Here is my attempt to summarize VFX industry. Would love to hear opinions from folks on my summary and specially for the risks, please highlight any other risks that you think of.
Global VFX Market Outlook:
The market is estimated to grow at a CAGR of 12.9% during 2024-2032.
2023 market size: USD 35.59 billion
2032 expected market size: USD 106.04 billion
Ref: Visual Effects (VFX) Market Report, Size, Share 2024-2032
Applications of VFX
- Movies
- Television
- Gaming
- Advertisement
- Virtual Reality
- Songs
Growth Triggers for VFX industry
1. Demand for high-quality content and Growth of Over-The-Top (OTT) channels
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In 2022, the global OTT video revenue was estimated to be USD 116.5 billion and it is estimated to reach USD 174.6 billion by 2027. VFX costs on a high-budget sci-fi/fantasy film can be around 20% of the total film budget.
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North America is one of the key regional markets for visual effects (VFX). In 2023, the average movie production budget of the USA, the top movie-producing country globally, was around USD 95 million. The country produced 1,282 movies in 2023. On the conservative side, if we assume 10% of total films use VFX (i.e. 128 movies) and it’s VFX budget is $2 billion (12895(20/100)) out of which India takes 20% market share i.e. $486 million. Out of TAM of $486 million, assume BFS gets 5% revenue which comes to $24 million which is about 200 crores (USD/INR Rs 83) is still more than 100% increase from past year.
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According to industry reports, in 2022, the global media and entertainment industry experienced a growth of 5.4% compared to the last year, culminating in revenues amounting to USD 2.32 trillion. Blockbuster films consistently rely on extensive visual effects and remain a significant attraction for viewers in cinemas and on streaming services worldwide.
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Indian OTT is at a scaling stage as per BCG.
2. Growth of Gaming Market
- In 2023, there were 3.22 billion video game players globally, a 4.21% growth compared to 2022. Gaming sector supports VFX market.
- The gaming market in Europe is a significant contributor to the demand for VFX solutions. In 2022, consumers spent around EUR 24.5 billion on video games across various European markets, an increase of around 5% compared to both 2021 and 2020.
- Mobile gaming accounts for approximately 70 per cent of the total revenue generated by video games, globally
3. 5G rollout
- With the Asia Pacific, India and China are significant revenue generating markets for VFX. The affordable data costs in these countries are a primary factor behind the expansion of their telecom internet user base, which in turn, drives the demand for digital entertainment, including online videos, audio streaming, and gaming.
Indian VFX Market Outlook
- The Indian VFX and animation industry is projected to achieve a CAGR of 20% to 25%, reaching an estimated market value of INR 190 billion by 2025 (Appendix D). Reference: https://timesofindia.indiatimes.com/blogs/voices/indias-vfx-and-animation-industry-booms-with-demand-and-innovation/
- Indian has <10% of global VFX market share in VFX and Animation sector currently, potential to scale upto 20-25%.
- UK has emerged as the primary VFX hub in Europe.
- Indian VFX & animation experts’ cost ~1/5th the cost of western counterparts.
- VFX & animation can be the next IT-BPM boom and play a fundamental role in India’s M&E by 2030.
- According to Statista, even with the challenges posed by the COVID-19 pandemic, India’s animation and VFX industry was valued at approximately Rs 107 billion in 2022. Interestingly, within this market, the VFX segment contributed the highest revenue, totalling around Rs 50 billion.
VFX Outsourcing Trend from 2014-2019
- The Canadian VFX industry experienced a period of significant growth between 2014-2019, particularly in Montreal because of generous tax incentives, Global Studios Setting Up Shop and Talent Pool Growth.
- During VFX outsourcing from US to Canada, Canada grew at 25% CAGR from 2014-19.
- Canada has around 100 VFX studios. Vancouver and Toronto are hubs for several animation and VFX service providers
Risks:
- AI tools are a huge risk for VFX industry as a whole, specially with modern text to image tools.
- Although VFX work is being outsourced to India now and major global VFX studios are setting up shop in India, it isn’t a complete takeover. Established VFX hubs like Montreal Canada, still offer advantages like tax credits and time zone proximity, making them attractive options for studios.
- Finding senior and creative talent pool is extremely tough and Indian VFX companies will poach each other to get those. Companies need to internally work on growing junior employees to work on different roles, specially on creative roles which would create more senior talent pool within India.
Appendix A: Understanding movie production lifecycle
References:
FICCI EY: Indian M&E sector crossed INR 2.3 trillion in 2023, expected to reach INR3.1 trillion by 2026, reveals the FICCI-EY report
BCG Indian Media Industry Report: https://web-assets.bcg.com/7b/a8/1eff85904e408c18fb8284a299f9/blockbuster-script-for-the-new-decade.pdf
Dis: Invested and biased towards VFX sector after reading all of these articles.
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