Postmortem: (Rhythm & Hues Bankrupcy): What happened...

Become a member of the CGSociety

Connect, Share, and Learn with our Large Growing CG Art Community. It's Free!

THREAD CLOSED
 
Thread Tools Search this Thread Display Modes
  03 March 2013
Postmortem: (Rhythm & Hues Bankrupcy): What happened...

A piece by Peter Plantec on Studio daily has a detailed timeline of the events that led to Rhythm & Hues Bankrupcy. It is an eye opening article that I encourage all to read.

Quote:
" I have a number of dear friends working at R&H abroad. So in my opinion this house has been doing many of the things I've been preaching for a long time all the key elements for survival in this industry. So I had to dig deeper to find out what in hell was going on.

Digging Deeper
I did find a number of management inefficiencies and policies that might be improved, but in general it looks like R&H was able to function well as a business. The company's longevity would reinforce that impression.

But then I discovered that there was a major difference in what went on at R&H during 2012 and early 2013. Remember that R&H has many parallel shows running in production at any one time. Sometimes there are delays caused by factors beyond their control, usually studios. Studio delays are a vice squeezing the life out of any VFX house. Why? Because you have to maintain the crew.

In this business, if you let part of a well-honed crew go, you're not going to get them back. Also, the kind of shows R&H was fielding required top talent. Core people. People who know their pipeline. They were big shows, primarily run on Houdini pipelines that were customized and fine-tuned to each show. That meant R&H maintained a sizable Houdini team with development and support programmers. Plus they had to maintain their own proprietary tools teams, as well. These are full-time key individuals that had to be dedicated to these specific shows.

You would think the studios would have to pay for their delays. After all, it causes the VFX house to incur significant additional costs. But lots of luck with that.

From March of 2012 until April of 2013, R&H experienced devastating six-month delays on two major in-house shows. Add to that four-month delays on two other very large shows. From what I've been able to piece together, each of those four shows had between 150 and 200 people dedicated. I suspect they could have let some of those people go, but R&H rarely does ordinary VFX. They do the hard stuff, and you can't just hire anybody to come in and do it. They needed their special people.

Lets talk about what that costs. Consider those 150 and 200 artists on each of these shows. Total cost per artist, including overhead, is about $2000.00 per week. That is between $1.2 and $1.6 million per month that R&H had to eat. And so it was that R&H developed a cash-flow problem. They were out of pocket between $25 and $30 million dollars to pay for studio delays. Ouch. How much sense does that make? I don't know of any house that could sustain those kinds of losses and survive.

"

http://www.studiodaily.com/2013/03/.../#disqus_thread
__________________
LW FREE MODELS:FOR REAL Home Anatomy Thread
FXWARS
:Daily Sketch Forum:HCR Modeling
This message does not reflect the opinions of the US Government

 
  03 March 2013
So the model's single point of failure is that studios are not made to hold on to time-bound obligations.

They are not charged for delays the way an Engineering firm would charge a client for delays after their people had started designing a motor or another industrial part.

Interesting..... and not that hard to fix....all they need to do is bring in some managers from Engineering or Construction firms where similar issues are sorted already.
__________________
"Your most creative work is pre-production, once the film is in production, demands on time force you to produce rather than create."
My ArtStation
 
  03 March 2013
Didn't think about how much delays can affect this business but it makes a lot of sense. It all goes back to how VFX houses need to change the way they charge for work from charging based on amount of work to charging based on the amount of time it takes. In an ideal world, a VFX company would negotiate a contract with a studio that says on this particular date, our meter starts going regardless of whether youre ready or not. That meter stops running when the client approves the final shot. For every week the post production schedule is shortened, the cost per hour increases by a certain percentage to accomodate the need to hire additional staff.
__________________
"Have you ever just stared at it.......Marveled at its bee yooty?"
 
  03 March 2013
Originally Posted by zzacmann: Didn't think about how much delays can affect this business but it makes a lot of sense. It all goes back to how VFX houses need to change the way they charge for work from charging based on amount of work to charging based on the amount of time it takes. In an ideal world, a VFX company would negotiate a contract with a studio that says on this particular date, our meter starts going regardless of whether youre ready or not. That meter stops running when the client approves the final shot. For every week the post production schedule is shortened, the cost per hour increases by a certain percentage to accomodate the need to hire additional staff.


Again, in the world of real estate development, construction, and engineering supply, these issues were encountered long ago in the age of the Industrial Revolution.

I have witnessed first-hand that contracts in these industries maintain a time table, and Clients must be made to pay for delays attributable to them - per day and per head maintained during delay.

The VFX industry hasn't caught on, that's all.
__________________
"Your most creative work is pre-production, once the film is in production, demands on time force you to produce rather than create."
My ArtStation
 
  03 March 2013
OK, i get all this and its definitely not right that the studios don't pay when they delay VFX houses, but did no in R&H's accounting dept look at the numbers to keep all these people on and go "ummmmm..."?

Why didn't they do something to alleviate that? Did they not see the big bankrupcy warning sign that came with keeping all these "best of the best" animators on board?

I think there is a large portion of the real story missing here, seems to me that there was some serious financial mismanagement that went on that had nothing to do with studio delays. Just my opinion of course.

Also, this article could do with a little less ass kissing
__________________
www.weliketomakethings.com

Last edited by thethule : 03 March 2013 at 02:51 PM.
 
  03 March 2013
Originally Posted by thethule: Also, this article could do with a little less ass kissing


Maybe your post could do with a little less cynicism.

I've always heard amazing things about that studio from friends I know who worked there.

I think the "ass-kissing" is one part honest praise, and one part there to show the contrast of, well, if they did everything so well, why did they fail?
__________________
-Michael

www.MichaelSime.com
 
  03 March 2013
Originally Posted by thethule: OK, i get all this and its definitely not right that the studios don't pay when they delay VFX houses, but did no in R&H's accounting dept look at the numbers to keep all these people on and go "ummmmm..."?

Why didn't they do something to alleviate that? Did they not see the big bankrupcy warning sign that came with keeping all these "best of the best" animators on board?

Yeah sure but 'what'?

a) Start another/additional show to fill in the gap and then be stretched too thin to complete all the shows in the pipe when everything is in 'go' mode again? This is assuming you can bid/get that additional show...

b) Let go all those proprietary experienced production staff and then be crippled when the show starts up again?

Yes charging studios for down-time when its their fault makes a lot of sense if it can be done in the future. The more 'VFX spanking' the big studios get the better IMHO. If the VFX industry cannot sustain itself then
how can Hollywood make films in the future?!...

Last edited by circusboy : 03 March 2013 at 04:38 PM.
 
  03 March 2013
Well, at least it's not the regular "blame the overseas" thing.

Now, at least they had enough saved up to meet payroll for a while at least- and that is responsible on their part (like many / most other businesses). Aside from that, I have to agree with EVERYTHING CGIPADAWAN is saying.

As for the "Unions can fix it" crowd, please recognize that the unions, altho "working closely with the employer", would have brought the inevitable even sooner.

So it goes back to the business model and practice.
 
  03 March 2013
Originally Posted by thethule: but did no in R&H's accounting dept look at the numbers to keep all these people on and go "ummmmm..."?

Why didn't they do something to alleviate that? Did they not see the big bankrupcy warning sign that came with keeping all these "best of the best" animators on board?


Because you don't know for how long a show is delayed. It's on time and suddenly they push it back a couple of weeks. Alright, the money is just around the corner! You keep on working. But oh no, now sequence xyz is changed but don't despair, the dealine is only shifted by another few weeks. All will be fine. Then artists start leaving, but you need to keep them to finish the show. Anyway, it's only be delayed another 2 weeks. It will definately be delivered in Jan. And then in Feb things have changed, but not a lot. Cool. The show is done in 2 more weeks. No more delays. Except, a bit later there is a tiny delay, but just a tiny one! Etc etc etc
__________________
Homo Effectus
 
  03 March 2013
Originally Posted by CGIPadawan: So the model's single point of failure is that studios are not made to hold on to time-bound obligations.

They are not charged for delays the way an Engineering firm would charge a client for delays after their people had started designing a motor or another industrial part.

Interesting..... and not that hard to fix....all they need to do is bring in some managers from Engineering or Construction firms where similar issues are sorted already.


YES I knew something was different here that would cause these issues but I hadn't figured it out. Construction people still have their legal issues and arbitration and whatever, but you don't hear us or our subcontractors going bankrupt left and right like this.
 
  03 March 2013
Originally Posted by CGIPadawan: So the model's single point of failure is that studios are not made to hold on to time-bound obligations.

They are not charged for delays the way an Engineering firm would charge a client for delays after their people had started designing a motor or another industrial part.

Interesting..... and not that hard to fix....all they need to do is bring in some managers from Engineering or Construction firms where similar issues are sorted already.

Yep, this is standard fare for construction contracts. If work is delayed and its the contractors fault, there are penalties and vice-versa for the client. If work is finished ahead of schedule there are usually bonuses. That much is easy.

But what isn't going to be easy is making the transition, well at least I don't expect it would be. Studios are going to have to be forced, kicking and screaming before they agree to it. But how do you force them? Up until recently, they have held all the cards and they had no reason to change their ways. Keeping the pressure of public scrutiny on from the Oscar's protests is one way. I'd prefer something more direct obviously but I'm still working on that.
__________________
HMC: Model Collection
WIP: Harris Nut House
WIP: WarCraft Troll
wyattharris.com Dig it!
 
  03 March 2013
If enough of the more specialized visual effects companies go under, than the remaining businesses will be in much greater demand. The studios will have no choice but to stand in line.
__________________
Perry Shulak
Design, Illustration, writing and interactive media
www.criticalfusion.com
www.perryshulakcreative.com
 
  03 March 2013
Originally Posted by PerryDS: If enough of the more specialized visual effects companies go under, than the remaining businesses will be in much greater demand. The studios will have no choice but to stand in line.

This idea that the current status quo collapsing is going to lead to a new one, one that will be better for the vfx providers, is both unlikely and flawed.

VFX shops go tits up all the time, new ones with the same testicle gripping limited client pool pop up from the ashes just as quickly.

This is frequent, and true for the medium sized ones, the hardest to run, but even large ones have such track record (Pixel Envy, Manex, ESC, Secret Lab, Image Movers, many of the big studios before the Jurassic Park milestone and so on).

This one made a boom, so everybody is crawling out of the woodwork thinking it's a new thing, but anybody who's been around long enough remembers similar events and conditions affecting BIG shops before that went out with a whimper, and made not a dent into the studios system, only reinforced their perspective that we're disposable.

R&H isn't the first company to accept an oscar from a bankruptcy or dissolution.
What Dreams May Come was one of the last projects in facilities that shut down and re-assembled.
Matrix saw Manex shut down and reconstituted as ESC (also nominated, also shut down).
Gladiator was the last (or second to last) for Mill Film, then closed (as a division) because unprofitable for quite a few years.
Golden Compass was contributed to by a couple companies that shut down, and of the chief contributors at the podium only framestore is still standing.
Benjamin Button was survived by D2 only for a couple years.

In the last 25 years only a few companies actually survived winning an Oscar. If the tally isn't percentually much worse it's only because Weta has picked up so many, and is still doing well, that it offsets things considerably.


New production and distribution models are a lot more likely to change things than the potential lack of offer, for the very simple reason that lack of offer is unlikely to ever last for long enough and be critical enough that the studios will have to fork out more than an insignificant amount of money to overcome it.

R&H had several projects in infancy and early stages, AFAIK they have all been moved successfully and will most likely see no delays in production, and that's with Disney's recent acquisition of Lucas making ILM a no-go for some of those.

People need to stop being armchair experts about this (not referring to you, Perry), and start looking at the numbers.
Insofar problems and solutions being pointed out in the majority are downright wrong, statistically unlikely, and usually just plain dumb on an international scenario.
The witch hunt against subsidies and offshoring in particular must be the biggest self-inflicted joke to date, like those elements explain why the topmost pioneer of both have recently folded... right. Angst and director bashing when the big6 are laughing their way to the bank must be a close second.
__________________
Come, Join the Cult http://www.cultofrig.com - Rigging from First Principles

Last edited by ThE_JacO : 03 March 2013 at 11:29 PM.
 
  03 March 2013
I nominate the above for an Epic Post award.

This should clear the air. When ever talk arises about unionization or outsource regulation comes up as some kind of all encompassing solution, one need only provide a link to JacO's post.
 
  03 March 2013
Originally Posted by CGIPadawan: So the model's single point of failure is that studios are not made to hold on to time-bound obligations.

They are not charged for delays the way an Engineering firm would charge a client for delays after their people had started designing a motor or another industrial part.

Interesting..... and not that hard to fix....all they need to do is bring in some managers from Engineering or Construction firms where similar issues are sorted already.

Yeah, right, because the engineering and construction firms know none of those prolems, and are comparable, completely unregulated, entirely intellectual, easily remoted endeavours with a geographically restricted pool made of 6 clients in its entirety

A good summary of WHY we have that problem can be heard here:
http://www.kcrw.com/etc/programs/tb...apphires_aborig
Towards the end when they talk to Cohen (which I am torn about, but does well in this interview), about 9 mins from the end or something like that.

You can hire all the consultants and lawyers in the world, from all the industries you want, but at the base of it all is that the contracts aren't enforceable.

Do you really think no VFX shop has anything in their agreements covering their arse, or if that having one in place was enough they wouldn't have thought about it? Think again.
While it MIGHT be true that very few in VFX are great businessmen, they are not a bunch of complete retards either, and assuming it's a simple vice of form or an oversight in the contracts they have with the studios is borderline insulting (although I'm sure you didn't mean it to be).

As for the article in the original post, the napkin math makes it laughable. If you want to demonstrate anything with numbers you should at least try to get them somewhat right...

This whole life of Pi industry crisis has given a cape and a magic ring to every F'in Captain Obvious journalist out there it seems...
__________________
Come, Join the Cult http://www.cultofrig.com - Rigging from First Principles
 
Thread Closed share thread



Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
CGSociety
Society of Digital Artists
www.cgsociety.org

Powered by vBulletin
Copyright 2000 - 2006,
Jelsoft Enterprises Ltd.
Minimize Ads
Forum Jump
Miscellaneous

All times are GMT. The time now is 12:07 PM.


Powered by vBulletin
Copyright ©2000 - 2017, Jelsoft Enterprises Ltd.