Firms worldwide are attracted by lower costs and high quality

Outsourcing to India is nothing new. But outsourcing complex animation work to a country that’s still building a track record? Now that’s different.

Indian companies joined the animation race about five years ago and rapidly catching up with their Asian neighbors, particularly the Philippines and South Korea.

Whether it’s Jack Frost, Ali Baba, Clootie and Dumpling, Piggley Winks, Cyber Dodo, FrogSkool or King Kong — the world is tooning into Indian-made animation as its reputation spreads as the “back office” of the world.

At the forefront of this push is India’s Crest Animation Studios.

Its biggest challenge will come in the next two years, when it will produce and release “Sylvester and the Magic Pebble,” based on the story by “Shrek” creator William Steig.

This is the first of three features under a new deal with Lions Gate Family Entertainment. The other pics are yet to be announced. Crest will co-finance and co-produce all three, with the first due to bow in 2007.

In something of a trial run for the feature deal, Lions Gate tapped Crest for its direct-to-DVD film “Arthur.”

The big draw for Lions Gate?

Crest has facilities in Hollywood and Bollywood, the world’s two biggest film centers. Voice recording, storyboarding and direction happens at Rich-Crest Animation Studios in Burbank, Calif. — run by former Disney animation director Richard Rich — while the animation is done overseas, where workers earn substantially less than their counterparts elsewhere.

“The way we are going to do it, we’re not going to house hundreds of animators all at once,” says Lions Gate Family Entertainment exec VP Ken Katsumoto.

Rich’s presence also was a driving factor in Lions Gate’s decision to team up with Crest.

“His standards and understanding of animation gave us the confidence that this was the right partner for us,” Katsumoto says. “What was interesting about Crest was they were not just a service company. It would be a great concern to hire someone just to get us in and out of production. They are our co-financing and co-production partners.”

Animation outsourcing in India hit $300 million in 2004 and is expected to grow by about 20% thanks to commissions from overseas producers, according to the National Assn. of Software & Services Cos. (Nasscom).

It cites India’s cutting-edge IT skills, large pool of highly educated English speakers and lower manpower costs as reasons for outsourcing. A typical half-hour 3-D animation TV episode costs between $70,000 and $100,000 to produce in India, compared with $170,000-$250,000 in the U.S., according to Nasscom.

“The reason to gamble on India is that your talent pool in other territories is tapped out or it has become too expensive,” says David Wolf, prexy of Beijing-based media consultancy Wolf Group Asia. “Unlike call centers or piece-goods manufacturing, you cannot create talent en masse. It has to be grown, and each market has a limited pool of such skills.”

Many are taking the gamble.

In the past year, Nasscom says about a dozen animated TV serials aimed at the U.S. and European markets were in various stages of production in India, with 3-D animation work outstripping 2-D cartoons.

In September, New York-based BKN New Media inked a $10 million deal outsourcing animation to India’s UTV Toonz, a division of UTV Software Communications.

The deal covers two 26-episode 3-D series, “Kong: The Next Generation” and another skein TBA.

That comes on top of four animation production and two co-production deals with overseas companies worth $4 million that UTV announced earlier this year.

UTV also has tied up with Cinegroupe of Canada to work on CGI series “Tripping the Rift,” airing on the Sci Fi Channel in the U.S.

Major media group Zee Telefilms signed a $14 million contract with Italian independent producer-distributor Mondo TV in 2004 to co-produce four animated series. Zee’s animation arm, Padmalaya Telefilms, inked partnership deals with British animation companies Mallard Media and Ealing Animation for “Clootie & Dumpling,” the animated adventures of two Scottish Highland bulls.

“We always felt India was underplayed in the field of animation, and once it gets its opportunity there is no holding back for this great country,” says Mondo TV’s Rick Corradi.

It wasn’t until 3-D animation that Indian companies began to compete, according to Crest chief exec A.K. Max Madhavan: “Crest chose 3-D over 2-D because there was too much 2-D already in the Philippines, Korea and China.”

The company’s big break came in 2002, when it received an order for 40 half-hour episodes of animated series “Jakers: The Adventures of Piggley-Winks.” The series, featuring the voice of Mel Brooks, won Crest an Emmy for animation production the following year.

Crest’s work on “Pet Alien” can be seen on Cartoon Network’s outlets worldwide, and it has done work on “Bratz,” on Fox in the U.S., and on the American Greetings property “The Care Bears.”

Madhavan estimates Crest will book approximately $20 million in revenue from its outsourced animation contracts this year.

“The opportunity is more exciting than the actual revenues right now,” he says.

(Pamela McClintock in Hollywood contributed to this report.)

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