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Tuesday, August 12, 2014

It's NOT just business

It's NOT just business

At last year's VES Production Summit I was approached by the owner of a small vfx shop asking why I didn't cover some of the good or successful stories. He mentioned his company and another company (both in California). I said "Good idea, I'll want to talk to you and the other company to get more specifics". To which he replied he didn't want their company named in the post.

While newspapers and magazine write more and more fact-less articles, I certainly don't want to. Writing about a vague, unspecific company that is doing ok in this industry is of little value unless we can learn some specifics that can be applied elsewhere and hopefully raise the bar for all.

I also talked to this person about several issues, including underbidding. To which he replied, "Well, isn't that just business?"  (shoulder shrug)

NO. NO is the answer, it's not 'just business'.

I talk to others and sometimes the response is "Well, isn't that just globalization?".

NO. NO is the answer, it's not 'just globalization'.

"Well", some have said, "You had to move before so it's no different now"

NO. NO is the answer. It is different than moving to one location at the start of a career.

And I talk to some in this industry and they fear being blacklisted for saying anything about any problems. They fear even doing so anonymously.  (see http://thevfxwatchers.com or http://www.glassdoor.com/  for the lack of vfx company reviews). They fear signing a secret union card or donating anonymously to ADAPT, who is trying to neutralize the politics controlling our industry. Hear no evil, see no evil, speak no evil.

You could just as easily shrug your shoulders at a senseless, horrific death and simply say "Well, every dies." That excuse works very well and enables people to not attempt to do anything. Not my problem - until it is.


Business
Is it really just business to underbid? To bid lower than it actually cost the company? To lose money on every project, year after year? No, no company can run forever losing money. And yet some vfx 'businesses' have tried to do this and are learning the hard way that isn't a good tactic. And in the end it's the employees that end up taking the fall.

Amazon continues to lose money every year with the notion that they're in it for the long haul, yet they've been losing money every year. They're doing so because investors have been optimistic, just as they were before the dot com crash. But now investors are starting to have second thoughts. Amazon's main focus has been to underbid as many companies as they can and to try to crush others, including authors in some cases.

And many businesses these days make it the point they should squeeze out every single dollar because of the shareholders, regardless of moral issues or people issues. They must purely focus on profits regardless of anything else. Even if it's illegal in some cases.

Walmart deals with large volumes so demands the biggest discount from every supplier. And at the same time they try to pay the workers as little as they possibly can (minimum wage for most and then only if it applies).  The US taxpayers spend billions every year paying for Walmarts 'success' by subsidizing Walmart workers so they don't starve. Same with McDonalds and other businesses. This is money that should have gone to education, health or road maintenance. You as a taxpayer are making up the difference because the corporations are not paying fair wages in many case and they're ducking out out of paying corporate tax rates. Walgreens had planned to do a corporate inversion where a company essentially changes their mailing address to another country to avoid paying any US taxes. (Guess who has to make up the difference when that happens?)

There was a US corporation that bribed countries to continue using leaded gas, even though it was proven to deadly to citizens, including children, along with a long list of problems. And yet they did it for profits. After all, it was in another country so no problem for those executives making the decisions and approving the bribes. Of course it's a thin line between bribing and lobbying, something that happens all the time in US.

General Motors knew about a problem that caused a number of crashes and deaths and yet the corporate executives did nothing for years. After all, they have to make a profit.

These types of stories come out almost on a weekly basis and the notion is that everything must be sacrificed for profits. Think of the poor shareholders. Don't bother thinking of peoples lives or the workers.

Even in LA the media companies continue to think short term and will continue to decimate the future for the chance to squeeze a few more pennies out now.  They don't even realize they're hollowing out part of their core business.

You send out enough work overseas and soon you won't have anybody left to do the work locally. This has applied to a number of industries and the US can no longer do much manufacturing of any type simply because the lure of profits was too great. And those experiences and skilled workers left or moved on to other areas to survive.

This has already happened in visual effects. Pacific Title in Burbank (part of Los Angeles) was having a hard time even finding compositors for a project. Few vfx compositors are left in LA to answer the job ads.

Don't be surprised if skilled film crews start becoming much more difficult to find in Los Angeles for those pickup shots or simple inserts. One of the industries that Los Angeles is known for is film making and television. Yes the tourists coming for that are typically seeing something as relevant as a dinosaur in a history museum.

And it's not because filmmaking is going away nor is it because it's cheaper elsewhere- it's been outsourced because other states and countries have paid for it to be outsourced to them (at the encouragement of the media companies).

Because it all comes down to making the world right for the shareholder (and the CEO making 300x the salary of his workers), regardless of anything else. This also provides the CEO and executives the excuse that all their decisions they make are for the good of the shareholders and that they take no responsibility for the ultimate price paid by others.

Does it have to be like this? Are shareholders the only reason for companies? Sixty years ago it wasn't.
An except from an excellent article by Robert reich

“The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in 1951, “is to maintain an equitable and working balance among the claims of the various directly interested groups … stockholders, employees, customers, and the public at large.”

Johnson & Johnson publicly stated that its “first responsibility” was to patients, doctors, and nurses, and not to investors.

What changed? In the 1980s, corporate raiders began mounting unfriendly takeovers of companies that could deliver higher returns to their shareholders – if they abandoned their other stakeholders.

The raiders figured profits would be higher if the companies fought unions, cut workers’ pay or fired them, automated as many jobs as possible or moved jobs abroad, shuttered factories, abandoned their communities, and squeezed their customers.  


Visual Effects
Frequently there is news of a new visual effects company starting up. They start up because there are unemployed visual effects artists who are optimists. They figure the start up costs are not that high any more and they have a new twist on the business model (typically another broken model). And you hear about the closing of big visual effects companies but there are many more closings of small/midsize companies that you may not hear about and that aren't covered in the news. In many cases those new companies close silently within year or  two. Other times it's a company that's been functioning for years but the cost and impact of foreign subsidies have taken their toll.

Custom Film Effects is one such company and here is the letter they sent out a few weeks ago:
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Dear Clients, Friends and Associates,

Please excuse the mass mailing.

As of August first Custom Film Effects will suspend operations and join the ranks of VFX companies that have gone out of business. Like the others before us we are not closing because we produced substandard work, or because we treated our clients poorly. We are closing because we are unable to compete in a business environment so affected by tax credits in other countries and states as to make the VFX business here in California impossible. We all work in this town, we all know the environment we are working in. I could give you the stats on how our business has declined over the past 3 years. I could share all the attempts at finding a viable model for continuing operations in our present state. But, this would not change the outcome. Since January this year the fall off in our business is unprecedented and we can no longer sustain. 

I am grateful for the fifteen years of trust and support that our clients have afforded us. I look back at the shows, the relationships formed, the talent that has passed through the studio and I feel so fortunate. CFE had a great fifteen year run.

We will be placing our machinery in a small editorial facility in Culver City. These bays will be offered for rent to freelance VFX artists on a per project basis. We have some great talent showing interest in this business model. This is all very formative at the moment, more info to follow.

Thank you all for a great run……..m.d


Mark Dornfeld | Custom Film Effects | 

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As a follow up note Mark expressed his thoughts (slightly edited by me):


This is such a mess. Our last show through the studio was another rescue job from a house in Canada. The work was so bad and so late that we wound up redoing everything but 8 shots. We delivered 92 shots on an impossible time line and when I was delivering the last of the show at 3am on a Saturday morning, it really occurred to me that I didn’t want to do this anymore. We were able to zero out our debt, pay our employees and move on. I am so sad, I had a core group of artists in this studio that had been with the company for 15 years and one employee that came with me when I left Disney. At one time we had 30 people working here and were able to provide medical and dental insurance we also had several IA union employees. 

Obviously I am closing CFE so I do not see any future in VFX production in LA. Just no reason for it to return.

Just for the record I am not in favor of tax payer dollars filtering into multi national corps on any level. Bad use of tax dollars when you need schools and roads and stuff like that. This is all badly broken. The film industry grossed over 11 billion dollars last year. Why are tax payer dollars  needed and who really reaps the benefits. Our legislators claim to support local economies yet the steel fabrication for the new Oakland Bay Bridge was done in China. Bridge sections were brought over on barges. I can't decide what pisses me off more. Sending tax dollars directly to China or subsidizing multi national corps. We are not the only industry affected by poor legislation and legalized corruption, it’s all over the place.

This is all just so sad. So many people, so many families have had the rug yanked from under them. I feel so powerless. 

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So no, it's not just business.

The reality is the political and business problems of the visual effects industry affect all vfx workers (and their families), regardless of where they are located. Some in the UK are finding their jobs are shifting to Montreal. No place is immune or unaffected by these problems.

I'll cover the other issues noted above in future posts.

I also received correspondence from some individuals (working globally) and plan to fold those notes into a future post.

For those attending SIGGRAPH this year be sure to check out ADAPT talk being held there and check the ADAPT website.

ADAPT at SIGGRAPH talk
WEDNESDAY, 13 AUGUST 3:30 PM – 5:30 PM
Vancouver Convention Centre
East Building, Room 2

There's also vfxunion reps at an IATSE Union Booth at SIGGRAPH #USA829.


Other  references:
Andy Grove, former chairman of Intel, discusses outsourcing issues.
http://www.technologyreview.com/qa/425125/andy-grove/
http://www.businessweek.com/magazine/content/10_28/b4186048358596.htm


China bridge building:
http://www.dailykos.com/story/2014/06/10/1305808/-California-discovers-hidden-price-tag-of-outsourcing-Bay-Bridge-to-China#
http://americanmanufacturing.org/blog/made-china-bay-bridge-continues-cost-california
http://www.sacbee.com/static/sinclair/sinclair.jquery/baybridge/

This echoes issues that Boeing had outsourcing as well:
http://seattletimes.com/html/businesstechnology/2020275838_boeingoutsourcingxml.html
http://www.forbes.com/sites/stevedenning/2013/01/21/what-went-wrong-at-boeing/



7 comments:

  1. It sounds like the industry as a whole basically shot itself in the foot. If that is the case, it will slowly self-correct. Clients will only be able to afford cleanups coming in at 3am on Saturdays for so long, unless they're still saving money. In which case, it will continue on this trajectory.

    Back when the VFX protest stuff with Life of Pi went big, I was struck at the lack of fundamental economic fluency. I sympathize with those who are jerked around by larger forces chasing dollars and tax credits, sacrificing the stability of people's careers, but let me change your questions you pose at the start to instead say, "Shouldn't I be guaranteed a stable career and compensation in the visual effects industry?"

    And the answer is, "No. No one is guaranteed a stable career of their choice." Whether or not it's a good system.

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  2. >It sounds like the industry as a whole basically shot itself in the foot.

    If by industry you mean vfx industry then by and large no. The vfx industry didn't create or push for subsidies. Although if vfx companies had not been so eager to make the leap to subsidized areas we would be less to be in this boat.
    If by industry you mean the film industry then keep in mind it's someone else's foot they're shooting. Because vfx are done by 3rd party companies who end up taking the brunt for most of the schedule and budget problems.


    You're correct that no one is guaranteed a stable career. Visual effects and the film business as a whole has always been project to project. (after the studios stopped being film factories and closed most of their departments) The crews, actors, etc all work from project to project and don't know when the next project will be. Most in vfx forget that because they work for 3rd party companies and not the studios directly. And in some cases they've been able to keep working at one place for a few years.

    BUT keep in mind this all actually worked well for the workers and the studios when there was a thriving and local ecosystem. If a number of film, TV and commercial projects are being shot all the time in a given area then it's reasonable to find work. Even working as an assistant cameraman jumping from project to project could be considered stable. It didn't mean that you worked for years for the same company but there was enough work that your income and the ability to pay your bills was reasonably stable.

    With the advent of the subsidy wars that has caused the work to spread out very thin and in some cases spread to areas that would not have any film industry. Well if instead of 1 area doing 100 films a year you have 100 areas doing 1 film a year that's going to make it very tough for anyone to have a stable career. Even though there is enough work to make stable careers the subsidies have destroyed the eco systems. Now you have thousands of people with very unstable careers and short term employment.

    Imagine states/countries competing for plays and musicals and decimating New York Broadway or London West End theaters. Instead of having all of that talent and synergy (playwrights, actors, directors, composers, lyricists, etc ) in one place you now uprooted each production and placed each play/musical in a different area (Toledo, Bakersfield, etc) What was once a potentially stable career for a good singer/actor is gone. And the interaction, brainstorming and synergy of all of these types of people in one location is gone and can not be replicated by having spread it out. And now in each of those areas they're teaching and training locals to help with the productions. So instead of a couple dozen lighting people with careers you now have hundreds working temporarily.

    There was a time when you could work in vfx and have a reasonably stable career. There's enough work for stable careers to be possible. Not for everyone and not certainly for the thousands of students flooding the market and not for the thousands that each location are pushing to train because at the end of the day there are still only so many films made a year. We're not making widgets or iPhones where the more demand the more products we produce. If anything Hollywood hs reduced their output yet the flood of new people trying to get and more importantly the spreading out of that work is decimating the odds of anyone making a stable career.

    This was not caused by globalization. It wasn't caused by film and tv no longer being relevant. It wasn't because the entire audience went away or because we were replaced by new technology. This happened because of the subsidies. Pre subsidies = potential for reasonable stable career. After subsidies = almost no potential for a stable career.

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    Replies
    1. Ryan FarnesAugust 14, 2014

      Thanks for the detailed reply. Helps me understand this issue quite a bit better. My initial reaction during the Pi protest stuff was confusion how someone could protest if the film had paid for the VFX work, the contract was executed, end of story. Obviously the Oscar wins made it strangely ironic that the entity fundamentally behind the film was going bankrupt.

      I sort of grasp what you're explaining about "ecosystems," and I assumed the flood of supply in terms of VFX workers was a huge contributor to further disruption and scarcity, but I see that you identify the subsidies as the biggest culprit at disrupting an efficient and stable VFX industry.

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  3. As for the industry slowly correcting itself - Sorry, there's way too much of a disconnect of the studios and the vfx companies. If vfx workers worked directly for studios it would be a different case. The studios would be paying all of the bills in that case and make adjustments just as they do in live action. But with vfx companies being independent the producers and studios (who have little understanding of vfx) simply say they will go with someone else next time. And they will reduce pre/post time because that's expensive. They of course fail to take any responsibility for any overages because it's the companies fault, not theirs. (and you can see why the 3rd party disconnect allows this to happen).

    So yes, as long as subsidies continue and as long as their is a disconnect, this will continue. And as noted this affects everyone in vfx.

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  4. Another thing - it's taken years for many in VFX to even acknowledge that subsidies were an issue. Even today you will find some in vfx in outher areas saying that subsidies aren't a real problem.

    Here's from an article in Variety with Prime Focus.
    Prime Focus article


    “What we heard from our clients was we only do business if you want to get us the rebate in Canada and the rebate in London,” he says.

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  5. Someone on Facebook read this post and thought that I must have never run a business.

    Here was my response:

    I've run 2 successful businesses from scratch.

    Founded and ran Dream Quest, a VFX company Self financed. We never screwed employees out of money. We never cheated on our taxes, we had health care, we didn't ask the government for handouts, we delivered on time and on budget. Dream Quest was later sold to Disney Studios.

    Founded and co-ran Puffin Designs. Software company that sold software I developed around the world. We never screwed employees out of money. We never cheated on our taxes, we had health care and we didn't ask the government for handouts. Puffin Designs sold to Pinnacle Systems which in turn was bought by Avid.

    I consider those successful. We didn't close our doors and we didn't have to take advantage of other people or delve into gray or illegal methods to make that happen. It's not easy. It takes work but some how we made reasonable profits and the businesses continued . We had value to employees, customers and businesses interested in purchasing us, in addition to making the shareholders (us) some money. Our aim wasn't to try to be paid 300x our employees. All companies using the shareholders as an excuse for their actions is just using a scapegoat for their own incompetence and greed.

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