In With a Big Bang, Out With a Whimper

Inside the white-and-steel offices of Cinesite Inc., there’s panic in the halls as digital artists rush to finish the second “X-Men” movie, “X2.”

Phones ring incessantly at the Los Angeles visual effects house as visitors from movie studios chat about scenes in which the blue-skinned mutant called Nightcrawler teleports through a government building. Empty soda cans in pristine condition overflow from trash cans -- there simply isn’t time for the 250 employees to crush them.

Across town -- and across California -- scores of effects houses large and small are busy handling the flood of effects-laden movies in production. It would seem that there has never been a better time to be working in the visual effects industry, especially at frenzied Cinesite.

But Cinesite, a subsidiary of photography giant Eastman Kodak Co., is planning to close its mid-sized L.A. effects shop after it finishes the last glittering edge of the steel claws of “X-Men” mutant Wolverine.

“It’s difficult, if not impossible, to make a sustainable profit as a mid-sized company in this business, particularly in California,” said Eric G. Rodli, president of Kodak’s entertainment imaging unit, which oversees Cinesite. “You have to either grow, shrink or get out.”

As the special effects industry thrives, a widespread restructuring is squeezing some of Hollywood’s technical elite. With the profit margins paper-thin and competition intense, medium-sized shops are struggling.

They are too small to compete with the deep pockets and creative resources of the giants of the business, such as Industrial Light & Magic and Sony Pictures Imageworks. But they are too big to be as nimble and inexpensive as the tiny outfits operating in homes and converted garages.

In the last two years, five mid-sized effects houses either have shuttered their operations or slashed their staffs in the face of unworkable economics.

Walt Disney Co. closed its effects unit, Secret Lab, last year. MVFX Inc., known for its groundbreaking effects work in “The Matrix,” saw its employees flood from its Alameda offices soon after the hit movie was released.

Centropolis Entertainment, which is headed by “Independence Day” director Roland Emmerich, gutted its effects staff late last year after its German parent company Das Werk filed for bankruptcy and put the Culver City-based unit up for sale. And the Mill in London closed its film group about a year after it worked on Ridley Scott’s “Gladiator,” released in 2000, for which it won a visual effects Oscar.

In an industry that has long focused more on art than economics, today’s financial realities are “forcing effects to become a business, pure and simple,” said Marty Shindler, a management consultant for creative and technology companies and former director of finance for Industrial Light & Magic.

What’s happening now is a hangover from the triple whammy in 2001 that temporarily slashed the workload of the digital effects industry: a threatened actors strike, the dot-com advertising bust and the general economic slump that followed Sept. 11.

Hundreds of effects specialists were thrown out of work, industry executives say. But many landed new jobs -- with bigger shops.

David Seager worked at Centropolis as the computer graphics supervisor for “The Matrix: Reloaded,” a sequel to the original film starring Keanu Reeves. A week before Christmas, the staff gathered in a conference room and learned that the company would close its doors the next day.

A few phone calls led to several interviews. Within days, Seager had a job offer from Sony Pictures Imageworks, Sony Corp.’s giant visual effects outlet in Culver City, which had been hired to finish work on the sequel. Sony Pictures Imageworks has added 100 people to its staff in the last three months alone. The company plans to hire an additional 150 workers by the end of the year to handle the surging demand for its services, bringing the total staff to 700, said President Tim Sarnoff.

Playing the Leading Role

Special effects date back to the beginning of the 20th century, when French magician and filmmaker Georges Melies bewildered audiences with visions of grimacing moons and grinning disembodied heads. Computers came into the mix in the early 1980s and were used to create scenes of motorcycles racing across a neon floor in the 1982 movie “Tron.” Today, visual effects often have a leading role in a movie.

Nearly every movie playing in theaters has been touched by a visual effects team. Some films, such as “The Rules of Attraction,” require simple work -- wires caught on film must be digitally erased, or actor James Van Der Beek’s cheeks must be warmed up a bit.

Other movies, such as comic book action flick “X-Men,” demand more extensive -- and expensive -- techniques. Creatures must be brought to life. Actors must be transported to make-believe lands, where they can perform virtual stunts that would be far too dangerous to attempt in the real world.

As splashy effects have become increasingly responsible for drawing crowds to theaters, budgets have swelled. And so has the competition. With studios having become more cost- conscious, some visual effects houses make rock-bottom bids to get jobs. Not all shops can afford to do that.

Another challenge is to manage the flow of work so that people and machines are idle as little as possible, a particular ordeal for mid-sized outfits.

Not everyone at an effects house works on the same movie at the same time. The animators on “Spider-Man” had to wait for artists to design the main character, and then for all of the live-action footage to be shot, before they could bring the virtual web-slinger to life.

Artists who added details to the movie -- from the sheen in the fabric of Spider-Man’s costume to the smoke that billows out of a burning building -- had to cool their heels until the animation supervisor and the director signed off on the digital Spider-Man’s performance. And compositors, who layer together the digital and live-action elements of a shot, were forced to wait until nearly everyone else was done.

“If people aren’t working, that’s money wasted,” said Sarnoff of Imageworks. “It’s not just the salaries. It’s the cost of their workstations sitting idle. It’s the cost of the software licenses not being used. It’s the general overhead costs of running a business and no revenue being generated.”

Managing the workflow proved to be a burden for Mill Film in London. Its staff of 150 wasn’t big enough to handle several large contracts simultaneously. But without overlapping projects, the shop faced long gaps between movies when overhead costs still had to be met, said Robin Shenfield, chief executive of the Mill, the parent company that continues to create effects for TV commercials.

“To really continue to succeed, we’d have to invest even more and put it on a bigger scale,” Shenfield said. “We didn’t want to do that. You take very high risks if you depend on Hollywood movies.”

Big companies such as Imageworks and Industrial Light & Magic have the capacity to handle an entire project by themselves. Along with hundreds of workers, each maintains thousands of high-end computers in so-called server farms that store hordes of data and manipulate it into dazzling effects, such as the frenetic fight sequence between Yoda and Count Dooku in “Star Wars Episode II: Attack of the Clones.”

How Small Shops Thrive

At the other end of the spectrum are smaller, scrappier rivals. They rely on powerful personal computers and cutting- edge software tools that can produce effects that look as good as those created on the much more expensive machines used by larger firms. That allows the small shops to thrive in a market full of producers eager to cut costs.

Gray Matter FX, a boutique firm in Venice that combined Nicholas Cage’s the two performances in “Adaptation,” keeps costs down by retaining a small staff of 15 and bulking up when a job comes along by hiring digital artists, animators and others on a contract basis.

David Foster, a producer of the recent science fiction film “The Core,” noted that the movie’s visual effects supervisor, Gregory L. McMurray, relied on at least six different effects houses, many with only a few dozen employees. Part of the benefit, Foster said, was that the small teams had fewer jobs on their hands and could focus exclusively on his movie. “Of course, such decisions are also driven by economics,” he said.

In its early days in the mid-1990s, Cinesite wasn’t too concerned about costs and profit. Parent company Kodak was eager for its unit to take on jobs and prove itself in Hollywood. But not anymore.

With its L.A. office shutting down, Cinesite’s visual effects group will focus on its operations in London, where it is considered a big player.

“In London, we can win,” said Kodak’s Rodli. “In California, we just can’t.”