Three years ago, Canada’s Funbag Animation was quite gung-ho about Korea as an off-shore service region. A Korean company had invested in its Toad Patrol series, and the animation quality it turned around more than met international market standards. But Funbag’s most recent show King, a co-production with Decode, was animated in India, and now the company is doing cheap Flash rendering out of its own Ottawa studio. Put simply, says production manager Philip Wood, it’s all about price point. And Korea is finding it difficult to compete on this level.

When it comes to animation, Korea is a victim of its own success. Back in the early ’90s when companies such as Film Roman, Disney and Warner Bros. began outsourcing to Asia, they turned to Korea, where expertise was abundant and packages affordable. ‘Korea had developed an effective production system that could digest a large number of shows with a limited staff…yet still preserve the essential characteristics of these shows,’ says Youn Shin, VP of overseas business for Plus One Animation. Korean companies came to rely heavily on service orders (known as OEMs) and didn’t bother developing original animation for their own market, in part because local broadcast fees are low at roughly US$20,000 per half hour for original programming and between US$2,000 and US$4,000 for foreign acquisitions.

But it wasn’t long before studios in other Eastern countries such as India and China began to underbid the Korean studios. And this cutthroat competition – paired with a string of economic crises that devalued the currency and caused a slump in domestic spending – have had a devastating impact on a formerly robust industry.

The tough times are reflected in a 50% drop-off in animation service work. In 1999, service production generated a record US$160 million, but that figure had dwindled to just US$77 million by 2003. As a result, the number of animation houses has shrunk from 200 to 150, and animation staff at these remaining studios has literally been cut in half, according to the Korea Culture & Content Agency (KOCCA). It’s now survival of the fittest.

Five years ago, Plus One pumped out 100 half hours a year; today it produces only 20. AKOM/Animatoon has also been hit hard. A decade ago, the company – a regular service supplier to Film Roman and Cinar – was churning out 25 half hours each month and had 1,500 people on its payroll. Today, its 120 employees manage to turn around three half hours a month. ‘We used to work day and night,’ says president Nelson Shin, adding simply, ‘Now we don’t.’

This dramatic change in fortunes is forcing Korean animation houses to reorganize. They can no longer compete on a dollar-to-dollar basis with China and India. Korean animation costs US$200,000 per half hour, compared to lowball offers of US$100,000 from some Indian firms. So they are weathering the economic storm by promoting their talent and their ability to access subsidies.

Korean companies are waking up to the fact that their salvation may lie with co-productions and original programming. This new reality is already being reflected in industry statistics: In the past, service supply work accounted for 70% of all production in Korea; now only 55% of the country’s animated output is comprised of OEMs.

The Korean government is trying to do its part to support domestic production, and its largest subsidy available to animators is disbursed by the SOVIC fund, which has a budget of US$47.4 million. Application guidelines specify that Korean companies whose projects have been accepted by a Korean broadcaster can apply for up to 40% of their production budget. This year, three animated projects received funding, although the Monetary Transactions Law forbids disclosure of their titles and the amounts they’ve received.

Because the rules for accessing subsidies are strict, only a handful of companies appear to be applying for funding. Nevertheless, co-production deals are being signed. According to Sang-Gil Lee, director of KOCCA, 15 companies are currently involved in co-productions. The only remaining question is this: Should Korean animation houses look East or West for partnerships?

Britain’s animators are so eager to strike up business relationships with Korean producers that its TV and film trade org Pact sent two delegations to Seoul in 2004 to scout for co-pro opportunities. Millimages UK chairman Jonathan Peel, who led the first group of three companies into the region last March, says Korea has traditionally ‘been a service market, but given that its economy is now 11th or 12th in the world, and the cost of producing animation there is now higher than quite a few other competitors… one way forward is co-rights as co-producers.’ Peel, who is also chairman of Pact’s Animation Policy Group, believes there are advantages in pairing large, experienced service houses in Korea with boutique British studios. The Koreans will benefit from the British creativity, and in turn, the Brits will gain from the Koreans’ experience in scale and efficiency when it comes to multi-episode, long-form production.

On his recommendation, another U.K. delegation comprised of 12 companies traveled to Seoul in search of partners last November. Leading the expedition this time was Colony Media director Mario Cavalli, who brought his own company’s productions to the bargaining table, including two projects in development with Endemol subsidiary Initial Kids and a 26 x half-hour tween action-adventure series called Nano VS that Colony is working on with Scholastic Entertainment. The trip has yet to bear fruit, but Colony Media is currently in discussions with several Korean producers.

Besides action-adventure toons, Cavalli says Koreans are very receptive to series for young children. Having presold her animated series Ebb & Flow to Five in March, Brit producer Kate Canning made the trek to Korea in November to evaluate the property’s DVD and merchandising potential there. She also spent some time investigating co-production opportunities for Ophelia, a 26 x five-minute series for kids ages four to six that her studio The Canning Factory is developing. Canning notes that while the lure of Korea’s government funding is very appealing, one would need ‘very sound bilingual production co-ordinators on-site’ during production.

A handful of Western animation companies have already made in-roads in Korea. Plus One has invested 6% in Folimage’s US$8.5-million 2D-animated feature Mia et le Migou, which is currently in production. The two companies’ chairmen met while serving on an animation jury at a Seoul-based festival. The French company was looking for an outfit to help distribute its product in Asia, and Plus One was looking for ‘a foot in Europe,’ says features production manager Paul Savonitto. ‘So it was a perfect partnership.’

Canada’s Cité-Amerique and Germany’s Scopas Medien have struck a co-production deal with clay animation specialist Image Plus on Dragon, a 26 x 12-minute series for older preschoolers based on Dav Pilkey’s children’s book Dragon’s Tales. This tripartite co-production is the first animated co-pro to air on a Korean television station (KBS). Image Plus, which has made a name for itself by making award-winning clay-animated features, is now aggressively moving into the TV arena through co-productions. The company has retained Asian rights to Dragon (with the exception of Japan), and a second season will head into production next month.

But not everyone in Korea is convinced that co-productions with the West are the way to go. ‘It’s not easy to co-produce with major U.S. clients,’ says Moon-ju Kang, GM of content for Sunwoo, because the stylistic gulf between East and West is still too great to bridge. By contrast, Korean cool has hit Asia with a vengeance. The local film Silmido was a hit in Japanese cinemas, Korean drama series are airing in prime time in Taiwan, and pop stars including Lee Jung Hyun are ripping up the charts in China and Hong Kong. The Korean ‘look’ is so hip right now that women from elsewhere in Asia are traveling to Seoul to get plastic surgery that will make them look more like the locals. It’s no wonder the animation community is eager to follow such a cultural wave.

Sunwoo still believes the future rests on Korea’s pool of talent. The company has maintained its relationship with studios such as Disney, Universal and Twentieth Century Fox because its teams have been able to step in and complete non-contracted pre-production work such as character design in a pinch for its clients. ‘We weren’t supposed to do these things,’ says Kang. ‘All that work is usually done in the U.S., but sometimes we had to improvise… And that’s something China and India can’t provide.’ This ability to wing it has helped Sunwoo land some contracted pre-pro jobs from Disney, as well as a fairly steady stream of service work during rough times. The shop has recently worked on projects such as Klasky Csupo’s All Grown Up series and Fox’s Family Guy.

Sunwoo is also actively exploring co-production partnerships. In the West, it’s sticking to preschool shows like Wild Animal Baby, a project that’s in development with the National Wildlife Federation and PBS in the U.S. But most of its focus is on the Japanese and Chinese markets. The company has not only co-produced Hip-Hop Duck with the Shanghai Animation Studio, but it’s currently developing a pilot for Mix Master, a series based on a trading card game, with the Japanese market in mind.

In addition, Sunwoo is producing a US$76-million feature film called Yu-Woo Bi under the direction of Lee Sung Kang (The Story Mari). The toon pic has received one-third of its budget from government subsidies courtesy of the Commission of Korean Film, a fund set up specifically to support animated features. ‘We are hoping that the Japanese market is the starting point,’ says Kang. The ultimate goal is to use Asian partners to leverage a better bargaining position for entering the bigger U.S. and European markets.

Iconix Entertainment and Hanaro Telecom have tried an altogether different approach, teaming up with a consortium of local companies – including North Korea’s Samcheolli Chonghoisa – to produce Pororo the Little Penguin. Following the 52 x five-minute CGI series’ screening at Annecy’s International Animation showcase in 2003, the North and South Korean partners are confident Pororo will recoup their investments in Korea – not through license fees, but through merchandising. According to licensing manager Youngsik Lim, Iconix racked up US$700,000 last year from Pororo plush toys, books and videos in Korea, and Lim expects that take to grow to US$2 million this year.

After failing to earn back its investment in Vancouver, Canada-based Studio B series What About Mimi? and Yvon of the Yukon through sales to Asian broadcasters, Dong Woo is steering clear of Western partnerships for the time being. Instead, the company is balancing service work on What’s New Scooby-Doo?, The Batman and Teen Titans for Warner Bros. with feature film Origami Fighter, a co-pro with a yet-to-be-named Chinese studio based on a Taiwanese comic. ‘The conditions of Asian co-production deals are better than the deals in the West,’ says Seung Kye, Dong Woo’s international business manager. Western partners typically leave Korean partners to recoup their investment from Asian territories. But in the case of Origami Fighter, Dong Woo is taking a percentage of all profits, and the company will also have more creative involvement since copyright issues aren’t as paramount amongst Asian partners.

At least one Korean company is gambling on original production. AKOM’s Nelson Shin has shied away from co-pros since getting burned on his 37% investment in Funbag’s Toad Patrol. Instead, he’s spent the last seven years producing his own US$6-million animated film The Empress Chung. ‘Since we lost so much (service) production in Korea, I had to do something,’ he says. ‘So I started my own production, of which I own 100% of the rights.’ The Empress Chung is roughly based on an old Korean folktale about a 16-year-old girl who sacrifices herself to a sea monster in a bid to restore her father’s eyesight and honor. Although the film was completed in August and won top honors at Korea’s equivalent of the Oscars, Shin is holding back its release in order to develop a marketing plan and find the proper distributors. Going it alone, he says, is not easy.

There may be a silver lining in Korea’s struggle to maintain its animation industry. The growing pains are forcing the country’s talent pool to create a whole different genre of animation – one that may better straddle the East-West divide. By combining the stylistic mannerisms of the East and the narrative structure of the West, companies like Sunwoo are hoping ‘to create a new look’ that will no doubt have its roots deep in the gaming industry. Most of the best illustrators and directors are employed by this corner of the entertainment business, says Kang. The next goal for the animation industry will be to harness them.

Editor’s note: The electronic version of this article has been edited from the original print version in order to correct or clarify some information that it contained.