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May 01, 2006

Indian animation industry's new business model

Businessworld has an article examining the strengths and weaknesses of Indian animation - long touted as the "next big outsourcing story" - and concludes that the sector seems to have finally figured out a viable business model.
India’s first full-length animation film, Hanuman, has made cash registers jingle, having raked in Rs 16 crore already from the box office and DVD sales. Predictably, new animation movie projects are being announced almost every week. Animation-driven children’s channels are realising that local content is the way to business success in India...

...A consensus is emerging in the industry on a workable business model: a mix of outsourced jobs, co-productions and own intellectual property creation with an animation school as a useful add-on. Says Jayakumar: “Outsourced jobs give you initial revenue and exposure; co-productions allow you to learn development of intellectual property and global marketing; and having your own library of shows is the only way to become a Disney, Pixar or Dreamworks.”

...Nasscom estimates the animation development market for Indian studios to be worth $285 million now. More than two-thirds of it comprises entertainment and advertising revenues, and the remaining is distributed among training simulations, website designing, etc. Nasscom predicts that this market will treble by 2009 to $950 million as India gets a bigger slice of the worldwide animation development market, which is slated to grow from $55 billion now to $75 billion in 2009.

Sounds impressive, but there’s another side to the story as well...For starters, there is scepticism in the industry about Nasscom’s estimates. “The numbers being tossed about these days are a lot of hogwash. If you add the revenue of the top three animation studios in the country (DQE, Crest and UTV), you don’t get to even Rs 100 crore,” says Rahul Shah, managing partner, IL&FS Investment Managers, which has invested $1 million in DQE.

...VC fund WestBridge Capital Partners managing director Sandeep Singhal says that the fund is yet to come across an animation company that has crossed the $15-million revenue mark and one that looks like becoming a $50 million-60 million company in 10-12 years. Rahul Shah says he has not invested in an animation company since DQE three years ago because he has not seen potential for a prosperous exit. “I’ll consider investing in another animation company only after I can get a good exit from my existing investment,” he says.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.