Indian animation and VFX industry is getting bigger and better
By Girish MenonThe animation and Visual Effects (VFX) industry continues to steadily gain acceptance with Indian talent poised to rub shoulders with global counterparts. According to the KPMG India-FICCI Indian Media and Entertainment Industry Report 2017, the Indian animation and VFX industry grew at 16.4 per cent in 2016 to reach a size of INR59.5 billion, driven majorly by a 31 per cent growth in VFX, with animation remaining steady at a growth rate of 9 percent.
The animation services market in 2016 continued to be dominated by outsourced projects from television and film sectors, which accounted for around 85 per cent of the total animation services turnover in India. Going ahead, digital advertising and films are likely to see a larger share of the animation services pie, albeit, the domestic contribution to the same is likely to remain tepid.
The animation IP production segment grew at a faster rate in 2016 on the back of increasing demand for localised animation content and characters developed for the Indian market across TV and Over the top (OTT) providers.
Broadcasters are partnering with animation studios for original content, with channels like Sonic and Nick having 50 per cent of their content localised with shows such as ‘Motu Patlu’, ‘Shiva’, etc. The digital space, too, saw a spurt in demand for kids content with the introduction of channels such as ChuChu TV, CVS 3D Rhyme on Youtube and global players such as Amazon Prime and Netflix signing exclusive content licensing deals with various studios in India.
Netflix is also aggressively looking to partner with studios to come up with more content for kids in Hindi and other regional languages. Further, with the growth of broadband and e-commerce, licensing and merchandising opportunities related to animation characters/IP has also got a much needed boost.
The VFX industry is fast emerging as an indispensable part of film making, and the cutting edge work carried out by Indian studios has catapulted the country on to the global VFX scene. The post production segment saw a robust growth of 13 per cent in 2016, and continues to perform and reap the benefits of an established ecosystem around the segment.International projects continue to account for a lion’s share of the VFX industry revenues at over 70 per cent, with Hollywood studios leveraging the skill set and cost advantages of Indian talent. However, with growing acceptance of VFX as an important tool for domestic productions evidenced by films like the ‘Baahubali’ franchise, ‘Fan’, ‘M.S. Dhoni: The Untold Story’, ‘Sultan’, ‘Shivaay’ and ‘Mohenjo Daro’, the contribution of Indian films towards VFX revenues is expected to outpace international revenues in the next five years. Further, VFX content on OTT platforms in India will only fuel further growth.
However, some challenges continue to plague the animation and VFX industry. Animation in India continues to be perceived as a kids’ category unlike the US, where adults constitute a major audience for animated content. Further, the Indian market has not been receptive to domestic animated films, with only a handful of releases in 2016, which saw a lukewarm box office response. This is contrary to the robust performance of Hollywood content such as the Jungle Book, pointing towards a need for investing in local animated franchises. Baahubali is an example which could be ripe for such experimentation in the near future.
The relatively higher costs of production of animated content on TV versus a daily soap, coupled with non-commensurate returns in terms of ad rates, acts as a deterrent for investment in animated content on TV. However, with the coming of age of OTT networks, content is being looked at as a cross platform IP, potentially delivering ROIs over a longer shelf life. The animation services sector would also benefit immensely from better opportunities in skill development and formal training/education, which could help churn out future ready talent.
Some of the challenges faced by the VFX sector include the bargaining power that international studios wield while hiring VFX vendors from India and the lack of subsidies from both Central and the state governments, which could lead to a number of studios considering a move to other countries that offer better sops.
However, governments of various states like Maharashtra (allocation of land for setting up National Centre of Excellence for Animation, VFX, Gaming and Comics), Karnataka (Policydesign to include digital art education in curricula of certain fine arts schools), Telangana (planning to set up an incubation centre in Hyderabad) have announced, or are coming up with, policies in support of the animation and VFX industry. The same would enable the Indian animation and VFX industry to effectively compete with established markets such as the US, Canada and emerging centres like South Korea, France, China and Malaysia.
The animation and VFX industry is estimated to grow at a CAGR of 17.2 per cent over 2017–21 to reach a size of INR131.7 billion, driven by a steady 9.5 per cent growth in animation and a 25 per cent growth in the VFX segment. The uptake of local IP/domestic content is likely to be the key growth driver for the animation industry, and the expected uptake of digital consumption through OTT platforms will add to the growing demand for localised content. While local animated films have traditionally seen limited acceptance, learnings from animated Hollywood features on IP building could come in handy for Indian producers.
The VFX outlook looks promising with the ‘Baahubali 2’ impact likely to usher in a new wave of VFX adoption in Indian cinema, and India’s prowess in execution of cutting edge outsourced VFX projects is only expected to get stronger. Although nascent, the coming of age of Augmented Reality / Virtual Reality (AR/VR) technologies could be the key trigger for an even better-than-estimated growth of the animation and VFX industry.
(The author is Partner, KPMG India)
All views and opinions expressed herein are those of the author and do not necessarily represent the views of KPMG in India.