Visual Effects Industry Does a Disappearing Act - WSJ

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Old 02 February 2013   #1
Visual Effects Industry Does a Disappearing Act - WSJ

The Wall Street Journal posted an interesting article on Friday, about the Visual Effects industry declining (in the US), due to a lowered cost of entry and the ease of outsourcing to take advantage of cheaper labor laws overseas.
It seems ironic, the use of digital v/fx has likely tripled in the past decade for feature films; yet the economics don't seem to hold up.

Original WSJ Article

Quote: Visual Effects Industry Does a Disappearing Act
By BEN FRITZ


A split scene from the 'Life of Pi' shows a digitally-crafted tiger and ocean—and the studio where live action was filmed. Financial pressures forced the effects creator into bankruptcy.

The Oscar for best visual effects on Sunday is widely expected to go to Ang Lee's "Life of Pi," which uses a digitally created tiger so realistic that it serves as the main character's sole companion for most of a journey across the Pacific.

But there may not be much celebrating at the El Segundo, Calif., offices of Rhythm & Hues Studios Inc., the 26-year-old company that served as lead effects producer for the film. On Feb. 13, just eight days after "Pi" won four prizes at the annual Visual Effects Society Awards, Rhythm & Hues filed for Chapter 11 bankruptcy. The same week it laid off 254 of its 718 employees in the Los Angeles area, according to court documents.

It is the second bankruptcy filing by a leading U.S. visual effects shop in the past six months, following Digital Domain Media Group Inc. in September. The developments come amid skyrocketing use of computer-created robots, animals and sets in all kinds of Hollywood movies. Blockbusters like "The Amazing Spider-Man" and "The Hobbit: An Unexpected Journey" often have thousands of visual effects shots. Even dramas and comedies today can include hundreds of them. The Parisian backdrops in "Les Miserables" included many digital creations.

Explosions, stampedes and pig-like monsters - rare in a film made on a $1.5 million budget. But possible thanks to SF Academy of Art University students who did most of the special effects for "Beasts of the Southern Wild." WSJ's Linda Freund reports.

Despite such demand, the business of creating visual effects is getting less profitable, industry executives say. They blame a combination of factors, including generous tax credits in Canada, New Zealand and the U.K.; competition from low cost labor in developing markets; and ever-cheaper technology that is letting more competitors set up shop.

"We're the ones who create the magic that allows billions of dollars to be generated for the movie industry and yet we're at the companies that are going out of business," said Eric Roth, executive director of the Visual Effects Society, an honorary organization that counts nearly 3,000 digital-effects artists as members. "How supremely ironic is that?"

Digital Domain said its bankruptcy occurred in part because it had taken on risky expansions, including original animation and a trade school in Florida. The company's core effects business has since been acquired for $30 million by Beijing-based Galloping Horse Film Co. and Reliance MediaWorks Ltd. of India.

Few in Hollywood expected the more conservative Rhythm & Hues to find itself in the same predicament just five months later.

However, the delay of several anticipated movies left the company, which was also lead visual effects shop on "Snow White and the Huntsman," without the funds to continue work on several movies for which it had contracts, according to bankruptcy court filings and interviews with executives.

"We made some bad investment choices that cost us a lot of capital and we did not book enough work to sustain the size of the company," said feature film division chief Lee Berger.

Hollywood studios ready to make a movie typically solicit bids from visual effects shops like Rhythm, Digital Domain, Sony Pictures Imageworks, and Industrial Light & Magic (recently acquired by Walt Disney Co. as part of its purchase of Lucasfilm Ltd.), which attempt to complete the job for less than they're paid.

"A good year for us was a 5% return," said Scott Ross, who co-founded Digital Domain in 1993 after serving as general manager of ILM. He left in 2006 after he and his partners sold the Los Angeles company.

Though it has accelerated in recent years, outsourcing to countries with lower labor costs has been a factor in the visual effects business for more than a decade. Rhythm & Hues opened its first of two offices in India 12 years ago, said Mr. Berger.

Some work previously done by large companies like Rhythm & Hues can now be handled by low-cost boutique shops that take advantage of plummeting technology prices. Rendering software that costs several thousand dollars per user just a few years ago can now be had for several hundred dollars, said Digital Domain creative director of software Doug Roble.

In its bankruptcy court filing, Rhythm & Hues estimated that tax credits, currency-exchange rates and labor practices gave other English speaking countries a between 35% and 60% cost advantage over Los Angeles. Tax credits available in California and other states are more limited.

Movie studios count on those benefits to keep down the growing budgets of their films, forcing California companies including Rhythm & Hues, Digital Domain and Imageworks to shift work to Vancouver.

Despite the tax benefits, opening offices in new cities is also costly.

"We have all had to endure substantially increased operating costs by setting up shops in locations where those local governments are providing subsidies," said Digital Domain Chief Executive Ed Ulbrich.

The situation mirrors the "runaway production" phenomenon, where many movies and television shows are shot outside of California due to generous tax credits elsewhere.

Rhythm & Hues' bankruptcy has prompted more discussions about what can be done to stabilize the business.

"Instead of making money on the making of a movie, how about aligning our interests?" said Digital Domain's Mr. Ulbrich. To that end, his company serves as a producer for a coming adaptation of the science-fiction book "Ender's Game."

Rhythm & Hues has received court approval for up to $17.1 million in debtor-in-possession financing from two studios, allowing it to continue work on upcoming movies it was working on for them when it filed for Chapter 11: Twentieth Century Fox's "Percy Jackson: Sea of Monsters" and Universal Pictures' "R.I.P.D." Fox, like The Wall Street Journal, is owned by News Corp. Universal is owned by Comcast Corp.

In addition, Legendary Pictures LLC has agreed to pay the visual effects firm $5 million to complete work on its movie "Seventh Son."

On Friday, Rhythm & Hues said it had engaged investment bank Houlihan Lokey Inc. to help it find a buyer and emerge from bankruptcy.

Even if the company gets back on its feet, it would face the same industry pressures. And its leaders don't see any easy answers.

"Maybe if I knew, we wouldn't be in this situation," said Mr. Berger.

A version of this article appeared February 23, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Hollywood Visual-Effects Firms Fade to Black On Screen On Set.
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Old 02 February 2013   #2
in my opinion its because of the studios got transferred from creativity to pure business... they are opening offices in multiple locations worldwide to take advantage of cheap labor but this also increase the operating cost of those new infrastructure, when they were a single house they were able to manage the time when there is less work but its hard to manage so many people with no or less paid jobs in multiple location's.
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Old 02 February 2013   #3
Remember also the common factor when technology (be it software or hardware) filters down to the average person on the street: Almost everyone can do it.

Nowadays anyone with a camera and knowledge to use it can be a photographer, anyone with a blog or web page and knowledge of news and events can be a journalist. Anyone with a computer, a few 3D programs and knows how to use them can be a 3D worker.
Can any of the examples above do the jo as well as someone who studied for it in college? Maybe, maybe not. But it doesn't seem to matter in an age where "good enough" seems to work for most things as long as it is cheap or free.
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Old 02 February 2013   #4
Originally Posted by Dillster: Remember also the common factor when technology (be it software or hardware) filters down to the average person on the street: Almost everyone can do it.

Nowadays anyone with a camera and knowledge to use it can be a photographer, anyone with a blog or web page and knowledge of news and events can be a journalist. Anyone with a computer, a few 3D programs and knows how to use them can be a 3D worker.
Can any of the examples above do the jo as well as someone who studied for it in college? Maybe, maybe not. But it doesn't seem to matter in an age where "good enough" seems to work for most things as long as it is cheap or free.


but those people can do very entry level work or primary tasks I don't think those people learning few programs with computer access can beat the people in big houses with professional working experience of how to tackle the tasks practically with so much complexity most of the top work was done by hundreds of extremely talented people who almost devoted there life there personal life day and night to get there.

its very true which was written on one of the banner in protest - VFX made hollywood reach and artist Poor
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Old 02 February 2013   #5
Originally Posted by Dillster: Nowadays anyone with a camera and knowledge to use it can be a photographer, anyone with a blog or web page and knowledge of news and events can be a journalist. Anyone with a computer, a few 3D programs and knows how to use them can be a 3D worker.
I tend stay out of these discussions I as have no direct experience of working in VFX for film but I have many friends who work in the field and the above sentiment just isn't true.

The idea that a studio producing visual effects at the quality, complexity and scale of Life of Pi may have somehow suffered because there are lots of people prodding Maya/Zbrush...etc. at home is completely disconnected from the reality of the situation. Such thinking also implies that work of this calibre could somehow be achieved through volume of (relatively) unskilled labour, which is equally ludicrous.

I think Leigh has already made this point in one of the other discussions about it here and like I say, I don't have a background in VFX but just as a general rule of thumb, if thousands of people are debating a complicated issue but to you the solution (or cause) is obvious/simple, then you really don't understand the problem
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Old 02 February 2013   #6
You are probably right. I'm comparing the VFX industry to the newspaper/media decline, which is probably over simplifying it. I will concede to the wise heads here who have first hand experience of the problems.
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Old 02 February 2013   #7
Quote: Almost everyone can do it.
That's complete BS.

You can buy a pen everywhere, you even can get them for free, paper is dead cheap, almost anyone can read or write yet we still don't have an army of super duper writes or painters or illustrators.

Easy access != skill.
 
Old 02 February 2013   #8
Originally Posted by scrimski: That's complete BS.

You can buy a pen everywhere, you even can get them for free, paper is dead cheap, almost anyone can read or write yet we still don't have an army of super duper writes or painters or illustrators.

Easy access != skill.


Totally agree. The software, computers, cameras, and other tools are not the things that create this work. It's people with skills that create this work. It's artists that create this work.

Sure DSLR cameras, software, and computers have become widely available now, offering cinematic video and all that jazz, but how many Kubricks and Spielbergs are popping up on youtube? There are people with talent, and yes, there are skilled folks, but try gathering up a bunch of people from youtube and paying them peanuts and see if they can create something like Life of Pi?

It's just not happening. If everyone and his brother are capable of doing these kinds of things, why aren't we seeing crazy-high-end productions coming out of no-name low-budget startup studios?

Hollywood has become rather creatively defunct, relying too much on CG as a "safe bet" to draw in viewers, but I think the population has gotten wise to this. I used to go see movies just for the CG, when it was a shiny new thing. Now I don't even bother if the story looks terrible.

I have a buddy who worked on Life of Pi. The other day I checked facebook, and the majority of my user list was green.
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Old 02 February 2013   #9
The cost of producing vfx has gone down tremendously over the past 2 decades. ILM was certainly a pioneer in both digital and practical effects. Still, Hollywood has the bargaining power, and an effects house can lose potential business by not offering a better price. Still, the articles i've read offer various factors - a contracted movie being held up in production, for example, or a producer going out of business. Still, my question is, are boutique vfx outfits going out of business in favor of large studios like ILM; or is it just a 'temporary decline'?
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Old 02 February 2013   #10
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