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The root of the industry's problems is in how the companies were formed, most of them in the go-go 1990s, when cash was plentiful and shops were treated like high-tech sandboxes for directors and artists. In 1993, Digital Domain was founded with $15 million, and 50% partner IBM provided dozens of $50,000 graphics workstations a VFX company's costliest investment.
In the past three years, economic mobility spoiled that script. Generous tax incentives in Canada, Europe, Australia and New Zealand siphoned off much of Hollywood's VFX work and drove down prices. At the same time, U.S. companies began outsourcing the grunt work unglamorous tasks like wire removal and rotoscoping (an animation process) to India and China.
As technology got cheaper, the barriers to entry fell: a small shop can get up and running with $20,000 worth of hardware and software. The 2007-08 Hollywood writers' strike and the threat of an actors' strike in 2009 slowed the green-lighting of new films a blow from which some companies haven't recovered. "We're starting to see even more dire competition, and it's getting harder to keep shops open," says Ross.
A major point of contention between VFX shops and studios is the issue of change orders. When a director revises what he wants to see in a shot, it can mean months of lost work. Under the current system, most VFX houses feel they have to eat the costs to maintain their relationships with studios and filmmakers.
Studios are simply getting the best work for the best price. "We're the ones that spend the money, demand innovation, take the risk," said Chris deFaria, executive vice president of digital production, animation and visual effects at Warner Bros., at an online town hall in March for the VFX industry. "We're the ones deeply invested in a thriving VFX environment."
The town hall was organized by writer and former effects artist Lee Stranahan, who has become something of a Norma Rae for the industry, thanks to the widely read "Open Letter to James Cameron" he wrote for the Huffington Post. In it, Stranahan called effects shops "the most fun and high-tech sweatshops on earth."
Traditional Hollywood trades such as animation and set building are unionized, a status VFX artists aren't likely to achieve, given that VFX is a global business. Companies will simply hire the cheapest labor force that can do the job. In the U.S., VFX artists' salaries start at $50,000 and can quickly reach the low six figures. Artists overseas earn as little as 10% of that.
For VFX houses, there may be a dramatic Hollywood ending. With effects-heavy movies like the forthcoming Batman sequel, The Hobbit, Thor and Green Lantern coming down the pike, the demand for VFX may overwhelm the industry's diminished capacity. The changing nature of the work could alter the balance of power too: being a gifted designer is becoming more important than being a technical whiz. Says analyst Alan Lasky: "The minute you see one of these movies not make its release date due to this capacity crisis, then you'll start to see some interesting changes in the industry." Who knows? Maybe someday an effects artist will even get star billing.