Why do visual effects costs so much?

Why do visual effects costs so much?

This question comes up constantly even from those who should know better. Many simply wish to ignore the reasons. If you haven’t done so yet please read The Value of Visual Effects post to put this perspective. Discussing costs doesn’t mean anything unless you place a value on it.

Here is a typical response in Hollywood:

Peter Berg, Director of BATTLESHIP, was interviewed on a podcast recently.

Berg: But the money is all going to… the business to be in is ILM. That’s whose making all the money..

Masters: The effects houses.

Berg: Yeah in particular ILM. I mean and they do great work but its what these films cost because you’ve got these giant visual effects components and they dictate the prices on them.


There a number of flaws in this thinking.

Myth 1: Visual effects are the majority of the costs. This may or may not be true depending on the specific project. Normally visual effects are less than 1/2 of the project even for 'visual effects films'. 1/5 to 1/3 is a more likely scenario. But if a movie is made almost entirely with visual effects in every shot and they’re complex visual effects it will be a correspondently larger portion of the budget.

Myth 2: High costs means high profits. Just because a line item is expensive doesn’t mean that there is a corresponding profit. Amount of costs and profit are independent issues. Just as a movie itself may be expensive but that doesn’t guarantee a huge profit.

Myth 3: ILM or any other visual effects company dictate the prices. Obviously they have to quote a price but they can hardly charge whatever they wish or make huge mark-ups. The market doesn’t allow it.  If that price is too high the studios simply go elsewhere.

Myth 4: All visual effects have huge mark-ups and profits. Even in the days before digital effects producers were all convinced that visual effects companies were raking them over the coals because they had what the producers wanted. Producers were (and still are) convinced visual effects companies were simply adding huge markups because they could. These people are convinced if they only knew some of the mystic technobabble they could get the work done for a fraction of the price.


Reality:
Short version: Visual Effects is incredibly time consuming and labor intensive work done for very little profit. In some cases it may actually cost less for the studio than the real costs incurred. Changes and compressed schedules  increase the costs further.

Related posts:
Visual Effects are inexpensive
The Miracle of Visual Effects

Full version:
Visual effects is a very competitive market worldwide. There are a lot of visual effects companies and all of them eager to get work so competition alone does not allow any company to have huge mark-ups.

The visual effects industry suffers from tax incentives in other states and countries. Some as much as 40% off. Note that these figures are not reduction of taxes but actually funds applied directly or indirectly to a movie. That means it’s not a level completive field and any visual effects company in California has to drop their prices if they wish to compete with other companies on the basis of price. Many visual effects companies actually underbid the work when required to try to keep money coming in. This means in some cases it’s costing the studio less than it actually costs. Same thing with the tax incentives. In those cases the local tax payers are in fact helping to fund the movie and thereby lower the studios expense for the visual effects.

The amount of work for visual effects companies fluctuates widely so when it’s all said and done on a yearly basis most visual effects companies make razor thin profits or may be further in debt. Many visual effects companies have gone out of business. Some of the ones still operating do so because they have the backing of a large corporation or individual with deep pockets. Some companies are able to stay afloat because they are in a country or area with tax incentives. There’s good work done all around the world and price is not the only factor studios look at but the visual effects industry would be much different if there were no tax incentives.

If visual effects were really such a profit center the studios and investors would be breaking down the door to buy or create their own visual effects companies. Some studios have had their own visual effects departments in the past. Disney had Secret Lab and Image Movers at different times. They closed both. The only major studio currently with a visual effects component is Sony with their Sony Imageworks. Sony had moved a number of jobs to Albuquerque, New Mexico a few years ago in an attempt to get in on the New Mexico tax incentives. They’ve now closed that and are moving many jobs to Vancouver for the tax incentives there. There may be a future where all visual effects for Hollywood based movies are all done out of this country simply due to tax incentives. This is the outsourcing that isn’t talked about.

See the Digital Domain IPO documents showing one of the more successful California companies. They’re trying to make animated films, getting involved in for profit schools and getting money from Florida in an attempt to make money since visual effects is not cutting it for them.

[Update: 7/21/2012  New Digital Domain news item
Textor said investors are punishing Digital Domain because of the low-margin nature of its visual effects business.
...
In the first quarter of 2012, Digital Domain reported a loss of $14.8 million on revenue of $31.1 million.  

Digital Domain is one of the largest and more successful visual effects businesses in the U.S. And it lost $14.8 million in a single quarter. Hardly the idea of a big profit center. What if they had billed the full out of pocket costs? ]

[Update: 9/11/2012 Digital Domain has closed it's Florida facility and has spun off their visual effects group for a much smaller amount and filed for chapter 11 for the main holding company. This after going with a full IPO less than a year ago. No, visual effects is not a big profit center. ]


Most of the larger animation companies create their own content and receive the profits from how well the films do. Visual effects companies at times have a small percent of a film but most of the time the companies are doing work for hire.

Live Action Movies:
The blame for high priced movies seems to be placed directly on visual effects by some people but lets look at non-visual effects films.
Why are movies so expensive to make even without visual effects?

That’s a common question for laypeople. Why should it costs millions to make a movie let alone $100 million or more? How long can it possibly take to shoot a 2 hour movie? And isn’t it all done by a handful of movie people?

Time:
A movie typically takes a year to make from green light (approved funding) to theaters. That’s after possibly spending years in development. There’s a pre-production stage (building sets, casting, working on the script, finding locations, etc) that can be a few months, production (filming) can take 40 to 100+ shooting days. A 100 shooting day schedule is 20 weeks. The shoot days are the most expensive days of the film because there’s a large crew working so the more shoot days the more expensive the film, all things being equal. And time is the gold standard for shooting such that production is guiding the director to do it as quickly as possible and to remain on schedule. Once shooting is finished the film goes into post-production. This is when editing happens along with sound mixing, composing, recording of the music and this is when most of the visual effects work is done. This is also the most likely compressed stage since the movie has already been booked into theaters and that date cannot be changed. So studios tend to provide shorter post-production schedules than in the past. sometimes this requires the director to edit and lock sequences even before the filming is finished just so there is enough time to do the visual effects.


Costs:
Even non-visual effects films can be very expensive. Ignore high actor salaries and marketing costs. Even looking at just below the line costs (crew) on a large production. Camera crew, grips, electrics, wardrobe, makeup,  audio crew, etc. And consider all the people not on the set that are required to make a movie - art dept. with carpenters, painters and others making sets, orchestra, sound mixers, sound effects, etc. Watch the credits of a large non visual effects film and see how many people are listed. Those are skilled, experienced, talented people being paid a reasonable rate for the services they provide in this freelance world. That’s hundreds of people. It’s as if you started a company, staffed it up and ran it for a year before any revenues appear. That’s expensive.

Labor:
Few people actually sit down and consider the enormous cost of labor.  I’ll be making up some numbers so don’t take these as actuals or even averages. Let’s suppose we had 300 people working on a project at an average rate of $80,000 a year. The average income in the US in theory is around $30,000-$55,000 a year but most in the film industry don’t work full time over the year and this also has to take into account overtime which most jobs don’t have so don’t assume even someone making $80,000 rate ends up with $80,000 at the end of the year.  That’s 300 people at $320 a day = $96,000 a day in expenses just for labor. Now you can adjust the number of people or the income either way but the fact is labor is more expensive than most people realize. Even in this example that’s $480,000 a week (almost 1/2 million dollars) A 6 month project with these people will rack up $12 million just in labor costs. It would be $15 million if the average rate was $100,000. Add all the extras costs (building, supplies, support, rentals, etc) and adjust for overtime and work required. In the case of a movie add in the high priced talent, directors and other above the line costs along with transportation, locations, equipment and other costs as well as marketing.

Take a look at the company you work for. How many people work there and what’s their average pay? This will help you calculate how much money needs to be coming in just to break even on labor alone. Don’t forget most workers get benefits so the cost to the company per person is above and beyond just their rates.

The visual effects work:
Each visual effects shot (5-8 seconds typically) is unique. It's the same as having to do a complete new setup in live action which requires changing the camera position and the lighting. In many cases even shots can be equivalent to the doing a full 'company' move where the live action crew has to travel and setup at a new location. a time consuming and expensive process.

In a previous article I noted that shots are like snowflakes since no two are identical.  I compared them to oil paintings. Another analogy is to consider the visual effects crew is constructing a building based on nothing but a sketch on the back of a napkin and the specifics of where walls go and what carpet is selected for each different room is in constant flux. Creativity combined with technically challenging work, fixed bids, changes and deadlines does not make the process easy. I don't think there is another industry like visual effects that has this same type of business model.

Visual Effects expenses:
Beyond what most businesses have as basic expenses (buildings, desks, basic services, etc) visual effects companies have to provide at least one high end computer per worker. These tend to be top of the line fast computers with a lot of memory, large hard disks and advanced graphics cards and graphics tablets. Each needs  to be loaded with high end graphics software. In addition there’s typically at least one large room with racks and racks of computers for rendering the images you see. These are the render farms and usually have special power and air conditioning needs that make them very expensive. All of these computer systems require advanced and costly wiring along with an IT department to support it all. Hundreds or thousands of shots at 24 high resolution images a second times dozens of elements equates to a lot of storage space that needs to be maintained and archived to avoid losing critical work.

Visual effects companies have screening rooms and editors with editing systems so they can be synced to the production. They have special security systems as mandated by the MPAA to keep all studio materials under safeguards. Many companies have at least a small insert stage to shoot elements and odds and ends as required. A visual effects company may also have a motion capture stage, 3D scanners and model shop or have to sub-contract this type of work when required.

Hidden crew:
But even with these expenses the labor is the largest cost for doing visual effects. This labor is the hidden crew. Most directors and producers seldom see much of the visual effects crew because these crews work away from the studio. Even for those directors that visit the  companies they likely only see part of the crew and since most visual effects these days are spread out over multiple companies (shorter time schedules) the work is being done all over the world (thanks in part to tax incentives).

On a live action set most of the crew is standing there, ready to work. It’s obvious that decisions need to be made to keep these people productive and there is a schedule for what needs to be accomplished everyday. Since most of the visual effects crew is out of sight, they’re out of mind. There’s a disconnect to making decisions and changes and what that relates to in terms of costs and time. On a set if the director turns the other way and wants an elaborate set built the cost and crew time is evident to all. In many cases the notion may be dismissed as not being worth it. A director is constantly making decisions and makes a number of compromises at all steps of production. Should the director shoot another 10 takes of the actor to try to get a better take? Should they try a totally different angle or camera move? Make adjustments to the set? At some point the director has to move on if they want to make their day and complete the film in the number of shooting days budgeted.

Disconnect:
But none of that is evident when working with visual effects. Adding a 100 shots or doing 100 takes of an animation only takes a request. What impact it has on the schedule and costs is seldom considered. Because of the competitive nature of visual effects and the fact that the number of potential clients (the studios) is less than a dozen, companies forego many change orders, thereby lowering the price of doing the actual visual effects work even more.

And this is another disconnect. Just about everyone else working on a production is  employed by the production company directly. Should they be required to work more days or hours they tend to be paid. And crew members are union members except for visual effects workers. Visual effects people are primarily employed by a visual effects companies and not the production companies. Most are freelance and have to switch projects to keep working. Artists may or may not be paid overtime. They also may or may not get benefits. All depends on the company and location.

Color correcting, making film prints and other services are done at a lab. Sound mixing is done at a sound company. These types of companies typically work on a time and material basis. If the director wishes to spend another day making adjustments then that cost is obvious and billed accordingly. A visual effects company bids on a fixed bid even with partial information. Even with accepted change orders this tends to whittle down any planned profits.

Visual effects crew size:
The number of people working on visual effects varies with the scope of the work. It's not unusual for a major visual effects film to require hundreds or more people. On larger projects the size of the visual effects can easily eclipse the size of the rest of the crew. Next time you're at a large visual effects film sit through the entire credit list. There are a lot of people listed under visual effects. And usually there will be quite a few companies listed. Note that you won't actually see the full list of all visual effects people who worked on a film. The end credits is usually a partial list since the studios only allow so many credits to each company depending on the contracts. There may be people from visual effects not listed that worked for a year but it's likely someone who was an assistant to an assistant getting coffee for a week on the set is in the credits.

What do all of these people do:
(I'll have a post in the future listing the various positions. The Visual Effects Society lists over 200 job titles) [Update: Here's that post that sits many, but not all, key positions. In some cases there may be a few dozen people in the same position, working on different shots. ]

A visual effects company is like a mini-studio with a wide range of artists and craftspeople.  In pre-production artists are drawing and designing, modelers are sculpting every set, actor, prop and location required to be rendered. Everything is built from scratch. Every computer graphics actor or creature needs a skeleton and skin that moves correctly. Texture painters are painting everything down to the finger nail or leaf. Specialists are focused on how the clothing moves.

If the project was shot on film a small team will be going through every frame and painting out the dirt. Yes, there are a number of jobs in visual effects that require working on every frame. By hand. Others are hand tracing actors in specific scenes so new backgrounds can be replaced. Anywhere something had to be removed (stunt rig, etc) needs someone to hand paint it out. Remember that film is running at 24 images a second. Visual effects on a 2 hour movie could be  a lot of frames (172,800 frames). Most movies probably around 2000 shots - visual effects films likely have at least 500 or more shots. In some cases every shot in the film is worked on.

Match movers have to create a computer camera that exactly matches what the real camera did. Animators have to animate any computer graphics actors or creatures. Lighters and others will have to light scenes just like a cinematographer. All of these images have to be calculated and rendered. And then compositors work to combine all of these images into the final shot to be used in the movie. In addition visual effects requires a supervisor, producer, editor and numerous other support people.

Visual effects time:
Visual effects is one of the first departments involved on a project in pre-production  (or should be ) and continues until the end of post-production. This can be a year or more on large projects. Remember that a large animation film probably averages 3 years. Post-production time is frequently being squeezed into 4 to 9 months. Because post-production time is less than it used to be most of the crews start working overtime from the start. The films release date is locked so it's not unusual for the last few weeks or even months require working 80+ hour work weeks. 24 hour work days are not unheard of.

Computers:
The question of computers comes up as well. Don't computers do all the work anyway? NO. A camera doesn't film a scene by itself and a word processor doesn't write a script. The computer is simply a tool. And no, there is no magic button on the keyboard to do the work.

Computers are getting faster so why aren't visual effects a lot cheaper and faster to make? Just as a faster computer doesn't allow a writer to now create a novel in a day it doesn't allow a visual artist to do a shot in a shorter time. Much of the time is spent thinking, planning and working. Any speed ups or reduction in costs due to improvements of techniques and people is eclipsed by the next project since it requires more shots that are even more complex in a shorter period of time. Many movies are about taking it up to the next notch for the audience. That next notch absorbs any gains. Newer requirements also demand extra time and labor - 3D, 4k resolution, and/or higher frame rates.

Base cost:
All of this totals up to a  large price to have a very large crew of very talented, skilled and experienced people working long hours over this length of time. Consider  that the companies had to provide a fixed bid based on how many people and how much time was required, simply based on storyboards and some previs. (rough animations) They also have to estimate how much a new and never before seen effect for the film will cost. Calculated in these budgets is the assumption of how many takes will be required by the director.

The reality:
If the company estimated 4 takes per shot it's just as likely the director will require 12 takes for every shot. And that's just the start of things that happen to the 'profits' of visual effects. On a location in a forest clearing the director may decide to replace the sky for the entire sequence. Seems a simple enough task given all the other work the companies are doing but now people have to try to separate the existing sky in every shot. Some of that may be possible using semi-automated techniques but more than likely it will require a team of rotoscopers (artists who trace to create mattes). Every leaf and branch needs to be traced and any actor (and their hair) have to be separated. Maybe a prop doesn't work. That's added to the list as well to be added or replaced later in visual effects. If a stunt or special effects action doesn't quite work or isn't as big as the director wanted, that's added to the visual effects shot list.

When projecting the dailies in a theater after the shoot is finished, the studio may notice they don't care for the makeup or may spot wig netting or other flaws in the footage. That's added to the list of visual effects shots. Boom mics and crew members in shots are also added to the list. Some shots that were originally planned to have no visual effects now require them based on the edit. Based on test screenings there may be a need for reshoots or new scenes to be shot. Since the sets may have been struck or the actors may not have time to go back the location, these are shot as greenscreens with the visual effects company responsible to add the backgrounds and match all the other footage.

There are times when visual effects are held to a different standard than live action. On a location if a stunt car rolls over for a couple of takes the director may accept it and move on. The shot works fine in the movie. It may not be exactly what the director had in mind but it tells the story. Since visual effects can control everything down to the pixel with precise adjustment the director and studio may wish to tweak and adjust down to the last minutia. If the stunt car was done as a visual effects shot it may be requested to make it roll 6 frames earlier and to roll 5 degrees more. On the 20th take it may be decided to hit a specific parking meter which needs to bend at a specific angle.

Most of this feedback and the changes requested are sent to the hidden visual effects crews. Since these people are seldom seen (with the exception of some people in Skype conferences) it's easy to lose sight of the labor costs being incurred daily. Also unseen is the amount of work and overtime being put in to making the visual effects.

The need to get all of the shots done by the finals deadline drives the pacing. It's easy to spend months on a small number of shots and tweak them and then end up rushing the last batch of shots. The quality of visual effects shots in most cases is directly proportional to the time allowed to finish and polish them. Rushed shots will have flaws and that's why companies sometimes push for a CBB (Could Be Better) shot status. It's not perfect but it can work in the movie. If time permits some or all of these will revisited but that's better than the alternative of tweaking shots the first batch of shots and having a week to finish half the movie.

Remember this all started with a fixed bid for a specific number of shots in a specific time frame. The deadline never changes so the companies now find themselves having to do many more visual effects shots with increased complexity all in the same time frame. In some cases there may be clear changes that enable submitting change orders. But in many cases such as increased noodling and takes, it's a gray area. That tends to erode much of the profits the company was able to build into the original bid.

The amount of work flowing into a visual effects company can also fluctuate a lot. They may finish a very large project and then have a few months with no or little work. Many of the crew are laid off but there's still a need to keep a core team along with paying for all the overhead costs. Any profits made on projects will have to pay for these lulls in production.

Extra costs:
But that's not the end of the story. Many decisions may be delayed. There's usually no one keeping the post-production moving in the manner that the live action was. Sequences aren't turned over while edits and re-edits are done. The studio and director may have conflicting ideas. Test screenings popup with little notice. Results of test screenings require more changes. Sequences are added. Shots and sequences that had been approved 2 months earlier need to be redone with major changes. In some cases the majority of the visual effects happen in the last month or two of the film. What had been scheduled for 6 months must now be done in a fraction of that time and it must be done well. The deadline remains fixed since it must be in theaters as scheduled. And it's not like they can just hire another 1000 people to help out at that stage and make up for the added work. No, the original team will have to put even more hours a day and work 7 days a week. The more hours worked the lower the productivity of the workers. Some work may be farmed out to other companies when possible as 911 emergency calls are made. But that comes with a price of time and money as those companies get up to speed.

To put this in perspective think how much it would cost a live action production to scrap a month of shooting and be required to build new sets and reshoot on new sets, all in the period of a week.

If the artists are compensated for the overtime then prices really start to skyrocket. And more than likely after this big push most of these artists will be laid off until the next rushed project comes through the door.

And that is why visual effects cost so much.



Related posts:
Visual Effects are inexpensive
The Miracle of Visual Effects
Visual Effects - The Big Picture
VFX Business Models
How VFX is perceived by at least one DP
People, not computers, create visual effects
Getting the most out of your VFX Budget