Why VFX Houses Lose Money on Big Movies (Guest Column)

Ex-Digital Domain CEO and founder Scott Ross says relentless cost pressure from studios is tearing the industry apart.

This story first appeared in the March 15 issue of The Hollywood Reporter.

From the robots in Transformers to the tiger in Life of Pi, no longer is box office driven by movie stars or directors. Blockbusters are full of fantastic imagery courtesy of hundreds of world-class VFX artists that often work 70 hours a week. So why are the companies that produce these images going bankrupt? Why are digital artists so fed up that they are demonstrating on the street before the Oscars?

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VFX budgets are by far the largest line item on tentpole budgets, at times pushing $100 million. Studios, under pressure to lower costs, attack the biggest number in the budget assuming there is waste or too much profit. So while there are only 20 or so facilities that do world-class work, what should be a seller's market is a buyer's market. Facilities have huge infrastructure costs and are willing to underbid competitors and lose money to keep their "factory" going. Additionally, VFX facilities bid a fixed price -- no matter how many days or months of additional work are necessary to complete the job to the director's satisfaction. And as we know, directors, given multiple creative choices, without budgetary constraint, want more and change their minds. VFX facilities often lose money on work they've done, and rarely, if ever, do they participate in any backend profit. On Titanic, Digital Domain lost a lot even though the film grossed nearly $2 billion.

Tax subsidies have devastated the VFX industry. Studios eager to get rebates of 35 percent and better are demanding that VFX companies open shops in far-away locales. These costs are staggering, not only to the facility but also to the digital artists who are forced to relocate. Today, the VFX community comprises migrant artists that must move every six to nine months, creating havoc with their personal lives.

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Recently, several standard-bearing VFX facilities have gone bankrupt or closed shop. The studios know how terrible a business this is. Disney alone has acquired, opened and closed several VFX houses: Buena Vista Visual Effects, ImageMovers, DreamQuest Images, The Secret Lab and Disney Feature Animation in Orlando. What will become of George Lucas' venerable Industrial Light & Magic now that it is a Disney-owned facility?

Today, movies increasingly are created in the digital realm. So why is it that we rarely see VFX supervisors in the main credits? Why is it that Pi director Ang Lee thanked his agent, lawyer and the country of Taipei in his Oscar speech but didn't mention VFX supervisor Bill Westenhofer nor Rhythm & Hues, the now-bankrupt company that created the tiger, the flying fish, the whale, the orangutan, the ocean and the sky in his film? Why did Claudio Miranda, when he won his cinematography Oscar, not mention the VFX people who augmented his images? Why was it that Quentin Tarantino got to run over his allotted time when he accepted his statuette but the VFX team was cut short when they accepted theirs? Why was it that The Avengers team that introduced the VFX award didn't take any of it seriously?

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The VFX community is partially to blame because it has not valued itself. We have no trade association, no union, no common voice. I can only hope the studios don't kill the goose that laid the golden egg. The industry has embraced the imagery of the digital domain and enjoyed its financial rewards, but it's not sure how to treat this foundling.

Scott Ross is a co-founder and ex-CEO of Digital Domain, a former GM of Industrial Light & Magic and a senior vp at LucasArts.