California Visual Effects Houses Fight to Survive

Several businesses, including Industrial Light + Magic and Sony Pictures Imageworks, reveal strategies they're employing to stay relevant in a landscape that saw three VFX companies close late last year.

Can the visual effects industry survive in California?

With VFX businesses under pressure to do more with less — and with impossible-to-compete-with financial incentives being offered in various states and countries — the final two months of 2010 saw the closure of three notable California-based visual effects businesses: Asylum VFX, Café FX and ImageMovers Digital.

“The incentives being offered (outside of California) are very compelling, and our clients expect us to be able to offer prices that reflect these incentives, for better or worse,” said Randy Lake, executive vp and GM at Sony Pictures Imageworks.

To stay alive, California-headquartered effects houses surveyed by The Hollywood Reporter say their business strategies include early involvement on a project, carefully controlled overhead and sending work to areas that do offer incentives.

For Industrial Light + Magic, a key is getting involved early. “We are really partnering with the productions,” company president Lynwen Brennan said.

Depending on the scope of the work, that may be accomplished at ILM’s San Francisco headquarters, at its Singapore base or at other VFX houses with ILM managing the workflow.

“It’s not about having people who can work around the world but having the right talent,” Brennan said, a belief echoed by other interviewees. “We took our time to handpick the vendors that we work with.”

In Singapore, ILM and Lucasfilm — with its Jedi Master Training Program begun in 2008 — have developed talent of their own.

“Now Lucasfilm Singapore is in a place where we can take on significant portions of work and significant complexity,” Brennan said. By the end of 2010, an estimated 50% of talent at the base was Singaporean.

Lucasfilm Singapore completed roughly 25% of 2011 Paramount release Rango and is contributing to some of ILM’s San Francisco-led projects including Transformers: Dark of the Moon and Pirates of the Caribbean: On Stranger Tides. The Asian office is running out of space, and a new building is set to open in 2013.

Singapore also offers aggressive incentives.

Digital Domain also is seeking to get involved earlier in the production cycle. “We are trying to position Digital Domain as a production-company resource to the filmmakers,” CEO Cliff Plumer told THR, adding that the Venice-headquartered VFX business aims to get involved in the development process — creating concept art and presenting creative options — and working with the filmmakers to get a project greenlighted.

This was the case on Tron: Legacy, for which the Venice team created an early sequence to help to procure a greenlight. Once the film got the go-ahead, DD served as the lead VFX house, working in Venice and at its Vancouver-based operation (shooting also took place in Vancouver). For this massive project, DD also hired additional VFX houses in areas including India and Toronto.

“On Tron, we hired (outside VFX facilities) and showed them a lot of technology we were developing so it could integrate,” Plumer said. “The days of being a black box are over. You need to be more open to share assets and technology.”

Sony Pictures Imageworks also aims to streamline technical resources and infrastructure so that budgets are spent more on talent and less on overhead.

In recent years, Imageworks reduced its physical footprint in L.A. — consolidating into a single building — while opening bases in India, New Mexico and Vancouver, all of which offer financial advantages. “The key for us is maintaining talent in Culver City but also feeding the other offices,” Lake said.

“New Mexico was a result of aggressive tax incentives,” he added. “We’ll be getting up to 80-90 employees as we reach production peak on The Green Lantern.”

The majority of Alice in Wonderland was handled by Imageworks in Culver City, though work was sent to its India and New Mexico operations as well as to Café FX.

On the technical side, Imageworks is looking to streamline operations with open source initiatives. Imageworks and ILM co-developed and in 2010 launched an open source system — dubbed Alembic — aimed at helping VFX companies easily share complex animated scenes regardless of what software is being used.

Look Effects is a mid-sized FX house that debuted in L.A. in 1998, and in 2008 it opened an office in Brooklyn “to combat runaway business,” company president Mark Driscoll said. “New York has a pretty substantial tax incentive program, and that has turned out to be a rather substantial business generator for us. In this strange economy, we had our best year every last year. We grew revenue by about 40% from 2009 to 2010, and we expect 2011 to be on par. We have tapped into the creative hub that is New York.”

Driscoll said the company’s rule of thumb in this challenging time is living within one’s means. Look Effects runs a tight ship. “We are targeting director-driven movies, going after high-end but moderately sized projects,” he said. “We are not trying to go toe to toe with (large facilities such as DD).”

Black Swan was produced in New York, and Look Effects’ Brooklyn facility handled the visual effects work. Work on Robert De Niro-Bradley Cooper drama Limitless is among the projects now shared between its Los Angeles and New York operations.

The VFX industry, meanwhile, saw the recent launch of Atomic Fiction in Emeryville, Calif., headed by three veterans of ImageMovers, the former Disney-owned venture in Marin Country led by Robert Zemeckis, Jack Rapke and Steve Starkey. The Atomic partners told THR that its plan right out of the gate is to maintain low overhead. This will include exploiting cloud-computing services for rendering and possibly opening new bases where it could take advantage of incentives.

Though there is strong work in awards contention this season, many VFX pros viewed 2010 overall as a weak year for visual effects innovation. Some wonder if cost control is ultimately affecting the quality of the work.

It’s difficult to pin down, ILM’s Brennan said. “There is always a range of quality and a range of budgets, and there is always a range of easy to difficult work,” she said. “You make compromises based on budget.”