Wednesday, February 27, 2013

Visual effects are inexpensive

Visual effects are inexpensive (relative to other options)

Ang Lee and everyone in Hollywood say visual effects are too expensive. We’ve created the worlds and characters that make their movies possible and the large profits usually associated with them. Yet their thanks to us is to tell us we’re too expensive. They would have loved to get even more profits squeezed out of their latest impossible film that we made possible.

Can you shoot Avatar in 5 days with 5 people total (crew and cast)? Can you shoot any of this years Oscar nominated films in 5 days with 5 people? No. Obviously you cannot. It takes time and people to make these things. Yet they have a huge disconnect when they view visual effects. Doing visual effects is like making a film. It takes time and it takes skilled and talented people. It’s no different. People * time = money. More complexity means more time and people and therefore more money. Sometimes the studios think they can make it cheaper by reducing the time. But this is not a clean and simple formula. As the time goes down for the same level of complexity simply means more overtime (at a higher cost) and more mistakes (more costs).

If you asked the art department to build a city block from scratch and build everything, including the interiors of the buildings, would you be surprised by the cost? Would you blame the art department for being too expensive? No, of course not. That’s a lot of work that involves a lot of materials and workers taking a long time. Now simply change the term ‘art department’ to visual effects. Amazing how that changes their perspective.

And just like an epic spanning several countries and thousands of extras with large sets will take more shooting days and require a larger crew, so too does a more complex visual effects project, yet that simple fact seems to be mystifying to many in the business.

Here’s the secret for why visual effects cost what they do: It takes what it takes. For a visual effects blockbuster it takes hundreds and hundreds of people working months at a time, typically with overtime because the correct amount of time was never budgeted. There are no magic ways to lower that number just like there is no way to lower the number of shooting days and size of a live action crew and still achieve the same results. And for the 1000th time there is no huge mark-up with the visual effects company laughing to the bank. Producers and studios are more than welcome to start and run their own visual effects companies if they see big potential for profits.

Maybe there is a cheaper option than visual effects. Let’s take a look at the options and see how they compare in terms of costs:

Avengers –
Visual effects option:  Have a very large team of skilled artists and craftspeople working for months. Very expensive. (or is it?)

Non-visual effects option:
-The art department will have to construct large special buildings. That will cost a fair bit and take more time than to shoot the movie.
-The art department would have to make all new signs and cover existing signs. Not cheap.
-Everything would have to be perfect on camera to avoid visual effects. No fix-its in post. That will require more shooting time.
-Any stunts would have to be done without visible wires. Any car jumps would have to be done without seeing the ramps. Not a budget item but that’ll put a crimp in the framing of the shots.
-Build a flying aircraft carrier. Not yet doable and so you’d have to wait a long time to make the movies and even then, it’s probably not cheap.
-Destroy a large part of New York.  I know real estate has gone down but probably not cheap.
-Creating a storm in the sky with lighting and all kinds of stuff. Nope, no app for that yet so that’s probably expensive to do.
-Have flying people. Wow, will people even be watching movies by the time this happens? Gotta figure that’s not cheap and the money borrowed for pre-development now will have accumulated quite a bit of interest when finally paid back.
-Creatures coming out of the sky. Government programs have to be advanced and declassified before they can start on bio-creature hybrids. And those flying sled rigs they’re on are so expensive they’re not even listed in Skymall.
-Hulk. See above.
-Same with many of the other characters. Gods, super power heroes, same old problem.

There are plenty more things to add to the list when doing it using the non-visual effects options. But I suspect that it’s already exceeded the visual effects costs a bit.

Gross for Avengers (a film only possible with the help of visual effects): $623,357,910

Hmm, seems like visual effects costs didn’t really make a huge dent in that thank goodness. But still, it wouldn’t have hurt to squeeze out another few million from the visual effects crew, am I right?

In the end visual effects enables the filmmakers to make films that they couldn’t have. Which in turn allows them to make profits that they wouldn’t have without visual effects. In many cases visual effects may not only be the cheapest option they have, it may be the only option they have. They don't look that expensive when considering the options or non-options as it may be.

Visual effects take time and a large number of skilled artists working very hard.

It’s just arithmetic.


 Related posts:
The Miracle of Visual Effects, will it continue?
Value of Visual Effects
Why do visual effects cost so much

There are plenty of other articles on this blog. Look to the right column for more or check out some of the ones below.

Sunday, February 17, 2013

Risk and subsidies

Risk and subsidies

This post is in response to a comment on the previous post Oh, the mess we’re in! . Blogger is unable to allow long comments so I've made a new post for the response.

Here's the comment:

Mark said...
Thanks for replying to my comment. You're saying that the risk used to be that the studios would be held to ransom in some way, but now that's changed -- to a risk that the studio will find itself in financial difficulties.

I think it's unlikely that's a new consideration. The risk that the VFX house will be unable to complete the contract for some reason will already feature. Work gets pulled from even high-profile VFX houses which I see as the studio managing this risk in a hands-on way, and I expect they will continue to do so.

I think the reason I'm commenting on your blog is that it (and many others) are reducing the discussion to a simple one of "subsidies have introduced risk to the VFX business." Not acknowledging any existing risk is (to me) an indication that risk management is not high enough on the agenda within a sizable part of the VFX industry."

'I think it's unlikely that's a new consideration.'

Actually  it is. Obviously studios wouldn't award projects in the past to companies that were just starting up or which there were indications they would fail from the get go.

Now there may have been a company or two that closed during a production in the pre-digital days but I can't think of any. But as you can see with R&H, DD, Meteor Studios, etc. that's a real risk now where it wasn't before. And this is as risky of the big companies as the small companies. The risk that a company may not be able to handle shots as desired or they may not be able to handle hundreds of new shots was always there but a company going out of business while working on a project? - That's a new one. Do the studios going to Weta or ILM think that tomorrow they may get a call saying they closed their doors while working on a project? No. And that was the case with almost all vfx companies pre-digital as well. Yet many projects are not done 100% at Weta or ILM. The work is split up among a few companies, not to reduce their risk of going out of business but in an attempt not to have all of their eggs in one basket. And by that I mean the studios don't want to hear about delays or problems or change orders. And they think it's cheaper.

A studio can check the quality of the work the company has done for other films, they can check their budgets, meet with the crew, they can talk to other studios, producers and directors - all of this to assess the risk and quality factor before they sign a contract. But the thing they can't do is check the books of the company and do a true assessment of their financial stability. In the past, they never had to.

Now a studio may pull work from a company and that's aways happened if the company wasn't delivering what was requested in the required time. There have been certainly 911 calls (emergency) when work needed to be shifted or shots were added. But that's a risk that is evaluated before the contract is signed and is monitored by the studio. This is not something they're blindsided with. A company calling them up and saying we're filing for bankruptcy tomorrow (or next week) is a much different thing and a much higher level of risk.

The studios have many risks when they make a film. They take on that risk with their crews and locations.  But vfx is a 3rd party since the studios don't want to take on running their own vfx company (too risky).  The real risk is laid at the doorstep of the vfx company. But the risk for the company is constantly changing by external forces which they have no control over. And in many cases their clients are the ones putting the companies at more risk either directly or indirectly.

'I think the reason I'm commenting on your blog is that it (and many others) are reducing the discussion to a simple one of "subsidies have introduced risk to the VFX business." Not acknowledging any existing risk is (to me) an indication that risk management is not high enough on the agenda within a sizable part of the VFX industry.'

No offense but this sounds like a certain management software company or a studio talking and not someone working in visual effects or visual effects management. Would there be some risk without subsidies?  Yes but they'd likely to be much less.

As pointed out the studios and regions (countries, states) have created a situation where quality and efficiency are lower priority. If it were a true free market then those companies who were doing good work efficiently would be rewarded by more work. They'd be able to make a profit and be on much firmer ground financially.  The companies that did poor work or that were inefficient would see their profits go down and possibly have to close. Studios would be clearly able to see the different levels and know ahead of time what their general risks were. This is natural evolution. Just like in nature the weak ones would be dying off and the strong would survive.

But now you've added in subsidies into the mix. It's no longer evolution based on quality and efficiency. It's evolution based in large part on politics. And those politics change frequently. Companies that would be strong and survive in a free trade market now find that there is no way they can cut costs 50% or more. They find they have to invest $1 million dollar into a satellite branch they don't want and didn't plan for. And companies that wouldn't even exist without subsidies now exist only due to the subsidies. Companies that were small found themselves very big in a short time not because the companies were the best at what they did but because of subsidies.

 Imagine you've got 5 runners in the Olympics and you give some of them motorcycles. Is that fair? Is that a way to truly assess which runner is the best? Are people surprised when the actual runners don't win? Which one would you bet on?

Imagine a restaurant in a town and it's doing well. In fact it's very good and people are coming from other towns. And in another town right next to the first town the city government decides to pay for 50% of all orders at a similar restaurant.  Don't you think that would have an impact on the first restaurant? Almost all of the people from both towns would flock to the one that they could get food for 1/2 price.

 Is there a way for the first restaurant to compete with that? No. There are certain food, labor and building costs that they can't trim. They're not making over 100% markup so it's impossible to cut their prices 50% and still make any money.  What are their choices?
1. Close their doors
2. Try to offer food at the same price. And this will bring back some of the customers but since they're now losing money every month it's simply a matter of when they will close their doors.
3. They can open another restaurant in the town with the discounts. Now they have the extra burden of a duplicate restaurant. They have doubled their building and overhead costs. They've had to hire a manger, hostess and the entire group of chefs and wait staff just for this new place. Do they have enough money to do that? Will that added unexpected cost now make them more at risk of going out of business? Yes is the answer.

Now imagine that another town right next to these two starts offering a 70% discount. Now where does that put the owners of the restaurant? Do they now build a 3rd restaurant in this new town? Do they try to lower their price to match?  And with the more lucrative restaurant business in this new town, there will be more restaurants built by those who haven't done this before. The townspeople have paid their taxes and the town council has decided that offering food coupons is much more important than putting the money into their schools or their decaying bridges. There's no winners here except for the customer.

Are subsidies the only reason for troubles of the visual effects industry? No but it is a major reason. Natural evolution would tend to solve problems of poor management and other flaws by having them go out of business. Is there a risk? As in all of filmmaking, yes. Is the risk of a company running out of money on a project much greater now? Yes. See the restaurant example of options for a company.  None are good. And it's not a question on how good management is at that point, you can't do the work for 1/2 price. And that's whats created the largest risk - closing doors even while working on projects.

And lets not forget when studios do stop or pull projects that creates a huge loss for the companies that was unexpected. As I say, the companies take on a fair bit of risk outside their control. Now they're on even shakier ground. The studio that pulls 1/2 their work can't plead ignorance that they increased the financial burden of the company and increased the risk the company could go out of business. Between these types of actions and the subsidies it's no wonder some companies go out of business.

Related post:
Visual Effects Tax Incentives (aka subsidies)

Here's some more information on subsidies of other industries and the impact they have:

Choosing winners and losers: How government subsidies destroy the free market
Subsidy Insanity
WWF: subsidies destroying industry [PlanetArk]
Coalition of Gulf Shrimp Industries Files Petitions for Relief From Subsidized Shrimp Imports
New Study Reinforces USW Position that Improper Chinese Subsidies Destroy Jobs in American Paper Industry
USA Shrimp Industry Seeks Relief from Subsidized Imports
China subsidizing auto parts exporters: US industry
Solar energy firms 'bankrupted' after subsidies cut
Over Half of All U.S. Tax Subsidies Go to Four Industries. Guess Which Ones?
Germany Subsidizes China To Destroy The German Solar Industry
China Solar Subsidies Pose Dilemma For U.S. Trade
California Backfire: Energy Subsidies Destroy Economy
Put An End To Massive Logging Industry Subsidies in California

Monday, February 11, 2013

Oh, the mess we’re in!

Oh, the mess we’re in!

The visual effects industry is still having problems and they’re getting worse. R&H looks like they're filling for Chapter 11. Why do companies have to underbid and close? Why are artists losing jobs without notice? If visual effects is helping to create most of the successful films of all time, why do we have so little leverage? Why do companies and artists have so little control over what’s happening?

Let’s take a look at the basics of business, which may provide some insights.

Law of Supply and Demand
If you have 12 people who want to buy a house in a particular neighborhood but there are only 3 houses for sale, that’s a sellers market. There is more demand than there is supply. The few homes will likely sell for their asking price or even higher. The buyers know that others are interested as well and if they wish to buy the house they have to be prepared to pay at least the asking price. Frequently there are multiple offers such that the house is sold to the highest offer. This is great for the seller who will make money.
Now if you had the opposite situation, 12 houses for sale and only 3 potential buyers, that’s a buyers market. Each homeowner who wants to sell their house knows that they may be stuck with their house for months longer if they don’t sell. Buyers will negotiate - there’s a house down the street almost as nice for a lot less. They will offer less than the asking price because they know the seller has few options. Many sellers will trim their price even before posting so they can try to make sure to sell their house. This reduces their potential profits and the price may be less than the homeowner paid for the house years earlier. They are losing money due to the amount of competition and because they know it will cost them even more if they have to hold onto it for another year.

The same principle of supply and demand is involved with many business and personal decisions. If something is rare then it’s likely to get top dollar when sold. If something is very common it will likely get a base price or less. Workers with specific skills or experiences that are rare will more likely be paid more than someone who fills a role that can be easily filled.

Balance and market size
If 10 car washes are built in a town of 1000 people then it’s likely all of the car washes will have difficulty making money. The car washes will try to lower their rates so they can at least get more customers but many of the car washes will lower their rates as well. And the rates will continue to go down in a desperate attempt to get more customers. They’re like fish out of water gasping for ‘air’. All the car washes will suffer. One by one the car washes will close. The one that remains open may do so because of location, quality, and deeper pockets of its owner or any combination of reasons.

If it’s a town of 100,000 people then there will be a corresponding number of car washes it would support. The size of market and the number of customers will drive the number of businesses that fulfill that specific type of business.  Anyone interested in starting a business has to first determine the size of the market and how much competition there already is. This has to be in the business plan and is used to get investors or to get a business loan from a bank. It would be difficult to find investors or a bank willing to put money into a business that is unlikely to be able to support itself. In the case of the car washes the investors and bank would likely refuse more car washes after the first or second have been built. They know the odds of getting their money back are nil if there isn’t a large enough market.

Free market evolution
With any new industry there is usually a rush by a large number of companies trying to take the lead. As the industry matures many companies will fall to the side. Some will merge and some will purchase other companies. At some point they will likely reach a balance. Over time some companies may come and go dependent on the health of the industry, how well the companies keep pace with their market place and where they sit. In most industries there are only so many companies and in many cases this number is relatively small. Now there may be some regional or local companies and there may be some niche market companies but by and large the industries tend to be dominated by a few companies. There are not 10,000 film studios. There are not 10,000 car manufactures. There are not 10,000 frozen foods companies or airlines or car rental companies or hotel chains. There may be 3 or there may be 12 but there certainly won’t big huge numbers. And while these companies are competitive they don’t need to underbid or run in the red for months at a time. They have a certain amount of leverage and have found their balance. Evolution is a combination of many things and if the market doesn’t support as many companies as they are in that particular business, then many will fold until the correct number of companies exists. It’s a painful process. If an industry has a large market place with too few companies, where these companies can not keep pace with the demand, then someone will step in to fill that gap using money from investors or other sources.

Visual Effects
Just how large of market is visual effects? Sure there are visual effects in most films now. There’s also television, commercials, video games etc. but let’s focus on films. The studios are now either making very expensive movies or very small movies with a gap in-between. They can only release so many films a year since they know that there are only so many theaters and so many viewers. Audiences only have so much free time and are overwhelmed with options to see and do already (television, video games, internet, sports, etc). A film has only a few short windows to make their profits (theater, DVD, Pay per View, etc). Sure they are in a library for the studio and continue to make some money but the studio want to do everything they can to make profits as soon as possible.

In the US there are 250-350 or so films released theatrically a year as I recall. How many would be considered visual effects films? No matter what the number is, not all visual effects companies are working at full capacity. Many are likely to have a hard time finding much work and others are only working at ½ capacity.

Given this there’s likely too much visual effects capacity in the world. There are at least 8 very large visual effects companies and dozens or more medium size visual effects companies. All of these companies vying for a relatively small amount of work. And even a portion of this work may already be assigned to specific companies. Weta will be doing all the Hobbit movies. ILM will most likely be doing Star Wars related movies. Just like the UK was pre-destined to do the Harry Potter films due to the incentives.  This results in companies all trying to underbid the other or at least cut their margins to the bone. In this scenario it’s a buyers market so the studios have all the control and the companies have very little control.

Imagine for a moment what the industry were to look like if there were only 3 or 4 visual effects companies. It would be a sellers market. More than likely they’d be working close to capacity all the time or at least getting a reasonable stream of projects. They’d be charging what it cost plus profits. They wouldn’t be underbidding. They’d have some leverage with the studios. This is similar to how things were pre-digital. There was much less work but a relatively small number of visual effects companies. Each was getting some work and none was trying to go into debt bidding on a show. Studios would have to ask when the work could be done by.

Un-natural Selection
And this points out the other problem visual effects has suffered from – unnatural selection. Evolution not based simply on free trade, where quality, cost and efficiency would be critical factors, but on politically manipulated trade. The incentives subsidies reward companies in some areas and penalize them in areas without the subsidies. This creates a constantly changing shift of selection. A company even with good quality and excellent efficiency could still fail because they cannot beat 50%+ subsidies. Matching them alone still isn’t enough for the studios. This manipulated market results in some companies in places that shouldn’t have visual effects companies or that would have resulted in smaller companies left to their own natural evolution. I know some people like to avoid talking about subsidies but it has had a major impact on the film business and visual effects. It’s hard to deny that they haven’t.

There’s also been some manipulation by individuals. George Lucas moved ILM to the San Francisco area and made a heavy investment. Peter Jackson setup Weta with a large investment in New Zealand. It’s not like a lot of studios and producers were saying ‘Gosh, we wish there was a large vfx company in New Zealand.’ A large visual effects company would have been unlikely to naturally develop there.

And with the subsidies comes the need for workers and artists. Artists are traveling the world to try to continue to work. And places with subsidies are pumping out more and more students and local workers whose entire career is based on government support and continues to need government support. This leaves others in areas without the magic wand of subsidies high and dry.

Visual effects as a business
All real businesses are designed  and started to make a profit. (With the exception of non-profits.)  Investors would have to have confidence that a company would be able to not only break even but also return profits. Otherwise they have their choice of investing their money into other more profitable businesses or other financial investments. Most start-ups require a business plan with a clear idea how much money they could make based on the size of the market. If a business is doing poorly then investors are likely to want to sell their share of the business or to close the business.

Yet most visual effects companies haven’t been started as real businesses. Visual effects artists started many because they were interested in having their own company. They wanted freedom, control and hoped to earn a living. Most were not started as large profit centers.  Some companies were started by wealthy individuals (George Lucas, Peter Jackson) to provide visual effects for themselves and their friends. The hope was the companies would pay for themselves. And if they turned a real profit all the better but they weren’t started as an investment strategy. Some visual effects companies are owned by post-production companies, film labs and other companies that tolerate a loss because it allows them to offer package deals where they can make up the loss in other areas. Some are funded by wealthy individuals who like to dabble or by companies who hope to sell or advertise a product (computer based). In many cases these are almost like kick starters where there is money donated with no requirement to return a real investment. As DD found out trying to get real investors was a problem and most who bought into the company were sold on the aura of visual effects and the stories of other much more potential markets (medical, military, etc)

If you went on Shark Tank (TV show with wealthy investors) and pitched a visual effects company as an investment they would laugh you out of the room.

If these were all real investors then a number of visual effects companies probably wouldn’t have even been started. And certainly investors would be skittish of investments that were totally dependent on subsides which may or may not continue. And of course they'd see no reason to invest in a company that could go out of business due to subsidies elsewhere, no matter how good the company is. Some would have been closed sooner. Those of us who do this tend to do it for love so we do all we can to keep the companies afloat. A businessperson would not invest in such a situation and would likely try to get out of it and it’s losses. They’d consider real business means of making it work such as merging with another visual effects company.

Pricing tiers
Some businesses set different tiers for themselves to get specific types of customers. There’s the Dollar Store, Target, Macy’s, Nordstrom’s, Neiman Marcus – Even though they might sell some over lapping products each has a different price point, quality level and different clientele. You can eat cheaply at a fast food place or go to a very expensive restaurant. But visual effects has a hard time doing that. Nobody really wants to work on cheaper looking shots. Lower budget films know they have some restrictions but they still want to get footage that looks as good as the large tent pole films.

Amateur hour
In the world of photography there are professionals. They shoot stock photos, weddings, portraits, news and other photos where they get paid. Still cameras have become easier to operate and less expensive so many amateurs have jumped in. Because this is a hobby and not their main profession, the amateur photographers aren’t concerned about making a real profit. They’ll shoot their friends wedding for $100 and costs of the prints. They send their photos into the stock libraries or provide them free to news services. The sales give them a little extra pocket change that’s fun. But they end up reducing the work for professionals, those whose livelihood depends on getting enough income to pay for the equipment and the studios. They don’t have another job that pays them and they don’t have an employer paying their health insurance. Any professional cat photographers are all probably out of work given the glut of cat photos on the web.

There are now people doing motion graphics and visual effects on the side. Some workers are now independent contractors working at home working for the same amount they made but they fail to include overhead or heath care costs so they end up losing and lowering the rates for everyone. Some productions are having students do the work. Students and newcomers are far too frequently eager to work for free. In the end this just reduces income for professionals and produces a downward pull on wages while the studios are pushing downward on the visual effects companies.

Small companies
Some people think the solution is to have a lot of small visual effects companies and do away with the large companies with their large overhead. It’s an attractive and romantic notion for many in visual effects to have their own companies.

Trying to get leverage with a few large companies working on large portions of movies didn’t work so how are dozens of small companies going to have any leverage? The studios would now have a hundred other places to go if you ask for too much or want to bill for changes. Leverage equates to payment, credits and other benefits. If getting the large vfx companies to unite has been impossible, how easy will it be to get 100 smaller ones to unite? If most of the problem boils down to too much capacity then how is simply having many more companies with the same capacity or more going to solve anything?

And while it’s true there is overhead at a large company consider the overhead of dozens of small companies. Each company is likely to have a supervisor and producer or a person(s) fulfilling that roll. Each will need some type of support unless they are doing it all themselves, in which case they aren’t doing visual effects portion full time. What about vfx editing and all the other misc items? Are you reviewing everything simply on your monitor even if it’s for IMAX release? Look at the credits of most movies currently. Many films already have 10-15 companies working on them, even with large companies in the mix. Look at the redundant titles of supervisors and other management positions. And some of those aren’t listed but actually worked on the production. Overhead savings by dozens of companies may not be that much different when it boils down to it. Especially since the studio may have to hire a company or two just to do R&D. The biggest overhead savings is on the down time when a large company has a large permanent staff and a large building(s).

At a certain point if you break the work in to a lot of small companies are you gaining anything for the studio that the studio can’t get setting it up themselves? If it’s just a few guys/gals in a large room with some computers, stripped of large pipelines and multiple disciplines, couldn’t you set that up in a warehouse and not have to pay profit to each company? As I noted in another post there’s nothing preventing a company from setting up a building all prepped and available for rental with basic pipeline and hardware already in place, just awaiting artists. The studios don’t want to do this since they don’t want the risk. They’d rather have the companies hold all the risk for them and to absorb a certain percentage of the changes and overages. Now there is a company or two that handles indirect management of multiple small to mid-size companies but the problem is they take a slice from the already thin margins and have now added in yet another layer of unnecessary communication.

Truth be told the fewer number of companies involved in a film the more efficient it is. When it’s at one company you have one place responsible and less communication necessary with the client. There’s only one set of management on the team and all people within the company are communicating efficiently using the same pipelines, processes and software. No conversions or modifications necessary.  Same models, same rigs, no need to adapt, no need to share proprietary code, etc. A lot of small companies would mean they’d have to willing to pass interchange all of their models and scripts. It would also mean a lot more communication time as each company has to be communicate and interface with several other companies and the clients.

So why do the studios break up the work so much?
They don’t want to be held ransom by any company so they split up the work because they fear the company taking advantage of them.
They split it up because the schedule is too short to achieve at one place.
They split it up to try to save a small amount on the matte paintings or wire removals or whatever. The added handling of these shots and communications, etc. tend eat up any savings that these less expensive places offered.
Sometimes other companies do offer specialized visual effects that another company may not be able to or not at the same quality level.

Do the studios really want to parcel the work out to a 100 smaller shops? No. It would be like a bad grocery shopping expedition. Drive here. Buy 3 apples. You want  5 so you need to drive to another place to get 2 more. Then you have to stop at the orange store. Next you have to drive to the frozen dinner store. And on and on. Right now one of the concerns studios have when they include small to mid size companies in their group of companies is what happens if the work expands? Because as we know that’s not unusual so the studios have to know if a place can actually ramp up and do more work with little notice. Some smaller shops have a physical limit of space. Some don’t have the work stations or capacity to handle more people.

Too many artists?
Some people have voiced that there are too many artists. That too many people are being educated in visual effects schools and trying to enter the workforce. And that’s why the industry is the way it is. The number of visual effects students is far eclipsed by the number of film students yet the film industry isn’t being destroyed by students. A large part of this is because there is a union for all other film workers (writers, directors, grips, cinematographers, etc) The studio has agreements in place not to simply start hiring anyone off the street. Believe me it would be easy to drive around LA and pick up people who would be more than glad to work for free or to pay to work. But the studios know that if they’re going to invest tens of millions of dollars or more, they don’t have time to teach on the set. They have to be as efficient as possible when shooting and can’t take the chance of problems. They’d rather hire an experienced professional who knows what has to be done and pay them more. They gather a small army of people and each one has a job and has the experience to join in and do what they need to.  Now that means that it is tough for film students to find real work in the field, especially on larger productions. And a large percentage of film students will never find work in the business. Others will pursue the dream for years. It’s a problem for some in visual effects because the companies are under so much pressure to get the prices down. Some managers don’t understand what the studios already know – experienced professionals are the best use of money and trying to save it on inexperienced people is being penny wise and pound foolish. Not that beginners shouldn’t be hired but they will have to start at the beginning and be in small numbers. And that’s why I caution students who are interested in film and visual effects. You have to know the odds and understand you’re going to work very hard to succeed in the specific business.

Maybe we should start treating visual effects as a real business. Maybe we don’t need more visual effects companies. Maybe we need less. Maybe our business skills and approach should start to match our love of the work. Visual effects companies need to stand up for themselves and take a hard look at their business. Would they be better off merging? Are they simply dragging down the rest of the industry? Maybe all visual effects artists will start to understand the impact and dangers of subsidies.

----David Cohen has a great article in Variety that covers visual effects business issues.
Ailing f/x sector spotlights creaky tentpole foundation

Why is the VFX business failing? Questions for Scott Ross

The Miracle of Visual Effects, will it continue?

Wednesday, February 06, 2013

Bad Visual Effects Business Practices

Bad Visual Effects Business Practices

[ This posts covers specific bad business practices of visual effects companies.
If you're interested in the problems of the visual effects industry check these posts:

It seems a few times a year we hear of another visual effects company going out of business or on the brink. Every few weeks there is news of massive overtime on a visual effects project and almost just as likely the news that those putting in the time were not paid for the overtime. The visual effects business has gotten more and more out of balance in the last decade. While the amount of visual effects has skyrocketed and the profit from these types of films has likewise skyrocketed (49 out of 50 top box office films were reliant on the use of visual effects), the life of many visual effects artists has become more difficult. And trying to keep a visual effects company running has become more difficult as well.

Our creative skills and technology have freed us to create extraordinary images but the business aspects are dragging us down.

Some of the key problems include compressed post-production schedules that require overtime from the start just to complete the work on time, never ending changes from clients until the film is in theaters, film incentives shifting where and why work is awarded and increased competition from more visual effects companies.

Many of these issues are out of the direct hands of the vfx companies. However some are simply problems the companies create themselves, in some cases related to the above problems and in other cases simply due to management decisions.

I've worked directly for studios, I've worked for visual effects companies and I've started and ran my own visual effects company for a few years. None of these are easy.

Business aspects
Visual effects is not widget making. Nor is it a consistent service based on a vast number of potential clients. In these types of businesses there are fluctuations but they're normally slower changes. Visual effects is project based where a single project could occupy the entire company or a significant portion of it. The work comes in sporadically and results in a feast or famine situation for the visual effects companies and their artists.

For feature film work these projects have an end date so there's a big burst of work and then the need to scramble to get another project to keep people busy. Television can be a bit more forgiving since it may continue on for a longer period of time but even here there is uneven work. Commercials tend to be shorter and smaller projects so an individual project may not have the same weight on a company as a feature might.

A company that makes their own product such as an animation studio has more potential flexibility to adjust the workload and try to maintain consistency of work.

Visual effects companies
It's not easy to start and run any business. Visual effects is likely one of the more difficult because of the project based nature and all the other external factors involved. While it's easy for workers to look at management and think running a company would be easy, it is not. Those who try usually find it much more difficult than anticipated. [ I'll cover new companies in a future post].

Visual effects management
Management breaks down to those who are independent of specific projects (general manager, department heads, etc) and those who are assigned a specific project (visual effects supervisor, visual effects producer, etc) These may overlap depending on the company.

I'll cover some of the bad visual effects business practices I've seen (and some I've done myself). It's certainly easy to make mistakes given the pressures to make the business work. And many of these aren't specific to visual effects only but are common across a wide range of businesses.

Management’s purpose
Management’s first step is to get the projects in and to gather a great crew to do the work. Management’s task is to guide the crew and provide the necessary support and tools to do the project with as much quality as efficiently as possible. Yet some in management don’t get this and in fact seem to try to impede the work of the crew.

Sometimes it seems that Scott Adams must have been a visual effects artist. He creates the Dilbert cartoon series and frequently his cartoons seem to be taken from the diary of a visual effects artist. 

The Work
Most work in visual effects is done on a fixed bid with change orders in theory to allow adjustment to changes. The problem is that even with previs animation the work is seldom spected out in detail and what is requested may differ significantly from what was bid. Creative changes make it a challenge to do the work in the time and budget originally calculated.  Visual effects companies tend to be reluctant to turn in change orders even when they are justified because of the small number of potential clients.

Lack of Honest Communication
Management at the company need to be able communicate clearly with their client and with their artists. This includes listening. If there’s confusion about what a client wants or what the artists need to do then there will be waste. If management refuses to hear what their artists have to say, then that will result in waste and loss of time as well. The company may have restrictions but they need to avoid purposely misleading the client and the artists. Lying about things like payroll is a good way to lose all employees.

Bidding Problems
Bidding is critical.  If a bid is too high then the company may not be awarded the project. If the bid is too low then the company may lose -a significant amount of money.

Inaccurate bids
Sometimes there is little time to do a bid and rough numbers are simply assigned per shot. Sometimes a producer or supervisor may be using figures from a few years earlier. Not including some of the key people also can result in inaccurate bids. It's best to make sure to get accurate bids.

Not getting all the information
The more information the more accurate the bid will be. Lacking specifics of shot length, handle length, boards, previs, schedule, etc. will produce an inaccurate bid.

Incorrect bidding
It's a mistake to calculate in asset costs into a sequence of shots. If a CG model will cost $100,000 to build and will be used in 100 shots it's tempting to simply spread this out over the 100 shots. But if the shots are canceled after the model is built or the number of shots ends up at 10, you've lost money.
Accidently losing a section of the bid is also a problem so be sure to double check.

Not being specific in the bid
Be clear about what the bid includes and what it doesn't include. Which previs, storyboards, script and breakdown is being used should be clearly spelled out to avoid confusion.  Any assumptions need to be documented. The valid period of the bid should be clearly spelled out as well.

Optimistic bids
We tend to be optimistic and bid based on what we would like the work to take, not what it really takes. Bids need to be based on the average worker, not the leads or the best worker. Bids should be compared to an average of similar work from the last year. If your bid for a green screen is 1/2 of what your average green screen took the previous year then you need to face the reality of the bid. Same with roto, animation, etc. Shots will vary with the projects but does the specific project support a much different bid per task? The pressure of getting the project encourages everyone to try to get a low bid but it's   better to be realistic and honest in bidding.

Changing numbers after the bid
In some cases management will 'adjust' the bids before presenting to the client. There may be overhead or markup that wasn't calculated in the initial bid. The problem is when someone starts making guesses and modifies the actual bids. If the animation dept. has bid something for x weeks and management changes it to 1/2 x, who’s responsible for it? How accurate is the bid? If management thinks the bid is too high they should be involved with the bidding or re-evaluate specific sequences with the affected people. Padding the bid is also a problem if the people bidding initially already put in a little flexibility.

Optimistic schedules
Most of the bid is based on the amount of man time involved with each shot. But there will be a linear time to schedule as well and that's easy to be too optimistic on just like the bids themselves. For a given number of crew members, how long will the work actually take from start to finish, knowing the changes and delays that typically happen? What about delivery schedules from the client and time to review? Is there enough time to do it? Will additional artists need to be hired? Will this require insane overtime? If the schedule is too optimistic there will be enormous costs and pressure toward the end of the project.

I'm not talking about underbidding a competitor here. I'm talking about producing and presenting a bid that is lower than the calculated out of pocket estimates. Purposely underbidding a project to get the project knowing full well the company will be losing money. This is called buying a project and the company is in fact helping to fund the project without any investment return possible. This is a losing proposition and causes a race to the bottom. This is one of the biggest problems the visual effects industry faces. This happens to both small companies trying for small projects and the largest companies even in areas with subsidies. I know the difficulty of trying to keep cash coming in for a company and the thinking is that it can be staved off by just getting this one project in with enough cash flow to help cover some of the expenses.

The problem is anyone can under bid at anytime.  If your company lost money purposely on the last project, how do you make up for it? Visual effects is not a commodity and we don't make or sell widgets. Wal-Mart can ask their vendors to sell to them at lower prices because they're buying thousands or millions. If the vendor is making some profit on each product and they have a guaranteed order for a large quantity then it makes sense. A visual effects company cannot make it up in volume.

If your company under bids on this project then there's a good chance another company will underbid you on the next project. After all, another company lost the last project because of your bidding process and now they're in desperate straits. Even if your company isn't underbid your clients now want to get similar low bids on future projects. Without a new project with sizable enough profit to cover itself and the project that lost money, you're hosed.

Companies doing this tend to slip further and further into the red and are simply delaying their collapse. With deep pockets to keep the company afloat that may work for a time but someday someone is going to wonder why they continue to lose money. That’s when the money loss will stop.

There may be times when your company will simply have to trim back according to the amount of work available. We all hate to see people laid off but if this just drives a company out of business and others are losing work, that’s a problem. The thought is to keep the whole company afloat and the desire to retain as many workers as possible but by underbidding you’re pulling the jobs away from other workers at another company, a company that may in fact be trying to make a professional business out of it. You may well doom not only your own company in the long term but other companies and workers in the same business.

Keep in mind it doesn't do the company, the workers or the client any good if the client goes out of business, especially while working on a project. And that's why some clients are reluctant to award to the lowest bidder. It's like other things in life, if the price looks too good to be true, it probably is.

The other problem with underbidding is management is always optimistic the loses can be made up during production. (When has that ever happened?) They are likely to place more pressure on the workers to work faster and to work unpaid overtime and place the blame on the workers rather than management's decision to underbid. Management also tends to try to push the client to buy off on shots before they are done or at a lower quality level. This causes the client to question the quality and to become less trustful of the company.

What starts as a way to keep much of the crew and to lose less money in the short term becomes a long-term loss for both the company and the industry. This devalues the work of the company and their artists and simply forces other companies to trim margins to the edge of bankruptcy. This is unhealthy for an industry.

Separate post on Underbidding VFX

Bad contracts
Contracts take a long time to work out. In some cases the contracts may not be completed until the finish of the production. Most lawyers are paid by the hour and love to drag it out. The contract will be boiler plated and client skewed heavily in their favor with a full team of lawyers. But the company needs some type of legal document (simplified contract, letter of intent, etc) BEFORE it spends a lot of money on hiring people and expanding. There have been many projects that disappeared before they started shooting or partway into production. The company needs to have a contract such that the visual effects company is not holding the bag for its expenses if the project does not complete as planned. The company needs some type of minimum guarantee or penalties should the project stop. The company should have a non-refundable hold fee of some type.

Any company left in the lurch from a client pulling out is in a precarious position. They likely have a crew and other expenses and will likely have to let the crew go or reduce it's overhead as much has possible while they scramble to fill the vacated time. What about the people who have moved to work at the company with the understanding of a long project? How will they be compensated?

Companies also need to either make some of the parameters of a contract adjust accordingly or be ready to renegotiate should things change radically. Example: If a company is doing 100 shots and has x credits, what happens when the number of shots quadruple? Is there an increase to number of credits? Do other parameters change?

Companies need to get a real entertainment lawyer to check the contract. Can the project be mentioned during the production? Can it be mentioned after the production? When can material to be shown to new prospective clients? What are the restrictions? Who owns any materials or techniques developed during the project? What about elements from an element shoot? Who owns that material? What are the deadlines and responsibilities if the client doesn't deliver? What are the responsibilities if the company doesn't deliver or meet it's deadlines? What are the specs of delivery from the client and to the client? What type of credits and how many will be provided? All of these details have to be hammered out ahead of time.

Bad payment schedules
With a contract goes a payment schedule. Management needs to determine their expenditures, including their up front costs, and layout the payment schedule. There may have to be a large upfront to cover the cost of new development or ramp up time. Even if the bids are correct, if the client is running late with payments then the company may not be able to make payroll or cover other expenses. What happens if the work is based on milestones of completed work but the client is late to deliver the material by a month? Companies need to be clear on the real payment. Large companies tend to like to pay things on 30-120 days schedules. Even with an interest payment can your company afford to cover all costs for 3-4 months? Unlikely. So make sure the payments are always covering expected costs during the project, not months later.

Not meeting payroll
Not meeting a payroll or not paying your contractors means someone in management likely messed up big time.  Likely they either didn't work out the correct payment schedule or didn't correctly budget and monitor expenses. Don't be surprised if you lose your crew.

Not having business sense
Many people in visual effects management do not come from business backgrounds nor do most have any type of business education. Some say that this is the source of all the problems. But many people with Masters in business lack business common sense and more importantly they don't understand a thing about visual effects. Most business programs and board of directors think of management as interchangeable regardless of the company. That's why you end up with a CEO of a chemical company overseeing a farm equipment company and someone with no food business experience running Hostess. These end up as disasters. These types of people focus completely on the numbers without understanding what they really mean. Without understanding the product, service, industry, employees and clients, management cannot hope to understand what to do.

Many studio executives and producers don’t have official business training but they typically have basic business common sense or have someone on their team who does. Everyone in management should understand the concepts of incoming revenue, expenses, labor costs, capital expenses, overhead, profits, targets, etc.  And no, overhead is not the same as profits. Some management in visual effects companies lack this understanding.

Not knowing costs
Surprisingly some companies don’t know their actual costs. What’s the cost of overhead, what’s the cost of any employee benefits, what are the additional expenses for equipment and what are the true labor costs? Without this most basic knowledge the company will not survive very long.

Not valuing employees
A visual effects company has hardware and software but its single most important asset is the worker. Anybody can buy the hardware and most of the software to set up a company. It's the employees that are the real driving force of a company but many in management forget that. The quality of the artists, their skill and experience when managed properly will determine the quality and the cost/time required to complete the custom visual effects. Not placing a value on them is demeaning to them and the company.

Treating workers poorly
Workers are human beings. Yes, you’re paying them but if you work them 80+ hours of overtime are you treating them as people? If you force an employee to move across country or to another country only to be laid off immediately are you treating them correctly?  It’s easy for accountants to simply look at them as a cost but management has to understand they are people. They are people whose life is controlled by the company. A visual effects artists will be spending more time at work than with their families. You may have required them to leave their families to work at your company. They in effect are sacrificing part of their life for the company. If motivated the artists will be going above and beyond. But does that mean you can kick them to curb without notice? Remember to do unto others as you would have them do to you.

Abusing workers
There are many types of abuse that management may place on their artists. Hopefully their HR department is on top of it and prevents it from happening no matter the type of abuse (including screaming at people, antagonizing people, and obviously being crude).  There may be some types of physical abuse including excessive overtime and not providing enough sleep between working.

I’ve heard some workers in India and other places have been actually beaten. We are professional visual effects artists and all workers should be treated humanely. Any manager who abuses people should not be working at the company. If higher management doesn’t deal with it then they are at fault as well.

Poor working conditions
Here in the US most places have reasonable working conditions but that is not the case everywhere. Companies need to provide reasonable working conditions- providing ergonomic setups to avoid carpel tunnel to having drinking water available and avoiding extreme temperatures.

Placing work above health
Some companies are intolerant of people who are sick when there is a deadline to meet. Some companies work people to the point of exhaustion. It’s only a movie.

Not making the best use of crew
Casting artists for specific tasks is important to try to get the best out people and get the best work out. This requires management to know the artists and their capabilities. Some in management may have small minds that makes it difficult for them to imagine the person in a higher job that they’re better suited for. Some people end up trapped in a job because they’re good at it, not because it’s best for them or the company. Meanwhile those doing worse may be given promotions. Once again the company may lose their best people.

Not motivating
Management should be inspiring artists and motivating artists to do great work. When artists are inspired they will put in 110% and will try to do everything they can to do better. Yet many in management try to do everything they can to reduce the morale of the artists. Any ideas or suggestions are instantly killed. Making processes as difficult to navigate as possible. Requiring enormous paperwork for the smallest thing. Every ‘win’ for the company is likely another notch in loss of morale. (Lopsided contract, forced to work unpaid hours, etc). In the end you’ve reduced people excited by visual effects into worker drones who will be thankful to finish the day and the project. You’ve created workers eager to switch to another company.

Poor hiring practices
When a company consistently hires what they consider ‘poor’ workers, whose fault is that? It’s likely you have a poor evaluation hiring process. Some like to blame the reason is that there is no certification process for visual effects workers but that’s the lazy approach. HR and management have to work together to review job postings. Does the candidate really need a Masters degree? Does the candidate actually need any degree at all? What are the actual requirements and are they clear in the notice? Is management involved in the evaluation of the potential employee? Have you properly evaluated what skills and abilities the person needs?

Providing no training
All companies are a bit different and at least require an orientation. In visual effects there are usually very specific custom software, databases, naming conventions and pipeline. Anyone being hired that hasn’t work at the company recently will need a period of training. If complex proprietary software is critical then there will have to be sufficient training along with evaluation. Simply tossing someone in the deep end is a waste of that person and will simply cost more for the company in the long run.

To increase the skill set and quality of their employees companies can also provide additional training on new software or advanced features. Members of the team can also act as mentors and try to raise the level of others if the company allows for it.
Training can also be helpful to management or anyone who the company wants to promote.

Too little management
At some companies, especially small, new companies there may be too little management. The owner/manager insists on overseeing everything including approving shots, doing the budgets and seeing potential clients. If someone in management is wearing too many hats then it’s likely they aren’t giving sufficient attention to several or all of those areas. Shots may be delayed while the manager is tied up with a client. Artists may run out of work or simply be idling because they have no management who can make decisions in a timely manner. Wasting workers time is one of the biggest expenses there is. Those in management have to learn to delegate properly.

Too much management
This tends to happen at larger companies. A large project or two come in and more layers of management are created. Do these extra layers of management increase the efficiency or do they simply mean more paperwork and people to go through to get things done? Frequently this increased overhead means it’s that much more difficult to get through slim times. This is especially true since many companies tend to hold onto anyone in management even while trimming back on the people doing the hands on work.

Micro managing
Hand holding artists and checking in with them every hour does not make the work go faster. The time they waste with a status report could have been put to use actually working on the shot. Increasing the frequency of interrogations as the deadline nears does nothing but fluster the artist. Hire the right people, be clear in communication when things need to be done, set milestones and reasonable status updates.

No structure
Some companies operate with very little consistent structure. When artists have multiple ‘bosses’ it becomes confusing whose project is a priority. In some cases artists get conflicting notes even when working on the same project. Management should make clear who’s in charge and what the hieratical of the company is.

Management by crisis
Management may ignore any problems or issues until they turn into a full crisis. At that time management has few options than to try to immediately put the fire out. They may take people off one project and throw them at the problem in hopes of solving it. And as soon as that crisis is over they have another crisis because the project they stole people from is now having problems. Throwing workers and overtime at the problem is not an efficient means of working and certainly just causes stress by everyone at the company.

Management by 3rd graders
Sometimes it feels like some companies are being run by 3rd graders. Rather than professionals making logical, well thought out decisions, management may be making decisions based on everything but. This person didn’t want to work on that project so they’re not going to be assigned this other project. Another artist looked at them sideways so they don’t want to put them on the new project. This artist likes the same football team so they’re going to be assigned a great position. This person is a favorite not because they’re good but because they’re friends. Making management decisions based on petty or unrelated issues is no way to run a company.

Management by rumors
Someone from management once heard one worker say something they thought was about another worker at the company. Or at least they thought his name started with a G. So that worker won’t be assigned a new project. Or maybe they will hold that person back and overlook them for a promotion because they heard from someone who over heard somebody say something to someone else.

Management by randomness
Some companies seem to be making management decisions based on random ideas with no apparent plan. This is especially true when the company doesn’t make some of their decision making transparent. And at times it seems like someone in management is being blackmailed. It’s the only way to explain some of the decisions.

Management with no management skills
Not everyone who works in visual effects is a good potential manager. Before bumping an artist to management, current management has to determine if the person has the skill set to be a manager. Can they work well with people and actually manage them? Not abuse them, but help them? Can they give up their hands on work and spend most of it working out the business and resource issues? 

Management Peter Principle
The Peter Principle is the term for people who have kept being promoted, especially in management, until they reach the level that they’re not competent at or may not have the skills to do it. And frequently those people remain in that level doing incompetent work because both they and the team that promoted them didn’t want to admit it. Rather than using a probation or trial basis like some companies do with new employees, they’re assigned a position with no way to go back down.

No Milestones
Visual effects is a service business. Time is critical. In the contract should be delivery milestones from the client. What needs to be delivered when?  And within the company there have to be milestones. When are the shots due? When is the animation for this shot due? When is the first pass at an R&D project to be done? What are the steps to create the new pipeline and when will each of those steps be finished, reviewed and evaluated? All of these should be clearly communicated so people aren’t guessing or that the time doesn’t pass with without an evaluation.

Having fiefdoms
Departments and groups in companies may have a fiefdom attitude. When the management of that particular department thinks much more about themselves and their department than the company as a whole. They become the gatekeeper to what work is done by the department not based on the big picture but based on their own priorities. Rather than shifting some of the work to another department if that makes sense, they’ll dig their feet in and become even more problematic. Bad management has caused this problem and lets in linger. Frequently you’ll see departments attacking each other or withholding information or assets as they try to be king of their little hill. This infighting simply makes the company more at risk of going out of business.

Answering yes to everything
While answering yes makes for good improv, it’s a terrible method of management. If a client asks you to cut the bid by a million dollars do not say yes immediately. If a client wants to change 500 shots, do not say yes instantly. If a client moves the deadline up a month do not say yes instantly. Small changes happen everyday and are part of the process. Saying yes to minor expected changes isn’t a problem. But saying yet to a major change is a problem.

The client’s first thought: Great!
The client’s second thought:  I knew they overbid. I knew they had extra capacity.
The client’s third thought: I’ll have to remember that.

And they do. You’ve now taught them a bad lesson about the company and provided them will more reason to ask for things in the future. To top it off you may be wrong and that yes may have a bigger impact than expected.

Instead ask to review it with your team overnight (or whatever time frame). You may have forgotten about that bid change you already did. You may not be aware that another project came in. It’s best to sit down with the key people involved and do a reality check. Can these changes be reasonably made given the information you have? What will be the ripple effect on the time and on the costs? Is there an alternative or compromise that can be worked out.

Now when you respond to the client you do know all the facts and have considered the ramifications. Even if you say yes you can say that you struggled to work it out for them and want to provide the best service. The client doesn’t view this as an easy win and will be more confident that you’re taking it seriously rather than suspecting you were simply trying to pull one over on them.

And sometimes you may need to say no. If your company does not have the capacity for an extra 500 shots or there isn’t enough time or resources to make all the changes, the company should discuss with the client. If the company accepts work but is unable to deliver that’s not good for the company or the client.

Not considering other business models
With each new project comes an opportunity to look at an alternate business model (besides fixed bids with possibly change orders). Is it possible to use another model on this particular project that might make sense for the client and company? This is especially true with new technologies and types of projects. Maybe a profit participation approach? Maybe an added time and materials approach?

Not anticipating
Sometimes changes appear from the client out of nowhere. But frequently changes can be anticipated but aren’t. If the company is falling further and further behind schedule don’t be surprised if the client pulls the work and takes it somewhere else. Don’t be surprised if the client wants to put the thumbs down and force the company to work overtime. If the director still isn’t happy with a shot or concept design then they may bring in others to make sure it gets done. Rather than allowing the situation to get to that point the company should be monitoring the situation and anticipating. They should be trying to solve the problem before the client tries to solve it for them. Management should anticipate and make the changes when there is time to do it correctly rather than making a mad dash and wasting a lot of money and overtime.

Not holding client to contract or change orders
Hopefully you’ve spelled out a lot of specifics in the contract including milestones, delivery schedules from the client, file formats, previs, etc. A lot visual effects companies let major issues and big changes pass right by because they don’t want to rock the boat. They simply absorb the changes themselves and hope they don’t total up to too much. One problem is that changes and mistakes will likely continue to be made that the company has to absorb. The other problem is if it’s brought up later the client will have no idea what the company is talking about.

At times there may be reasons not to nickel and dime a client. That’s understandable but it’s best to at least note it to the client so they are aware of it. This is especially true if the client has delayed delivery of materials as outlined in the contract. So if indeed you choose to do a ‘good deed’ they know you have already bent over backwards for them. If the editorial department turns over a jumble of shots on a drive with incorrect counts then flag production that you’re letting this one pass but in the future it will be billed at $x to fix. This will encourage them to fix the problem on their end and be more careful. If not, then they’ll be billed accordingly and can’t act innocent. Money and time tend to be the only language production speaks in terms of 3rd party companies.

If there is a legitimate change or addition then that should be discussed with production. If the camera jammed or a major prop failed on set then production knows there’s a legitimate change order. Do not try to instead bill for another shot or add overtime unrelated to the problem. That’s a good way of irritating a client who would have likely concurred on a valid change order.

Trying to sell unfinished or incorrect shots
Management may try to sell a shot that doesn’t match what the director asked for or may try to sell a shot that’s obviously not finished (or to the correct quality level). This simply irritates the director and causes them to review all shots in even more detail. And the company will have lost any trust the director had in them to follow through. The supervisor and other management needs to get in the same mindset of the director and producer so they will be trusted as a creative collaborator.

Not documenting workers time
And no, this isn’t to be used for punishing workers. Its purpose is to keep accurate records of the length of time every step takes in doing a shot. This is the data that needs to be reviewed during the project to see how it’s comparing to amount of time for each task that was originally budgeted. By tracking actual work hours it becomes much easier to accurately bid future projects.

Not monitoring the schedule and budget
It’s necessary to check the schedule and the amount of money spent throughout the show to make sure things don’t go off the rails. It’s important to use numbers instead of optimistically thinking it’s simply a ramp up issue. Rather than a producer flagging the error at the end of the show or even after the bid has gone over, it’s much better to flag when it’s getting close. This provides an opportunity to make adjustments to the approach.

Not having post mortems
At the end of every project there should be a post mortem to review what worked and what didn’t work. There should be monitoring during the project but post mortems can give you more perspective and a larger vision of what happened. It also allows you to hopefully roll in key changes before the next project gets too far. Post mortems should include the full range of crew members who should be allowed to speak freely about the good and the bad of the production. Everything is a learning experience.

Not knowing legal issues and requirements
Management should be aware of various government rules regarding labor regulations. The HR department especially should be aware of the guidelines but obviously quite a few do not. Certainly California and the US federal government have specific guidelines regarding interns, contractors, overtime pay, breaks, colluding, etc. Around there world there are different requirements but these should be adhered to.

In the US a company can be fined and in some cases may have to pay back pay. The IRS doesn’t take kindly to companies that try to cheat on taxes. Think about what would happen if your company were found to be guilty of not paying people their correct hours or not properly classifying people paying 5 years of back pay for the entire company is not cheap.

This problem includes large companies as well. ILM and Pixar were found to be colluding and restricting hiring and salaries of animators.

Fake time cards
Some companies, including some large ones, provide their employees with filled out time cards, regardless of the number of hours put in. This is illegal at least here in the US. See note about legal issues. In addition to breaking the law you’ve now squandered some of your most important information. Which is how many hours of each task have been done on a shot. How do you know if you’re over budget or under budget? How do you know how accurate bids are? This applies also if you don’t track overtime and the related costs of overtime. A 40 or 50 hour week time card is useless if the person put in 80 hours. You’re now basing future bids on completely false information and still wondering why you’re not making money.

Not keeping a low overhead
The more people on staff, the more management, the larger the support staff and the more building and capital investments a company has, the more overhead the company has. Overhead will burn through money even when the company isn’t working on a project. Any profits able to be squeezed out during a project will be gone quickly if there’s a large overhead. Management needs to think twice before increasing permanent overhead.

Spending money that the company doesn’t have
Counting your chicks before they hatch is a common phrase. Some companies spend all the target profits before the show even starts. The assumption being that the project will go through as planned and it will produce the profits as planned. Wrong. Only spend the money you actually have available.

Not recalculating target profits
The original bid has a certain internal markup for profits. The problem comes when that number is not adjusted during the production. If the company decides to eat the overages on change orders or pass on savings to the client in reduced markup for additional work, then the expected estimated profits need to be adjusted at that time. Some companies are surprised at the end of the production when they don’t make their target profit even though it was obviously changing during production.

Meeting crazy
Some companies love meetings. Many managers spend their days in long drawn out meetings. How many hours are wasted in the meetings? Does everyone need to be there? Make meetings only when it makes sense and keep them short and to the point. There are only so many hours in a day so make them productive.

Not listening to the artists
Since artists are the most important asset a company has it would seem reasonable to listen to them regarding ways to make the process more efficient. Especially since they’re experienced and well versed in the technical details. Yet sadly many companies ignore these resources and instead make decisions based on sales brochures, demos or by faulty spreadsheets.

Pleading poverty
It’s hard for a company to plead poverty and to request people to work unpaid overtime and donate even more hours for the company when management is driving brand new expensive vehicles from their brand new expensive home.

Expensive digs
All the projects I’ve worked on have been done in warehouses or industrial buildings yet some companies spend a lot on expensive buildings and furnishings in the hope of looking impressive. Some commercial clients like to have lavish client rooms but most clients look at an expensive building as something they’re paying for above and beyond what the work costs. And for the actual company it’s another huge expense of overhead.

Not working as hard as artists
When management is putting in 8 hours or less of work and taking extended lunch hours while the rest of the crew is putting in 14+ hours, that’s not good. When management takes a 3-day weekend but insists the crew work all weekend and then berates them on Monday morning, that’s not good.

When the crew has spent months putting in incredible overtime and producing great work they’d like to get a pat on the back. But frequently they get notice that they will be out of work for 6 months or more because sales and management have been unable to get a project. Maybe if sales and management had put in at least part of the work that the crew did, they could have found a solution.

Not understanding overtime
Management is likely to look at overtime as a given. As something that is normal and should be expected. They take on projects where the entire crew is working overtime from the start. And if this aren’t going fast enough or the client has added a number of changes or shots, then the easiest thing from management’s perspective is to increase the number of hours worked. Management and those typically looking at just the numbers think that 12 hours is producing 50% more than 8 hours work. They’re wrong. As the number of hours go up the productivity of workers is going down. The number of mistakes and errors starts rising dramatically the more overtime is put in. Did it really save you any time if you have to do the task twice?

Overtime is also a huge health issue as studies have now shown. Asking people to sacrificing their health for mistakes management has made is a problem. Assuming artists will be able to have the dexterity, creativity and complex thinking after 12 hours staring at a monitor is wrong.

Tied in with overtime is the turnaround time. That’s the time after a worker finishes when they have to report back to work. People have died from long hours and lack of sleep. Providing a cot and allowing 3 hours of turnaround time is not a solution.

There are legal requirements here in California and the US in regard to overtime pay. This increase in hourly wages is to truly compensate the worker and to discourage the company from taking the lazy way out. Misclassifying people as exempt, not reporting the hours, not paying the hours worked and other misdeeds are in fact illegal.  The company could face stiff fines and potential back pay issues if this is not correct.

10 Tricks Employers Use To Cheat Workers Out Of Overtime

Some companies provide a standard day off or standard day of pay. Doing this provides no incentive for the company to avoid working people overtime.

The bottom line is overtime should be avoided. Obviously if it costs the company more money it doesn’t make any sense. It also doesn’t make sense to your clients if you pass it on to them. Maybe the clients and the company should spend more time trying to solve the problems correctly such as anticipating the added work and hiring accordingly. You’ll produce better work more efficiently than working your core artists into the ground.

Business management time and money wasters
Many companies try to recreate their ‘mission statement’ every year. Many bring in outside ‘experts’ to spend days, weeks, months interviewing workers and managers. Groups of artists are brought in for lengthy meetings week after week to try to come up with the solutions and improvements.

Now some thought should be given to making improvements but it’s been my experience that these official processes are simply a waste of time and money.

The results fall into one of the following:
1   1.    Management doesn’t care for the worker or expert suggestions and simply ignore them.
      2.  The report of the ideal process is already what the company does.
      3.  Everyone thinks it’s great but there are many flaws in the plan since the experts didn’t fully understand the process and people end up back into their old habits.

False economy
Many in management try to save pennies while overlooking potential dollars of savings. In some case they cause the loss of major amounts of money. They won’t hire a pipeline engineer because it costs money yet the time it takes everyone on the crew to manually move files, rename them, enter the databases, etc. would easily cover the cost of the engineer and the company could actually be more productive and save money. This is what’s known as a no brainer but management just tends to look at simple numbers and make decisions without considering the implications. Buying graphic cards that are 5 years old because they’re cheaper, going with a slower, inexpensive server because it’s cheaper, hiring inexperienced people because they’re cheaper, etc. All of these short sighted approaches cost the company far more than the saving would have been.

Not fully committing
Sometimes companies do things half way and wonder why it doesn’t work. There was a time when most software used in visual effects had to be custom written. These days the need for full custom apps is less since many applications already exist and many are able to be customized. Certainly the software teams at companies would love to create an elaborate project but software projects, like film projects, typically take longer and cost more than planned. In any case once management decides to go with custom software (apps, pipeline, etc) they need to fully commit. There’s no point to creating custom software if it won’t be maintained and updated. Yet this is what happens to many custom software projects. They break as new OS’s or applications are released. A bug is found. The off the shelf apps surpasses them in a year or two. The company has already sunk in a lot of money so they refuse to switch to another package yet they aren’t willing to have someone add in features that would save everyone on the crew an hour a day.

And if the company commits to custom software tools then they have to commit to the additional training required when they bring on new people. Without the training, the tools are worthless. And training means not only teaching but also documenting the tools. Custom software also means that the company has to bring in people earlier so they can be trained and up to speed. This can be a problem when schedules get crushed but has to be taken into account.

Blaming employees
It’s rather common for management to blame the workers for missed deadlines or other problems. It would be better for management to consider what they could do themselves to improve the situation and what they can do in the future to avoid the problems.

Charging employees to work
Not many places do this but some in India and I suspect other locations do. These companies hire inexperienced people then charge to teach them how to do the job they’re being hired to do! Their pay or deposit is withheld until the conditions of this serfdom is completed.

Lopsided contracts
Many companies have contracts where the worker commits to 3 years but the company only commits to 1 year. Some pay for moving costs but then take it out of the pay of the worker they insisted move to their location. There are plenty of atrocious contracts that companies manipulate for their sole benefit and in some cases the management acts as sociopath.

Over expanding
There’s a lot of pressure to expand into other areas. A company that specializes in one thing may try to expand to try to cover everything. There’s also pressure to setup satellite locations where there are subsides or where the workers wages are low. All these steps require more money, time and commitment. The complexity of the company management has now leaped by a magnitude and communication becomes even more problematic. The company now has additional overhead and expenses. If the company tries to over expand, especially if it’s done rapidly, then they could be at considerable risk.

Subcontracting is not necessarily bad but if it’s forbidden in a contract then you are in fact breaking the contract. The client may choose to look the other way but what other infringements may be happening from either side? And what if they choose that to be a reason to cancel the contract? How much control do you have over the subcontractor and what happens if they can’t deliver? If you are being subcontracted will you in fact be getting credits? Will you be able to advertise it or show it on your reel? Are you giving up on your company brand?

Rewarding the wrong people
Management has a tendency to reward the wrong people. The squeaky wheel gets the grease as they say. The most vocal worker and the one that talks to management the most may be the least productive. Yet it’s not unusual for management to be taken in by this and provide wage increases, promotions and other accolades on these types of people. Meanwhile the person working away in the corner may be the most productive person and yet management fails to reward them. Some of it because if it’s not asked for, management is not eager to acknowledge it. They can save the money for themselves. And in other cases management doesn’t really know their own crew well enough to know who’s productive and who is not. The company may well find themselves losing all their best people simply because they refused to acknowledge or understand who their best people were.

Not considering a Trade Association
Visual effects companies should certainly consider a trade association. There are quite a number of companies experiencing the same issues and the companies have similar goals. By uniting with other companies they could well improve their situation if the association is set up properly. It’s certainly worth taking a meeting and hearing proposals.

Not considering a union
A union does offer benefits for the companies. Providing your workers with better health care for less is one of many reasons workers would want to work at your union company. Having professionals with a clear agreement can also be an advantage.  

Squandering their brand
It takes time for a company to build a brand that represents quality. To build a brand that artists respect and want to work for. That brand is what helps them get projects in from clients and helps to draw the best artists. Yet some companies are more than happy to squander the brand by producing low quality work or treating their workers poorly. Once that happens the brand can disappear very quickly. In this age of the internet and social media you better expect that any dirty laundry will be revealed.

Not considering both short and long term
A company has to consider what they need to do in the short term but in doing so they frequently ignore the long term. And in many cases they may be sabotaging their long term with the decisions they are making today.

Not reviewing artists
It’s worth reviewing artists at the end of each major project. It’s worth reviewing staff artists once a year. If done well a review will help both the artist and the company. The company will have a better idea who to rehire and when. An artist will hopefully get constructive criticism. If the review is done poorly (focusing on one bad incident, overlooking all the accomplishments, etc) then the artists will know what an idiot their manager is. Management should be providing feedback during the project so the worker can improve rather than springing on some flaw that continued throughout the show without a mention. And if management has made a decision not to promote the artists they should be honest with the reasons.

Not considering the impact of incentives
Companies should be considering the impact of any incentives. If they aren’t located in an area with incentives how do they compete with the incentives? Do they need to do things even more efficiently or do they need to consider setting up a satellite company with all it’s issues? If a company does exist in an area with incentives, what’s the plan for when the incentive ends or when another place offers better incentives? That will in fact happen so you’d better plan for it now.

No savings or buffer
When any company starts up the basic guideline is to have at least enough money to cover running 6 months without income. Because it takes time to get going and to get clients and customers the company has to have deep enough pockets to cover getting going. Unfortunately since visual effects is project-by-project service work, the company always has to have a savings surplus to cover the slow times. If a company is living paycheck to paycheck without any tolerance for contingencies then they should expect to be out of business soon. Thin margins, under bidding and no savings are a recipe for disaster.

Not reviewing themselves
A company needs to evaluate how they are doing and what they can do to improve. If a company continues to lose money year after year or is constantly on the edge of filing for bankruptcy, maybe they should simply consider closing their doors. Rather than whittling down paid hours for workers, benefits for workers and causing other companies to be pulled down by your race to the bottom, it may be better for management, crews and the industry to close your doors. That’s a tough one to swallow but if there’s not enough work to support your company, at a certain point it’s better to face that.

Added updates:

Too many layers of approvals
If a task requires approval by 5 different layers of managers, that's a problem. Each manager will have a different idea of the results required and will likely produce 5 different and conflicting notes or corrections. This just slows down the process and wastes time. Managers should be able to delegate and there should a limited number of layers for approval. Communication should be clear what the desired results are and artists need to be on the same basic page of what the client is interested in seeing.

Company not backing their employees
If the company proposes a supervisor or designer to a client they should be willing to back that person up to the client. If the company instantly withdraws the supervisor or replaces them at the slightest mention from the client then they have made a mistake. The faith in the client is shaken and they wonder if the company is trying to push the 'B team' on their project. After all if the company doesn't have faith in their proposed person, why should the client? And of course the person who was proposed now feels abandoned and let down by the company, even though they may be the perfect fit for the project. The company needs to make a proper evaluation ahead of time and back up their proposed person. There have been more than a few supervisors who left such a company and later achieved great success elsewhere simply because the company was too timid and small minded to see the potential.

Perfecting shots before submitting them
Some managers hold onto shots until they consider them to be perfect. Until everything is done, tweaked and presented as a final. The problem is the client needs to see works in progress in order to make creative decisions. More than a few sequences have been changed or dropped once they had been cut in. All the extra time spent polishing was wasted and now there is too little time to do the changes correctly. Management will have to know the level of completion the director is able to review and help guide them on what needs to be reviewed. (animation timing, composition, look, etc)

Fixation on perfection overrides schedule
In the beginning of any show there will be a limited number of models and shots to review since most are in progress or yet to be started. With little to look at directors and managers will loop these few things over and over again, tweaking the details endlessly. This results in wasting a lot of artists time, too little time toward the end of the production and uneven quality in the shots. It's the last few shots that are rushed through that will stand out and that the audience will remember. All shots need to be reviewed in context and considered usable when it works in that context. 

[Feel free to add additional Bad Visual Effects Business Practices in the comments below. If you work at a company doing many of these, congratulations, you just won at Bingo. The bad news is you're still working there.]

Update: For those interested in what a union can do: VFXUnion 

Other posts worth checking out if you liked this:
VFX Service - The Big Picture
Pass me a nail
Using the nail
VES Bill of Rights - Now What?
Visual Effects Union, Take 2

and the latest
Oh, the mess we're in!

Marty Shindler has some advice for companies (Marty worked at ILM and other VFX companies financial departments)