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Why is the VFX business failing? Questions for Scott Ross

Digital Domain founder and former ILM boss runs it down in “very simple, real terms.”

By Mark Christiansen | February 07, 2013

Q. Let’s begin with the questions I posed earlier this week. Is what is happening in VFX in 2013 any different than what is happening to any number of industries in western economies as a whole?

One big difference is that visual effects facilities providing shots for Hollywood features have exactly six clients. That’s a significant difference. The actual free market economy plays itself out much differently, when sellers are free to seek out new buyers.

Q. If the problem for companies like Rhythm & Hues is one of cash-flow, is there negligence or poor business management on the part of the VFX companies, or is there simply not enough cash available from the studios for them to survive?

Visual effects companies exist paycheck to paycheck, and periods of inactivity can have significant negative effects on the bottom line. My career has basically been in visual effects and post-production since the 1980s, and  billing cycles & contracts have only become more onerous since I started.

The visual effects model is so significantly different than any other in the film business - I mean, the camera department has maybe six people, and when the vfx credits for The Avengers came to visual effects, there must have been a thousand names up there.

Now who is the icon of business?

Yet visual effects facilities have basically supported two legs of the stool - creative and technical - and never support business. Who is a creative icon of visual effects? You could say, Dennis Muren. Who is a technical icon? You might name someone like Jonathan Erland. Now who is the icon of business? Is that person celebrated?

Q. Where does the downward pressure on compensation come from? Is it from “off-shoring”?

There’s pressure coming from everywhere - it’s a multi-headed hydra. Visual effects operates on a fixed bid, often without a well-defined plan or blueprint. All companies, at every level, are underbidding for their services. And the opposing, client side - I mean, it’s like Godzilla.

The VFX services business is the ultimate swim to the bottom. There’s tons of work, it requires highly specialized iP and know-how, there are significant barriers to entry to play at the Hollywood level.

This is a business that any Harvard economist would tell you should make lots of money. Yet nowadays running a big VFX facility is like keeping a big airline in business - the basic theory being that a plane in the air, even earning half its average revenue and losing money for the business, is better than that plane remaining stuck on the ground and losing even more.

Q. Do smaller facilities - boutiques - put significant pressure on the “big eight,” the largest VFX facilities worldwide? Is that where the top talent is likely to go?

When you look at who wins the visual effects Oscar in a given year, rarely is it a smaller player, and if it is, they are often working with the larger players anyhow. When I started in this business in the mid-to-late 80s, there were only 2 or 3 games in town, but there was really just one - ILM. If you wanted visual effects that would sell tickets and win Academy Awards, that was the place. And the field has expanded, but only to a limited number of major players.

If you look at it from the talent side, let’s say I’m a veteran senior compositor - it’s much better for me to be at one of the majors, where I’m better protected and supported, than in a smaller more exposed operation. Sure, Rob Legato can go independent and win the VFX Oscar, but he’s not operating as an outsider from the major facilities.

Q. If the biggest facilities serving Hollywood - ILM, Weta, Sony (SPI - Sony Pictures Imageworks), R&H (Rhythm & Hues), DD (Digital Domain), MPC, Framestore, and DNeg - had called the bluff of the biggest studios - of which there are only six - and said "fine, send your features to China and India" a year or two ago, what would have happened? What would happen now?

I think they’d have a shot at changing the model, but the window is closing, and has been for quite some time.

The new stars are images that men and women in our business create.

Let’s take a premise which happens to be true: 20 out of the top 20, and something like 48 of the top 50 grossing films prove that VFX are key to the financial success of a film. In each of those films, maybe 30% of the shots are significantly difficult to do - those are the shots that put butts in seats, more so than above-the-line talent (stars, directors, even writers). The new stars are images that men and women in our business create, and the studios are determined not to let them be compensated accordingly.

If I put on my paranoid-schizophrenic hat, the motion picture studios got their you-know-whats caught in the door by Michael Ovitz. They lost control of the bottom line and had to pay significant quan to writers, directors and talent, and they decided, “we’re never going to do that again.”

For the life of me, I do not understand why leaders of the big eight are not meeting right now to ask one another, “how are we going to solve this problem” by forming an international trade association.

Q. So what will it take for the facilities to awaken to that reality?

Well, let’s look at that, Five out of the big eight companies don’t work under current standard operating procedure.

Sony & ILM are immediately out of the equation; they’re owned by studios. We know where R&H is at. Weta - it’s hard to believe they’re making money for their two main clients; in fact it reminds me a lot of ILM when I stepped in, as the owner filmmaker was finishing work on a franchise. What happens next is probably that Peter Jackson will step back, and Jim (Cameron) becomes their main client!

DD is a different ball of wax, now owned by China and India. Over a longer period of time, a trade association will be beneficial to them as well as worldwide competition flattens out, but they’re not yet in a position to see it.

As for the London houses, the bigger players there seem to be fat & happy right now. That will change, but they currently also don’t see how a trade association can be beneficial over international borders.

Q. What kind of person makes a great VFX artist, and in what ways, if any, is that personality type at odds with that of the most prosperous VFX clientele?

If you’re asking, do VFX artists have the ability to survive? Yes.

Can they adapt to business realities? Over twenty years ago, I tried starting a visual effects trade association called AVEC ( Association of Visual Effects Creators, French for “with”). Unfortunately because of paranoia, the association never really got off the runway.  There were two meetings held but all of the major VFX companies of the day (ILM, BOSS, APOGEE, DreamQuest) were so mistrusting of each other, AVEC quickly became SANS ( French for “without”).

There are problems which I’ve cited with VES being the ones to address this; for one thing, its charter precludes this happening.

Most vsiual effects artists and technicians are conflict-avoidant. The culture of the business is: I’ll work 24 hours a day, you don’t have to pay me because, “damn, I’m working on Star Wars!”

Q. Do local government post-production subsidies help or hurt facilities?

It’s important to realize that subsidies don’t directly benefit facilities whatsoever; they spend 6 or even 7 figure budgets to establish remote operations while the studios get the subsidy, and essentially make working in that location a condition of the contract.

Meanwhile, two years ago, the streets of Vancouver were paved with Renderman, but now the Save BC people have taken over. In New Zealand, it was even determined that each taxpayer payed $10 in subsidies for Lord of the Rings, the equivalent of a movie ticket for every man, woman and child in the country. Why is any government giving studios money to make their project without participation in the proceeds should that movie succeed?

Q. What can be done to improve the situation for workers (and do enough of them even want that medicine to be administered)?

If I had a magic wand?

If I had a magic wand, here’s what I would do:

  1. Get rid of all tax subsidies & tax incentives - and if you can’t, offer them to the facilities, not the studios.
  2. Form a trade association, to represent a singular voice that's not from a specific individual at a single studio, along the lines of the AICP model. This group can’t price fix, but you can set criteria, with standards like a 48 hour approval window - the client has to approve the work in that amount of time, and anything beyond that triggers an overage. Payment schedules. Kill fees - VFX studios currently block out months of time for a job that is then free to change or cancel the scope of work.
  3. Change the model on which facilities are compensated, whether this means moving to cost plus a fixed fee or back-end participation in gross revenue. VFX companies currently are effectively funding feature films while accepting a thin profit margin, to a meaningful degree.

Beyond that, a VFX facility today needs to be run by individuals who are willing to fight fire with fire.

Q. Should facilities simply risk saying, “we won’t do it on current terms”?

One way is to say, we won’t do it. But there are other examples, like the old Mel Brooks sketch, The 2000 Year Old Man, the guy who settles arguments by having more experience than anyone but God. The director is the equivalent to that guy - bigger than the studio, able to negotiate on behalf of a specific facility from the moment the deal is struck. By packaging the facility with the deal, a director would open the door for that facility to negotiate their terms, in return for being able to work where and how that director likes to work.

There’s a cultural shift that has to happen. Currently nobody trusts anybody, and everybody is throwing everybody else under the bus as a result.

Some companies have also done well by moving from services to ownership. PDI, back in the day, was no different than ILM in terms of who worked there and what type of business they were in, and over time they moved closer to what became the Pixar model. I tried this at Digital Domain; I figured that writers were the other dramatically undervalued resource in the business, and we could build the business of creating original features through them. At that time, in the late 1990’s, I was talking to Terry Rossio and Ted Elliott - they were a good fit, a couple of nerds like us, with a proven track record. I wanted to offer them 25% of the company to join us, but we didn’t have the means or the will to restructure ownership of the company to assemble that deal.

Q. How is it that of all of the thousands of people in feature VFX you're among the very few who knows anything about swimming with the sharks?

I dunno, I was born and raised in New York, sort of a street kid. I’m not one of the VFX fanboys; I see this as a business.

Scott Ross on Wikipedia | Twitter | VFX Business Blog

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Comments

oldhand: | February, 07, 2013

‘For the life of me, I do not understand why leaders of the big eight are not meeting right now to ask one another, “how are we going to solve this problem” by forming an international trade association.’

hmmm, or maybe it might become a case of last one standing, as I suspect they DON’T really see a problem, as long as there’s one big facility left to do the work. The studios probably figure they can help it expand a bit, and itll just chug along fine since there wont be any more competition.

wijaya: | February, 09, 2013

This business is scary at the moment, with companies laying off a big chunk of their workforce, streamlining staff or even closing altogether. Uncertain times, while tent pole movies are totally VFX driven and most of them very successful financially.

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