The recent interest shown by Indian facility groups in the UK's post-production business underscores the decade-long trend of relocating routine, labour-intensive work to south-east Asia.
Indian facilities, led by Prasad Group, Adlabs Films and Prime Focus Limited (PFL), are looking to invest in entertainment hotspots such as LA and London. Underperforming post-production facilities could be an acquisition target for outfits aiming to gain a foothold in Western production and reroute work back home.
The most aggressive of these players is PFL, which in April this year acquired a 55% (£4.6m) stake in VTR Plc, the film mastering and effects facility before adding commercials house Clear to its list of companies last month.
PFL's intention, according to majority owner Namit Malhotra, is to hook UK clients with competitive rates from locally renowned facility houses and channel predominantly vfx work back to PFL's base in Chennai, south-east India.
'Because of low labour costs they [Indian facilities] can offer to complete background work much more cheaply than facilities in Europe,' points out Avid UK and EMEA general manager Peter Ramsay.
Producers can obtain considerable cost advantages in countries such as India where the wages of its non-unionised workforce can be a seventh of London's (senior animators earn £7,000 per year there against £50,000 in the UK, according to Indian trade body NASSCOM).
Long-form animation and vfx projects with large volumes of workstation processes such as wire removal, rotoscoping or 3D modelling gain most cost efficiencies through outsourcing although broadcast services such as digitisation, dubbing and even offline editing are also potential targets.
'Unless it's bulk programming like children's animation the amount of work is generally too small and turnaround times too tight for broadcast producers to consider outsourcing,' says Farokh Balsara, Ernst & Young's media and entertainment consultant in India. 'But the infrastructure is being put in place in India for future outsourcing of this kind of work.'
Ramsay adds: 'Equipment costs are the same everywhere, but while UK post-producers factor a return on investment for a Symphony or Flame over 18 months, the return on investment in India is 10 times that because the hourly rate is a 10th of the UK's so there's a need for them to look for additional work.'
With a war chest of up to £8m following its VTR and Clear deals, PFL's Malhotra says that his company plans to establish further outsourcing front-ends in Dubai's Studio City and Los Angeles and to link these via a fibre channel backbone operated by Flag Telecom, a subsidiary of PFL shareholder Reliance Communications.
He adds that Soho is a tempting proposition as it contains several midsize companies feeling the production budget pinch and which are looking for ways to remain competitive.
'We are keeping our eyes open for any new and interesting companies to consolidate with. Due to the great fragmentation of the market in Soho, consolidation in technology and talent gives us a position of strength.'
In VTR and Clear's case, Malhotra expects backend visual effects work across the board - film, tv and commercials along with asset management - to be outsourced to India, allowing them to compete among London's high cost base because they can now offer far cheaper rates.
Malhotra argues that the deal will be mutually beneficial because most Indian originated jobs - commercials work in particular - will in turn be finished in the UK - since the UK has creative talent which is attractive to Indian producers.
As well as the talent, it's the brand of VTR which Malhotra's company is buying into. 'To expand we needed a strong international presence and PFL has none. If we tried to set up a facility in the UK independently it would take some time for people to become accustomed to the benefits we offer. If we acquire a company with a strong brand name it removes the challenge of selling the concept,' he says.
Another PFL shareholder, the film-processing business Adlabs Films, has just opened a London marketing arm with a remit to explore distribution and post opportunities.
Prasad Group, a Hyderabad-based facility giant with outposts in Singapore and Dubai, also owns a sfx boutique in LA and is actively looking to appoint a London-based agent.
Several major London film facilities say they've received offers to buy or go into a joint-venture with Indian partners. 'We get calls every week,' says MPC managing director David Jeffers. The Mill managing director Pat Joseph refers to an 'unbelievable number of Indian companies asking us to subcontract DI (digital intermediate) work'.
While post work is being routed back to India, Indian film producers are in turn being wooed by the UK's film community to shoot more productions in the UK with a combination of tax incentives and a new co-production treaty (epitomised by the decision of the International Indian Film Academy to host its 2007 awards in Leeds). According to Ernst & Young's Balsara it makes sense for Indian facilities to invest in online suites nearer to the location shoot.
'Indian directors are increasingly coming to the UK to shoot and are set to make inroads in Hollywood,' confirms VTR operations director Neil Lane. 'There's a strong cross-cultural reason to make content applicable to both Indian and UK markets. Indian-affiliated facilities are being set up as shop-windows in London to handle client liaison for just this market.'
Aside from VTR no offers have been accepted although alliances are not ruled out. 'If we didn't have capacity we'd look to work with quality partners and location wouldn't matter,' says Cinesite managing director Colin Brown, who is also a board member of the facilities trade body UK Post.
Nonetheless, UK facilities say they would be reluctant to hand over even part ownership of a project to Indian outfits because of concerns about their ability to deliver. While facilities in the subcontinent have upgraded their technology (DI systems, Arri film scanners, banks of 3D modelling software) and can call on ranks of Bollywood trained technicians to produce acceptable standards of work, questions remain about management experience.
'There are few Indian companies which can deliver the quality of production necessary for a global release comparable with the UK,' says Cinesite's Brown. 'The attention to schedules and the absolute need to make fast turn-around times to hit deadlines is not something in place yet in India,' adds Ascent Media vice-president, film and digital services Paul Collard. 'US and European post-producers understand film management processes much better,' claims MPC managing director David Jeffers.
The need for training is widely recognised in India. 'To break out of outsourcing we need skilled personnel,' says Prasad spokesman Mohan Krishnan. 'We need to start looking at preplanning, project management and quality of service. Currently pre-production and conceptualisation happens abroad. To go up the value chain we need to get senior project managers to pass on their expertise.'
According to Saraswathi Balgam, director of operations at Rhythm & Hues India, the Mumbai division of LA's visual effects house: 'Today most Indian studios are pitching 'Brand India' as a low-cost, high-volume solution which I believe is not a very good focus. Good quality is what we should try to achieve.'
Krishnan thinks there's pressure on Indian facilities to expand away from outsourced production because of growing competition from eastern Europe and China. 'As we move up the value chain salaries will rise and other regions will compete with us on cost,' he says.
The lack of specialism in India contrasts markedly with that of the UK which has developed a post- production model hinged on diverse and sophisticated craft skills.
'Invariably it's the people producers want, not the machines,' says Avid's Ramsay. 'While key creatives like colourists, online editors or sound mixers are in London then work will stay.'
The shorter turnaround times for broadcast work make it less suitable for outsourcing, especially as producers like to have hands-on control of the process. This applies even when projects are CG-intensive.
'The sense of editorial control and ability to achieve fast turnarounds are the two reasons I wouldn't outsource over long distance,' says Impossible Pictures producer Tim Haines (Walking with Beasts, Ocean Odyssey). 'Even though you can send and download work online I prefer it to be visible. I like the sense of sitting next to the person making the changes.'
Broadcast facility managing directors claim to be untroubled by the potential rate undercutting by rivals outsourcing work back to India.
'You may be able to get an edit suite for a quarter of the price but our client base is about one-to-one relationships and ease of access,' says Evolutions managing director Simon Kanjee.
Marc Foligno, joint managing director of film and broadcast group Molinare, says: 'There will always be competition and it's a question of whether you regard it as an opportunity or a threat. We regard the possibility of working with an Indian firm for outsourced work as an opportunity in that we can pass on rate reductions to the client. I can't really see anything other than vfx work being outsourced though.'
One area where outsourcing could have more impact on broadcast is digital asset management. Although the digitisation, repurposing and distribution of digital media is viewed as a business opportunity for some Soho facilities, Indian firms could equally well service this at a fraction of the cost, leveraging the region's established IT outsourcing infrastructure.
IT outsourcing giant Genpact (40% owned by the US's General Electric - owner of NBC) has recently allied with New Delhi Television, which broadcasts three news channels in India, explicitly to take on the media management and offline services of foreign broadcasters and post- producers. Genpact's senior vice-president, Victor Martinez-Angles, says the company has approached MTV and the BBC and has pilot tests with other broadcasters in motion.
'It's early days and we are testing which business models work but we are offering a value proposition for media companies,' he says. 'For example offline editing takes up a high percentage of a project's time in post. We can complete that offshore cost effectively and leave the online creative element in the UK. Likewise we could digitise, log and store back catalogues, caption and subtitle content or repurpose content as rich media applications for the internet or mobile - an area we have had significant interest in.'
So far, suggests Ernst & Young's Balsara, outsourcing has been focused on non-core activities. 'For UK companies to feel confident about outsourcing assets to far-flung locations there first needs to be a successful proof of concept and currently there are none,' he says.