Jenny Fulle.

Fear and fantasy are the dynamic duo of the visual effects industry and they often stimulate wonderful creative work. However, they do just the opposite in the economy. There is no denying that we are in the midst of the worst economic downturn in almost a century and people are frightened. There are many reasons that jobs are being eliminated and companies are downsizing and certainly many people have less disposable income. How does the current economic situation affect the visual effects industry and what will the impact be in the years to come?

Frankly, I don't think it plays much of a direct role at all. While "Joe the Plumber" and his family may be cutting back on expenses, the digital effects for their home movies have never been the target of the visual effects industry. It is true that the visual effects business is built on Joe buying movie tickets for the family and while you might expect Joe to buy fewer tickets, history tells us that the business of theatrically-released movies actually does better in tough times. People are traveling less and more inclined to spend two hours escaping from the stressful reality of everyday life. The film industry as a whole should be fine, but U.S.-based visual effects facilities, as we know them, may not be so fortunate.

Industry Trends
The business of visual effects is a cyclical one. Anyone who has been around long enough to remember optical printers and stop-motion animation has been around long enough to experience periods of strategic change and restructuring. Even those who are relatively new to the industry have witnessed ebbs and flows that cause directional adjustment and resizing. While the WGA strike and potential SAG strike have certainly had an impact on the number of films being greenlit, the story of tighter budgets and shorter schedules is not new to our industry. We've all witnessed the demise of beloved vfx facilities and the phoenix-like rising from the ashes of others. Regardless of economic times, it's the natural evolution.

The difference this time will be in the recovery. It is my opinion that through this downturn, fewer companies will rise from the ashes. Especially hard hit will be the components of companies who rely on more of a traditional type of work. I believe that companies with the ability to create new technology will need to refocus their energies on just that and leave the traditional work to the companies and individuals who have the ability to execute the work at a much lower cost. In the end, this will likely mean the end of some larger facilities and many of the mid-size ones. The good news for the remaining, newly-refocused facilities is that there will be less competition for never-before-seen work and pricing will likely increase and stabilize.

Global Competition
For so long, California was at the center of the universe of the visual effects industry. The landscape changed dramatically in the last decade when the U.K. initiated its aggressive tax incentive. The result was an opportunity for the visual effects industry in London to develop their talent and establish itself as a major player. They seized that opportunity and now share the center of that universe with California.

Additionally, in recent years there has been an explosion of talent on a global level. Some countries previously unnoticed by the U.S. film industry stimulated their industries by providing aggressive government tax incentives and others had lower cost wages that could not be ignored. In Russia, Canada, India, China, Guatemala, Singapore, Brazil and countries too numerous to name, new artists are highly motivated and eager to carve out a niche for themselves in the Hollywood film industry.

Further aiding their competitive viability, the cost for establishing infrastructure continues to drop. Technology continues to evolve in a way that makes hardware more affordable. Off-the-shelf software offers the ability to take on more sophisticated tasks -- tasks that only a short time ago were relegated to those facilities that had the resources to dedicate to the R&D of a proprietary pipeline. Add to all of this the fact that just a few years ago there were only a handful of schools that had curriculum directly applicable to the visual effects industry; now they are much more numerous and accessible, including online courses. The talent in these "emerging" markets along with individuals who want to work from home on their own terms are swiftly proving that they are a viable option for providing varying degrees of service on any caliber of Hollywood film.

These factors create significant challenges for established companies that have evolved through the creation of technology that was costly to develop and now is readily available as off-the-shelf software. The result is pipelines that are relatively expensive to maintain. They have withstood periods of time when there were not enough artists to fill the seats and now the salaries reflect the legacy of those bidding wars. For many companies, having to train new artists on proprietary software is more costly than holding them through periods of low utilization and the result is a higher daily billing rate than the weekly salary represents.

Combine all of this with the comparatively high wages that artists in California enjoy, the lack of incentive offered by the state and there is simply not enough efficiency to compensate for the budgetary differences. This is especially true when the work being bid can be accomplished by competition that is based in a lower wage or tax incentivised area, or by a group of artists working in a garage with virtually no overhead. The sum of these forces is a pricing structure within the California-based facilities that cannot possibly compete on a global level for a large percentage of the visual effects work.

New Production Model
Facilities with business models that include a large component of traditional effects work are going to have to rethink their strategy. By traditional, I am referring to work which is not ground-breaking and can be accomplished with non-proprietary, readily available technology: the very work that many mid-size facilities and, to an extent, some larger facilities have built much of their business on. In the current marketplace, there is a lot more competition for this sort of bread-and-butter work. Along with more affordable hardware and software is the fact that moving large amounts of data across continents is no longer the logistical nightmare it once was, making long distance options far more viable.