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One day after Rhythm & Hues, the Oscar-nominated visual effects house that created the Bengal tiger in Life of Pi, filed for chapter 11 bankruptcy protection, the VFX and postproduction community was expressing sadness and sympathy.
With the chapter 11 filing, the once-highflying company has laid off about 300 employees, according to sources, with many sending their résumés around town. Some wonder how the Los Angeles-based effects business can survive amid increased global competition.
Lee Berger, president of Rhythm & Hues’ film division, reported that the company’s offices will remain open during the bankruptcy proceeding and will finish current projects “at the quality level the studios have come to expect.” The company is busy with projects including Percy Jackson and the Sea of Monsters, R.I.P.D., The Seventh Son and Black Sky. “I believe that we are going to come out of this situation stronger, more efficient and as prolific as we are now,” Berger adds.
But the troubles facing R+H are all too familiar in the visual effects community. Several top shops have experienced money troubles as studios seek to reduce costs by farming out work overseas. For instance, Digital Domain Media Group filed for bankruptcy in September before selling its VFX business to India’s Reliance MediaWorks and China’s Galloping Horse for $30.2 million.
“This results from the unrelenting drive on the part of the studios to continue to lower their cost of production,” says VFX veteran Bob Coleman, founder of Digital Artists Agency. “We call this the race to the bottom. Some point their fingers at the [VFX] companies, which continue to lower rates. But the net consequence is lower margins. We have known for last 10 years that profit margins at the biggest house have been zero to 6 percent.”
But Coleman points out that Rhythm & Hues seemed to be adapting to the new climate. It was one of the first California-based VFX companies to open in India to take advantage of lower labor rates. More recently, it opened branches in Vancouver, as well as Malaysia and Taiwan.
But with an emphasis on making the lowest bid, Coleman says, “You can do the best visual effects work in the world, and you will struggle because you are not being allow to make money on the one thing that differentiates you: the quality of your work.”
Speaking broadly about the visual effects business, Digital Domain CEO Ed Ulbrich says “the pressures we all face” include competition from low-cost labor markets that allow overseas facilities to underbid more established companies that carry higher overhead. “We are forced to be global,” he says, “but having infrastructure and head count in these territories is adding costs.”
Compounding the situation are increasingly unpredictable film-production schedules. “We see [schedules] get pushed all the time,” he adds, noting that this causes a ripple effect.
Eric Roth, executive director of the Visual Effects Society, explains that about half of the VFX workforce might be freelancers that are hired for the duration of a given job. “If it’s a tentpole, there might be hundreds or thousands of VFX shots, meaning hiring dozens to hundreds,” he says. But if a company ramps up its team and then the schedule changes, those salaries for are dumped on the VFX company for weeks or months. “This is happening so frequently it is shining an intense and bright light on companies difficulties to stay afloat,” Roth says.
Ulbrich urges a rethink of the way that compensation packages for VFX are structured with productions.
While effects-driven films often generate big box office — the top 10 films of 2013 either contained a sizable amount of VFX or were animated productions — Roth points out that “the people who create these visual effects are in the most precarious position they have ever been in.”
Ten years ago, a top VFX artist might be able generate an annual salary of $200,000. One source estimates that today that number has dipped roughly 20 percent while another believes in some cases it is closer to 50 percent. While the number of jobs in Los Angeles is rapidly dropping, companies outside of L.A. also have become stingy about offering relocation packages, making a move difficult.
The impact of foreign production incentives is obvious. “You have companies like Rhythm & Hues competing with companies heavily subsidized by their governments,” Coleman says. “How do you compete?”
In recently years, effects houses including Rhythm & Hues, as well as Digital Domain, Industrial Light + Magic, Sony Pictures Imageworks and others have moved to the popular destination of Vancouver, where productions enjoy generous incentives.
“I think we have to be in the other places,” says Mark Driscoll, president of Look Effects, which started in L.A. and now maintains bases in Vancouver, New York and Stuttgart, Germany. “It gives us access to more projects.” The company, for instance, completed the recent hit Warm Bodies in its Vancouver office.
Still, other Canadian destinations, notably the province of Quebec, already are trying to lure work with tax credits. Since these offers keep changing, making different cities and countries the most attractive at a given time, one source notes there soon might be “visual effects ghost towns” left when the incentives stop.
The VFX business also faces challenges from inexpensive upstarts. Payam Shohadai, co-founder and executive VFX supervisor at Santa Monica and Melbourne-based Luma Pictures (whose recent credits include The Avengers) points out that a few thousand dollars could get you up and running nowadays. “You could start with a few people and cheap workstations,” he says. “It’s not as simple as subsidies or salaries. You’re competing in a global business with low barriers to entry and widely disparate wages.”
Leandro Marini, founder and supervising colorist at Santa Monica-based Local Hero Post, says the commodification of VFX tools is challenging the business model underlying the entire business.
“If more and more people can accomplish these visual effects, it is natural that studios will try to get the most competitive rates,” he says. “I don’t blame studios for trying to make films as efficiently as possible.”
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