Does Failure Of F/X Houses Signal Danger For Mega-Movies?
David S. Cohen, one of Variety’s surviving smart writers, wrote a fascinating piece this week. You should read it yourself, but to sum up, the notion is that f/x houses cannot survive the squeeze on pricing demanded by the studios or the feast & famine run of mega-budget-movies that are seen, by some, as the best hope of the studios.
My position on these mega-movies, formerly known as “tentpoles” – which spoke to a time when studio branding had real value and a single giant movie could create value for smaller movies placed around it for months before and after – is that more than 1 or 2 of them on your slate each year is a “live by the sword, die by the sword” proposition.
But the math keeps changing.
DVD, in its sell-thru heyday, made losing money on movies a rare event. Even so, there was some misunderstanding in the media about the goals that came out of that, short-term, which was to be the most profitable, not just to survive. But the margins have plummeted as DVD has been moving to its end over the last 4 years or so, meaning that it is now possible to lose money on any movie. Standing in for sell-thru DVD is a growing foreign market and crazy dollars added to the market by streaming. Of course, in a sane world, the new revenues would be added to the already black-inked pile. But Hollywood being Hollywood, the new revenues are being seen as an opportunity to gamble more aggressively, in no small part because the foreign part of the cash pile has shown the most interest in the bigger, dumber product. (Let’s not get into reality… that a movie like The Intouchables is a mega-hit in France and the some other countries and that China’s taste for melodrama is massive and Lifetime should be trying to release Chinese-language remakes of all of its “films” into that market.)
We now live in a six-studio/distributor universe and each of those companies seems to want to make 3 or 4 (or more) mega-movies a year now.
And so, as Cohen explains it, there were 4 big vfx companies… which recently expanded to 10… and with the amount of competition, the pricing dropped, making profitability a serious problem that was not balanced by pride and quality, recently leading to 2 bankruptcies (Digital Domain and Rhythm & Hues) and real questions about what happens next.
(Interestingly, Cohen does not address the sale of LucasFilm to Disney. Did Kathleen Kennedy look at the books at ILM and decide that the future was bleak for the company as a leading stand-alone effects shop? Is owning ILM Disney’s hedge against the fates of the 8 major independent fx companies?)
The problem I have with Cohen’s summing up is that it assumes that studio demands for more and more work for less and less realistic amounts of money is a given… and that as a result, only government subsidies and low pay can support the future of the studios’ mega-movie strategy.
I see this very differently.
I see the ongoing spends for visual effects, which become cheaper to produce each year, but which then leads to a race to break new ground, which is where a lot of the mega money is spent, as flexible. Yes, I concur with whoever is quoted in Cohen’s articles that the studios know the margins and are doing everything they can to choke all profitability out of fx.
On the other hand, if the big effects companies just say, “no,” and refuse to put themselves in the position of eating R&D costs to the studios’ benefit, sanity can prevail. The problem is, you have the bosses at these effects houses killing their own companies and staff to deliver their sequences to the studios to whom they are just a bunch of fucking vendors. (I am not saying this is true for the creative teams directly working with the effects houses. That’s macro and it’s a love-fest. I mean the business end of the studios.)
It’s classic labor stuff. The boss wants the costs on making the widgets to drop another 3% and how that is achieved isn’t really to big a concern. The difference is, the “worker” in the fx scenerio is a company, not an individual. And the widget is very complex… it’s not minimum wage work. So if the studio is saying they want an fx sequence to come in at 20% less than the fx house wants, which leaves less than 5% profitability if everything goes according to plan, if the fx company says, “yes,” they are entering into an agreement to fail… not for the studio, but for themselves and their employees.
And if that leads to other companies picking up that work at the lower, unworkable prices… well, do you belong in that business?
As for the studios and their mega-movies… as much as directors and producers live and die in arguments about effects shots and spends, The Avengers 2 or Amazing Spider-Man 2 or whatever is not going to suffer with audiences because there are 10% fewer fx shots. Have you ever heard anyone coming out of a effects-heavy movie saying, “They needed like 200 more effects shots to really make that movie work”? Anyone?
Interestingly, the “gotta keep moving forward, no matter how much we are getting screwed” has been the same disastrous mindset that has made Hollywood’s above-the-line talent unions a negotiating disaster. The way of “fixing it later” is, as Digital Domain and Rhythm & Hues have shown, is bankruptcy. Because the movies just keep rolling along.
In my opinion, being in the business of making $200m+ production budget films more than once or twice a year is very, very dangerous. We have learned that one or two disasters can no longer bring down an entire studio… but if you’re gambling like that 5 times a year, you could lose three or four times… and then… who knows?
But the fx studios being squeezed? The studios would tell you, myopic as it might be, that this is a “them” problem and not an “us” problem. The studios, if confronted by anything less than a movie missing a release window by more than six weeks or so, will just readjust. After all, their first weapon is 2 minutes or less or any given movie.
When something like A Good Day to Die Hard films in Bulgaria, does the studio go with a visual effects company there to save money? Or is that not how it works?
When you’re bidding against a foreign company that will work twice as hard for way less money…
The free market is mostly bullshit.
But if you look back 10 years or so the VFX companies were raking the money in with incredible margins…. I wonder if this isn’t a bit of… your chickens coming home to roost.
Also wonder if the VFX market still isn’t bloated… not with margins but by inefficiencies.
Just a question…. not sure if I have the answer.
Dberg
Do you think that is one of the reasons why Peter Jackson was pushing for greater frame rates? It literally is twice the number of frames that have to be rendered for FX shots.
” Have you ever heard anyone coming out of a effects-heavy movie saying, “They needed like 200 more effects shots to really make that movie work”? Anyone?”
I don’t believe this is the correct question to ask. A more relevant question would be to ask: Have you ever heard anyone coming out of a effects-heavy movie saying, “Some of those effects shots looked ‘unfinished’ and fake and it really hurt the movie.”
I would say the answer to that question is “yes”. Do you disagree DP?
The David Cohen Variety article probably best summarizes the fragile state of feature film VFX at the moment.
Two things: 1) ILM and DD have NEVER made money. They’ve always broken even. No more. Because of…
2) David – one thing you missed is the severity of the impact that government subsidies, in the form of tax rebates and credits, is making in the competition for studio VFX work.
In the most egregious cases, governments will offer the movie studios millions of dollars of cash up front in order to complete a certain percentage (or dollar spend) of a film within their borders en lieu of a tax on the back end. Other governments attract studios with promises of non-taxable production spends within that country.
Regardless of the specific proposal, the idea is to lure Hollywood film production to your country to create jobs, develop a local film production business, and generate tourism. Vancouver offers 20-25 percent. London offers 20-25 percent. Upstate New York offers 25 percent. New Zealand and Australia offer 40 percent. Even low cost labor locations like Malaysia are starting to offer similar tax credit programs, although they have nowhere near the skilled labor as Europe and North America.
As a film producer (or studio), you would be a moron not to take this free government money. The net result is that the major, California-based visual effects facilities have been forced to lower their bids in order to compete with government subsidized facilities overseas. Simultaneously, these facilities have continuously opened satellite offices wherever the film studios chase the money. Harry Potter opened tax incentive floodgates in London and laid the groundwork for creating an incredibly talented local industry. To a lesser degree, the same is true of Vancouver and also of New Zealand (thank you Peter Jackson).
(As a side note, it’s really only been in the low end work of VFX where we’ve seen price competition based on cheap labor in places like India and China. But that’s changing, too.)
But as much as you live by the incentive, you die by the incentive. Just this past month, Framestore in London was just forced to lay off 200 people because Robocop shut down production, but they simultaneously opened a new office in my (home town of) Montreal as Quebec has started offering the hot new incentives that now beat British Columbia. So even places that have enjoyed the benefits of these tax incentives are finding that their governments aren’t giving away enough free money because somebody else is giving away more.
Some will argue that many of these companies are very top-heavy and a number of them mismanaged and to some degree I would agree. But there’s no denying that the movie studios are large corporations with departments dedicated to understanding the machinations of tax incentives around the globe. They find the cheapest money. I’m certain they also lobby to get money even cheaper still.
The issues are complex and change incredibly quickly. The studios do make too many of these expensive tentpole duds while losing revenue streams like DVD sales and having to compete against games and online.
“I don’t believe this is the correct question to ask. A more relevant question would be to ask: Have you ever heard anyone coming out of a effects-heavy movie saying, “Some of those effects shots looked ‘unfinished’ and fake and it really hurt the movie.”
Yes, the notion that you can make big cuts in effects and audiences won’t notice is flawed. Look at just about any scifi film with a budget around $50 million or less. They almost always suffer from unconvincing and tacky effects and bomb at the box office.