A few years ago before this blog started, the narrative presented by many in the media about the VFX industry was that it was suffering the same fate as companies that were outsourcing all the work to cheap labor locations like India and China.
At the time I didn’t really see that. What I did see was that VFX work was instead going to expensive locations like Vancouver and London. How could that be possible I thought. London for example has the highest office rents in the world. So I decided to start this blog to write about the main reason VFX goes to these locations: Subsidies.
US studios were demanding that work be done in locations like the UK and Vancouver because their governments offered huge amounts of free taxpayer money. For example, in Vancouver, for every $100 paid to a VFX worker, US studios could get a $60 rebate back from the government. Soon they would require facilities do the work there even though the VFX facilities rarely saw the savings from the rebates.
Fast forward a few years later and now Rhythm & Hues, which did an abundant amount of offshoring in Asia, has gone bankrupt while other facilities are being forced to go to Vancouver, not India or China. Just to give you an example, this week I get a bunch of emails about a meeting that took place at the recently Chinese/Indian owned Digital Domain about moving work away from California. So was the work going to India or China? No, it was Vancouver.
Now don’t get me wrong, Vancouver is a lovely place I’m certain. However, that isn’t the point. The problem is that the only reason for work to go to that region is because of massive subsidies. Once they’re gone or some other place offers more, it’s game over.
The recent elections in BC were a big shocker. The NDP was promising larger subsidies for the BC film industry after it was losing out to Ontario and Quebec which were handing out more money to US studios. The NDP was way ahead in the polls and surprisingly lost.
Now there is an ongoing legitimate debate about the costs of these subsidy programs. The current BC Liberal government is acknowledging that these programs are “unaffordable” and that they “are being played” by the US studios. Their hope is to end the race to the bottom by getting other provinces to agree not to outbid each other.
I’ve been predicting this disaster for quite a while. However, I’ve also been working hard on a solution. As many of you know, subsidies distort global markets and violate many international trade agreements which ban subsidies. Last December we successfully raised funds to hire counsel to help challenge these programs. We hope to get the results out by the end of the month.
In other DD news, the Palm Beach Post’s Jeff Ostroski has an in-depth and excellent report on how Florida lost over $100 million in subsidies for Digital Domain. FXGuide also did an interview with former DD CEO John Textor.
Just to compare, Finance Canada’s John Lester estimates British Columbia is losing about $200 million a year for it’s subsidy program while Florida took a one time hit of $100 million on it’s DD gamble. However Florida is a big state with a $750 billion GDP. BC on the other hand is much smaller at around $200 billion GDP. Yet this year alone BC has budgeted $437 million in subsidies for the film industry!
In other words, a nuclear bomb is armed in BC and it’s only a matter of time until it goes off. As I’ve always said:
You live by the subsidy, you die by the subsidy.