Indian M&E; IndustryIt's Time for Gaining Limelight

Bollywood entertainment continues to enthrall audiences. However what the audience now needs is some kind of an innovation in moviesand it is not just a brilliant script but also the right kind of special and visual effects apart from the right kind of marketing. According to few sources one key challenge that continues to maul the Bollywood industry still is piracy. Rather than spending money on a 70 mm screen, people find it better to see movies on pirated CDs. Hollywood blockbuster movies such as Avatar, Inception, Harry Potter series and several other such movies that focused more on the visual and special effects garnered more revenues at the box office because they were able to attract a large chunk of audiences to theaters. And this is where a challenge for the Bollywood industry still liesgetting the audiences to multiplexes and stopping piracy. One way is certainly to make more of visual and special effects movies. While screenplay writing and science of marketing is still a concern, the area of special effects is an interesting one for producers and directors of movies to consider.

The Indian SFX and Animation Market

Special effects today offer a huge opportunity to Indian cinema, as movies probably are a major form of entertainment available across the length and breadth of the country. Digital technology has brought many changes into the department of special effects in Indian cinema. SFX/VFX is not new to the Bollywood industry. In 1977, a movie named Agent Vinod had actor Jagdeep flying around Bombay with balloons in his hand. In Shashi Kapoors movie Ajooba, fighting on flying carpets were captured using special effects. A 1978 movie, Don took stunning shots of the actor Pran walking on a tight rope from a high-rise building to another carrying 2 children. These are just few examples of how the SFX/VFX industry has come a long way in creating some of the best visuals, though yet to reach a level of Hollywood standards.

According to the latest FICCI-KPMG report released at FICCI Frames 2011 in Mumbai, the year 2010 was a challenging year for the industry. However with better content, increase in multiplexes, investment in research, and continued cost corrections, the industry is estimated to grow from the present `83 bn to `132 bn by 2015. As per the FICCI-KPMG report, billing rates largely remained flat, however the overall industry growth was led by the increase in the number of projects and scale of work undertaken by Indian studios. Indian filmmakers have now started experimenting with different genres such as scientific fiction (sci-fi) and adventurous movies with a lot of thrust on visual and special effects. In 2010, the Indian VFX industry for both animation and film entertainment was successful in growing at a healthy rate as compared to the tepid growth in 2009. Backed by a robust business environment for VFX globally that led to increased contract work in the second half of 2010, the industry also witnessed some traction with distributing content overseas as well a pick-up in demand for local content. Leading studios such as Prime Focus, Visual Computing Labs, large animation studios such as Crest, Rhythm & Hues, Technicolor, etc also focused on co-productions vis--vis the outsourcing model and as a consequence IP creation, particularly in television found greater momentum.

While there were approximately 7 Indian animated movies expected to be ready for release in 2010, less than half made it to the silver screen. Toonpur Ka Superhero, Luv KushThe Warrior Twins, and Ramayana the Epic, the Indian releases of 2010 met with little or no theatrical success. The lack of distribution partners was primarily responsible for fewer number of Indian feature films releasing during the year. Meanwhile, Crest Animation Studios Alfa and Omega opened in international markets in September 2010 and was subsequently released in India in January 2011. Besides these films, there were several animated or partially animated movies from Hollywood released in India, many of which were also released across 3D screens. Some of these included Toy Story 3, Alice in Wonderland, Despicable Me, Shrek Forever After and Chronicles of Narnia.

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Companies have also started to focus on improving quality and the creation of original IP. New business models have evolved in the marketplace, to successfully tackle current challenges such as piracy, lack of effective distribution etc, which has led to increased market penetration, and heightened awareness about the animation and VFX industry.

The quality of VFX is touching all-time global heights and it wont take long before visual effects made in India are seen as equal to anything done anywhere else in the world. We are moving toward a global market for visual effects, and India is uniquely situated to exploit that. The future is unlimited.

Envisioning 3D

Standardization and commercial success of high profile projects such as Avatar and other 3D movies have been the key tipping points for 3D technology.

Standardization has made significant step forward with the definition of a 3D Blu-ray standard and the progress of HDMI1.4a specification. Many people before the release of Avatar were skeptical about 3D movies. In fact, India has known the 3D technology for a long time. Most of us would still remember the movie under the Navodaya banner called Chhota Chetan that was released way back in 1984, (not to mention that the revenues garnered at the box office was a whooping `60 crore). However many people are now over-excited about 3D experience where they are overpricing the 3D experience while bringing out a mediocre content, which rather should not be the case.

The Indian cinema was initially shy of VFX and 3D, but it is now opening up to absorb a large chunk of it. Soon we will see more and more visual effects and 3D films released in India. Audiences have come to expect a level of spectacle now that requires the most sophisticated visual effects. There is a strong global trend toward the top box office films being visual effects films, and that means more money for visual effects production in the long run.

Growing demand for content, increasing investments in training talent, growing comfort of Indian production houses for VFX, continued growth in outsourced work, conversion of 2D to 3D formats and emerging digital platforms are expected to help the industry grow at 18.5% per annum. *(Source- FICCIKPGM report).

Directors and producers now need to think like James Cameron (Avatar director) that every film that they are planning will or should be in 3D.

Stereoscopic 3D FilmsThe New Trend

The stereoscopic era of motion pictures began in the late 1890s when British film pioneer William Friese-Greene filed a patent for a 3-D movie process. In his patent, two films were projected side-by-side on screen. The viewer looked through a stereoscope to converge the two images. Because of the obtrusive mechanics behind this method, theatrical use was not practical. Frederick Eugene Ives patented his stereo camera rig in 1900. The camera had two lenses coupled together 1 and 3/4 inches apart.

We now see this trend slowly picking up in India as well with the focus on stereoscopic 3D films or stereo 3D. However the Indian M&E market is yet to adopt stereo 3D in a big way. There are three reasons why Stereo-3D has not yet become a standard in movies, television, photography and computer software. These are technical problems including ergonomy issues, the cost factor, and lack of hardware and software-standards. Interestingly Vikram Bhatts upcoming movie, Haunted, is apparently Indias first stereoscopic 3D film. 3D technicians and support staff from Canada are working on the project. Some extensive special effects have been achieved by Chennai-based Prasad Studios. Haunted is something like Avatar in terms of look and feel. It is not converted from 2D to 3D, like many of the films will be in 2011, but actually shot using 3D cameras. A 3D Stereoscopic Christmas special is also in production for release in 2011 by DQ Entertainment. The DQE Jungle Book franchise has received tremendous response for global publishing, merchandizing & licensing and its development into a major $25-30 mn 3D stereoscopic feature film is a natural progression by DQEs Feature Film division, DQE Feature.

Challenges

The FICCI-KPMG report suggests that a turbulent economic climate, rising globalization, giant leaps in technology, heightened need for transparency, ever changing regulatory framework coupled with demand for tighter controls in the wake of corporate scandals, pose a grave challenge for the finance function. However apart from the financial and budget constraint posing the industry there are certain challenges that can be completely avoided yet however remaining into scenario. The challenges faced by the industry are quite common and that of budgets. Besides this it is the awareness of visual effects and how it can actually become a part of the production rather than a separate piece that comes in the end. A lot of the film makers are embracing it and this year we should see a big movement in this space.

According to Vensat Services, the media and entertainment service provider, India has a broad spectrum of people trained and skilled in software coding and testing. Animation firms have set up large production studios that are equipped with state-of -the-art equipment, hardware and software, processing and motion capture facilities, but there has been a lack of competent artists. These have only started to come to the fore and entering into a space only just being coherently developed in the Indian marketthat of high-end animation and CG visual effects. The current scenario of this industry in India is of a large group of companies competing for both work and talent. There are a number of training centers in operation that are small-scale in nature and this creates a situation that almost all artists attain most of their skill on-the-job with a company. Ride this inherent diversity factor to satisfy artists needs for variety and have built in planned job rotation as an effective instrument to enrich talent. Job rotation can be cross-technology expertise, cross-domain exposure, and cross-location experience which are the fallout of delivery model.

According to MAAC, one of the major problems is the lack of Indian content and the lack of Indian demand for gaming and animation. Also, for such a large market like India there is a small number of people who form core TG and therefore it becomes expensive to market products as the TG is very scattered all over the country. Animation and gaming is still not considered as mainstream education and many parents and students still feel that they would be better of pursuing the more safe careers like engineering, medicine or business. This mindset in the consumers mind needs to drastically change, only then will there be a drastic change in the gaming and animation industry dynamics.

IT-enabled VFX

According to Prime Focus, technology has always been and is very integral to visual effects. Besides the obvious use of hardware and software, there is a lot of R&D that goes into visual effects. This is where technology comes in a big way. When there is a need to create natural elements such as water, fire etc, all that requires simulation. Another key part of technology thats utilized is when you need to move large amounts of data around or when a lot of it needs to be stored and archived. This is where Prime Focus Technologies comes in to picture providing a solution for clients to be able to archive and store their content for any amount of time in a digital format which will not age with time. According to Vensat Services, the VFX and animation industry is a significant user of technology and can further showcase Indias well established credentials in the technology and services offshoring space, in addition to playing an influential role in developing Indias domestic media and entertainment industry. Technology roadmap of this industry is driven by a need, not a solution. It provides a way to identify, evaluate, and select a value based technology alternatives that can be used to satisfy the needs. Some of the drivers enabling IT in VFX and animation are:

According to MAAC, much of the growth in this sector has been driven by advances in technology, which in turn has created business opportunities across the supply chain for companies all sizes and specialties. As animation educators MAAC has been heavily reliant on IT to be able to deliver their product to the student. They are continuously updating the courseware and have a dedicated research and development team that ensures that students are taught the latest versions of the softwares available.

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Cloud Shadowing on M&E

Cloud computing is the current buzzword in the technology sector and this technology certainly holds a lot of potential in Indias media and entertainment industry. Cloud services (either a private, public or a hybrid model) help in transforming cost structure by converting capex on IT infrastructure into opex of hiring cloud services. Content storage which until now has required investment in form of cost of tapes/hard disks/servers will now become an annual operating expenditure in form of annual maintenance contracts fees paid to the cloud services provider for storage of content.

Imagine the storage requirements that is needed for a media and entertainment industry. Whether archiving or current storage of data such as movie, serials, advertisements etc. all require a storage space. With data explosion happening and more so in the media and entertainment industry, cloud model certainly brings value to an organization. According the FICCI-KPMG 2011 report, cloud services such as Content Delivery Networks would enable media companies to transmit high quality content in a more cost-efficient manner. A content delivery network (CDN) is a cluster of servers containing copies of data, placed at various locations on the Internet (or a closed network) to enable efficient transmission of content based on the location of content delivery. These cloud services will be especially helpful as convergence technologies such as 3G, IPTV, Internet radio become stronger and require large amounts of content to be streamed across to multiple subscribers.

The technology market has developed specific solutions for the media industry such as Private Media Cloud however adoption of these is still in its infancy in the US and other developed markets. Large M&E players in India have also started evaluating the benefits of cloud technologies. For example, TV channels are evaluating moving the content approval process to the cloud wherein fresh rushes (raw footage) can be uploaded to the cloud rather than carried in physical tapes making physical tape movement logistics redundant and resulting in huge time as well as cost saving. However, there are certain risks associated with cloud services such as security of data, and ensuring high availability of services. M&E companies would need to evaluate these risks before embarking on cloud projects. Also to start utilizing cloud services, companies must first consolidate IT infrastructure across business units into common service centers.

Interestingly Prime Focus has come up with its own cloud product. Called ClearTM, the worlds first hybrid cloud based solution for multi-platform content operations, it is a ready-to-use model which is fully customizable according to user needs. Key highlights of the product include complete data security, flexibility, agility, and scalability.

The Outlook

Traditionally PE investments in the M&E sector have been low and 2010 was no different with 10 deals valued at $170 mn as 3 against 12 deals valued at $335 mn in 2009 . Restrictions on FDI and a lack of quality assets apart, most media companies have traditionally taken to public markets for funding, limiting the role of PEs. Animation and VFX will continue to remain attractive to strategic investors and the venture capitalist community in the short run. This sector would also benefit from the introduction of 3G services which could help content owners and platform owners/ aggregators scale up operations and attract investments.

GST is likely to throw up numerous challenges for the media and entertainment industry. The key challenges include issues like taxation of transactions not exempt earlier, taxable event vis--vis intangibles, transition of exemptions, etc. Presently animation/VFX in SEZs enjoy a tax holiday on their export income. SEZ units were exempt from Minimum Alternate Tax (MAT) until now. The Budget has proposed a levy of 20.01% MAT on SEZ units. This would be an additional tax cost for SEZ units in the short to medium term mindful of the MAT credit.

While M&E players have always adopted technology in content transformation, editing and post production processes, there is need to realign content delivery and monetization strategies based on the emerging delivery platforms. Media houses also need to perform continuous assessment of whether their internal business processes and technology are geared to support and leverage emerging business models.

PC Suraj
surajp@cybermedia.co.in