Indian movie studios set up shop in Los Angeles

Instead of waiting for Hollywood to outsource visual effects and animation work to them, well-heeled foreign companies are opening and buying studios in California.

Venkatesh Roddam may be the world’s most renowned outsourcing executive. But the 48-year-old native of Hyderabad, India, thinks conventional outsourcing is a bad idea when it comes to the movie business.

Roddam, a former chief executive of a leading Indian consulting company that provided offshoring services to the pharmaceutical, finance and telecom industries, is now in charge of Reliance MediaWorks’ film and media services business. The Mumbai, India, entertainment company is bulking up its business in Los Angeles; it is one of severalIndian and Chinese companies that have established beachheads in California.

Reliance partnered with China’s Galloping Horse last month to acquire Digital Domain,the high-profile visual effects company co-founded by director James Cameron, for $30.2 million.

In recent years, Reliance — whose parent company is Reliance Group, an Indian conglomerate controlled by billionaire Anil Ambani — also has acquired the Burbank digital film restoration company Lowry Digital, launched a U.S. regional theater chain that screens Bollywood movies, and provided key financing for Steven Spielberg‘s DreamWorks Studios.

“We truly believe that core of this business is in California and that our presence needs to be expanded here,” said Roddam, who like half a dozen other Reliance executives is moving to the company’s Burbank offices to boost its U.S. operations. “It’s not a business that can be treated like the IT business. You have to be physically close to where the customers are.”

That perspective is widespread among a new wave of Indian and Chinese foreign investors playing an increasingly influential role in California’s homegrown visual effects and postproduction sector.

Hollywood studios for many years have farmed out basic visual effects and animation work to India and other countries to take advantage of a pool of low-cost workers skilled in software engineering and computer graphics.

But well-heeled foreign companies such as Reliance are no longer waiting for work to be parceled out to them from thousands of miles away. They are setting up shop in Hollywood, opening their own studios or buying companies that have established relationships with directors and filmmakers.

The shift reflects China’s and India’s rise as global economic powers with the resources and desire to expand their own cultural industries. In another high-profile example, Chinese media company Dalian Wanda Group recently acquired AMC Entertainment, the United States’ second-largest theater chain.

“In order for countries like India and China to play the top role … like the U.S., they have to make their cultural industries top notch, which means that they have to make investments or help their own private companies to acquire American technology, talent and know-how,” said Demos Vardiabasis, a professor of economics at Pepperdine University’s Graziadio School of Business and Management. “It’s a must for them.”

Technology also has leveled the playing the field. The visual effects industry was once dominated by a few California companies with proprietary techniques and tools and staffs of artists trained to use them. But the advent of low-cost computer software and readily available digital workforces have created a global industry.

“Truly great technology and accomplished artists are now as available in Paris, Moscow, Beijing, Bangalore and Wellington as they are in London and Los Angeles,” said David Unger, an agent at ICM Partners who represents clients from India and China.

The rise in global competition has put the squeeze on California companies. Rivals have studios inCanada, Britain and India, where labor costs are as much as 60% cheaper. At least six California companies, including three in Los Angeles, have shut their doors in the last four years.

Others, such as Digital Domain, have been kept alive by the infusion of international investment. Its parent company filed for bankruptcy protection this summer, and its creditors included Reliance, which was owed $4.6 million. Digital Domain, which already operates studios in L.A.’s Venice neighborhood and Vancouver, Canada, had previously formed a partnership with Reliance to open studios in London and Mumbai.

Ed Ulbrich, Digital Domain’s newly appointed CEO, said the relationship with Galloping Horse and Reliance gives his company more resources to invest in the kind of pioneering research and development for which it was known when it worked on such movies as “The Curious Case of Benjamin Button.” The company also can expand business in the fast-growing Indian and Chinese film markets, he said.

Reliance, which operates India’s largest cinema chain, has facilities in India and Britain that provide a variety of postproduction services, including visual effects and film processing. L.A.-based rivals Rhythm & Hues Studios Inc. and Technicolor also have facilities in India.

“To be a digital effects provider now, you have to be able to deploy mass-scale digital production globally, and you have to be able to do it in a way that takes advantage of cheaper labor, tax incentives and rebates from governments,” Ulbrich said.

Roddam, formerly a senior banking executive with Deutsche Bank, said he wants to expand Reliance’s Burbank office, which employs about 75 people, and open a studio in New York. He was appointed by Reliance’s board as part of a restructuring that led to the resignation of then-CEO Anil Arjun in August. The company said in a filing that the changes were part of an effort to boost revenues that have been offset in recent years by heavy investments in new facilities in Mumbai, where it owns eight soundstages, and Britain.

Of course, a big bankroll and low-cost labor don’t guarantee success in Hollywood.

Tata Elxsi’s Visual Computing Labs, part of Indian conglomerate Tata, unveiled an office in Santa Monica in December 2009, citing its ability to achieve “significant economies” for its clients. The California studio hired Academy Award-winning visual effects supervisor Joel Hynek and other Hollywood veterans.

But although Tata has worked on some big projects, including “Spider-Man 3,” it has struggled to retain local talent. Two of Hynek’s colleagues — Tricia Ashford, the head of production, and Treva Blue, head of trailer production — recently resigned after clashes with management, said a person close to the studio who asked not to be identified for fear of reprisals. Tata representatives did not respond to requests for comment.

Another Indian firm making its mark on postproduction scene is Prime Focus, which in 2007 acquired Post Logic Studios, based in New York, and Frantic Films’ visual effects offices in Los Angeles, Vancouver and Winnipeg, Canada. Prime Focus has emerged as a leading player in converting movies into 3-D, getting work on such films as “Clash of the Titans” “Star Wars” and“Men in Black 3.”

Work is spread out among some 18 facilities in a digital pipeline spanning three continents. “I like to believe we’re not an Indian company but a truly global company,” said Namit Malhotra, CEO and founder of Prime Focus.

Malhotra also sees his role as helping cement cultural ties between the two countries. He recently provided technical assistance to Indian film director Vidhu Vinod Chopra, who is shooting an Indian film in California called “Broken Horses,” and has helped U.S. studios break into the Indian film market. “I felt there was an opportunity for me to build this bridge, to truly connect Hollywood and Bollywood,” he said.

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