The Storm Has Hit

For years, it seemed that Rhythm and Hues was doing everything right. Except they weren't doing enought right, probably because they couldn't.

... [T}he troubles facing R+H are all too familiar in the visual effects community. Several top shops have experienced money troubles as studios seek to reduce costs by farming out work overseas. For instance, Digital Domain Media Group filed for bankruptcy in September before selling its VFX business to India’s Reliance MediaWorks and China’s Galloping Horse for $30.2 million.

“This results from the unrelenting drive on the part of the studios to continue to lower their cost of production,” says VFX veteran Bob Coleman, founder of Digital Artists Agency. “We call this the race to the bottom. Some point their fingers at the [VFX] companies, which continue to lower rates. But the net consequence is lower margins. We have known for last 10 years that profit margins at the biggest house have been 0-6 percent.”

But Coleman points out that Rhythm & Hues seemed to be adapting to the new climate. It was one of the first California-based VFX companies to open in India to take advantage of lower labor rates. More recently, it opened branches in Vancouver, as well as Malasia and Taiwan. ...

Funny thing, but an effects supervisor and I talked about how visual effects studios couldn't go on low-ball bidding jobs the way they were doing, because they were cutting their own throats.

We talked about this a while ago. Like in 1996.

Now, of course, it's even worse. Because places like Vancouver and Ontario are throwing money at our fine, entertainment conglomerates to come and do effects in their municipalities and get a big cash prize (otherwise known as a tax subsidy.)

The business models for visual effects are nuts.