November 22, 2004
The Next Runaway Industry
By Michael Hiltzik
Scott Ross' company has produced some of the most distinctive visual effects in recent Hollywood history, from the vast inhospitable sea of "Titanic" to the hurtling meteors of "Armageddon" — effects that linger in the memory long after the images of those films' actors fade.
"So why," Ross asked me not long ago in his Venice office, "aren't visual effects companies being paid like movie stars?"
The question wasn't entirely rhetorical. As chairman and chief executive of Digital Domain, one of the leading visual effects houses in the industry, and as a former executive at Lucasfilm Ltd.'s Industrial Light & Magic, the Bronx-born Ross, 53, has been grappling with the economics of special effects for 20 years.
More precisely, he has been grappling with the irony that as digital effects have grown into a dominant factor in the success of major studio blockbusters, the independent companies that produce those effects have been getting squeezed.
"You'd think we'd be rolling in dough," he says, "but this is an industry with zero margins." The result, he warns, is that effects firms looking for ways to save money will start shipping more of their work overseas, following the information technology industry to places like India, China and South Korea.
"What happened to IT will happen to us," he says.
Ross sees the root of the problem as the movie studios' inability to appreciate the value of the visual effects industry's contribution. To illustrate, he hands me a list of the 20 all-time worldwide box-office champs. The top 18 are all special-effects-laden or animated films that opened without major stars in the billing. (The top five are "Titanic," two "Lord of the Rings" pictures, one "Harry Potter" and "Star Wars: Episode I The Phantom Menace.") The only films arguably reliant on old-fashioned star power are "Forrest Gump" (Tom Hanks) and "The Sixth Sense" (Bruce Willis), ranked 19 and 20.
"Studios continue to think movies are opened by stars, but times have changed," he says.
What hasn't changed is that movie producers still tend to look at effects people as techies, not artists. The effects industry, Ross argues, hasn't done enough to change that. "The visual effects community has been treated so long as second-class citizens that everyone's afraid to rock the boat," Ross told me. "The cultural sensibility that you're lucky that you're working continues to permeate the industry."
Another problem is the industry's competitive structure. Of the five top firms, three are connected to studios or major production companies (Sony Pictures Imageworks is a unit of Sony Pictures Entertainment; Industrial Light & Magic is a division of Lucasfilm; and New Zealand-based Weta Digital was co-founded by Peter Jackson, producer-director of "The Lord of the Rings").
By contrast, Los Angeles-based Rhythm & Hues Studios is owned by its three founders (John Hughes, Keith Goldfarb and Pauline Ts'o ) and Digital Domain by IBM Corp., Cox Communications Inc. and its three founders (James Cameron, the special-effects designer Stan Winston and Ross).
While some of the five firms may be known for a particular expertise — Digital Domain for photorealistic settings, Rhythm & Hues for computer-generated animals in such films as "Babe," Imageworks for digitally rendered characters like Spider-Man — "each can be semi-expert in everything else," Ross says. As long as the studios believe the firms all offer essentially commoditized services, they'll pay them accordingly.
Ross isn't alone in feeling the economic pinch, although his counterparts at other firms see the problem somewhat differently. Richard Hollander, president of the film division at Rhythm & Hues, says plenty of effects work has already been lost overseas, a symptom of the Hollywood ailment of "runaway production." Canada, Britain and other countries, which lure U.S. producers with cheap labor and government subsidies, expect not only principal photography but effects and other production work to be part of the deal.
Tim Sarnoff, the president of Imageworks, says the key to holding down costs is to keep the entire company working full tilt. "The most expensive overhead item we have is downtime," he says. Imageworks may have a unique advantage over its rivals in that category because it's fully integrated into its parent company's production line. Although more than 60% of Imageworks' output is done for other studios, Sarnoff says, it's also busy working on in-house projects such as Sony's Spider-Man franchise and the studio's fledgling computer animation schedule. (The first feature, "Open Season," is due in 2006.)
The independent firms have been taking note. Both Digital Domain and Rhythm & Hues have started their own production arms; Digital Domain's first feature, "Secondhand Lions," was released in 2003. It's too early to say whether this strategy will relieve the economic pain Ross cites. Overseas continues to beckon with government-subsidized facilities and a supply of skilled workers. Lucasfilm in August announced that it would establish a digital animation studio in Singapore, and Ross says his company is thinking along the same lines. "For us, India looks really interesting," he says. "If you have a $100-million movie with $25 million in visual effects, you could probably do it for $15 million in India."
U.S. producers have resisted transferring large quantities of visual effects work overseas because of doubts that foreign shops can meet their schedules and meet their quality demands. Once that barrier falls, Ross says, the floodgates may open. "It's only a matter of time," he says.
Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at email@example.com and read his previous columns at latimes.com/hiltzik.