VFX Buyers Club: California effects work follows out-of-state subsidies
March 06, 2014

On Oscar night, in the shadow of HollywoodaEUR(TM)s Dolby Theatre, 540 visual effects artists gathered to bring attention to their withering industry in California. They wore green, signifying the aEURoegreen screensaEUR? that enable the spectacular illusions that captivate audiences around the world. Due to the absence of unions, little or no leverage in negotiating with studios, and intense competition among effects houses both nationally and abroad, these firms are struggling in a field that has become defined by cut-rate pricing.

Two renowned VFX houses, Rhythm & Hues and Digital Domain, declared bankruptcy in recent years despite their celebrated work on award-winning box-office smashes like Life of Pi, Pirates of the Caribbean, and Transformers. This is becoming a dismal trend as California-based VFX companies compete for contracts from studios that blithely go where production subsidies lead them, whether itaEUR(TM)s New York, Canada, or overseas. Such taxpayer-funded incentives cut costs for studios and force the Hollywood shops to bid low enough to counteract them.

The VFX protestorsaEUR(TM) main slogan Sunday was aEURoeChase Talent, Not Subsidies!aEUR? However, that is not a lucrative strategy for large studios when incentives pad their bottom lines and reduce their risk. The table below shows that California VFX houses need to set prices 15 percent to 35 percent lower than firms in locations with incentives to be competitive and secure big studio projects.


The problems for California VFX houses are deeply embedded in the stateaEUR(TM)s current film incentive structure. Films in California with budgets greater than $75 million, many of them blockbusters with extensive VFX work, are excluded from incentives. As noted in the Milken Institute research report aEURoeA Hollywood ExitaEUR? and in the Los Angeles Times, CaliforniaaEUR(TM)s share of the 100 top-grossing films each year has declined from 57 in 1997 to just 23 in 2012. This is due to studios chasing incentives for blockbusters with large VFX budgets and high financial stakes.

The average global box office take for this yearaEUR(TM)s best picture nominees was only $177 million, while the average for best VFX contenders was $698 million. Studios try to keep all the steps of movie-making in the same area, from shooting to post-production and visual effects. As California-based productions decline, VFX artistsaEUR(TM) jobs will continue to relocate.

Historically speaking, HollywoodaEUR(TM)s comparative advantage has been its network of highly skilled creative talent, held together by career opportunities in the world capital of cinema. Innovation rarely comes from the lone wolf sitting at a computer. In most cases, creative work is teamworkaEUR"and visual effects are no exception. Researchers point out that creativity-driven economies, like Hollywood, rely on social networks and the knowledge spillovers these networks generate.

If California is to remain a star in digital entertainment, effects and animation expenditures for filmed productions should be eligible for the 20 percent incentive rate no matter where filming occurs. Our cinematic illusionists should not be seen as second string to the varsity players who read the lines, either by the state or the studios themselves. Instead, VFX should be recognized as the future of the industry because thataEUR(TM)s how the craft of filmmaking is evolving. Without the creativity of VFX houses, todayaEUR(TM)s top films are just green screens.


Producing visual effects on the Australian show ‘The Block.’

Joseph Pole (Creative Commons)

Furthermore, the application of this know-how extends far beyond entertainment. Visual effects technology is used in new modes of education, health care, and everyday communications. The state would be wise to cover visual effects under its research and development tax credit rules to keep California on the cutting edge.