In spite of all the talks about recession, we are quite optimistic about the growth of the entertainment industry
Crest Communication (CCL) is one of the leading animation and graphics companies in India. Last year, the company acquired Rich Animation, a US-based animation production studio, for a total consideration of $5 million (Rs 23.5 crore).
Though the company reported an impressive earnings growth of 119 per cent for the fiscal ended March 2001, the first quarter results were not so encouraging.
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For the quarter ended June 2001, both revenues and earnings declined by over 23 per cent. Gaurav Dua and Sameer Ranade spoke to Seema Ramanna, executive director, CCL about the recent developments in the company and its future plans.
What are the reasons for the poor performance during the first quarter ended June 2001?
The drop in the revenues was primarily due to the company's decision to move up the value chain. Moreover, you must understand, we are continuously working on projects and the revenues are only booked on the basis of completion of work. So,. We have been restructuring our business.
In the domestic market, until recently, we were primarily a servicing house catering to the needs of production houses. Now we have gradually shifted from being a servicing house to a producing house ourselves.
This was a conscious decision to improvise on our core strengths -- technology and creativity. This will also enable us to be more prepared for any downtrend in the local market conditions.
What has been the benefits from the acquisition of Rich Animation?
Unlike other production houses, where big distribution companies such as Universal Studios, Paramount, Columbia Tristar, have a significant stake, Rich Animation is the only independent animation studio in Hollywood today.
So the acquisition of Rich Animation has given us an entry into the US markets. Besides, it is an important step in moving up the value chain.
In the past, Rich Animation has been involved in production of films aggregating to about $700 million (Rs 3,000 crore). It has produced successful films like King and I ,One Princess,Trumpet of Swan, etc.
In fact,Trumpet of Swan was actually a home video but Columbia Tristar decided to do a theatrical release of the movie. This is quite an achievement for any company.
To do an animation film out of Hollywood is an expensive proposition for any production house. The cost of production for a typical animation film could range anywhere from $180 million (Rs 850 crore) to $250 million (Rs 1175 crore).
Therefore, they normally look for an overseas contractor to bring down the cost. So in case of Rich Animation, the outsourcing from CCL will substantially reduce the cost of production. On the other hand, it will result in continuous flow of work and revenues for CCL.
This apart, we are currently working on a contract with them that will result in revenues worth $12 million (Rs 56 crore) over the next three years.
Besides, Rich Animation is also developing two new films that have already been signed up by the distributors in Hollywood. We should be getting the outsourcing work for these films also.
How has Rich Animation performed in the last fiscal?
When we acquired the company last year, it was a profit making organisation. However, it might not be able to show any profits this year as the projects undertaken by the company are still not completed.
What is the status of your proposed joint ventures with Global Tele-Systems and Vision Technologies that were announced last year?
We had actually agreed to set up a venture with Global Tele-Systems (GTL) to provide content for the proposed broadband network that was to be rolled out by the consortium comprising GTL, Maharashtra State Electricity Board (MSEB) and Enron. But unfortunately, the proposed broadband project did not take off.
Similarly, Vision Technologies had chalked out plans for the television and entertainment industry, and they needed us to help them in the project. But again, the project did not materialise.
When are you planning to launch your full-length 3D animation feature film?
We are working on a 3D film with Rich Animation called Automation. It will be launched only by 2003. Typically, production of a full-length animation movie takes anywhere from three to four years.
We have already signed an agreement with Columbia Tristar for the distribution of the film and, at this point of time, we cannot disclose the total budget of the movie.
Do you believe that the general slowdown in the economy will have an adverse impact on the growth of the entertainment industry?
In spite of all the talks about recession, we are quite optimistic about the growth of the entertainment industry. To be honest, it would be quite difficult to speculate on the percentage of growth but there are several reasons why entertainment as an industry will continue to grow.
First, there is a distinct change in the lifestyle and general standard of living of the people. In addition to the economic factors, there are sociological and cultural reasons that will move the industry.
There is a growing demand for quality entertainment. Animation is an interesting part of the entertainment business, as it has several other dimensions attached to it.
For instance, it can be very effectively used as a tool for education. We have the creative talent and the technology to exploit the vast global demand for animation and special effects services.
Then why do we only see low-value post-production work like dubbing, editing, etc., being sourced from Indian animation companies?
Yes, it is right that lots of post-production work like editing and dubbing is coming to India. But the high-value work will only come to companies with creative talent backed by state-of-the-art technology infrastructure.
In fact, many software and financially strong companies that have ventured into the animation business are now realising that creativity is an important aspect for the success in this field. This mix of creativity and technology is available with us.
We are very strong in special effects also. In fact, we are probably the only production house that can independently do a movie like Mummy Returns from India.
For domestic companies to succeed in the overseas market, there has to be emphasis on quality. Some of the companies have not been meeting these quality standards. Moreover, there is a problem of trained and quality manpower in the domestic animation industry.
What has been the employee turnover ratio in CCL? And what are the steps taken to retain skilled and trained professionals?
On an average, we lose a very insignificant number of people. That's because employees in this industry typically get excited by the kind of work and projects, rather than the huge salaries.
You give them projects of international repute and they are satisfied and happy. Their loyalties are towards the kind of projects than the money.
This apart, we are probably the only production house in India that has a proper human resource (HR) department. Besides, we have a full-fledged in-house training system. We have an organised and structured way of growing and are quite optimistic about the future.