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In the same week that one global VFX giant has its AI division alone valued at $1.43bn another is on the verge of collapse. It is hard not to draw the conclusion that the two are related. Adrian Pennington reports.
For a long time the visual effects side of the post-production business has been notorious for wafer-thin margins and excessive last-minute client demands with deleterious impacts on a generally un-unionised workforce.
Covid might have been a watershed for the industry to change its working practices, but in reality, VFX facilities were more anxious than ever to scoop up work as it came back onstream, simply maintaining the status quo.
The rapid advance of artificial intelligence promises a cheaper and quicker path to photoreal VFX for Hollywood studios and streamers, at the same time as the tech fatally undermines the bulk of VFX jobs.
One casualty it appears is Technicolor, owner of stalwart VFX brands MPC, The Mill and Mikros Animation. Over the weekend it dramatically hoisted the ‘for sale’ sign potentially putting at risk 10,000 or more VFX and animation workers around the world.
It may not be the last. “Whether or not a deal is forthcoming, the current situation is far from surprising,” says Will Cohen, a VFX Consultant who co-founded VFX shop Milk in 2013 with colleagues from The Mill, shortly after the company decided to exit the TV business due to the challenging VFX climate.
“The media is going through tectonic plate changes and we seem to be in the middle of finding out and figuring out where it is heading,” Cohen says. “The business models are all extremely challenged and need to be adapted.”
Cohen adds: “There may be more difficulties to face in coming months but there will likely be an opportunity during and as a result of change.”
By the same token, Technicolor’s woes have been exacerbated by years of failure to manage its sprawling post-production division successfully. The French electronics group Thompson Multimedia arguably overpaid Carlton Communications (then part of ITV) $1.2bn for the original Technicolor business (which included MPC and until 2020 a DVD distribution arm) in 2001.
It could never escape that debt burden and began 2020 deeper in the red two decades on at nearly $1.6bn. In the wake of Covid-19 and the drastic shutdown of film and TV production, when 50 sets of dailies headed to Technicolor stopped overnight in March 2020, Technicolor declared bankruptcy and sold its TV postproduction assets including Picture Shop, to LA-based facilities group Streamland Media for $36.5m.
A year earlier, another century-old Hollywood brand, Deluxe Entertainment Services, had entered administration prompting analysts to question the very model of post-production.
Devoncroft’s Josh Stinehour suggested it wasn’t the pandemic causing issues in the media technology sector, “as it is revealing long-present structural issues.”
“The fundamental flaw with the post-production business model is every incremental $1 of revenue is matched by an equal and opposite $1 (at least) of cost,” he wrote.
Sherri Potter, Technicolor’s President who led the acquisition and transition of the Technicolor Post business to Streamland Media, denied that post-production was broken. She explained to IBC at the time: “Schedules across TV and features are becoming more compressed as demand for content ramps up. The creative process now continues throughout the whole post process so that where creatives request changes to their vision, we can respond and deliver at any point. The reason why studios come to us is that they entrust we won’t fail and that we will throw whatever resources we need at the problem to ensure that even the most complicated production delivers.”
Yet Technicolor couldn’t find the efficiencies in marketing, technology R&D, time-zone-shifted workflows, technology investment or management to insulate its remaining VFX services from the ravages of the SAG-AFTRA strikes.
Unlike Covid when the whole industry was affected (and in the UK given government support in terms of furlough payments), the VFX sector bore the brunt of fallout from the strikes. With production halted, revenue streams were severed and multiple staff laid off.
The best efforts of those at MPC, particularly in pioneering virtual production techniques for photoreal live-action animations like The Jungle Book (2016), The Lion King (2019) and this year’s Mufasa: The Lion King, were not enough.
In 2015-16, large VFX facilities were charged with exploiting their employees as a result of demands placed on them by client studios to complete shots to ever tighter deadlines (and lower budgets), with MPC a particular target for its failure to recognise a trade union.
The Mill, founded at the dawn of computer graphics in 1989, will always have its name in history as the winner of the UK’s first VFX Academy Award for Ridley Scott’s original Gladiator in 2000. The Mill’s then owners saw the writing on the wall earlier than most and divested themselves of feature and TV work shortly afterwards to focus on commercials which it has done pretty much ever since. It was acquired by Technicolor in 2015.
Framestore and Dneg have AI focus
By contrast, other major international VFX groups – notably Framestore and Dneg which are both headquartered in London – have survived through innovation and acquisition that appear to have been better integrated.
Dneg, for instance, is odds-on to repeat its success of 2022 and win the Best VFX Oscar for its work on Denis Villeneuve’s Dune sequel. Next week it competes with Framestore which contributed multiple VFX shots to Wicked.
Double Negative, founded in London in 1998, has been majority-owned by Indian businessman Namit Malhotra since 2014 when his Prime Focus company merged with the facility and rebranded as Dneg. Recently it has received investment from Abu Dhabi-based United Al Saqer Group and built up AI capabilities in a division called Brahma. Last week this division announced the acquisition of London start-up Metaphysic which has developed AI software used to de-age actors in Sony Pictures’ Here and 20th Century Studio’s Oscar-nominated Alien: Romulus. This division is now valued at $1.4bn.
“With Brahma, we are taking Dneg’s multiple Academy Award-winning VFX and animation toolsets and marrying them with the incredible power of generative AI to create a suite of AI content products, including what we believe will be the industry’s leading photorealistic AI video creator,” said Prabhu Narasimhan, Executive Chairman of Brahma, in a statement last week.
Framestore meanwhile has its own AI developments including in EU-funded research project PRESENT (Photoreal REaltime Sentient ENTity) which aims to create virtual sentient agents that look and behave entirely naturalistically.
Framestore was co-founded in 1986 by William Sargent who is still chairman, a continuity of office that goes some way to explaining the consistency of output and personal business culture of a global group that now employs around 3400 staff. It has been majority-owned by a Chinese investment group since 2016 and last year hired Lincoln Wallen, an executive with core expertise in AI modelling, as CTO.
It too is pivoting away from reliance on tentpole feature VFX production and using its in-house expertise to diversify into non-traditional forms of entertainment and communication including work for museums and location-based experiences.
While Technicolor, Dneg and Framestore employ thousands of artists in offices in multiple territories and time zones, arguably none have the agility to move swiftly enough into the new modus operandi of VFX post-production: cloud.
The move to cloud infrastructure and remote distributed collaboration combined with AI offers a more flexible and less capital-intensive solution to large-scale production.
It’s why start-ups like Juno Innovations are set to create waves. With just a handful of full-time employees this Florida-based facility has developed a cloud pipeline based on AWS that offers almost instant access to workstations for freelance VFX artists located anywhere.
“We could theoretically out-scale any studio in the world if we wanted to,” claims CEO Alex Hatfield. “And at a fraction of the cost of traditional workstations.”
Anticipation for targeted VFX credit
A targeted tax credit of 29.25% was hoped to prevent VFX spend on UK HETV and feature productions from being syphoned off-shore. The UK government also agreed to remove the 80% cap on qualifying spend for UK VFX costs but these changes will only take effect from 1 April 2025.
The aim of the new incentive is to reverse a trend of recent years which saw VFX work taken off-shore to more competitive markets like Canada. UK Screen figures suggest that of shows shot in the UK and claiming tax credit between 2017-2019, £1bn on VFX was spent overseas.
Deeper structural issues
There is certainly a need for some studios to commission work in a more structured and predictable way. In a deadline-driven business, VFX is at the end of the chain. But if producers and directors continue to push with ever-increasing iterations of changes against an immovable deadline, just because they can, then it’s something that needs to be addressed.
The industry has been crying out for those changes for years but in a cash-strapped Hollywood being upended by radically more efficient AI software, then any change may come too late for many in VFX.
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