Why VFX Companies Are Going Broke

For the past decade, the box office has been dominated by Sci-fi / Dystopian/ Super hero films. All of these films rely heavily on special effects and CGI. Even popular television shoes like Stranger Things, Supernatural and Flash use CGI in varying degrees. Many famous and well regarded award shows have categories for CGI and special effects, yet despite special effects companies playing such a pivotal role in helping to produce blockbusters and hits, they are all endangered.


Despite a steady flow of jobs, most special effects companies are going under and filing for bankruptcy. Here are some reasons as to why this is happening:

  1. No Residuals:
    Even though VFX houses are often working the longest hours and contributing to most of a film’s effects, special effects companies do not get paid residuals for their work. Other service providers like writers, directors and actors are all paid recurring amounts depending on the criteria outlined in their contracts. This is because VFX houses work with fixed bids and flat fees, charging a one time fee for services and never see any more cash no matter how successful the film goes on to become.
  2. Outsourcing:
    This factor is influenced by the first one. Since special effects companies do not see residuals, their one time charge is all they get so even though VFX budgets tend to be high (due to hardware, software and hourly working wages), keep in mind that this service is not a recurring cost to the Studio. In recent times, more and more VFX jobs are being outsourced to companies in foreign countries whose government offers subsidized costs for VFX services. This means that if a VFX commission costs a studio “X” amount of dollars, “Y% of X” will be refunded to that studio by the company. So as more and more jobs are being outsourced in pursuit of subsidies, more U.S. based companies are closing their doors.
  3. No Unions:
    Although the VFX companies have been trying to unionize, all their efforts have been slow to yield results. VFX companies are one of the few service providers in the industry that aren’t unionized. There are mixed views on whether unionizing would be the right step for VFX houses to take in battling for fair compensation.

The logo for VFX legends,  Rhythm and Hues

Not only are VFX houses not given their fair due for grueling hours they spent to make a film successful, they are often left out of acts of appreciation by those whose success has relied so heavily on their shoulders, Hollywood itself. During the recent Oscars, Li of Pi won the best visual effects and as Bill Westenhofer, a VFX supervisor for Rhythm & Hues was delivering his acceptance speech and trying to spread awareness about the state of the VFX houses, he was first cut off with JAWS theme music before his mic was cut off entirely.

In an interview with the podcast Freakonomics, Westenhofer shared with listeners to hear what he was trying to tell the billions attending to celebrate Hollywood that night.

Well, I was just going to point out that, you know, we had just received this Academy Award and I worked for a company that at that time was going through a bankruptcy. So I wanted to just give a shout-out that visual effects is a industry and it’s ironic that at a time when the box office was reaching new highs, that visual effects was struggling to keep its head above water. And that the state of the industry was potentially putting those artists at risk and we could start to lose the very art that we were being recognized for at the time.

Another recent example of this is when Hollywood director of Life of Pi, Ang Lee was asked to comment about longterm VFX legend, Rhythm and Hues, filing for bankruptcy, he brushed it off saying “I would like it to be cheaper and not a tough business.” The VFX community did not take any of this lying down and wrote an open letter to the director explaining the situation for most, if not all, VFX artists.

In a business as tough and fast moving as hollywood, it’s easy to forget that these companies are made of real people whose livelihood is in danger. Rhythm and Hues are a legendary VFX house that brought us most of the effects for The Lord of the Rings and the X-Men series. If they are in trouble, you can only imagine the state the rest of the business is in.

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