The Animation Guild’s Steve Hulett had a post about an animator in Pakistan who now works in London doing VFX:
As the vet explained it, animation wages in China and India are rising, while salaries in Southern California have been flat (or declining) for a decade. Even so, artists like Khan go where the opportunities and best money are, which remains — despite the negative growth — California.
The common message I hear from VFX workers is “it’s all going away.” The belief is market economics and technology have made access to the VFX easier for global players and has essentially commoditized the industry. It can be done anywhere by anyone, the only thing that matters is price.
However I deeply question the global industry argument. I believe visual effects is a key component of the US domestic film industry that relies heavily on agglomeration. When US domestic studio productions go to other locations for VFX work, they do so for the comparative advantage provided by rent seeking: subsidies. VFX is not a global industry, it is an agglomerated industry.
What Is A Global Industry?
I had to ask myself that question. What the hell is a global industry? To me it’s an industry where I can plant myself almost anywere in the world and work for that industry.
The medical industry is a global industry. Everyone everywhere needs a doctor. Not so much in the VFX industry. You basically have less than 10 locations to choose from. A few of them like India, exist for their low labor costs. But we haven’t seen this large amount of work go there. VFX companies have been there for 10 years and while the quality has been stagnant, costs are rapidly rising.
For the other locations, most of the work is subsidized by local governments to lure projects by the big 6 US domestic film studios all located in the Los Angeles area: Disney, Sony Pictures, Warner Bros., Fox, Paramount, and Universal.
The only place that stands alone is California. While it’s labor costs are not low, it exists without the need of subsidies. The reason why the work continues to be done here is because of agglomeration.
Why is the financial services industry located in New York? Why is the entertainment industry located in Los Angeles? The reason why is because of agglomeration: In the VFX industry companies need to be located closely near each other so they can get work and quickly scale and acquire a large talent pool of workers. There was a UCLA study on VFX agglomeration.
Economist Paul Krugman won the Nobel Prize in economics for his research in agglomeration. There are a lot of findings by economists on this subject that actually go against what I call “Flat Earth thinking”.
I think many readers subscribe to the “world is flat” idea by Thomas Friedman. With technology now making it easier to remotely collaborate, it would serve as a substitute for face-to-face collaboration and allow productions to have a global workforce where labor is cheaper.
Surprisingly, economists who research agglomeration have found that “labor cost-savings are not relevant in driving the decision to outsource“. Furthermore, the idea that remote collaboration tools will serve as a substitute for face-to-face interaction and lessen the need for an agglomerated industry is also not true according to economists. They argue that it actually is a compliment:
Telecommunications improvements can increase the returns to urban residents relative to hinterland residents because urban dwellers have more contacts overall, but these improvements can also decrease the relative returns to urban residents because they are less likely to use the phone conditional upon having a contact.x
While California is the only major VFX market that exists without subsidies, we have yet to see the other markets like Singapore, New Zealand, Austrailia, UK, and Canada expose itself to true subsidy-free market conditions.
Will they be able to sustain themselves without them? Only time will tell but I find hypocrisy in those in who champion their success as globalization and market economics yet at the same time are heavily dependent on government subsidization: a relic of command economics.