Executive summary

The animation and gaming industry have undergone a metamorphosis in the past two years. The
ride has been eventful from the highs of 2006-07 where expectations were immense to the lows
of end 2008 where the industry hit the brakes on the backdrop of global financial meltdown. In
the interim the animation and gaming industry has spread its influence across platforms, evolved
new business models and emerged as the prominent sunrise industry in the country. This report
attempts to encapsulate the evolution of the industry in the last two years, identifies the key growth
drivers, examines the challenges, provides recommendations to the government and charts the
road ahead.

Key trends
The significant changes which shaped the industry in the last few years were:
•• The shift from a pure offshoring services industry to the growth of domestic consumer market. In
gaming, the mobile and console segments contributed to domestic consumption and animation
entertainment segment took early steps towards domestic box office success.
•• The services market, on the back of successful project deliveries moved up the value chain especially
in animation with end to end animation movies being produced in India.
•• Growth of sub sectors like custom content development where animation is used for education,
training and simulation purposes and also the console gaming market with the entry of global majors
like Sony & Microsoft.

Market overview
Animation
The global animation market was estimated at USD 68 billion in 2008 and is expected to grow at a
CAGR of 10 per cent to reach USD 100 billion by 2012. The animation industry in India was estimated
at USD 494 million in 2008 and is expected to grow at a CAGR of 22 per cent to reach USD 1 billion by
2012. The animation industry in India can be divided into the following key segments:
•• Animation entertainment
•• Animation education
•• Custom content development and multimedia/web design
•• VFX
In absolute terms, custom content development and multimedia/web design is the largest segment
today, followed by animation entertainment, animation education and VFX. In 2012, custom content
development and multimedia/web design is expected to remain the largest segment, followed by
animation entertainment, VFX and animation education.

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 The animation and gaming industry in India

The growth drivers in the animation industry in India are:

•• There has been an increase in the size of the domestic animation market as well as the
outsourcing market.
•• Cost arbitrage is the key driver for development of foreign movies in India.
•• Proven credentials, international quality and on time delivery capabilities are helping Indian companies
get offshored work from foreign studios.
•• The industry has moved from a pure offshored model to co-production model in some cases. The
Indian studio brings in the manpower and infrastructure to develop the movie and the international
producer will finance marketing, distribution, etc.
•• The increased interest of Bollywood and regional cinema industry for animation has also helped
the industry.
•• With Internet advertising growing along with bandwidth, more complicated multimedia content is
being developed for the web.
•• The growth of new media and interactive platforms.

Gaming
The global gaming market was estimated at USD 36 billion in 2008 and is expected to grow at a
CAGR of 10.5 per cent to reach USD 53.6 billion by 2012. The Indian gaming industry was estimated at
USD 167 million in 2008 and is forecasted to grow at a CAGR of 49 per cent to reach USD 830 million
by 2012. The gaming industry can be divided into the following key segments:
•• Online games
•• Massively multiplayer online role-playing games (MMORPG)
•• Casual
•• Mobile games
•• PC games
•• Console games
•• Regular
•• Handheld

In 2008, the console gaming segment is estimated to account for the largest share of the Indian
gaming market, followed by mobile gaming, online gaming and PC gaming. In 2012, console gaming
is expected to retain market share and still account for the largest share of the Indian gaming market,
followed by mobile gaming, online gaming and finally PC gaming.
The growth drivers in the gaming industry in India are:
•• The growth of the gaming industry from 2006 levels is primarily driven by increased consumer
spending on gaming.
•• The services side of the business is propelled by captives set up by international publishers of mobile
game development, BPO support for MMORPG games and development revenues from PC/console
game production, game art, etc.

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•• By 2012, the movement up the value chain in services, resulting in more end-to-end offshoring work,
is expected to contribute to the growth of revenue from development services. Domestic outsourcing
is also expected to pick up, especially in the mobile and online gaming segment.
•• Original IP development in domestic and international markets, which is at a nascent stage, will gain
in significance in coming years.
•• Falling console prices and increasing mobile and broadband penetration are expected to give a fillip
to consumer markets.

Key challenges
Animation
Despite the significant progress made by the industry the growth is shackled by many issues and
challenges. In the animation sector prominent challenges are:
•• Lack of quality resources, limited training institutions and non standardization of curriculum resulting
in talent crunch
•• Limited domestic demand for animation due to limited promotional budgets and restricted
theatrical distribution
•• Lack of funding for the sector and scarcity of long-term project financing for animated movies.
•• High infrastructure costs for studio layout, pipeline setup, render farms etc. restricting scale of
animation companies.
•• Lack of incentive to develop local IP with the economics favoring offshore development versus
investments in indigenous IP creation.
•• Majority of the animated content in television is adapted foreign animation leading to low uptake of
domestic TV animated serials
•• Lack of wider distribution and retail points for animated home video /DVD content
•• Relatively smaller VFX budgets and restricted use of VFX in Bollywood and regional cinema

Gaming
The gaming sector has the following challenges:
•• Lack of trained man power in the industry who have the skill sets to develop end to end games and
have worked in advanced NGN pipelines
•• Infrastructure related issues like high cost of consoles, non availability of adequate bandwidth, non
availability of SDKs etc
•• Pirated copies of gaming software and tampering of consoles in still wide spread in the country
•• Acclimatizing the Indian population to gaming which is relatively a newer form of entertainment and
not integrated into the Indian culture.
•• Lack of original Indian IP and quality games with local themes which can spur the Indian market
•• High import duties for gaming hardware and absence of well defined policy for the growth of
gaming industry

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 The animation and gaming industry in India

Recommendations to the Government of India

Given the high growth and employment potential in the animation and gaming industry the
Government should take proactive steps to promote the industry. The key actions points for the
government are:
•• Restructuring of import duties for gaming console hardware and software so as to bring down the
prices of console hardware. This will result in adoption of consoles, growth in gaming software sales
and spur domestic game development market
•• Pursuing the skill set agenda for improving quality of animation and gaming education, setting up
standardized curriculum and nurturing talent so that quality of development in India can improve
leading to growth in offshoring development.
•• Provision of grants, rebates and tax holidays to preserve the cost advantage of India viz. cheaper
South East Asian markets which are emerging as alternative destinations
•• Mandating local animated content in commercial broadcasts during primetime giving a boost to
domestic animated content development
•• Removal of service tax and sales tax- The studios, which develop intellectual property in India, are
subjected to a service tax of 10.3 per cent (Union Budget 2009). The software used for creation and
production of animation, gaming and VFX attracts a sales tax of 4-5 per cent. Exemption from service
tax played a major role in the development of the software industry and the same is needed for the
animation and gaming industry

Recommendations to the industry

The industry constituents need to come together and drive focused initiatives to grow the sector.
The key initiatives to be undertaken by the industry are:
•• Improve quality and timeliness of project delivery
•• Improve efficiency and building steady business pipeline
•• Migrate up the value chain and end to end delivery
•• Drive initiatives to grow the domestic market and develop local content
•• Build wider distribution channels to increase market penetration

Recommendations to NASSCOM
•• To grow the industry, NASSCOM needs to be the thought leader in creating the industry information for
animation, gaming and VFX and deliver world-class research and strategic inputs for the industry.
•• NASSCOM also needs to encourage and facilitate members to uphold world class quality standards
and enhance operational excellence.
•• NASSCOM needs to engage with foreign industry associations, and continuously engage with all
member companies and stakeholders to devise strategies to achieve shared aspirations for the
industry and the country.
•• NASSCOM needs to create special focus around creation and upholding of intellectual
property rights.
•• NASSCOM features the Indian animation and gaming industry in international animation events such
as MIFA, Annecy, Amazia, SIGRAPH, GDC San Francisco -these activities will have to be enhanced
further, and more events will need to be added to the list.

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•• NASSCOM should develop and highlight success stories that showcase IP developed by Indian
companies, and also those of captive/MNC companies operating out of India
•• NASSCOM and the industry need to enhance the quality of talent available in India, and increase
employability of the students passing out of training institutes. The first step towards this would be
to work with the Government to set up the National Accreditation Authority for Education (NAAE) –
an independent body that develops standards for all aspects of educational practices –Institutional
programs, and certificates. The proposed board will decide on the modalities of a common entrance
test, degree and diploma courses and other aspects of animation and gaming education in the country.
This will enable world class levels of education in all sectors, standardize entrance and graduation
examinations, and will also ensure quality benchmarks and uniformity of curriculum.
•• NASSCOM needs to facilitate the introduction of long term degree programs that will help establish
animation and gaming as serious long term career choices
•• Further NASSCOM and the industry need to work together in engaging various stakeholders to address
and to create a balanced perspective about animation and gaming as a career in India.
•• NASSCOM and the industry need to partner with Central and State Governments to formulate policies
and legislation. As an ongoing engagement with the Government of India for strengthening the Indian
animation and gaming landscape, NASSCOM has been briefing the Ministry of Information and
Broadcasting (MIB) on various initiatives, such as the proposal for establishing a National Institute
of Animation & Gaming. The aim of this institute would be to help develop the much needed talent
for this industry.
•• Further activities include working with the MIB to support and promote the cause of various states who
are considering the setting up Entertainment Parks / Animation Academy / Related infrastructure on
PPP model, structure proposals on fiscal/tax issues pertaining to animation and gaming industry
that need government intervention and encourage the use of local content.

Future outlook
The key trends which can shape the future of the industry are
•• As offshore delivery model matures the cumulative effect of improved skill sets, quality of development,
on time delivery combined with cost advantage and scale can lead to expansive growth
•• Demand for domestic IP is expected to grow as animation and gaming seeps into Indian culture with
local themes, better promotion and wider distribution
•• Falling costs of gaming hardware and software will spur uptake in the domestic market and reduction
in duties can significantly accelerate the market
•• The entry of global majors and setting up of captive centers are significant milestones and as the
momentum picks up this will transform the animation and gaming landscape
In the near term the support from the government, competitiveness with emerging destinations and
rate of increase in domestic consumption will decide the pace of growth of the animation and gaming
industry. The future holds promise and potential is immense if the industry can be unshackled from
the current constraints.

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