Economy hits high-end visuals, studios concerned

Visual effects now vie with stars as box office draws in summer tentpoles. But a possible shortage of visual effects shops could be a brutal blow to the next wave of f/x-heavy tentpoles.

Studios depend on outside vfx shops to deliver ever-larger amounts of first-class work on ever-shorter schedules. 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.

The combination of Hollywood’s production slowdown and the recession have already driven some California vfx shops out of business, with more threatening to shutter.

Warner Bros. exec VP of digital production, animation and visual effects Chris de Faria says his studio is taking the threat so seriously, “We’re looking at advancing R&D and development work on projects, and the corresponding cash flow, to make sure that some of our valued vendors can get through this time,” he says.

Here’s the dire scenario: 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.

When this scenario may play out is the subject of some debate. Some expect the crunch to come late this year. Recently, though, tentpoles including Warner’s “Green Lantern” and Marvel’s “Thor” have been pushed back. That could push the potential crisis back to 2010 but may actually make things worse, as it means the lull would last longer.

“The studios need to be concerned about this,” says Industrial Light & Magic exec producer for marketing Gretchen Libby. “Their options could start to run out for finishing their projects. There could be fewer companies that can help out at the 11th hour.”

Underlying this warning is the fact that vfx shops are under financial pressure from several directions.

They were hurt by the prolonged slowdown after the WGA strike and prolonged SAG talks, then hurt more when production financing dried up, exacerbating the slowdown.

Even in the best of times, feature vfx aren’t lucrative for the companies that make them despite their importance and the typical tentpole’s huge f/x budget. As de Faria notes, “The feature film business, for most vendors, can be a boom or bust business. It’s glamorous, and it’s work done at the highest level, but it’s hard to survive just on that.”

Many shops rely on commercials to provide an extra revenue stream. The recession, however, sent commercials production off a cliff.

Jeff Barnes, co-founder and executive producer of CafeFX, has been warning of a crunch for some time, as he sees some of his competitors, such as the Orphanage, shutter for good.

His own company dropped benefits and cut costs to stay afloat, and he warns that other vfx shops will need to restructure as well. In the short term, says de Faria, “The question I have is not where am I going to get the work done; it’s where am I going to get the high-level work done — the ground-breaking work that can be the center of a marketing campaign.”

Many companies can do low-end work, with more springing up all the time worldwide. There is also no shortage of companies that the studios trust to do a modest amount of high-end work. French shop Buf and Germany’s Pixmondo fall in that category.

There are only about a dozen companies in the world that can handle the large number of shots with digital characters and other complex effects in today’s tentpole pics — the kind of work that concerns de Faria.

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. Projects looking to save money on vfx no longer have that option.

Universal, for example, is looking for cost savings on the vidgame-based actioner “Bioshock.” It might have gone to London but the project is now on hold.

Marvel has “Iron Man 2″ in production now and three big vfx tentpoles on its slate for the next few years: “Thor,” “Captain America” and “The Avengers.” They could be affected should capacity get tight, but Victoria Alonso, exec VP of visual effects for Marvel Studios, is confident that, even after a contraction, the vfx industry can bounce back to meet the challenge.

“If you have a company that’s shrunk, that means they will find it internally to grow again,” she says. “I’ve seen that happen at every facility I’ve worked with.”

Barnes agrees that shops have no choice now but to expand and contract, but he and others counter that rapid expansion can lead to quality control problems, as people who have never work together adjust to a new company while trying to meet tight deadlines.

Alonso says another solution lies in finding smaller companies anywhere in the world that have a specific skill set, then putting them to work on a contained sequence that uses those skills. The Embassy, she says, had done robots on a short film, so it got the job of doing the “Mark I” suit for Iron Man.

Ironically, when the next big wave of work arrives, vfx companies that are still standing stand to do well. There will be lots of work, and simple supply and demand could lead to higher-than-usual margins for long-suffering feature vfx companies.

“We might get a fair rate for the work for a change,” says Barnes.

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