Crest cashes in on the animation wave

By changing its business model at the right time, Crest Communication has emerged as one of the leading animation companies in India, says CHITRA PADMANABHAN

A K MADHAVAN says that Crest decided to move slowly and surely into animation to ensure that it would be able to cope with changes in the industry

CREATIVE skill is intrinsic to the process of animation. It is this factor that has motivated many companies providing media-related services to jump into the field of animation. While the Indian animation industry has been slow to take off, it has made rapid strides over the past few years. The industry as a whole is gradually shifting from traditional 2D animation to offering 3D animation services. India attempted to enter the global animation field only as late as 2002 when 3D animation production work for feature films began to be outsourced to India. At about

the same time, Crest Communication, which started operations in 1990 with the production of advertising commercials, identified the CGI (Computer Generated Images) animation market as a lucrative opportunity.

“Since 2000, we have gradually moved out of advertising commercials and the post-production space, and have managed to capture the growth wave experienced by the animation segment,” says A K Madhavan, chief executive officer, India, at Crest. The company offers 3D animation services, hybrid 2D/3D animation services, and traditional 2D animation services. Two years back, only 10 percent of the company’s staff was engaged in the animation business. Today, that number has grown to 75 percent, and revenues from animation contribute 75 percent of the company’s turnover as against 20 percent two years ago. Crest has also reported encouraging financial results for the quarter ended June 2004, with a total income of Rs 6.88 crore—an improvement of 55 percent as compared to Rs 4.43 crore for the first quarter of the previous year.

While the management is tight-lipped about details of projects in hand, analysts believe that the company is sitting on a current order book of almost $10 million. Earlier this year, Crest invested Rs 12 crore in hardware and software facilities to increase its production capacity.

With more and more film production houses outsourcing their requirements to India, analysts predict a healthy growth for this segment. A report released by Andersen Consulting states that the Indian animation industry, pegged at $550 million in 2003, is slated to clock a growth rate of 30 percent annually and reach $1.5 billion by 2005.

Re-invention

From 1990-1999, Crest positioned itself as an advertising commercial house before venturing into the animation business. However, the company realised that bringing about a complete turnaround in operations could only be a gradual process. “Crest decided to move slowly and surely, ensuring that we would be able to cope with changes in the industry. We were in a position to leverage our brand that we had built in the advertising segment,” says Madhavan. Crest had built a formidable reputation as a highly creative and technologically-savvy production house, regularly sweeping creative and technical awards in advertising. The company was the first Indian recipient of a Clio. Crest achieved some success in television through Purushetra, India’s first talk show, but soon realised that it was addressing a small market with little scope for scaling up.

However, setting up an animation business required significant investment to build IT infrastructure and scale up manpower. “In an emerging industry such as animation, companies find it difficult to source trained manpower, so they are forced to pour significant investments into training initiatives,” says Abhay Bhalerao, the company’s vice-president for corporate strategy and finance. The company uses a software called SOFTIMAGE|XSI, which is a non-linear 3D production environment to achieve rich and photo-realistic images. In addition, the software is useful in creating lifelike 3D characters by requiring fewer keystrokes and offering more textures, and superior rendering. “The mental ray rendering is the most important feature of our software. Ultimately, it is the final image that entertains people, and XSI gives fantastic results for any project,” says Bhalerao.

Animation companies operate on different business models. One is the work-for-hire model where production services involve the assigning of production work by an overseas company on contract to an animation production studio. In the co-production model, two or more companies come together to develop intellectual property. With a full-fledged studio in place, Crest is pursuing a business model where the intellectual property is completely owned by it. “Intellectual property development is an important component for Crest’s long-term plan in the animation business as there is high revenue potential and return on investment in original property development,” says Madhavan.

2000-2004

Animation companies are required to spend huge amounts of capital before reaping the returns. Between 2000-2004, Crest experienced a rapid fall in revenues from the advertising business. Though the company had laid out full-fledged plans to set up an animation unit, the industry itself was maturing. As a strategy to bag more outsourcing contracts, Crest acquired an animation business from Nest Entertainment and established a wholly-owned subsidiary in Los Angeles (LA) called RichCrest Animation. “Having a presence in a country which is the source of most of the outsourcing contracts helps us get more business into India,” says Bhalerao. In doing so, Crest has succeeded in taking rapid strides to make India’s presence felt in the mainstream US market, which is said to be one of the toughest in terms of entry barriers. RichCrest Animation recently raised $5.8 million through global depository receipts to fund its expansion plans. The company continues to focus on developing original animation products, mainly for movies.

The strategy to establish the fully-owned subsidiary in LA has paid off. RichCrest recently bagged animation outsourcing contracts worth $9.5 million from US-based Mike Young Productions.

“The production work of the 3D animation for the TV series will be executed in India over 12-15 months,” says Bhalerao. In the past, the company has worked on six full-length animation features, out of which three were for Columbia, two for Warner and one for New Line Cinema.

New avatar

The re-invention has resulted in Crest emerging as one of the leading animation companies in India. This can be seen from its revenues. While income from its animation business has grown by 6 percent during the last fiscal, revenues from commercials, packaging and its time-sharing businesses have contracted by 39 percent. Currently, the company has numerous projects on hand including the TV series Jakers, The Adventures of Piggley Winks and Pet Aliens, which are being broadcast on various channels in the US. Crest’s performance comes in the wake of the company’s transition from being a diversified media services player to a pure-play animation company. A few months ago, the company bagged the Apsara Film Producers Guild India (FPGI) award for the best animated series for Tenali Rama.

Animated shows from Crest are getting syndicated to television channels globally. According to Animation Magazine, RichCrest is now rated among the Top 15 companies worldwide for theatrical animation. By all accounts, the animation production industry in India has the potential to grow into a major export engine. To leverage this, companies such as Crest are rapidly scaling up to establish their credentials overseas.

chitra@expresscomputeronline.com