Chaos and "Creative Destruction"

Now with Add On.

An animation studio/visual effects house bites the dust.

Oscar-nominated, VES-winning and Annie Award-winning animation studio Rhythm & Hues will be formally filing for bankruptcy Monday morning, Deadline has learned. Within hours of winning the BAFTA for Special Visual Effects for Life Of Pi, the financially troubled company informed employees around 9 PM Sunday of the upcoming Chapter 11 filing, insiders say. Many Rhythm & Hues employees were also told by management not to show up to work Monday.

In Animationland (which is also, if we're honest, VisualEffectsLand) things change quickly. The Fleischer Studio disappeared in 1942 after a couple of decades of existence, and lots of animators had to relocate from Florida. Disney came close to dismemberment in the early 1940s and then again in the 1980s, when corporate raiders threatened a leveraged buyout. Hanna-Barbera went the way of the Dodo bird after buyouts by Ted Turner and Time-Warner ...

And of course a week ago, DreamWorks Animation, in a world of hurt after Rise of the Guardians under-performance, began to cut staff, just as Walt Disney Productions did after Sleeping Beauty's less than boffo performance in 1958.

Call it Creative Destruction ... for employees. Companies restructure, companies go out of business, and the execs at the top take their exit money. Everybody else clears out their desk and heads for the unemployment office.

And it happens in all corners of the animation business. Like for instance Disney Interactive a few weeks ago. Or game company THQ three weeks back, when the corporation went into receivership and CEO Brian Farrell wrote his "Dear John" letter to employees:

... We expect that most employees of the entities included in the [bankruptcy] sale will be offered employment by the new owners. However, we cannot say what these owners may intend, and there will likely be some positions that will not be needed under the new ownership. You should receive notice this week or early next week if the new owners intend to extend employment to you. Please note that the terms of your new employment, including pay and benefits, may be different from the current terms of your employment with THQ.

If you are an employee of an entity that is not included in the sale, we regret that your position will end. ...

But perhaps the worst area of the biz is the one that the unfortunate Rhythm and Hues inhabited, where Visual Effects shops often have the life expectancies of fruit flies. As the veteran effects honcho Scott Ross explains:

... Visual effects operates on a fixed bid, often without a well-defined plan or blueprint. All companies, at every level, are underbidding for their services. And the opposing, client side - I mean, it’s like Godzilla.

The VFX services business is the ultimate swim to the bottom. There’s tons of work, it requires highly specialized iP and know-how, there are significant barriers to entry, to play at the Hollywood level.

This is a business that any Harvard economist would tell you should make lots of money. Yet nowadays running a big VFX facility is like keeping a big airline in business - the basic theory being that a plane in the air, even earning half its average revenue and losing money for the business, is better than that plane remaining stuck on the ground and losing even more. ...

The entertainment business has always been competitive to the point of dog-eat-dog, where you sink or swim on the strength of your last project. But the visual effects industry is even worse, because visual effects studios cut each others throats with low-ball bids, thereby guaranteeing their own extinction.

Not a pretty world in which to be employed. But animators, modelers and tech directors already know that.

Add On: VFX Law has pithy advice to laid-off R & H employees, which you should read. VFXL ends with this:

... These last few years have proven to be exceptionally hard on VFX workers, and I do not see this trend letting up anytime soon. For starters, other companies are also nearing collapse, and there are just as many that work job-to-job with no guarantee of future work.

As VFX artists, it is time for you to consider the possibility of working together to form an international guild that will give you leverage against the major studios.

For those of you deeply affected, and those of you who are brave enough, now is a great time to pick up a sign and march outside the big studio gates around Hollywood, showing your displeasure. This is not a story of a ho-hum VFX company going broke. Life of Pi was extraordinary, and without R&H an important part of the VFX industry will be deeply missed. ...

My sentiments exactly.