Karen Raugust looks into how offshore outsourcing is gaining traction, but still presents challenges.
Global outsourcing for vfx and CG animation is growing as more studios around the world look for cost-effective production options and as the number of viable overseas studios increases, especially in regions where governmental support is strong.
Almost all western TV, film and commercial production companies, large and small, are now at least looking at doing bits and pieces of their vfx and CG work offshore. Large studios such as EA and DreamWorks are now aggressively looking at global outsourcing being a significant part of their model in a large way, explains Jai Natarajan, a Mumbai-based consultant to Indian animation and gaming start-ups and a former technical director at Industrial Light & Magic. Their projects lend legitimacy to an industry and [create] a talent pool in a given country.
Offshore outsourcing is taking hold even in industry sectors where it might not seem immediately obvious. Producers of TV commercials, for example, are sending vfx work overseas, according to Frank Foster, an animation producer specializing in offshore work and one of the founders of ImageWorks. For these companies, outsourcing is proving an efficient way to do business, even with the layers of clients and need for quick turnarounds that occur in the commercial sector.
One of the companies Foster works with, Tigar Hare Studios, has gone offshore to outsource modeling, and sometimes texture painting and rigging, for commercial clients such as Mattel; finishing is done in L.A. The studio also has completed 40 to 50 seconds of vfx, including animation, overseas for the live-action TV series NCIS. Were still able to keep up with changes and the delivery times of an episodic TV schedule, Foster reports.
Offshore outsourcing is growing in the gaming industry as well. Theres always been a lot of external development in the gaming industry, says Evan Hirsch, a freelance CG supervisor and consultant who has worked at EA and several CG/vfx studios. You dont call it outsourcing, you call it third-party development, but its nothing new. The new dimension is going overseas for third-party development, as the cost issue has been throwing the industry into disarray.
Meanwhile, global outsourcing has become an important tool in CG animation production for film, video and television too. The trends for CGI will be similar to the trends for traditional animation, adds Foster. It will start with the types of productions with the most labor and the lowest budgets. Offshore production is already established as a means of producing 3D TV series and is starting to be used for direct-to-video features; eventually it will become widely utilized for low-budget CG-animated theatrical films, too.
Many regions are positioning themselves as outsourcing destinations, but not all are created equal, nor are the individual studios within them. Many more countries are becoming players in the industry, out of Eastern Europe and South America, for example, suggests Natarajan. There is more talent, but also more confusion over whom to partner with and how to reliably do business in so many countries.
A growing number of governments are providing incentives for companies to get into the vfx/CGI business, which has led to industries springing up in a diverse set of regions, including mainland China, South and North Korea, Eastern Europe, Thailand, Singapore and the Philippines, India, Quebec, Vietnam and the Isle of Man.
Bill Schultz, partner at Mike Young Prods./Taffy Ent., points out, however, that CGI is not just about technology and subsidies, it is also about art, talent and experience in vfx or animation pipelines. Anyone with a computer can put out footage, Schultz insists. Just because you have machines, subsidies and students graduating from college, doesnt mean you can do a good CGI TV show. Its like a tennis player that has all the latest equipment but cant swing a racket. The problem is, governments see CGI as equivalent to technology, and everyone wants to develop a technology incubator. Technology equals stepping out of the third world.
Each region has its own unique characteristics. In Latin America, for example, Studio C, a 60-employee vfx house in Guatemala, is one of few shops capable of providing outsourcing work; it focuses on servicing U.S. companies. Founded by Carlos Arguello, who has worked at PDI and Cinesite, Studio C has provided vfx work, in association with Hammerhead Prods., for The Chronicles of Riddick and The Ring Two>, and is currently working on The Chronicles of Narnia: The Lion, the Witch and the Wardrobe. The studio also is developing a university for animation and vfx training in Guatemala.
Arguello points to the one-hour time difference and proximity to L.A. (a four-and-a-half hour flight away) as benefits of looking to Latin America. He also cites a talented workforce that has studied architecture, engineering and design and is eager to translate those skills to vfx. Crews, which tend to be younger than in the U.S., are well versed in the Internet and many artists have studied animation online. Despite these advantages, however, clients need to be sold on this emerging market as an outsourcing destination. It is an education process, admits Arguello.
Another region with rising potential for vfx is Eastern Europe. Most people recognize Eastern Europe and Russia as a source of some incredible talent, particularly on the technical side, due to their excellent math and engineering education and film culture, Natarajan offers. But he adds, So far, the number of large players who can deliver large projects is limited; the work is more by small groups of people delivering small contracts at near-Asian prices.
The creative level is substantially higher in Eastern Europe, than in many other regions, adds Hirsch, who cites the areas long tradition of puppet animation as one reason. Studios in the Ukraine, Russia, Poland, Hungary, Bulgaria and Czechoslovakia are positioned as offshore providers, including a few larger shops. An example of the latter, according to Hirsch, is the 150-employee Nikatova Games, which has offices in Eastern Europe and Chicago and supplies outsourcing for the gaming industry.
Its a very different conversation I have in Eastern Europe than I have in India or China, Hirsch says. In Asia, its we can do the same work for less money, but in Eastern Europe its we have very skilled people and wed like to take a chance on your work. He emphasizes that real cost-savings from outsourcing typically do not occur for several years, until a number of productions are completed long enough to move up the learning curve and that value (quality of work plus cost savings) is a better yardstick of a good relationship than cost savings alone. What Im looking for is work that I can get better overseas than I can in-house, and for less, Hirsh continues.
Language challenges, lack of business structures and piracy issues most of which characterize Asian countries as well are among the chief challenges in Eastern Europe, which does have an advantage in that it is geographically close to Western European clients. Natarajan believes studios in this region will increasingly become significant providers. They will rise fast, especially in the highly technical vfx and gaming spaces, once they start to organize themselves and some good investors come in, since the talent base at ground zero is stronger than where India, Malaysia or Vietnam were, he says.
A Leading Player: India
India has many studios involved in outsourcing, particularly in the Mumbai region, but it has focused more on direct-to-video and TV CG animation than vfx, at least to date. Most educated people in India speak English, the educational system is strong, as is the IT industry, there are academies specializing in 3D animation, and there is a vibrant film industry and an understanding of storytelling techniques.
However, Indian studios will eventually be able to work more in vfx, many believe, in part due to the size of the local film industry, which allows vfx houses to spread costs over both domestic and international clients. In the vfx area, the fact that [India] has the volumes of a domestic market will make it like China a robust local industry, says Biren Ghose, a CG veteran based in Mumbai.
Although many regions tout their proximity to their clients, Indian studios and clients say the time difference from India to the U.S. can be a benefit. With the 180-degree schedule shift, a U.S. studio can provide notes at the end of its day, the Indian CG provider can look at them in the morning and finish corrections and rendering by the end of its day, and have footage waiting for the western studio as its animators start work the next morning. Its a round-the-clock production cycle, Foster says.
Another up-and-coming region for CG animation is China, where Foster worked on a CG feature called Through the Moebius Strip. I expected the language problems, but I wasnt expecting the cultural differences, he adds. For example, cultural references in China are much different from those in the west; out of 200 animators on the Moebius Strip project, not one had seen 2001: A Space Odyssey. In addition, the work environment and other factors are unique, even compared to adjacent regions such as Hong Kong.
In emerging countries such as China, costs certainly are low enough to consider sending vfx or animation work there. It is worth remembering, however, that the infrastructure may not be fully in place. On Through the Moebius Strip, for example, the original plan was to outsource animation work to Hong Kong. By the time the L.A. pre-production phase was complete, however, the investors had decided production would be more cost-effective in mainland China. Production then took five years to complete, in large part, Foster says, because the investors and producers had to create a studio virtually from scratch. That studio, GDC (Global Digital Creation), is now taking on other jobs (including working on Bratz productions), and has become an institute for teaching CG animation in China.
Costs are a primary challenge for some countries trying to position themselves to accept outsourcing work. For example, although South Korea has a history of 2D animation outsourcing and a strong local animation business, its government has not supported its vfx/3D industry with subsidies as other regions have, which has hurt it vis Ã vis new competition from China and India. Pipelines are too expensive in [South] Korea, says Schultz. Its just a matter of economics. [Studios are] not capable of full co-production, but the pipeline isnt compatible with service pricing. Schultz believes the country will be able to make the economics work in the near future, however, and says MYP may be working with a South Korean studio soon.
Many people believe Singapore will eventually become a hub for outsourcing throughout Asia. Its government has provided significant incentives and is known for strict enforcement of intellectual property laws, and companies such as Lucasfilm have launched initiatives there. Two of Singapores neighbors in the Asia Pacific region, Australia and New Zealand, also have government subsidies and training support in place and a strong infrastructure, although they (like Singapore) struggle with scale issues and cost barriers.
Meanwhile, the growth in vfx and CG animation capabilities in regions around the world has affected more established outsourcing destinations, such as Canada. Canada finds itself in the mid-zone between the U.K. and India, where it has neither stepped up to large premium vfx work, nor been able to compete on large TV animation work, reports Natarajan.
Deal structures for vfx and especially CG animation outsourcing vary significantly from project to project. One model in the vfx sector is distributed production, where an overseas studio manages a single, often technical task, such as rendering or model-building. This helps the client efficiently and cost-effectively spread the workload. At the same time, it gives the overseas provider a chance to prove itself on a job that requires equipment, technical know-how and good prices, but not necessarily the storytelling or artistic experience that can be slow to develop in regions without a strong filmmaking history. Rhythm + Hues is an interesting case of having its compositing pipeline in India. Studio C, for example, started by taking on tasks such as modeling and mapping, which allowed it to gain the trust of studios.
Distributed production of vfx has been an accepted model among U.S. firms for a long time, of course. Most big effects-driven films employ at least four to five shops around the world, or more, to complete vfx work. The gaming industry also has outsourced many tasks, such as low-res/low-poly modeling or cut-scene cinematics. Now, distributed production is starting to move to global studios, and into the TV and DVD markets as well.
The gaming industry has also had a history of launching captive studios (wholly owned subsidiaries) overseas, and this model is starting to spread into the TV and film effects industry to some degree as well.
On the CG animation side, many outsourcing deals assume some type of co-production structure, rather than being pure work-for-hire projects. The term co-production can mean many things, however, ranging from a monetary co-investment by the overseas studio (sometimes in in-kind work rather than dollars) to a true creative collaboration driven by a rigid point system, by which each region exports some of the cultural and creative facets of the property.
Co-productions are perhaps more common even than just straightforward work-for-hire projects, says Foster. Its really a global collaboration rather than just handing out a contract and some storyboards.
There is an explosion in the number of people trying to be a part of the entry-level DVD and CG feature market, and some very creative deals are being struck for content creation and collaboration on production, even by small studios, suggests Natarajan. He adds that studios outside North America and Europe are increasingly able to become the driving force in such deals. Just when you think the world cant get any smaller, we are now seeing established Asian studios presenting the business and process front-end to clients, and working with small partners in eastern Europe to do quality work.
Telecommunications are improving globally too, although the Internet is still not as affordable in some countries as it is in the U.S. High-speed Internet not only allows files to be transmitted quickly but also enables Internet telephony, where global phone calling can be accomplished at Internet prices.
Foster notes that the Internet has become almost a commodity in regions such as India. He cites the example of one studio there that recently was hit by a typhoon that put 10 feet of water in its facility. It was back online in three or four days, a feat that helps illustrate how much the infrastructure has improved in that country.
In most major outsourcing destinations, consistent hardware configurations and studio architectures are in place, adds Natarajan. Overall, the hardware side is considered a solved problem. But he stresses that there are still challenges, both on the process and software sides. Experienced production managers and assistants are in short supply in some regions, and training is needed in some key software packages. Providers, especially in Asia and East Europe, have a long way to go in terms of processes and management of resources, he says, adding, Certain technologies remain exotic in Asia due to lack of guru-level personnel, notably mental ray, RenderMan, Linux and console-based gaming development.
Digital asset sharing, digital intermediate and data-centric workflow are rising trends both in the U.S. and, to a lesser extent, globally. But experts note that these technologies have not had a great impact on the outsourcing landscape yet. One of the greatest lies of the last five years is that asset management is working for everyone, Hirsh insists. Some of the largest companies have servers that do not allow for external communication; a server in New York, for instance, does not recognize a related server in Japan or enable third-party connections. FTP transmission remains the state of the art when it comes to sharing digital files.
On asset sharing, there are more and more long-form projects in which this can be implemented well given sufficient time, Natarajan says. For smaller contracts it is still a mixed bag, unless the client studio takes the trouble to define and enforce strict norms for data organization and tracking. He notes that when clients send offshore supervisors to the providers studio, asset management and other new workflow technologies can be smoothed and compliance improved.
More sophisticated data-management systems are likely to streamline the offshoring process in the future. The power of communications technology and file transfer rates have been the big value drivers in the first wave of this [global outsourcing] revolution, says Ghose. I believe that the data-centric workflow methods and technologies will create the second wave in this evolving space. Many filmmakers have shied away from heavy capital investments, as they do not have the studio model, with multiple projects to offset the capital cost. Hence, we will see the same trend as in, for example, post-production, where specialist production hubs will set up and syndicate their infrastructure and key talent across moviemakers and projects.
The 24-hour-a-day digital production cycles that occur with global outsourcing have reduced the hassles of customs and eliminated the need to wait for FedEx shipments. But Foster points out that continuous production also requires studios to set up their pipelines differently, with 24-hour departments for FTP and server-related issues, for example.
More and more producers and execs are starting to accept the reality that global collaboration is going to be a fundamental part of their job, adds Natarajan. Many new job descriptions are emerging and evolving, such as offshore supervisors and provider search and validation managers. Meanwhile, new generations of software tools and studio architectures are starting to incorporate the new, collaborative reality as well.
Many clients have not hired adequate overseas staff to make global outsourcing work, however. On the contrary, more art directors and CG supervisors are becoming bogged down, says Hirsch. They already have a full load and theyre getting pissed off. Were seeing producers fly back and forth, not realizing its a full-time production job to oversee the outsourcing.
Although technology and the production pipeline are always key issues, some outsourcing challenges arise for other reasons. Its not really about technical challenges, its more cultural challenges, and thats not unique to our industry; its true of all industries that do business overseas, says Arguello, who notes that modes of communication, visual styles and work ethics, among other factors, vary from country to country. Its not impossible to overcome, but you cant be blind to it.
These challenges have made some clients avoid outsourcing. Its going to take a while still for TV people to feel confident with the whole process, cautions Schultz, who notes that TV productions, unlike films, have fixed budgets and schedules, leaving less room for error. TV is just an unforgivable assembly line. That places TV producers in a difficult position when it comes to outsourcing vfx and CG animation, he says. Studios feel like its too expensive to do it domestically and too risky to outsource it.
It is still very risky, agrees Foster. Its still scary to a lot of producers.
Hirsch stresses that clients need to make a big, long-term investment in overseas outsourcing if they are to be successful. Most importantly, they must educate the provider on what they expect from it, provide it with clear and complete guidelines and offer adequate oversight. The biggest pitfall is that clients dont know what theyre doing, he says. They think, theyre good, theyre cheap, theyll get it. But the client has as much responsibility as the vendor for making [global outsourcing] work.
Karen Raugust is a Minneapolis-based freelance business writer specializing in animation, publishing, licensing and art. She is the author of The Licensing Business Handbook (EPM Communications).