Hollywood film stars Angelina Jolie and Brad Pitt have been shooting in the western India city of Pune for A Mighty Heart, the story of the Al Qaeda kidnapping of Wall Street Journal journalist Danny Pearl. A flotilla of Indian service providers, from film technicians to security guards, has been supporting them.

Jolie and Pitt represent just the visible tip of the iceberg. As Hollywood increasingly turns to India to provide some of its needs, business process outsourcing (BPO) is making its way to the top of the credit lines. “The scope is enormous in virtually every area,” according to Pritish Nandy, founder-chairman of Pritish Nandy Communications, a content company in the news and entertainment business. “Currently, Hollywood appears to be looking at three areas: post production, animation and local production support. But these are nothing compared to the real opportunity areas.”

Before getting into how BPO is transforming animation, consider the other two areas of activity: local production support and post production. The first lies in the gamut of “red carpet” services being rolled out for Jolie and Pitt. Even as the duo was keeping Pune on its toes — everyone wanted to see the action, and the international paparazzi had descended in full force — neighboring Mumbai was hosting an International Fair on Film Locales (IFFL). The fair saw other countries showcasing their attractions as locales for shooting films, but most of the participants were from India — state tourism boards, facility providers, film councils and other affiliated service providers.

Land of the Gods

Touting their scenic charms and rustic settings, some locations have begun tapping this opportunity in an organized fashion. “God’s Own Country,” the banner under which southern state of Kerala is marketed to tourists, is being sold to film producers as a place that delivers “more beauty per frame, more art per shot, more plots per story, more images per set, and more locales per schedule.” The neighboring state of Andhra Pradesh has gone even further. Ramoji Film City in Hyderabad has been involved in several Hollywood productions and offers a whole range of facilities. “It is one of the largest, most comprehensive and advanced film production facilities in the world,” says a spokesperson. Shooting is currently going on for one film (the company says it can’t talk about it) and more than half-a-dozen have been completed.

Ramoji Film City offers all sorts of elaborate sets. If a director wants an airport or a medieval castle, she can have it. Also on tap are production crews, grid equipment, cameras and anything else a filmmaker might require. Post-production facilities include processing, printing, and digital and audio editing. “In terms of live-action feature film production, India is on its way to becoming a serious player in the economic ‘runaway production’ phenomenon,” says Dileep Singh Rathore, producer and founder of the Mumbai-based On The Road Productions and the Los Angeles-based Kundalini Pictures. (“Runaway productions,” as defined by the US Screen Actors Guild and the Directors Guild of America, “are developed and are intended for initial release/exhibition or television broadcast in the U.S. but are actually filmed in another country.”)

Rathore, whose company handles the physical production and acts as co-producer for international projects shooting in South Asia, says the Indian film business has come a long way since gaining industry status in August 2000. “Many countries are competing to attract runaway productions,” he says. “But India provides up to 60% cost savings on below-the-line expenses such as crew, materials and logistics. In addition, due to its robust domestic film industry — producing more than 1,000 films each year — the availability of highly skilled technicians, equipment and facilities has put India in an advantageous position.”

Chaitanya Chinchlikar, marketing manager at Whistling Woods International, a new institute for film, television, animation and media arts that set up in Mumbai barely a year ago, echoes the same line. “Hollywood has long chased low-cost ways to produce content,” he says. India will gain “in the coming years, as the economy becomes more and more global and competition forces media content producers to get even more aggressive in conserving costs.” But, he adds a caveat: “The market for BPO services from Bollywood to Hollywood is relatively small at the moment.”

Whistling Woods hopes to bring professionalism to the Indian film industry. “The institute will be a catalyst in bringing people to India as it offers an opportunity to interact and educate, which many Hollywood professionals are interested in,” says Chinchlikar. “Once they are here, they can see the possibilities for themselves.” Incidentally, the dean of Whistling Woods — Kurt Inderbitzin — is a filmmaker-producer and media business professional from Hollywood.

Among films wholly or partially shot in India are The Bourne Supremacy (2004), In the Shadow of the Cobra (2004), Jungle Book (1994). City of Joy (1992), Octopussy (1983), Close Encounters of the Third Kind (1977), Tarzan Goes to India (1962) and The Drum (1938). Says Rathore: “Approximately 80 productions from Hollywood have shot in India since the 1940s. In the past five years since the industry reforms, the number has grown exponentially. On an average, according to the union ministry of information and broadcasting, 15 feature productions are shot in India each year.”

The Animation Army

India is becoming more prominent on the Hollywood locale list. But much of the current action is in animation. “India, with its wide base and intellectual property in the field of animation, offers key advantages to the global animation market,” says a report produced by the Federation of Indian Chambers of Commerce & Industry (FICCI) and PricewaterhouseCoopers. “With technical expertise, highly-skilled manpower and international collaborations, the industry is going from strength to strength….

“Animation outsourcing is the primary work coming India’s way and this trend is expected to continue over the next five years. During this period, a large chunk of the work will be of this nature, even though the industry has begun to move towards the next level in the animation outsourcing business as certain co-production assignments have started coming to India.”

Animation companies are sprouting up all over India. These include UTV Toons in Mumbai, Moving Picture Company in Noida (near Delhi), Pentamedia Graphics in Chennai, Jadoo Works in Bangalore, Color Chips India in Hyderabad, and Toonz Animation India in Trivandrum (in Kerala).

The Mumbai-based Crest Animation Studios has several successes to its credit, though they are more in the TV arena. Its recent series Jakers! The Adventures of Piggley Winks has received an Annie nomination for the best animation television production for children. Crest’s U.S. subsidiary — RichCrest Animation — has teamed up with independent producer and distributor Lions Gate to create three state-of-the-art animated feature films for Hollywood. This includes one based on William Steig’s classic children’s book, Sylvester and the Magic Pebble.

The Hyderabad-based DQ Entertainment bills itself as the largest animation outsourcing company. “We are now co-producing several TV series,” says a spokesperson. The Mumbai-based Maya Entertainment has also been doing award-winning work in animation and special effects. From Chennai, Pentamedia Graphics has so far released four full-length animated movies, including Sinbad: Beyond the Veil of Mists and Alibaba.

“Companies in Bangalore, Hyderabad and Mumbai have all been part of VFX (visual effects) and animation shots for major Hollywood productions like Spiderman 3, Cars, and Lord of the Rings,” says Chinchlikar. For example, the Bangalore (Karnataka)-based Paprikaas Animation Studios is working on 3D-animated TV series, game cinematics and broadcast commercials. “In the pipeline are direct-to-video and full-length feature films with Tier I studios in Hollywood,” says Paprikaas CEO Nandish Domlur. “Unfortunately, as these are unreleased titles, we are bound by non-disclosure agreements not to talk about them.”

Toonz Animation is another rising star, with a client list that includes the biggest names in media and entertainment: Marvel, Hallmark, Paramount, Disney, and Cartoon Network. Animation Magazine has written up the company as one of the Top 10 multimedia studios in the world. Its pre-production services include script writing, storyboarding, character designing, color model creation, conceptual artwork, key layouts, key animation and key background. “We are working for television shows and direct-to-DVD feature films for Hollywood entertainment majors,” says CEO P. Jayakumar. “Around 500 people work at our studios, including top professionals from the US, the UK, Canada, the Philippines and India.”

In Hyderabad (Andhra Pradesh), Color Chips, an animation studio and integrated design solutions company, “is doing a lot of co-productions with Hollywood studios in the animation space,” says chairman and managing director Sudhish S. Rambhotla. Incidentally, Color Chips also runs an animation training center.

Some firms have chosen even narrower niches. The Prasad Group in Chennai is into VFX (visual effects) and Digital Film Restoration projects. “We have already completed a number of such projects,” says Mohan Krishnan, head of corporate communications. “We have a production-cum-sales facility in Hollywood and are discussing more projects with Hollywood studios and filmmakers.” The Indian VFX market is expected to go up to $95 million by 2009 from $15 million today.

The large Indian IT firms also have a toe in this pond. Nipuna, the BPO subsidiary of Satyam Computers, has signed a deal with the German 4K Animation. The duo will work on animation projects for a Hollywood film — an international action, adventure and fantasy motion picture directed by Paul Nicholas. Infosys has partnered with Hollywood studios to develop customized content. TCS has set up a media and entertainment lab in Burbank, California.

But these companies seem more interested in back-office work such as writing the software to restrict unauthorized online video and music downloads, and making DVDs piracy proof. They are applying their core competencies to a new vertical and waiting to see whether it is worth extending their skill sets. This is, after all, a very different business.

The India Advantage

“At present, animation is the biggest player when it comes to outsourcing Hollywood to India,” says Rathore. “India’s cutting-edge IT skills, the large pool of highly-educated English speakers and lower manpower costs are the main reasons for outsourcing. A typical half-hour 3D animation TV episode costs between $70,000 and $100,000 to produce in India, compared to $170,000 to $250,000 in America. U.S. animators can cost $125 an hour; in India, they cost $25 an hour. India offers animation at 25% to 40% lower rates than other Asian studios and much lower than those of American studios. The total cost of making a full-length animated film in the U.S. is estimated to be $100 million to $175 million. In India, it can be made for $15 million to $25 million.”

The latest National Association of Software & Service Companies (NASSCOM) report on the animation industry in India estimates that from the developers’ perspective the global market will increase to $35 billion by 2009 from $25 billion in 2005. India’s share will be $950 million; in 2005 it was $285 million. “Apart from the obvious cost arbitrage, the other advantages are high quality work, ability to scale, robust IT infrastructure, which is key to computer graphics content production, a large English-speaking base relative to other countries, and the advantage of a 12-hour time difference which helps to keep work going 24/7,” says Domlur of Paprikaas. Jayakumar of Toonz notes, “Our familiarity with the Western style of storytelling is also a big advantage.”

“It’s hard to find a logical competitor to India, because India has a unique combination of three characteristics,” says Chinchlikar of Whistling Woods. There is a huge English-speaking population, there is a vast labor market and the people are technologically up-to-date. “China fits the second and third points,” adds Chinchlikar. “But language is a major barrier. And virtually all other developing countries fall short in at least one of the above areas. So, India is going to be the place to be in.”

Back to the Future

“The potential for Indian companies is high, as the work outsourced is less than 1% as of today,” says Rambhotla of Color Chips. Nandy of Pritish Nandy Communications has a more holistic vision. There is so much India can do, he says. “Pre-production, for instance,” says Nandy. “Writing. We Indians write the English language far better and infinitely more creatively than most people in the world, including the English-speaking world. And the interesting thing is that our best filmmakers — from Satyajit Ray and Raj Kapoor to Shekhar Kapoor and Ram Gopal Varma — have always written their screenplays in English and then filled in the dialogue in the language they have used for the film. Hollywood and the English-speaking world are too arrogant to notice this talent. But the compulsions of cost and original treatment will drive them in this direction eventually.”

Ravi Aron, a senior fellow at Wharton’s Mack Center for Technological Innovation, has a different view. “It is not the quality or creativity of Indian writing that is in doubt. It is the cultural context in which such writing is set,” he says. “Can Indian writers create characters and dialogue, and recreate the cultural experience of North America for American and European audiences? Writing is not a fungible skill that can be deployed independently of cultural context. Indian scriptwriters will not find it easy to write the script for a film set in New York about New Yorkers any more than Americans will find it easy to write about Mumbaikars (residents of Mumbai).”

While Nandy claims that India will outstrip Hollywood’s theater revenues in six years, Aron says that’s wishful thinking. He puts the numbers in perspective. “In 2005, Hollywood grossed about $35 billion from 300 films,” he says. “The Indian film industry made about 1,000 films and grossed a little more than $1.5 billion. It is not the ticket revenues that count as much as the unit price of the ticket. Hollywood’s higher revenue is because it sells in the U.S., Canada, the E.U. and Japan. It dominates all the big film-consuming markets in the world except for India. In 2005, the average revenue of a Hollywood film was about 75 times that of an Indian film. For the Indian film industry to challenge Hollywood it will have to sell tickets in volumes in these countries. The odd Indian film does reasonably well in these market segments. But that is just that — the odd Indian film.”

Understandably, it is not as though all the fruits of Hollywood are waiting to fall into India’s lap. Domlur of Paprikaas points to a major problem. “There is a dearth of trained and production-ready artists,” he says. “In-house training is mandatory for all production houses who hire students from mom-and-pop training shops.” But he adds that some good training institutes are coming up. Jayakumar of Toonz says that radically improving output quality and productivity will be a major challenge in the coming years.

“We need to see further investment in facilities and equipment,” says Rathore. “If a studio is going to pump $50-100 million into a project in a country, then you to want to ensure that the government is cooperating and inviting them with open arms. Otherwise they’ll go elsewhere, where they are welcome.”

The role of the government is a common grouse; everyone complains about lack of support. There are no tax breaks and incentives. In countries like South Korea, China, Canada and France, the industry has been fostered by the governments.

Aron points to a much broader issue. The Indian film industry can’t be everything to everyone. “It is important to ask the question — what drives firms to offshore production centers?” says Aron. “Not just movie production houses but any business — why does a business start producing offshore?” He provides the answer: “In most industries — spanning heavy manufacturing through electronics, apparel and banking services — offshore production is rarely the first option. It is a firm’s response to one or both of the following factors:

  • Competition in its principal markets resulting in erosion of revenues;
  • Rapid changes in the industry: in production, distribution and pricing of production and services.

“There is another reason why companies produce offshore. In fact, until the mid-1960s, this was the principal reason for U.S. multinationals to take this route. The corporation wants to extend its business imprint in a region. To do so, it locates some production in that region partly to produce content to local tastes and partly to anchor the corporation to its market. It can be seen that both sets of factors are operative in the case of the entertainment industry.

“For the year 2005, the average cost of production and marketing of films in the U.S. was between $92 million and $97 million. This means many large movie studios had returns of no more than 8% at best, while some hitherto successful studios had returns of 5% or less. Sales of DVDs declined, further eroding revenues. Online distribution of movies — downloadable films — is a serious concern for all production companies. Not only is technology (online distribution) changing the nature of the competition, but new players and new forms of content are rapidly competing for the same viewership dollars. Finally, other computer-mediated content forms — online games, video games and independently-produced video content on sites such as YouTube — are competing with films for audiences. So, like many other industries, Hollywood faces the double whammy of high costs and revenue pressures. And, like other industries, it is looking at alternatives. For instance, Canada is the destination for several productions, and now New Zealand and Eastern Europe are beginning to attract attention.”

Aron argues that India needs to expand its business imprint in media and entertainment. The country has one of the largest cinema-watching populations and, with the rapid growth in size as well as the buying of power of the middle class, the Indian movie-watching market has become even more attractive. An additional feature is that growth of broadband in India will not penetrate the rural retail market in the near future. Even where it is available, it is small enough to leave a robust theater-going population intact. This, too, makes India an attractive destination.

All those who are scrambling to get onto the BPO bandwagon should realize the distinction between “Made in India” and “Made for India,” Aron says. “In the traditional sense of offshoring — that is, using Indian skilled (and non-skilled labor) for global audiences — we will witness the following phases of growth. Production can be divided into artistic production (the output of writers, actors, musicians, cinematographers, directors, etc.) and non-artistic production (the set of activities that go into bringing a production to distribution-ready status). The first to be tapped will be the latter set of activities: production support to pre-production and post-production finishing.

“The artistic production activities will not easily migrate from the U.S. and other locations. There are various reasons for this. First, anything that needs to be shot on location will be shot at the intended location. Just because Kerala markets itself as ‘God’s Own Country,’ you cannot shoot a film such as You’ve Got Mail there. Second, even studio pieces will largely be filmed in the U.S. (or Europe). Recreating scenes from the U.S. in Indian studios is not easy. For one thing, technologically many of the studios in India are generations behind their western counterparts. And, for another, there is considerable artistic participation in studio production — set designers, costume designers, etc. So these, too, will not migrate in the near future in great volumes.

“‘Made for India’ is a different story altogether. Hollywood studios and independent financiers are now working with Indian counterparts to make films in India for an Indian audience but with some global reach, too. As this trend accelerates, we will see more films made for India through collaboration. Sony Pictures, Paramount, Hyde Park Entertainment and Disney are some examples. This, in turn, will have a second-order impact. It will see the diffusion of technologies and production techniques in India and will further enable India to bid for more segments of the production activity. So ‘Made for India’ will over time feed into the ‘Made in India’ trend.

“But this is not going to happen anytime soon. Recall that with IT and financial services, the presence of MNCs in India for more than a century created a robust Indian middle- and upper-middle-management layer that was fully acquainted with the West and was ready to offer services and production standards on par with the Western corporations. It will take some time for that to happen in India.

“Then there is another trend to keep in mind: the corporatization of Hollywood. As large corporations acquire movie studios (GE’s acquisition of Universal is a case in point) and investment funds increase their funding of movies, there will be greater willingness to see it as ‘a business’ — that is, decouple those parts of production that can be done offshore from those that need to be done onshore.

“Finally, don’t underestimate the power of organized big labor in Hollywood. The entertainment industry is the bastion of unionized labor. Many actors and artists will not cross the union picket lines out of ideological sympathy. In the short run, unions will erect stiff barriers to offshoring. But over a period of time, it may well become counterproductive. Union intransigence and labor inflexibility were among the reasons that U.S. firms moved manufacturing to China. Now European firms are beginning to move to Asia for that reason.

“So, for some time, India will have to take a two-tack approach: welcome ‘Made in India’ projects and encourage Bollywood to collaborate with Hollywood in the ‘Made for India’ projects,” says Aron.

For the optimists at home, it is only a question of whether it will happen tomorrow or the day after. Bringing India up to speed can be done. It will be done, says Nandy who is bursting with confidence. “We are good at virtually everything we do,” he says. And India costs much less. “We are also ready to learn,” he continues. “So anything that is BPO-ed out here will result in innovative options that could teach Hollywood a trick or two in terms of finding creative solutions to complex techie problems. That will be the ultimate benefit of offshoring in this space.”

Back in Pune, Jolie and Pitt provoked a debate. Some residents argued that the movie should not have been allowed to disrupt life in the city, though the grumbling was directed less at the stars than at the army of foreign paparazzi surrounding them. At one point things got so tense that one of the guards — who belonged to an outsourced security firm — pulled out his gun to threaten a photographer. Though no bullets were fired, it was an apt metaphor: Whether it is a cameraman or a security guard, everybody in India wants to get in on the action.