By Krittivas Mukherjee

MUMBAI - Last year, a young superhero criss-crossed film screens in India with a golden mace as he fought fire-spitting demons and serpents to save good guys.

In a country that never tires of its high-decibel formulaic musicals, the animated exploits of chubby "Hanuman" -- the monkey-god revered by Hindus -- was a surprise hit.

Walt Disney bought the rights, putting a stamp of approval on India's home-made animation films and encouraging animation outsourcing firms to turn to production.

Once just outsourcing sweatshops that sketched, painted and digitised ordered content, Indian animation firms are now signing co-production deals with international studios to boost their earnings, industry officials say.

With annual revenues of $310 million, the industry has grown so far on the back of an explosion in outsourcing of animated computer images for television, cinema and the Internet at a quarter of the cost of that in the United States and Britain.

Now big players are moving away from outsourcing to claim ownership of their products and share copyrights and profits.

"Creative co-production gives greater control and ownership and it takes the companies up the value chain," said Sunil Mehta, vice-president of National Association of Software and Service Companies (Nasscom), the main industry lobby.

The trend is expected to help India's animation and gaming market quadruple to $1.3 million by 2009 and employ about 30,000 animators, says Nasscom.

Animation companies say growth in the outsourcing model has begun to plateau, but co-production was yielding multiple sources of revenue from merchandising to licensing.

Companies are reluctant to give price details but say profit margins are higher in co-production because the life-cycle of a product is longer, unlike in a service deal where it ends with the completion of the animation.

Co-production will contribute 70 percent of profits in about four years, double the levels now, industry estimates showed.

Indian companies such as UTV Software Communications, Toonz Animation, Pentamedia Graphics, Crest Communications, DQ Entertainment and JadooWorks have signed deals with firms such as Walt Disney, NBC Universal and Mattel to share copyrights and profits.

"Obviously, just the work-for-hire module doesn't add any valuation. Co-owning the intellectual property makes sense," A.K. Madhavan, CEO of Crest Communication, told Reuters.

Fund managers say animation companies were moving up the value chain and stock investors were beginning to take notice.

"But the full potential of the (co-production) model will be known once the product is seen and how it performs. Until then the market will wait," said Suhas Naik, director of equities of ING Vyasa bank.

ANIMATION FILMS

The Indian animation industry has grown over the years, but it wasn't until last year that a full-length animated feature film was made in India in "Hanuman".

The film's surprise success at the box office has prompted even Bollywood producers to eye the animation pie.

Top Bollywood filmmaker Ravi Chopra is making an animated film about the Hindu god Krishna to be released next year. UTV's animation division also planned to make cartoon feature films.

Toonz Animation's "The Adventures of Tenali Raman" was sold to TV stations in Asia, Europe, North America and Singapore, and JadooWorks is reportedly producing two animated films - "Lord Krishna" and "Bombay Dogs".

"We entered the animation business through the services arena, but currently several projects are in discussion for direct to video and theatrical releases," said Siddharth Roy Kapur of UTV, a big name in Bollywood films.

The cartoon film boom isn't restricted to Hindi or English languages and filmmakers in southern Indian languages are also stepping in.

"Though animated films take time and need more manpower, we have invested in this medium because it's the global trend right now," said Bhargav, who is producing the Telegu-language "Kittu", an animated story of a clever monkey.

"Animation films may never equal live-action movies, but animation stories are getting into the genre of family entertainment in India," said Madhavan.