Sunday, February 8, 2009

Entrepreneurs in the Animation Industry.

The Name of the Game is Animation.

If ART and technology could merge to create a business venture, the animation industry would fit the description nicely. With India’s emergence as a global outsourcing leader in the late 1990s, initial efforts were made to create a vibrant animation outsourcing industry.

There was intense interest from Hollywood and elsewhere to use the unbeatable combination of the country’s artistic talent and low production costs. However, questions of quality and scale were soon raised and the pipeline of outsourcing contracts virtually dried up in the early 2000s. Now, a bunch of start-up companies are at the vanguard of reviving the sector and India is all set to enter the big league of global animation with outsourced content, own titles and big-title partnerships. Though the animation industry has often been clubbed under the technology sector, entrepreneurs say the business is 70% art and only 30% technology. This is probably one of the reasons why big corporate houses failed to make a mark and small enterprises driven by the passion of art-loving entrepreneurs were able to win some notable deals.

Neither is it a sector that can offer easy or quick money, say entrepreneurs. Nandish Domlur, chief executive of Paprikaas, a Bangalore-based animation company says businessmen looking to make profits in a very short span are grossly mistaken. “One needs to have a passion for this media and one cannot run this business as just another profitable venture.” India’s animation industry has triggered a flurry of investments and new companies, with the news that companies from the country have provided vital inputs to blockbusters such as Spider-Man and Star Wars. The dream of Hollywood from the comfort of a desktop, many thought. Estimates by the National Association of Software and Services Companies (Nasscom) showed that the Indian animation industry was set to grow from $354 million in 2006 to $869 million by 2010.

Rosy as it seems, the industry needs big investment, patience and a complex set of skills to succeed in this people-driven business. “Animation and gaming are still in their nascent stages. Hence, all those planning to start a venture should be technically sound and have some qualification in animation to understand the basic functioning. With increasing awareness, this may not be necessary but currently, it is essential,” says Toolbox Animation Studio founder Chetan Deshmukh.

To survive and flourish in the animation industry, players need to have a certain amount of global sensibilities. Animation caters to a very diverse marketplace which can range from films, advertising and gaming. As creativity is key, entrepreneurs need to have a keen eye and flair. The focus should always be on content excellence.

The industry, which started in a typical boot-strapped model doing lots of bits and pieces through outsourcing, is now spiralling towards taking greater ownership of its work. The animation business is not about scale but about domain expertise. As it evolves, experts say the industry could spawn India’s own animation characters, based on not just the rich mythological tradition of the country, but also on innovative modern-day characters.

As things stand, the animation industry is investing heavily in creating the capacity to serve content-hungry Western studios. Each seat costs a minimum of $12,000, including high-end software, hardware and data centre infrastructure.

“One needs to have immense conviction and patience for the work, as is the case in any start-up. But for animation, this is very essential as this is a capital-intensive business and has a long-term return on investment prospect. Hence, venture capital companies interested in investing here look at the number of projects at hand which can give a guarantee for return on investment. Short-term business plans may not work. People who put in money now will reap the benefits on a long term. Also, one should understand and respect art,” says Ashish Kulkarni, founder and CEO, Anirights Infomedia , which is soon to be acquired by the Reliance-Anil Dhirbubhai Ambani Group.

Nandish says that one can be successful in the industry by living up to three standards: quality, on-time delivery and cost arbitrage. “One needs to attract customers with low cost, but retain them for high quality,” he adds. The industry has evolved from being in the boutique space and has become more mainstream as it is looking at providing end-to-end services. The industry is now looking at co-producing skills that include developing scripts and creating the digitised content within a certain budget. The entrepreneurs feel that the outsourced services framework will lose flavour over time and ownership of content will be crucial for survival.

Just like any technology sector, the animation industry is also being stymied by the lack of required amount of trained talent. The rare combination of artistic skills and technical expertise is hard to come by. In 2005, Nasscom had predicted that India would need more than three lakh skilled animators by 2008 in content studios alone. In a recent report, the lobby group estimates that the Indian animation industry employed just around 16,500 people in 2006, which would grow to a mere 26,000 by 2010. Hence, there is a huge demand-supply gap. Besides, attrition is the name of the game with even some of the big players losing one out of two employees within a year.

“I have started my own training academy to avert this crisis. This way, I can hire for myself as well as provide quality manpower to the industry,” says Mr Deshmukh. Also, Indian companies are looking for alliances with global players to mitigate this talent crunch to a certain extent. In the case of Paprikaas, which is majority-owned by the Thomson Group, it is able to bring in the freelancers from the West who would work for a couple of months in India and train the people.

It has taken a while for the animation sector to get the recognition that information technology sector enjoys. Early entrepreneurs made some mistakes, but the country is richer for the experience. And now, a new breed of confident and mature start-ups are painting the global content creation market with their myriad colours. They are ready to fight the star wars in the entertainment business.

PP Thimmaya & Saket Ambarkhane
Editors of Economic Times