don’t see anybody coming into India and setting up a captive unit.

Rao: We have learnt the business models faster in this space than probably in a lot of other sectors. We are still not an industry but I think there is a creative component, and it’s not that we don’t have the ability to learn and to deliver against global benchmarks. There is going to be a growth over a period of time in terms of domestic market growth. It is a question of market situation and of demand and supply. In the last six or seven years, be it animation or gaming, we have seen some amazing contribution. It is going to be a mixed bag.

eW: Biren, I would like to hear your views about the Indian market, having created toon icons that our kids identify with.

Ghose: In this forum, going back five years, it would have been very difficult to find two or three CEOs that could have shared this dais. Today, there are nine people on the stage and I see a minimum of nine people in the audience that could replace this panel and have actually been on the stage for the last four years. I think that is a testament to the fact that we are crossing a threshold in which people have paid their dues, spent their time, it is no longer a sunrise industry, it is an industry which is actually now beginning to take wings in different directions. It understands elements of the value chain. It started off because some of the early people that came into this game looked at the world market and said, ‘if Philippines can have done whatever movies when I was 20 years younger, why can’t India?’ If Korea is doing all this, why not India? Any product you do is a 3-5 years’ journey and at the end it would never add up to less than 10, 20, 30 or 40 crores of rupees.

eW: You had talked about cyclicality of the industry. I am surprised. Isn’t the industry — either gaming or animation or visual effects — recession-proof?

Fries: I don’t know about recession-proof but the gaming business is actually a very cheap entertainer in any form you look at. One of the most popular games in the world is ‘World of Warcraft’. It is $15 a month. People pay but a typical player may pay $100 a month. It is pretty good entertainment per dollar. So it is going to be cheaper than going out for drinks.

From the Hollywood perspective, even with all the downturn, we aren’t seeing any sort of downturn in our business. It is still a booming period right now. During the period of recession, it is proven that people still want to watch movies, people still want to get entertained. The bigger concerns for us really have more to do with things like potential actors’ strike, or there was a violent strike late last year. Those are the type of things which have much greater impact than the financial market, even though it has gotten more difficult to finance movies or get credit to make movies for the big studios, even though it has gone a little drier, it is still business in my city…

Gondal: Except for my business, everything else is affected by recession!

eW: Is that because the roadmap has been laid out for the next three or five years and there is no going back, from the clients’ perspective?

Buyyala: That might be the case for animation movies, but for ‘live action movies’, the turnaround is much faster. We often have one-year turnaround cycles, and we are seeing new projects being made today even though the economic crisis is happening, and that is because content is needed to fill the pipes of all the different distribution channels, whether it is the movies, television, DVDs and all that. All the studios have to have inventory of content and that is key. So if content dries up, we do not get affected since the trickle-down effect will be tremendous and the losses that would be derived from not developing that content are much higher than the risks of making the content. So I don’t see any immediate downtrend.

Rao: I can’t entirely agree with that. Companies whose business is making content and selling them, if they are at a 100 turnover today, they have to at least try and maintain that 100 turnover over the next year and in order to be able to do that, they have to make as many products as they made the previous year.

Of course they may face pressures on funding those products, and they may come up with creative new business models and new financing options and so on, but most companies in the business of publishing content, be it animation, live action movies or gaming, that is their business and they have to do as much as it takes to be able to show growth.

And entertaining, in some ways contrarian to the situation of economy, lends solace. Gaming is a good example. If you are laid off, you are at home and you play games. So windows are not going to go away and if you can’t go out in the evening for a drink, you sit at home and play games.

Buyyala: This financial crisis has brought tremendous pressure on the studios to reduce their budgets; $250-300 million movies are going to be a little bit more difficult to finance. So there is pressure to find creative opportunities and ways to reduce costs. Service providers have opportunities to do some of that work in India and bring down the cost.

For example, we have had over the last week or so, at least three of the top five publishers of games in the US announcing their intention to cut down operational costs so they can improve their margins, but their products will still have to be done to the quality needed, to the number of products that need to get out there, to be able to make the same kind of revenues that they have been making this year.

So I think there is going to be a huge opportunity for them to explore the distributive model. In some ways this economic crisis will accelerate the adoption of the distributive model in the games business.

Related Stories:
Nasscom sounds upbeat
Govt to set up centre of excellence for animation, gaming
No need to get panicky on slowdown: Nasscom

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