Podcast Summary
Creating Magical Visual Effects: A Team Effort and Financial Challenge: The film industry's record-breaking revenues mask financial struggles in the visual effects sector, where over 1,300 people worked on 'Life of Pi' for a year, and some faced the risk of losing their jobs due to company bankruptcies.
The creation of convincing visual effects in films like "Life of Pi" requires a massive team effort and a significant investment of time and resources. The visual effects supervisor, Bill Westinhofer, shared that over 1,300 people worked on the film for about a year, with some team members dedicating even longer periods. Despite the impressive results, the industry itself faces financial challenges. During the 2013 Academy Awards, Westinhofer intended to address the ongoing bankruptcy of his visual effects company, Rhythm and Hughes, and the potential risks it posed to artists in the industry. However, he was cut off before he could finish his speech. The irony lies in the fact that while the film industry is experiencing record-breaking box office revenues, the visual effects sector is struggling to stay afloat. This underscores the importance of recognizing and supporting the artists and companies responsible for bringing these magical visual effects to life.
The Growing Complexity of the Visual Effects Industry: Despite the industry's growth, financial gains for visual effects creators have not kept pace, leading to tightening margins and even bankruptcy for some companies.
The visual effects industry has seen significant growth in the past few decades, with visual effects accounting for a larger portion of production budgets on top box office movies. However, this growth has not necessarily led to increased financial gains for those who create the visual effects. The industry's complex structure, involving various players with competing incentives, has led to tightening margins and even bankruptcy for some visual effects companies. For instance, Weston Hoffer, a visual effects artist who won two Oscars, felt compelled to warn the world about the industry's struggles during his acceptance speech in 2013. The industry has since seen many visual effects professionals either lose their jobs or move to countries with more favorable tax incentives. The episode features interviews with film director Brian Singer and other industry insiders to explore the reasons behind these trends.
The Rise of Visual Effects in Film: Director Brian Singer's inspiration from X-Men comics led to a significant increase in visual effects budgets for movies in the late 1990s, driven by audience demand for realism and groundbreaking filmmakers' embrace of new CGI tools.
The explosion of visual effects in filmmaking can be attributed to the audience's growing expectation for realism and the success of groundbreaking filmmakers who embraced new CGI tools. Brian Singer, the director of the first X-Men movie, was inspired by Stan Lee and the themes of tolerance in the X-Men comic. He signed a deal to develop the material in 1996, and the budget for the X-Men movie was significantly larger than the $6 million budget for "The Usual Suspects." Singer learned about visual effects by visiting George Lucas's ILM and observing the production of "Titanic." In the late 1990s, visual effects budgets increased dramatically due to the success of blockbusters and the audience's demand for more realistic effects. Special effects refer to physical effects that can be achieved in the real world, while visual effects are those that cannot be seen by the camera and are often created using CGI. Creating these effects requires a significant investment of time, resources, and expertise.
Struggles of Visual Effects Companies in the US: Visual effects companies in the US face challenges from high labor costs, increasing competition, and arbitrary pricing, leading to thin profit margins and closures or bankruptcies.
The visual effects industry has undergone significant changes in economics, with the demand side coming from audience dollars in film box office and merchandising. However, despite the potential for huge earnings from merchandising, visual effects companies often struggle to survive due to the high costs of overtime labor and the increasing standardization and competition in the industry. The industry's structure, which involves arbitrary pricing of visual effects based on their complexity, also contributes to thin profit margins for these companies. This has led to a drying up of the US-based visual effects business, with many companies closing or filing for bankruptcy. Despite this, industry leaders like ILM remain, but they face challenges in maintaining their profitability in an increasingly competitive and digital landscape.
Challenges in bidding on films for visual effects companies: The complex and unpredictable nature of visual effects production can lead to unexpected costs and financial strain for companies, leaving them at a disadvantage in budget negotiations with studios and producers.
The visual effects industry faces significant challenges when it comes to bidding on films due to the complex and often unpredictable nature of the production process. The cost of a single shot can balloon unexpectedly, and changes in creative direction or shooting locations can add to the financial strain. Visual effects companies are in a vulnerable position, as they have less leverage than studios and producers when it comes to negotiating budgets. The industry's history of not colluding to maintain margins and not securing a piece of the back end of films has also left visual effects companies at a disadvantage. The result is a business environment that can be tough and even unfair for visual effects firms, leading to a loss of jobs in the industry despite the increasing demand for visual effects in filmmaking.
Shift of Visual Effects Industry to Tax Incentive Locations: The visual effects industry in Hollywood is moving to cheaper locations due to tax incentives, not for cheaper labor. This trend has led to a loss of business for California's industry.
The visual effects industry in Hollywood has seen a significant shift in business to places like London and Canada, despite being some of the most expensive cities to live in. This trend is not due to cheaper labor, but rather the separate business model of visual effects houses, which often operate as vendors for studios rather than being an in-house department. These visual effects houses, including Sony Pictures' Image Works, have struggled to make profits and have responded by opening facilities in places with tax incentives, such as New Mexico. This has led to a loss of business for California's visual effects industry. Daniel Lay, a visual effects artist who started his career at Sony Pictures' Image Works, recalls working long hours and moving up the ladder to work on big films, but also noticed the industry's shift towards tax incentives and the opening of new facilities in other locations.
Film production incentives fail to deliver sustained economic benefits: Despite their widespread use, film production incentives often don't create a permanent film industry or lead to significant employment or wage growth, and may have long-term costs that outweigh short-term gains.
Film production incentives, which involve governments subsidizing a portion of production costs to attract filmmakers, have been widely used since the late 1990s. However, a study by political scientist Michael Tom revealed that these programs had little to no sustained impact on employment or wage growth, and did not help build a permanent film industry in those places. Tom's findings align with research suggesting that targeted incentives, including film industry incentives, often don't work. Despite this, film studios continue to exploit these incentives as they offer significant cost savings. The race to offer the most attractive incentives among states has resulted in a bidding war, with states spending more and more while getting less and less in return. Politicians are incentivized to offer these incentives as they create jobs quickly and are associated with success in the minds of voters. However, these incentives may not provide the expected economic benefits, and the long-term costs outweigh the short-term gains.
Global competition for tax incentives disrupts visual effects job market: The global race for tax incentives and subsidies in the film industry results in frequent job relocations and labor cost competition, causing instability for visual effects workers.
The film industry's global competition for tax incentives and subsidies has led to a chaotic job market for visual effects workers. For instance, when Sony Pictures Image Works opened a facility in New Mexico offering tax incentives, many workers moved there only to find themselves out of jobs when the industry shifted to more lucrative locations like Canada. This trend continued with facilities in Florida and other countries, leading to a race to the bottom in labor costs and frequent job relocations for workers. The UK's Film Tax Relief, which offers rebates up to 25%, has become a significant factor in this global competition. Producers often bid on UK companies due to these rebates, forcing other companies to lower their prices to compete. This trend has led to a complex web of tax incentives and subsidies that can result in job instability for workers.
Government subsidies fueled UK's film production industry growth: Govt subsidies attracted film co's to UK, creating infrastructure & jobs. Hollywood spent $1.7bn on UK productions last yr. CA companies moved to Canada for tax incentives.
Government subsidies played a crucial role in building a large and lasting film production industry in the UK, particularly in visual effects, which was nearly non-existent a decade ago. The UK rebate attracted companies to move their operations to London, creating a significant infrastructure and employment opportunities. As a result, Hollywood spent a record $1.7 billion on movie productions in the UK last year, with many filmmakers and visual effects teams, including two-time Oscar winner Bill Westinhofer, relocating to work there. The convenience of working in one place for both production and post-production, which was a balance in the past, is now increasingly becoming a thing of the past as more of the work is being done in various locations around the world. Canada is another popular destination for filmmakers due to its generous tax incentives, causing many California visual effects companies to move their operations there.
Visual effects artist fights for US jobs lost to subsidies: Visual effects artist Daniel Lay started a blog to raise awareness about job losses due to subsidies in other countries. He explored various options, including unionizing, a political approach, and a legal one. Despite challenges, he continues to pursue a legal approach to seek countervailing duties under international trade law.
Visual effects artist Daniel Lay and his colleagues felt exploited by the use of subsidies in other countries that led to the loss of jobs in the visual effects industry in the US. Lay started a blog, VFX Soldier, to raise awareness and push for change. He explored various options, including unionizing and a political approach, but faced challenges due to the low margins of vendors and powerful lobbying from the Motion Picture Association of America. Lay then considered a legal approach, seeking countervailing duties under international trade law, but faced the challenge of proving that visual effects are a good rather than a service. Despite these obstacles, Lay continued to pursue this route, creating a professional organization to raise funds and support the industry's cause in court. The outcome of this legal battle remains to be seen, but it highlights the complexities and challenges of addressing the issue of subsidies and job loss in the visual effects industry.
LA's Visual Effects Industry Faces Challenges: The complex nature of economic factors in LA's visual effects industry has led to offshoring and companies moving overseas, impacting individuals and businesses, with some questioning the effectiveness of intervention.
The visual effects industry in Los Angeles has faced significant challenges due to economic factors, leading to offshoring of jobs and companies moving overseas. Chris Defaria, a filmmaker still based in LA, acknowledges the complex nature of the issue and the involvement of various players, including movie studios, companies, and governments. He expresses a sense of shared responsibility and regret for the impact on individuals and businesses, but also questions whether intervention might not have been the best solution in the long term. The interview also touches on Defaria's potential involvement in voicing a character in a Peanuts special.
Job loss and relocation in the film industry due to wage pressure: The film industry, particularly visual effects, faces wage pressure leading to job loss and relocation. This issue impacts high-tech industries and has far-reaching implications. The California government offers tax incentives, but more needs to be done to keep these jobs in the state.
The film industry, specifically the visual effects sector, faces a significant challenge due to wage pressure leading to job loss and relocation to countries with subsidies. This issue not only affects the film industry but also other industries with high-tech jobs, such as animation. The best artists in this field are based in Los Angeles, but with corporate consolidation and pressure to make numbers work, there's a risk of these companies leaving California. The California government has tried to keep these jobs in the state by offering tax incentives, but it's not enough. The labor intensity of creating visual effects is immense, and when watching a movie, keep in mind that the number of people involved in visual effects can often be much larger than the rest of the production team. The loss of these jobs has far-reaching implications, and it's crucial for the government, filmmakers, and the industry to consider the long-term consequences and work together to find solutions.
Behind the Scenes of Visual Effects Creation: Dedicated individuals work hard to create visual effects in the film industry, often without recognition, while entrepreneurs like Mickey Agarwal disrupt taboo industries.
Despite the increasing demand for perfection in the film industry, there are dedicated individuals who continue to work hard behind the scenes to create amazing visual effects. These individuals are not seeking recognition, but appreciate the value of their contributions. The Freakonomics Radio episode also previews an interview with Mickey Agarwal, an entrepreneur who disrupts taboo industries, focusing on periods, P, and poop. Freakonomics Radio is produced by WNYC Studios and Dubner Productions, and can be subscribed to on iTunes, Stitcher, or wherever podcasts are available. Listeners are encouraged to visit the Freakonomics.com archive, engage on social media, and email Radio@Freakonomics.com with feedback. A special thanks to listener John Howard for suggesting the episode topic.
