Gaming & Entertainment: Game for Entertainment?

The total revenues of the animation production services sector in the
country, according to Nasscom, grew by more than 20% during the year to close at
an eminently respectable Rs 1,300 crore. The main areas of opportunity turned
out to be 2D and 3D animation production for TV programs, theatrical feature
films, game cinematics and advertising films. Though animation services did find
several domestic takers, the majority of the revenues came from outsourcing
contracts making this sector the next hot area after IT services and BPO.

Add to this the distinct domain of digital visual effects (VFX) for feature
films, TV programs and advertising films, a segment that, in addition to
outsourcing work, also saw the emergence of a viable domestic market. While the
size of the domestic VFX market for feature films and advertisements was pegged
at Rs 100 crore, VFX for TV programs fetched another Rs 10 crore for the kitty.
While animation and VFX enjoyed their places under the sun, gaming too emerged
as a serious market totting up nearly Rs 250 crore in revenues. All in all, FY
2004-05 was a watershed year for the entertainment and animation industry:
fuelled by the elixir of IT, all the sectors combined totaled revenues of Rs
1,700 crore, making it yet another of tomorrow's sunshine industry.

TV Wants Both 2D, 3D

Demand for animation production services from India zoomed in FY 2004-05
owing to the emergence of an organized animation production sector, with
state-of-the-art infrastructure, capable of providing quality work required for
international TV programs at substantially lower costs. This was of paramount
importance since TV programs were estimated to have accounted for nearly 80% of
the total animation production services revenues at more than Rs 1,000 crore.
Billing rates during the year for animation production services of Indian
animation studios ranged from $2,000 to $5,250 per minute, depending upon the
nature of complexity for 2D animation work; for 3D CGI animation the bar was
raised from $4,500 to $7,000 per minute of work.

These billing rates in FY 2004-05 of some of the larger, established
animation houses represented an increase by upto 30% for 3D CGI animation and at
least 50% for 2D animation work. Still, in the studios of some of these marquee
players like Crest Animation, Maya Entertainment, jadooWorks, Animation Bridge,
USL, Visual Computing Labs (from Tata Elxsi stable), Paprikaas Studio, a typical
half hour 3D Computer Graphics Image (CGI) animation TV episode costs between
$70,000 to $100,000 to produce; at the same time this costs between $170,000 to
$250,000 for production in the US and the European markets.

Within the TV programs segment, 3D CGI animation accounted for an increasing
share of the total revenue-in FY 2004-05, the number crossed Rs 260 crore with
Indian studios bagging at least 11 major contracts for 3D CGI animated TV
serials. During the year, traditional 2D animation studios like Toonz Animation,
UTV Toons, Escotoonz, DQ Entertainment, Color Chips and Pentamedia Graphics
added 3D animation capability to strengthen their offerings in the global market
and to earn a share of the opportunity in 3D animation work.

Though the flow of production work for 3D animation TV programs coming into
India exceeded that of 2D animation programs, it is premature to write the 2D's
epitaph. Not only did 2D still garner a greater share of the overall pie, even
the market for 2D animation was growing. More than 70% of all new shows at the
MIP Junior or Annecy markets (toon heaven for kids), during the past two years,
were still based on traditional 2D animation. Even prime time TV in North
America still airs mainly traditional animation. However, with the theatrical
market already having a predominance of 3D animation, it's clear that studios
and channels would soon look at a 3D transformation.

With the industry standing at the crossroads between 2D and 3D, the normal
trend noticed during FY 2004-05 were productions that mixed both-mainly 2D
animation characters with 3D background. Subsequently, many of the erstwhile 2D
specialists like Color Chips, Escotoonz Entertainment, Pentamedia Graphics and
Toonz Animation as well as 3D experts like Crest Animation and Animation Bridge
joined the bandwagon and started hawking their expertise in projects involving
both 2D and 3D.

Another trend noticed was the emergence of some small-sized studios like
Animagic India, Sriven Multitech, Synergy Images, Aufait Technologies in Mumbai,
Hyderabad and Chennai that provided specialized services to the larger,
full-fledged 2D animation studios. Typically, these studios have a size of 10
persons, and are established by individuals experienced in working with larger
studios, servicing overseas clients. What perhaps further encouraged the
mushrooming of these smaller studios was that 2D had a definitive and fairly
large domestic market-not only pure 2D, Indian channels also aired and
commissioned the 2D-3D mixed productions.

Other than projects for TV, advertising films that accounted for 3-4% of the
animation services production market grew at a rate higher than 300% in FY
2004-05. The game cinematics segment accounted for less than Rs 5 crore during
the year. Feature films was an emerging sub-segment; a very few number of
players addressed this area of opportunity in FY 2004-05. The most significant
project in this sub-segment in FY 2004, was 'X and I', a 3D animated feature
film, being produced by Paprikaas Studios for a European studio. Pentamedia
Graphics completed and released during the year 'The Legend of the Buddha',
a 90-minute animated feature film. The film combines 2D and 3D animation, where
the characters are in 2D, and the backgrounds are set in 3D. This film was
produced with support from the Economic Development Board of Singapore. The film
qualified for the Oscars in 2005, and was a contender in the 'best animated
feature film' category. Pentamedia also produced 'Gulliver's Travels',
which is due for release in 2005. This film has 3D treatment involving both
key-framing animation techniques, and motion-capture technology. In what was an
encouraging sign for small- and mid-sized independent animation studios in
India, Animagic India's 'Raju & I' has won the UNICEF Regione Campania
Prize at the prestigious Cartoons On the Bay Festival in Italy. It was amongst
14 films selected in this category and the only one from Asia.

Visual Galvanizer for Bollywood

Another area of opportunity during the year was digital visual effects (VFX)
for feature films, TV programs, and advertising films. The size of the domestic
VFX market for feature films and advertising films was Rs 100 crore, while VFX
for TV programs had an opportunity size of around Rs 10 crore. Approximately 100
domestic films used digital visual effects in 2004. One half of these were Hindi
films, and the balance, regional films. The nature of digital visual effects
services provided for domestic feature films included color correction, effects
such as dissolve, repair of damaged negatives, and titling. Pricing of digital
visual effects for the film sub-segment depended on the seconds of shots for
which the effects were developed (one shot corresponds to the length of film
from camera start to stop), the level of quality, and complexity or work
involved. The fees per assignment of digital visual effects ranged from Rs
50,000 to Rs 5 crore. At the low-end of the price band, the services were
usually for low budget films, where the level of quality was not a major concern
for the producer.

The main players competing in this market were Prime Focus; EFX (a division
of Prasad Studios); Visual Computing Labs (a division of Tata Elxsi), Maya
Entertainment, and Rajtaru. Maya Entertainment aspired to go international with
digital visual effects services. Its home production 'The Rising', a period
feature film shot separately in Hindi and English and slated for release in
2005, would showcase its efforts in the overseas market. It even went Hollywood
way with work on XXX-2. The VFX projects for VCL in FY 2004-05 included a Tamil
film, Boys, (which featured a CG created girl); and Hindi feature films such as
Dhoom, Boom, Chupke Se, Krishna Leela, and Freaky Chakra. Besides, Synergy
Images of Bangalore also created a CG character Zampano for a new Bollywood
movie-Friends Forever. Digital Intermediary or Digital Grading, a color
correction technique used to capture the depth and brilliance of colors was also
introduced during the year. Khakee, Lakshya, Malayalam movie-Police, and
Telugu film-Sri Anjaneyam were some of the first movies to go for digital
color grading.

In digital visual effects, an emerging opportunity is digital restoration and
coloring. The Hindi feature film classic 'Mughal-EAzam' (1960), which was
re-colored by Indian Academy of Arts & Animation (IAAA), was released in
theaters worldwide and even did fairly decent business. The entire colorization
was completed in a year's time at a cost of about Rs 2.5 crore. Other
black-and-white movies that were planned to go for color soon included Afsana,
Ek Hi Raasta, Sadhana, Dhool Ka Phool, Kanoon and Gumraah.

In FY 2004-05, the size of the digital visual effects services market for the
TV sub-segment was estimated at Rs 5-10 crore. It was estimated that at least 40
TV programs, with weekly episodes, use graphic visual effects. The size
estimation assumes an average fee of Rs 25,000 per episode for digital visual
effects services. In domestic TV serials, budgets for visual effects are
increasing. Maya Entertainment did stellar work for two popular serials on Star
TV, mainly "Sonpari" and "Shararat". The demand driver for
digital visual effects services in the TV sub-segment was that producers of TV
programs started viewing quality of visual effects as a means to differentiate
among channels. Fees for developing digital visual effects services have,
however, been declining. TV program producers such as Cinevista and SAB TV
established an in-house department to develop digital visual effects, to keep
costs low.

Games India Played

During FY 2004-05, India emerged as a key one-stop destination for game
development with research firm AC Nielsen estimating the Indian gaming market to
hit Rs 220 crore in revenues. Of this, console gaming contributed Rs 150 crore
with the remaining Rs 70 crore coming from PC gaming. However, wireless/mobile
gaming emerged as the new star on the horizon with revenues of around Rs 30
crore. However, with piracy still rampant, domestic market in gaming was yet to
take off during the year. All of the big Indian game development companies have
distribution and marketing partners abroad and 75-80% of their turnover for the
year came in from the international market only.

A typical game title during FY 2004-05 took around 24 months to make and had
a production budget of $4-10 mn. The game industry came under increasing
pressure to reduce development time and cost of production. Reason enough for
major publishers and studios to look at outsourcing development to India. The
Indian market had 4 to 6 large game development companies with 50 seats and
more, while there were another 100 odd small game developers with 5 to 10 seats,
which were dedicated to developing for the wireless. Leading Indian game
companies like Indiagames, Dhruva Interactive, Paradox and Mobile2Win developed
games for a range of platforms such as PC, console, wireless and online. Two
relatively new segments to emerge during the year were massively multiplayer
online games (MMOG), which has been a highly successful business model in Asia,
as well as online gaming, where developers create a concept, develop a game and
then license it to an Internet portal.

Development of computer games is capital intensive, and involves two to three
years of investment cycle; development budgets, therefore, varied with the level
of complexity of a game and its scale. An 'A' list title, for instance, that
involved a development budget of $500,000 to $3 mn, if developed in India, costs
between $6-7 mn, if developed in the US. The cost of a game engine was anywhere
between $100,000 to $1 mn, depending on the level of sophistication of the
engine. The Indian players active in this sub-segment included Milestone
Interactive Software and Gayatri. In general, Indian players had a low presence
in this market. Overseas game publishers or developers were not outsourcing the
development work for an entire game to Indian players. The level of outsourcing
during the year would be only around 10-15% of a game. Typically, the nature of
work outsourced from India included cut scene animation for game cinematics,
single level design, or a specific sequence of a game.

India has carved a niche for itself even in the console market dominated by
giants like Sony's PS 2, Nintendo's Game Cube and Microsoft's X-box. Sony's
PlayStation platform has a 50% share of the global console game market; Nintendo
is ranked second, closely following Sony; and Microsoft is a relatively recent
entrant with its X-box platform. Indian players like Maya Entertainment started
developing a game for Sony Playstation while Milestone Interactive Software also
developed a game for the console market. Indian companies catered to online-only
game sites as well, with titles delivered via download or streaming technologies
rather than on a disk. Big names such as AOL, MSN and Yahoo joined the likes of
Shockwave and RealNetworks to offer online gaming communities and many of their
development work was outsourced to India.

Activity in Indian MMOG market started in mid-2004, with the release of the
beta version of 'Ragnarok', developed by a Korean company. The title was
launched in India by a Philippines-based company, which has been licensed to
sell this product. During the year, there were no Indian companies addressing
this sub-segment. The market size of wireless/mobile games in India was
estimated at Rs 30 crore in FY 2004-05. The estimation was based on the total
number of downloads of games during the period, as downloads accounted for 90%
of the ways games for cellular mobile phones are accessed. It was estimated
that, on an average, there were 200,000 downloads of games via GPRS network of
the cellular mobile players-Orange, Airtel, Idea, and BPL. The market size
estimation assumes an average charge per download of Rs 50. The two large mobile
telecom players in the CDMA space-Reliance Infocomm and Tata Indicom-also
started charging for game downloads during the year.

Players addressing this market include Paradox Studios, Indiagames, Dhruva
Interactive, and Mobile2Win. Indian players have entered this market during the
past two to three years, and have established a body of work in original game
development. In wireless gaming, a key driver for growth was that gaming became
an increasingly important component in mobile telecom service providers' revenue
generation strategies-it aided in the development of value added revenue
streams, besides basic voice services, and text messaging. There was also
recurring opportunity of making games due to the rapid rate of wireless device
specifications changes.

Players like Dhruva Interactive and Paradox Studios have also been attempting
to create domestic demand for wireless games, keeping in mind the price
sensitivity and the choice of games for Indian audiences. On the PC gaming
front, however, piracy still eroded profits for Indian game distributors like
CyberMedia Digital, Aladin Infotech, Sujata Infotech amongst others.

Rajneesh De