Variety’s David S. Cohen has another article about the VFX business:
Suppose you manufacture widgets in Los Angeles, and Walmart decides to carry your widgets. Walmart buys in enormous quantities, so getting your widgets into Walmart is a boon.
But Walmart insists you cut your prices year after year. At some point, you can’t cut any more and keep your L.A. plant open. So you decide to move your manufacturing overseas. Do a Web search on “Walmart” and “hollowed out” — you’ll find plenty of articles describing this effect.
With all due respect I disagree. Didn’t Warner Bros. pay 20% over budget for vfx done in Los Angeles? When they brought on Pixomondo to do the extra work where did that go? There was quite a bit of hiring at Pixomondo here in Los Angeles.
It’s true some vfx work has gone to India and China but I think the only company that really has utilized India is Rhythm & Hues. Imageworks has opened a division there a few years ago yet a huge bulk of their work gets done in Los Angeles. I’ve argued time and time again that the real reason work goes away from California is because of government subsidies.
Even with that advantage, you have scaling issues which Mr. Cohen reported back in 2009:
Some leaders of the visual effects business, both at vfx shops and at studios, are warning there could be a shortage of vfx capacity within a year — a shortage that could drive up costs and even threaten release dates.
London, which has become a world center of vfx due to favorable exchange rates and tax incentives, is booked solid for at least a year, according to multiple sources.
As pics now in production wrap, vfx work slumps, killing off more midsized and small vfx companies. Then a new wave of tentpoles arrive, wanting more and bigger vfx, only to find insufficient capacity to complete them at the breakneck pace — and with the sometimes huge last-minute additions and changes — the majors now favor.
VFX doesn’t scale well, and when it does, the price goes up. I wrote about this on a post about China’s VFX industry:
In addition, the frequent movement of talented people in the industry also causes big problems for many firms.
“It usually costs a company much time and money to train an eligible talent, but he will resign when he gets a better offer from a rival firm,” said Han. “The investment in talent is often followed by disproportionate yield.”
This makes the cost to retain talented people even higher in the industry.
I think the problem is looking at VFX like they are widgets. With a widget you specify exactly how you want it and the parts are assembled and they are all the same. With VFX you have complex shots that require incredible quality at breakneck speeds. The parts are not that easy to break up and you’ll find yourself in a pickle when trying to integrate a shot between different facilities.
Anecdotally, I can tell you one situation where a vfx show made a huge profit. It was all done in LA and with reasonable hours. Now juxtapose that to another show that was able to save money sending work to India but ultimately still going over budget. You would think the executives would have an epiphany when comparing the 2 shows. They didn’t, they went with the expensive outsourcing model and my guess is it’s because everyone is doing what the next guy is doing. We’re all winging it.