The Price Of Outsourcing In The VFX Industry

Many VFX artists routinely and cynically refer to how their job will eventually be outsourced to a developing country like India or China. I mentioned in a previous post that I feel this argument is routinely made by employers as a boogeyman argument. Hell, if it gets mentioned enough times,  it must be true right?

This past weekend was the debut of Alpha And Omega, an animated film developed in the US with the bulk of the VFX work done in India. It was also my choice for the worst animated film of the year.

So how did the film fair? It made $9,106,906 with a rating of 15% on rotten tomatoes with reviews like this:

This film is the worst example yet for the use of 3D to drive up ticket prices.  Directors Anthony Bell and Ben Gluck populate some decent looking scenery with Saturday morning cartoon wolves whose manes look more like Swiffer dusters than fur, then take the few concepts written by Chris Denk (“Shark Bait”) and Steve Moore (“Open Season”) and repeat them multiple times.  The ‘in memoriam’ end title to Dennis Hopper, whose vocal work here registers his last performance, is an insult to the man.

Ouch. To add insult to injury, the stock of Crest Animation (the Indian company that created the film) tumbled 10% the following Monday. Furthermore, it turns out this film may have been relatively quite expensive to make for an Indian feature:

The film had a budget of around $45 million

According to Nikki Finke, it was $20 million but that could be referring to Crest Animation’s stake in the film as Lionsgate invested 50% into making the film. Regardless, it alludes to something I’ve echoed before that Forbes writer Sramana Mitra prophesied in her article The Coming Death Of Indian Outsourcing . The cost advantage of doing work in India and China is quickly evaporating:

However, the reality is that wages are rising in India. The cost advantage for offshoring to India used to be at least 1:6. Today, it is at best 1:3. Attrition is scary.

India and China are going through massive housing bubbles. Some have said that the housing bubble in China is larger that the Unite States real estate bubble. Incomes need to rise to compensate.

VFX veteran and instructor Steve Wright wrote a very insightful article called The Indian Exodus:

Of course, the obvious advantage of the Indian talent pool is their low cost. You may be interested to hear that they are rapidly losing that advantage. Here’s why; since setting up visual effects in India has become the “hot new thing,” everybody is setting up a visual effects operation there because there is no shortage of investors. There are now more VFX studio workstations than artists. As a result, they are poaching each others’ staff.

I’m reminded of other low budget films created in other countries. Hoodwinked was made in the Philippines for about $17.5M and had an opening weekend of 12.4M. It went on to make 110M worldwide. Why hasn’t there been a rush to make Hoodwinked 2?

Also, who is to say that you can’t make a low budget cg flick in a high priced area like Los Angeles? Battle For Terra was a low budget independent film that has very little box office success. However, it was created by 20 artists (which include Animation Guild President Kevin Koch and Organizer Steve Kaplan) in Los Angeles for a very low budget:

I have a pretty good idea of that budget — I think it was roughly equivalent to what a big studio spends on craft services.  I think it was less than one tenth the typical feature animation budget.  And that despite paying competitive salaries in Los Angeles.

Of course Battle For Terra looks low budget, but in my opinion it looks much better than Alpha and Omega. It’s priced competitively, and paid LA VFX wages. So who is to say that the only place to make cheap VFX is overseas?

This is why I’m compelled to argue that outsourcing vfx to developing countries is a losing game. The real threat for many in the VFX industry is protectionism engaged by countries like Canada, UK, and New Zealand and states like New Mexico and Michigan that give away public funds to subsidize vfx work in their territories. It’s an illegal practice but from what I’ve been hearing, one very large studio producing a very big film is about to be burned pretty badly by sending subsidized vfx work to a facility that could not finish the bulk of the work the bid for. If and when this happens, it will make some big headlines.

Soldier On.


25 Responses to The Price Of Outsourcing In The VFX Industry

  1. Rahul says:

    Trust me, it wasn’t that bad considering quality of Indian 3D animated films nearly a decade ago 😉

    Definitely there are flaws compare to Pixar and Dreamworks but you have to consider the fact that this is just their first feature film. So I think maybe in next 5 to 10 years they will be comparable to Pixar not just in terms of quality but also with costs of production.

  2. steve hulett says:

    There actually was a “Hoodwinked 2”, scripted, boarded and produced in Canada (I’ve talked about it with one of the artists on the feature.)

    “Hoodwinked 2” was completed last year. Unfortunately, the Weinstein Co. (the company that owns it) isn’t flush with cash, and didn’t have the bucks to release it.

    What the status of the picture is at this moment, I know not.

  3. grownup says:

    Wow – a vituperative rant about Indians “stealing our jobs” illustrated with a picture of an orangutan. Do you have any idea of how the rest of the world sees you? Jerk.

  4. Rolling Red says:

    I respect your work and read your blog devoutly. I want to point out a certain bias in this post and others you’ve written. When you speak of protectionism in UK, Canada, New Zealand and a few US states as a “threat to many in the VFX industry” you narrowly have a California centric industry in mind. An honest post would have pointed it out. Off-shoring used to be “the big threat” when the profit margins were high due to the disproportionally low cost of living in the animation and vfx producing countries in Asia as you have mentioned. Now it is protectionism and government subsidies – since the cost of living leverage does not go the same distance anymore. It is worthwhile mentioning that those lost offshored jobs so many are bemoaning are someone else’s gain. They have introduced a new employment sector in India and China and allowed many families to elevate their standard of living, possibly get mortgages and help their children through school. Too bad for us – but great thing for them. We should not lose the sight of that. There is of course similar immediate visible effect with jobs having moved away from the US as a result of tax incentives offered by sovereign governments like UK, Canada and New Zealand (how does your categorization of “illegal” fit here?).

    I do not want to create the impression that I am in favor of free for all unbridled global economy, nor governments engaging in insulate protectionism. Those two ideologically opposing strategies however do have some short term gains for some people involved. I am merely happy, in the name of global equality, that fellow vfx and animation artists in India, China and Philippines got a minor leg up as a result.

    Citing two examples of bad CG animated feature films (and I agree on both accounts) produced in Asia is beside the point to the business and profitability model you are being critical of. By doing so you are falsely leading your readers to believe that the low quality of VFX product coming out of Asia has something to do with the fact that days of off-shoring profitability are numbered. You are also establishing a dangerous false correlation between the quality of work and the location at which it is produced.

    Industry government subsidies are a dangerous game because they artificially overheat the local markets under protectionist policies, the full consequences of which will become visible only a few years down the road.They encourage the “race to the bottom” that our industry is tailspinning in and therefore in the long term are a really bad idea. I am seeing the effects of such measures everyday here in Vancouver, which is dubbed the “new London”.

    • vfxsoldier says:

      Subsidies offered to lure a foreign company to do work in another country are a violation of international trade law. It’s protectionism.

      As I said before I openly admit to being bias to the Californian VFX market, not because I live there but because of a strong talent base and market that exists without subsidy.

      • Rolling Red says:

        Ah yes, the WTO which has as an explicit goal to liberalize the global economy, ie to promote free trade. No surprise that it legislates to eliminate protectionism.

        Nevertheless member countries, and all the more the original founding countries, among them Canada and the UK, should be expected to abide by the rules they helped write. Except… the devil as always is in the details.

        “Only two kinds of subsidies are prohibited by the ASCM (Article 2): export subsidies, and subsidies contingent upon the use of a domestically produced over imported goods. All other “specific subsidies”, which are subsidies that benefit only particular com-panies or industries, are allowed, but actionable. “Actionable” means that if adverse effects can be demonstrated, the affected country can take one of several actions.”

        If I understand correctly, vfx biz would not fall under either one of the two prohibited categories. Am I wrong? I am not an economist or a lawyer specializing in the international law.

  5. gee says:

    please take off the monkey, what’s the point putting this on, it makes your article from false to BAD!

  6. Vfxguy says:

    Working as a vfx artist in california I tend to like this artixle alot. I hope its true. Istill find it hard to believe my job could be replaced kne day by an army overseas. For those of you in canada and london and barricking for yourselves lapping up all the work i offer your some advice.karma. You reap what you sow and what comes around goes around. Its like the ipod vs 5.1 surround sound. Gradually quality drops and you accept what your given. Thankfully the quality i give out at one of the best companies in the world for vfx no monkey who read a vfx book can ever achieve. Your born with it. Suck on eggs monkey boy.

  7. vfxsoldier says:

    @Rolling Red

    Another intelligent commenter brought the same issue up in another subsidy post. Here is my quoted response:

    Trade Law Prof Claire Wright argues that the incentives are for the production of goods: Feature Films. She also points out that the WTO ruled against Canada when they tried to use the service argument in the past:

    Click to access C_Wright_Hollywood%27s_Disappearing_Act.pdf

    • Rolling Red says:

      Thanks vfxsoldier. The link is broken. I accessed Profs Wright dissertation here. I read most of the 123 pages.

      While you claim that film subsidies are illegal, prof. Wright, your source – does not go that far herself. She concludes that the foreign film incentives and particularly PSTC in Canada are most likely inconsistent with those WTO members obligation. A small but significant difference. She says:

      “Canada’s PSTC film incentives most likely do not constitute prohibited subsidies”.

      They are possibly subsidies that could be classified as “actionable” and are *not* explicitly prohibited or illegal. The fact that the PSTC substitutes a subsidy (though one not related to export according to prof. Wright, which is important) and that it has an adverse effect on the American film labor market are unquestionable but insufficient. It must be demonstrated that the subsidy pertains to goods and not services. She admits that:

      “Furthermore should Canada argue that feature films in any case are not goods, there are plausible arguments that can be made to support such conclusion.”

      In essence her entire case rests on comparing feature films to periodicals (Certain Measures Concerning Periodicals) and demonstrating that feature films are a product which after being made in Canada (for example) is re-imported back into the US on film reels or dvds. The film production model she follows is inaccurate and outdated. Much of the writing and pre-production is still done in the US according to prof. Wright as well as much of the post production (which is no longer true and which probably precipitated this blog post). Nevertheless, for the convenience of her argument, to prof. Wright a “feature film product” equals film footage. She conveniently decouples and dismisses the US based pre-production, let alone never mentions: score and sound, editing, vfx and final color work. Anyone reading this blog knows that film footage is as far from being a “feature film product” as a chassis is from being a full functional automobile.

      In reality Canada may produce at any given time only a few of the elements that make up the entire feature film product.

      Should anyone want to argue that all elements coming into the making of a feature film are indeed separate products in themselves, vfx as a *good* would have the weakest case of all I suspect.

      Thanks for a fascinating read. I will spare you my thoughts on profs Wright severely nationalist patriotic stance, hostility towards the rights of foreign states to cultivate their local film industries and claims of US dominance while asserting the right to preserve such status-quo. Her FTAC article particularly has made me shudder.

  8. cgguy44 says:

    Funny, I just got a creativeheads email with jobs and about 20+ from ILM and Lucas are based in Singapore… how surprising.

    • vfxsoldier says:

      Makes you wonder… If it’s so easy to do it there why do you need artists not from there to go there?

      By the way Singapore is one of the most expensive cities in the world to live. ILM pays some pretty low rates already.

  9. mananma says:

    “Makes you wonder… If it’s so easy to do it there why do you need artists not from there to go there?”

    With a population of only 4.8 million there isn’t an indigenous film vfx industry in Singapore. Hiring ‘abroad’ for a Singapore firm means everywhere, China and India included, not just N. America & Europe.

    “By the way Singapore is one of the most expensive cities in the world to live”

    Granted but it depends on your perspective, many of these ‘cost of living’ tables are skewed by ‘ex-pat’ imported goods and services which are far more expensive than regular local fare. A club sandwich at the Raffles is probably 1000 times more expensive than some good hearty fare at a hawker stand. I recently saw that Luanda in Angola topped the list as the worlds most expensive city, go figure.

    Remember too that personal tax rates in Singapore are very low with he highest rate being 20%. Corporate tax (the reason Lucas et al are there) is low and declining annually. The Clone Wars currently generates the most income for Lucas so siting the production of that offshore in a low corporate tax environment is just good business practice in the same way Google funnels its European income through its Dublin office.

  10. Scrooge McDuck says:

    If Indians,Asians,Canadians want a VFX industry they need to create their own. I have nothing against any culture other than the corporate one that uses both foreign countries and our laws here in the US to deviate away from the respect they owe us for building them. Yes…Americans build things! We here in the US have every right to hold these corporations accountable for their practices. If your view is that somehow this industry is owed to you from us than you need a serious reality check. All this gibberish about taxes and whatnot…I could give a fuck what all that really means…Its just countries clamoring to gain the most vibrant industry in the world behind warfare….Be Independent if you want to be unique…Dont seek Pixar, Dreamworks and dont fall for their hype and shiny promises…They want to use both you and I for their financial gain. Plain and simple. They will leave your country at a moments notice…as they do with individual states here in the USA…Outsourcing in no way shape or form is good for the families that help establish those larger “families” Its like dad going to another home to sleep with a younger, sexier wife…You can paint this in all these economically logical ways and are still left with a shitty smell…One that wreaks of men in suits who dont want to leave the extremely wealthy status they have obtained.We can share so much without giving our jobs away.The American people are dying because the corporations dont care about us…they have forsaken us and are getting ready to do the same thing to you if they havent already…Do Not trust a studio that relocates to where you live. The only exception to this rule is if the entire company relocates including the CEO(s). Is this the case with the big studios….99% of the time-NO. I’d love to watch animations from India,Singapore, etc that were made by those people and reflected their values and stories which they obviously have…But making a movie about the west in India? Cmon…just goes to show you how far some of these supposed creative companies have no knowledge of what it means to immerse their artists in the stories they tell…Its a pathetic way to make art…stories that last. Disney would have never made such a stupid creative decision as to misunderstand the creative process like that…But men who care nothing at all about animation and VFX would and currently are…The few that know the dedication it takes to really care not just about the story but about your audience will undoubtedly prove what this means…

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  12. Native talent says:

    If USA companies want “cheap labor” for the bulk of their animation – please first consider the artistic talent waiting on US soil – namely, the native american populations and Latino immigrants – there is a heck of a lot of art, talent and ingenuity right here!

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  14. Mahesh says:

    Bad director makes bad Movie, it stands 100% true with Alpha and Omega, I worked on that piece of shit and i know how painful it was to work for a non creative idiots… Crest animation did the best it could have done under those circumstances…

    The production cost for Alpha and omega is highly inflated to 20 million actual production in India including salaries would have cost less then 5 million. Considering around 120 artists worked on it for an year with average salary of 12,000 $/year, and rest of the money, say for infrastructure!!!

    All that Alpha and Omega did was bad publicity for Indian animation Industry making critics to ignore the commendably works done by indian studios in other outsourced projects like Tinker Bell 1,2,3 and 4 for Disney, Merry Madagascar and major parts of Puss in Boots for Dream works studio and lots of other VFX works for almost all of R & H studio.

  15. […] was “all going to India”. In fact when I started this blog, I was the only one in the VFX world that made the bold prediction over 3 years ago that VFX in India wouldn’t succeed. I fought like hell against people who said I was wrong and at times I wondered when I could […]

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