Spotlight : October 1997

September 29, 1997

A Shakeout of the Special Effects Houses


In Hollywood, the place where art and technology intersect with commerce, no one looks twice when a spacecraft flashes across the horizon or a ship is gored by an iceberg. In the contorted reality here, what threatens life is a dearth of spectacular events.

The everyday reality of economics, though, has dealt devastating blows to this community of special effects companies this summer, in spite of record box-office takes.

According to The Hollywood Reporter, this year's crop of summer movies took in a record $2.246 billion compared with $2.166 billion last year. But that has not prevented some effects houses that worked on these films from being crippled by financial blows. In several such cases, inexperience and over-reaching led companies to promise far more than they were able to deliver, and to spend more than they could afford trying to meet their obligations.

The resulting tornado of red ink has brought destruction that has touched both the independent visual effects houses and those developed in-house by Hollywood studios. In June, Warner Digital Studios, which worked on shots for such Warner Brothers movies as "Batman and Robin," announced it was closing less than two years after its birth. A total of 150 jobs were eliminated.

Then in August, Digital Domain, known for its work on movies like "Apollo 13," and "Dante's Peak" announced lay offs: 31 people were let go. Capping off the summer implosion, Boss Film Studios, known for its work on "Ghostbusters" and "Air Force One" announced just before Labor Day that it was closing down after 14 years, eliminating 90 jobs.

"It has been a quirky business; in fact it may not be a business at all," said Jim Morris, who is responsible for Industrial Light and Magic and for Skywalker Sound as president of Lucas Digital. "In this day and age, the overhead costs are huge. The investment that you have to make in animators and computer hardware and software has gotten exorbitant."

Perhaps the shakeout was inevitable in a business whose twin progenitors -- the film industry and the computer and software industries -- have been characterized by instability, fickleness and grand visions that sometimes are realized and often are not. And, as in Hollywood and Silicon Valley, the financial storms have left some companies stronger than ever, while others have capsized or are trimming their sails. Take the case of Digital Domain. In the world of visual effects, Industrial Light and Magic rules the kingdom of live action, but Digital Domain has been the most aggressive pretender to the throne. With pirate flag flying high, Digital Domain has built a reputation for its models and its swagger. But at least in the case of "Titanic," its latest project, Digital Domain has faltered when it came to backing up its braggadocio with the on-time, or on-budget, delivery of its work.

In 1993, Digital Domain was founded by Scott Ross, now chief executive, Stan Winston, and James Cameron, the chairman. No one was much surprised, then, when Digital Domain won the bid to work on more than 100 shots for "Titanic," which Cameron was directing. The deal, at that time, was rumored to be worth about $25 million, according to several competitors of the company. Digital Domain refuses to comment on "Titanic" until after its release.

What happened next would seem a bit more unusual were this not the ever-uncertain effects business.

Cameron, in his roles as director, producer and writer, proceeded with the shooting of "Titanic" off the coast of Mexico. The warm air meant the absence of the visible puffs of vapor that would have appeared from the mouths of passengers breathing the Arctic air in the northern Atlantic. Upon his return, Cameron asked Digital Domain to add the breath to the characters aboard the Titanic in dozens of shots.

This, not being the type of work that wins Academy Awards, was farmed out by Digital Domain to another effects firm. Digital Domain, itself, was by this time too busy working on the grand effects shots that make people say "wow." On these, Digital Domain and Cameron had opted to show off the firm's digital prowess. Delays inevitably resulted.

In a scene shown at the Electronic Theater at Siggraph, the Los Angeles conference for the Special Interest Group on Computer Graphics, Digital Domain dissected just such a shot. The camera swoops over the bow of the Titanic while dozens of passengers and sailors mill about the deck.

Amazingly, all of the people in this scene were created digitally and merged with footage of a giant model ship cutting through digital water. "The camera moves in a way that would have made it impossible" to produce the shot using real people, Ross said. Even if they had tried using real people "it would have been a nightmare and it probably wouldn't have worked."

While the breath shots are fairly mundane, the shots with the digital characters may well get award nominations -- at a significant, although not publicized cost in time and money. Competitors in the industry, who have long bid against Digital Domain, believe that the price of the effects rose to about $40 million with changes made along the way. Digital Domain declined to comment on costs.

In the end, "Titanic" set off a painful chain reaction at the effects house. Digital Domain was forced to dole out shots to its rival I.L.M. and others. The movie was delayed from an initial July release until Dec. 19. And with most of the staff at work on "Titanic," the company was unable to assemble bids on fall movie projects. Those few staffers who were not involved with "Titanic" were left idle, and because the company could not afford to keep fallow workers on the payroll, 31 people were laid off.

For its suffering, Digital Domain is said to have lost $4 million, again according to competitors. Digital Domain has confirmed that it will not make any money from its work on the movie. The only good news is that it looks as though the movie will not sink the effects house. It just announced it will work on a fall release called "Red Corner" with Richard Gere. "Titanic" has all the markings of a hit, and the publicity from it could bring back some of the company's familiar swagger.

The problem with accurate bidding is not unique to Digital Domain. Every effects house faces the challenge of converting an artist's conception into a dollar figure. Still, accurate bidding on what it will cost to complete a project is, as in any business, of paramount importance.

"It is almost impossible to predict what a film is going to cost," said John Hughes, president and chief executive of Rhythm & Hues Studios. "In most cases, it's never been done before."

Special effects houses reside on the ragged edge between what is possible and what is practical. They regularly reach out to push the limits of reality -- and even the limits of fantasy. The only certainty for them is that cash flow is cyclical, at best.

The effects houses, most of which are privately held entities, say their profit margins hover around 5 percent. In the rare good year, an effects studio might make 10 percent.

Even I.L.M. has had years where it did not break even. "The effects industry grew up with owner-operators," Morris said. "They paid their bills and they broke even because they got to do what they loved."

Richard Edlund, the founder and president of Boss Film Studios, had grown tired of this balancing act. A four-time Academy Award winner for his work on the "Star Wars" movies and "Raiders of the Lost Ark," Edlund left I.L.M. to start Boss. Over the years, he has run through the money Boss made, and then some. Edlund lacked the stomach for another tumultuous round of bidding.

"We were not enough in the black to be comfortable," he said. In a business where the computers required to do the work can cost hundreds of millions of dollars, a hiatus in the steady flow of cash can result in layoffs or closing.

When Boss closed, its $20 million cash flow was on par with previous years. Boss, though, was hounded by a decision it made in 1993 to purchase 30 Silicon Graphics work stations at a cost of several million dollars. The technological shift had rendered at least $6 million in photo equipment obsolete.

Once this digital transition was made in the effects industry, the imperative became to keep revenue flowing in to finance the debt left over from such major capital spending.

With a software-loaded work station costing between $50,000 and $70,000, Boss needed to be busy all year around to make the gamble pay off, a stunt few effects houses manage to pull off. Hughes explained: "From January through May, we can't find enough people. Then through the rest of the year we can't find enough work."

Morris said: "Over the past two years there has been a house of cards constructed. The industry didn't evolve organically. All of the people who have hopped into it recently don't realize that companies are not something that turn on like a light switch."

Warner Digital, a newly created division of Warner Brother. studios, was a newcomer that foundered, unable to complete the effects for movies its own studio released. "We learned the realities of the business as we went along," said Mark Solomon, head of feature post production and visual effects, who helped assemble and disassemble Warner Digital.

In contrast, Sony Imageworks, a division of Sony Pictures Entertainment, has proved itself a survivor, growing from about 100 to 300 people in the last year and seems to be in this rocky business for the long haul.

"Industry-wide, there was a surge of work," said Tim Sarnoff, executive vice president and general manager of Imageworks. "The industry took a deep breath. Then the industry exhaled. It is a business where if you aren't willing to keep on breathing, you close or you will not be ready for the next breath we take."

In spite of the consolidations, effects are a part of every movie today. Even this retrenching is seen as a temporary state of affairs.

"Virtually every film has some form of visual effects," Solomon said. "Writers are coming up with more creative ideas, which is good. But no longer can we say to a writer, 'That can't be done.' Everything can be done."

©1997 New York Times

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