Gaming Industry: Adding that Effect.

It might be assumed that the Indian media and entertainment industry is saying it just to gain limelight. In FY10, the media and entertainment industry had adopted newer technologies to appeal to its mood swinging audience. Movies like Avatar, Inception, the Harry Potter series were hot properties at the box office. And the trend of experimenting more in animation, VFX, SFX is getting stronger. Indian media and entertainment industry has been experimenting with special effects and visual effects for quite a while now. But in the last fiscal, the Indian animation and VFX/SFX companies bagged projects from both Hollywood and Bollywood.

According to FICCI-KPMG report, The Indian M&E industry grew from Rs 587 bn in 2009 to Rs 652 bn in 2010, registering an overall growth of 11%. Backed by positive industry sentiment and growing media consumption, the industry is estimated to achieve growth of 13% in 2011 to touch Rs 738 bn. As the industry braces for exciting times ahead, the sector is projected to grow at a CAGR of 14% to reach Rs 1,275 bn by 2015.

Besides being one of the most favorable outsourcing hubs for animation, VFX/SFX and other post production facilities, the animation industry is also getting popular in the domestic market. Not only Bollywood but various regional film industries across the country have been experimenting with VFX and SFX in their movies.

Key trends witnessed last year were the digitization of content. It continued to be one of the key growth drivers, as film studios saw greater adoption of digital prints over physical. Home grown VFX/SFX players are winning key projects both in Hollywood, Bollywood, and even the creative heads, in the field of advertising consider it to be important while conceptualizing a visual campaign. However, the industry is still at its nascent stage and it would not be completely right that the market is growing very fast. True that, it has huge potential to grow in the years to come but currently, there are a lot of factorslack of viewers awareness, lack of government support, narrow budgets, lack of skilled manpower, that hinders its instant success. It could be right to say that, this industry too is in the same lines of growth as that of the IT outsourcing and BPO. Needless to say, there are great possibilities that this segment could also grow without much of governments intervention.

Time to Animate the Industry

According to a white paper jointly prepared by ASSOCHAM and Deloitte Touche Tohmatsu India, the Indian animation industry derives its revenues majorly from outsourcing. International production houses from US and UK outsource work to Indian studios. The report also says, India has the inherent advantages of outsourcing, which is evident from the success in the IT/ITeS outsourcing sector. However, Indian outsourcing share of the global market for animation and gaming industry is very low compared to the corresponding share in the IT and BPO industry (see graph).

The Indian animation industry is more active as a service provider in the labor intensive production and post production activities. In areas like IPR and content development (which involves conceptualization of new ideas, asset procurement, fund scheduling, resource integration etc) and pre-production (which involves preparation of the script, character design, storyboard layout development), Indian players are still emerging and their effort in terms of percentage could be rated somewhere between 5 to 10% (as per ASSOCHAM-Deloitte joint report). This is quite a dismal number when compared to their contribution in the production and post production phase (ASSOCHAM and Deloitte rate its effort between 30 to 45%).

Indian VFX/SFX players could have become more advanced if the domestic market would have encouraged them earlier. Some dominant players in this space have set up their studios to tap the overseas market. While Tata Elxsis Visual Computing Labs (VCL) had launched a new facility in Los Angeles, Pixion had acquired 2 London based studios, Men from Mars and Molinare. Prime Focus had set up a 12,500 sq feet facility in Chandigarh with the capacity to house 3,000 artists. Through this studio, the company will work on global projects from North America and UK.

Prime Focus bagged a lot of business in the 3D conversion space, some of them being for Star Wars: Episode I-The Phantom Menace, Harry Potter and the Deathly Hallows: Part 2, Transformers: Dark of the Moon and Green Lantern.

Prime Focus also collaborated with UTV, Star TV, and Eros International. For UTV, it will be responsible for servicing the entire production and post production requirement of a slate of UTV including VFX, digital intermediate, sound and lab services as well as provision of cameras, lenses and other equipments. Prime Focus Technologies (PFT) will deploy multi-platform content operations infrastructure specifically for broadcasters. And for Eros International, the company will digitize and catalog its entire library of movies.

Game is On

The overall gaming market in India is segmented into console gaming, PC gaming, mobile gaming and online gaming. While China has been one of the fastest growing markets especially for online gaming, India is still expected to grow rapidly in the coming years. There are a lot of factors impeding its growth or rather its acceptance. Apart from unavailability of skilled manpower to deliver the high standards set by their service buyers and the large percentage of revenue going to the telecom operators, the Indian gaming industry lacks acceptance among Indians. Gaming is considered as a worthless activity by a large section of the Indian population and this impedes their growth in the domestic market. Telecom operators keep nearly 60-70% of their revenue accruing from mobile games downloads and this revenue sharing agreement restricts them to develop their own IPs and distribute them.

The ASSOCHAMDeloitte report figures out that, the Indian gaming industry is expected to witness large changes, primarily in the domestic market. Introduction of 3G and telcos focus on value added services are expected to lead to exponential growth for mobile gaming in India. This will also lead to the Indian gaming players moving up the value chain and getting involved in end to end game development and publishing. As the Indian market matures and gains expertise, Indian players will gain confidence of their foreign counterparts and attract greater percentage share of the outsourcing pie and co-publishing deals.
Online gaming market will grow due to the increased internet penetration in India, introduction of Broadband Wireless Access (BWA) and growing trend of Massive Multiplayer Online Role-playing Games (MMORGs). Presently, majority of gaming services revenues in India comes from outsourcing, especially for console, PC and online gaming. Currently, revenues from console game development services are derived by providing services to international companies. As per Nasscom, there is a significant difference in the production costs in India and US. Game development in India saves more than 50% compared to the US.

Going Ahead

Though the Indian animation and gaming industry has huge potential to grow both in terms of its size and moving up along the value, a little bit of support from the government would boost its growth. Indian animation players lack any such government support either through tax rebates or grants. Increasing number of co-production deals, increasing focus on development of original content, and own IPs, setting up overseas offices, recent investments from private equities indicate the capability and growing confidence in the gaming and animation industry.

Till now this industry did not pick up because it did not gain recognition in the domestic market. The usage of animation in Bollywood is still low, VFX and SFX is growing. The only reason why this segment took so much time to gulp the outsourcing pie is mainly due to the poor recognition it got in the local market. They had no proof to showcase their potential clients in the developed markets, who have been looking at India as a center for cost arbitrage. It is not that the mindset of the Indian audience is restricted and they do not prefer watching animated movies. Movies like Avatar, hit the box office with the highest records in India. Just that, it has to be ensured that the animated content should be married well with a good script.

Not only in movies, the animation, could VFX/SFX players also look for business opportunities at broadcast, advertising, and in various corporate pre-visualization trends. While the share of Indian animation and gaming industry still stands very low ie, 0.6% of the worldwide animation and gaming market, it indicates that there is more potential in the domestic market. With Indias share of global outsourcing market in animation and gaming standing at less than 10%, the segment has a lot of opportunity to tap in the outsourcing market.