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The effects industry implodes!

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Visual-effects artists routinely work miracles on screen, transporting moviegoers to Pandora and Middle-earth, bringing characters like the Hulk and Optimus Prime to life, laying waste to cities and spawning alien planets in galaxies far, far away. But behind this alchemy of ones and zeros lies a much less magical reality: The industry is in a state of crisis. While their artistry and ingenuity help Hollywood generate billions of dollars at the box office every year, a growing number of VFX houses are struggling just to survive. Last September, Digital Domain, the venerable F/X company cofounded by director James Cameron, declared bankruptcy and had its assets sold off to new owners in India and China. In February, Rhythm & Hues, one of the industry’s leading firms, also filed for Chapter 11, laying off 250 workers (it was acquired last week by an affiliate of L.A.-and India-based Prana Studios). Less than two weeks after going bankrupt, Rhythm & Hues earned an Oscar for its work on the film Life of Pi, even as several hundred VFX artists held a protest near the ceremony, demanding reforms to the F/X business with picket signs bearing slogans like ”I want a piece of the Pi.” Across the industry, there’s a sense that things are approaching a breaking point. ”Right now it’s near rock bottom,” says Peter Oberdorfer, a former VFX artist who now runs a digital-technology consulting firm. ”The pressure is building to a point where it could get volatile for everybody involved.”

In a world where movies are awash with digital effects, why are F/X companies going out of business? Here are five of the key factors at play.

? THERE ARE TOO MANY F/X HOUSES AND NOT ENOUGH WORK.

In the past two decades, the tools and techniques required to create digital effects have become cheaper and more widely available. ”The capabilities are in the hands of so many more people now,” says director Shawn Levy (Night at the Museum, Real Steel). ”You’ve got brilliant 14-year-olds doing amazing visual-effects work in their bedrooms.” Even as the F/X industry has grown, however, the number of films the studios are producing has trended downward (in 2012, for example, Sony Pictures released 18 films, compared with 31 a decade earlier). The result is an Economics 101 lesson in the unforgiving laws of supply and demand, with F/X houses forced to lower their bids to unsustainable levels simply to stay in the game. ”Competition between VFX houses, which the studios obviously use to their advantage, has resulted in VFX houses operating on tiny profit margins,” says The Hobbit director Peter Jackson, a digital-effects pioneer who cofounded the F/X company Weta Digital. ”And when we talk ‘profit,’ it’s not about the owners buying a Porsche at the end of a big movie — it’s about having a nest egg to ride out the slow periods.”

? COMMUNICATION BREAKDOWNS BETWEEN FILMMAKERS AND VFX ARTISTS CAN LEAD TO WASTED WORK.

Dave Rand, an artist at Rhythm & Hues, puts it this way: ”It’s as if you’re building a skyscraper with no blueprints. You get it pretty much done, and then the director comes by and goes, ‘That’s not what I want. Why don’t you do it 12 different ways, and I’ll come back and pick one?’ Suddenly you’re building 12 skyscrapers for the price of one.” Roland Emmerich, the director of Independence Day and the upcoming White House Down, acknowledges this is an all-too-common issue: ”In the last two or three months [of a production] you have to finish hundreds of shots. You’re so overworked and stressed, it’s hard sometimes to look at everything. I always try to manage that a little better, but there’s always the human factor that could fail.”

Even worse, if a studio cancels a movie entirely, Jackson says the F/X house doesn’t get a ”kill fee,” like actors or directors usually do, leaving the company in a bind. ”That causes huge problems,” he adds. ”The F/X house has hired crew in preparation, only to find themselves stuck with 6-or 12-month contracts for several hundred digital artists and no movie.”

Speaking of which…

? ALL THAT OVERHEAD CAN BE DIFFICULT TO MANAGE.

”A large VFX house may have 800 to 1,000 people on contract,” says Jackson. ”It’s fine while you’re doing a big movie, but once that delivers, [no studio] is paying the wages — it has to come out of the company’s profit margin. A flourishing VFX company also invests profit in research and development and code-writing to stay ahead of audiences’ increasing expectation of hyperrealism.” To keep overhead low, director Robert Rodriguez (Spy Kids, Sin City) has employed a smaller-is-better approach with his in-house F/X company, Troublemaker Digital. ”We kept it pretty mom-and-pop,” he says. ”If I had a Rhythm & Hues-sized company, we’d have to find a lot more work.”

? STUDIOS ARE LOOKING ABROAD.

With visual effects sometimes making up as much as 30 or 35 percent of the budget of a tentpole movie, studios are searching for any way to bring those costs down — and that means chasing tax incentives, favorable currency markets, and cheap labor overseas. So F/X work that could be done within commuting distance of the major studios has been shifting to countries like Canada, India, and Malaysia. ”In California, [legislators] just don’t seem able to get their heads around this,” says Jules Roman, CEO of Tippett Studio, a Berkeley, Calif.-based F/X house that just downsized 40 percent of its workforce. ”They see no reason why they should be helping out Hollywood because they think we all live in Beverly Hills.” In the face of charges that the studios are helping create a race to the bottom in the visual-effects business by exploiting the competition among F/X houses, one high-ranking studio exec counters that globalization is simply a fact of life: ”It’s odd for me when someone points to the studios as being responsible for either the working conditions of the visual-effects artists or the profit margins of the companies. We neither run the companies nor do the hiring. And some of these companies are not well run.”

? UNLIKE MOST WORKERS IN THE FILM INDUSTRY, VFX ARTISTS DON’T HAVE A UNION — SO THEY DON’T HAVE MUCH LEVERAGE IN NEGOTIATING WITH THE STUDIOS.

”Unionizing is not going to fix the industry, but it [would] provide a more stable and viable workplace,” says Steve Kaplan, an Animation Guild organizer who has been spearheading a drive to unionize VFX artists. ”The only way you’re going to make [the studios] care is if you bring them to the table and force them to care — or you hit their pocketbook.”

Even after the collapse of Rhythm & Hues, Jackson doesn’t believe that studios truly understand the need for F/X companies to charge reasonable rates. ”Studios have to answer to their shareholders and will always try to get the cheapest possible work,” he says. ”If anything, it’s a wake-up call to the F/X companies to address the weakness in our industry.” With VFX layoffs announced regularly now — and more houses expected to shut down — the studio exec acknowledges that the studios themselves have to help find answers too: ”We as a studio need these companies to be thriving and innovating — that’s our bread and butter. I guarantee you, there’s no one who defends the current visual-effects business model. It’s been brutal.”

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