Rough Times for VFX: But is it the Recession?

[1]

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.

[2]

I believe the trend will be more toward that of a "production shingle": hiring key talent, setting up space, hiring a core crew and then outsourcing the majority of the work. This model does not preclude a production from utilizing a large house for the portion of groundbreaking effects it may need, but rather enables it to achieve the simpler work without the budgetary burden of high overhead and salaries, allowing the vfx dollars to go a little further. This is not a new paradigm, just one whose time has come. There are many driving forces to support the growth of this model -- ever-tightening budgets, shorter schedules, an individual's access to academic training, rates more competitive than ever and the ability to leverage tax incentives around the world -- all of which make this model not only attractive but also necessary in many cases.

2012 Model:
A good example of the new model is Roland Emmerich [3]'s upcoming 2012. For this project, Volker Engel [4], Marc Weigert [5] and Josh Jaggars [6] set up a core team of 80 artists on the Sony lot. This core team is completing 225 of the 1,380 shots for the film. It also acts as a hub for the work that includes the services of 12 outside companies. The companies have been selected for their expertise on the type of shots they're awarded. Assembled specifically for the project, they will dismantle the infrastructure and disband when the project is complete. There are no utilization issues driving rates higher and overhead is kept to a minimum. While there are upfront costs associated with setting up a core team of so many artists, equipment is built and purchased in such a way that it can be easily sold on eBay when the production is complete for an estimated 50 cents on the dollar.

Framestore worked with six other houses to create the world of The Golden Compass, earning the Oscar and BAFTA along the way. All images © 2007 New Line Cinema.

[7]

The Golden Compass Model:
Another example is The Golden Compass [8]. For this film, there was a mandate to keep as much of the work as possible in England so as to leverage the benefits of the U.K. tax incentive. Combined with that was an extremely tight schedule that made it impossible for one facility to complete all of the shots in time for the targeted release date. The decision was made to use several vendors, seven in total, specifically chosen for their strengths. In this case, Mike Fink [9] and Susan MacLeod assembled a core team that consisted of the visual effects production team, editorial and a small group of previs artists. At the completion of principal photography, previs artists (referred to as postvis in the latter stages) were brought in as needed to assemble temporary comps for screenings and complete some of the simpler 2D shots for the final. The group was disbanded upon completion. Fink and his team were recognized for their work and acknowledged with both the Oscar and BAFTA awards for visual effects in 2008.

Our Charge
Our industry is always changing and it has always been on the "cutting edge." We have always been plagued with budgetary restrictions and spending constraints. This time, however, there are other components that are changing the game significantly. We cannot wait and hope that the government will step in and bail us out as it did the troubled auto industry. We can, instead, reassert our role as industry leaders by implementing new and inventive ways to shape the future and help define the path into this new frontier. We can expand measures of ingenuity and self-help and face the reality that the visual effects community is now a global one and that our universe is expanding. We can move forward with more viable production models. However, in doing so, we will likely need to adjust our expectations regarding salary, security and the privilege to which we have become so accustomed. After almost 30 years in the industry, I have faith in our ability to reinvent ourselves and come out stronger, but we must first be willing to acknowledge that the landscape is changing and we must become willing to change with it.

Jenny Fulle has worked in the visual effects and animation industry for more than 25 years. She is co-Founder and Executive Producer of The Creative-Cartel, a Los Angeles-based production company specializing in the utilization of a globally-based digital community.

Before starting The Creative-Cartel with her partner Marc Kolbe, Fulle worked as EVP of Production/Executive Producer for Sony Pictures Imageworks. While at Imageworks, Fulle managed digital production on Sony Pictures Animation’s Academy Award nominated film Surf’s Up, Academy Award nominated The Chronicles of Narnia: The Lion, the Witch and the Wardrobe, Academy Award-winning Spider-Man 2, Academy Award and BAFTA nominated Spider-Man, as well as Imageworks’ first animated short and Oscar winner for Best Animated Short Film in 2002, The Cubb-Chubbs. Some of Fulle’s other Imageworks credits include Open Season, Charlie’s Angels, Bad Boys 2, The Matrix Reloaded, The Matrix Revolutions, I Am Legend, Stuart Little, The Aviator, Hancock and Ghost Rider.