Sunday, May 1, 2011

VFX companies need an old business model.

I'm coming around to the idea that the *only* way for VFX shops (as opposed to finishing, or editorial, or prodco, or design shops that also do some VFX) to survive in the long term is -- deep breath -- to refuse to work on a firm bid model.

NO ONE in any other business works on a fixed bid based on so many unknowns, except perhaps aerospace and defense contractors, who seem to have, um, other means of protecting margins.  Plumbers, general contractors, auto mechanics, electricians, carpenters, freakin' ditch-diggers all give you a good-faith estimate based on your description of the project.  Then, when they get into it, if they find more problems, they tell you about them and ask if you want them dealt with, for X dollars more.  We should do the same. 

We can read a script, break down a board, have endless conference calls with the creatives and director, but everyone knows that the number that comes out of that process might or might not have anything to do with the actual scope of work once the shoot and edit are done, to say nothing of the endless chain of approvals and tweaks.  Live-action can work on fixed-bid.  90% or more of a live-action shoot is totally predictable (weather and performing animals notwithstanding). There is over 100 years' worth of live-action production experience that is still applicable when bidding and scheduling a shoot.  I know live-action producers who can predict to within 2 or 3 percent what the actual costs for every single department will be on a live shoot (granted, not the crazy ones).  VFX on the other hand, is by definition exploration of the unknown, or at least rarely-visited fringes of production and possibility. 

We're going to have to be willing to lose some clients, at least at first, by telling them "This is a good-faith estimate, not a firm bid.  We can either give you a firm bid when you've locked the cut and we mutually define the exact scope of work, or we can work on a cost-plus or time-and-materials basis for as long as you'd like, at the following rates."

This is what freelance workers, in essence, do for the companies they work for.  They (or I should say, we) charge by the day, or hour, with or without overtime, but the key is this: if they work more, they get paid more.  As a company owner, this killed me, because I couldn't do the same.  If one of my artists was lazy, or less-productive than he or she should have been, or made a dumb mistake, or was a toxic personality, I couldn't penalize him or her other than by not hiring him/her on the next project -- and I had to pay someone even more to fix the problem. If my client made a last-minute change that exceeded the defined scope of work, I could demand an overage, but more often than not in the last 3 years, the response was, "there is no more money. we don't care if you bill us, we won't pay it."  And what is a shop that bills in the very low 7 figures annually gonna do -- sue Publicis or BBDO? Not only would that be a simple war of attrition for their lawyers, they'd certainly spread the word throughout the agency world.

I don't really see how to make this happen, since it would require a substantial number of high-end companies to simultaneously and without any appearance of collusion make a fundamental change in their client model. 

But I also don't see how small-to-mid-size VFX shops can survive without it. 



Digitalsoul70 said...

you've hit ht nail on the head, personally, i don't give a shit about the perception of collusion; collusion would need to be proved, and also that it caused serious financial harm (which would be difficult to do on a 500mil grossing film or major ad campaign... their production costs have to be based on reality, not the margin crushing fantasy of "bill us, we wont pay". The problem is desperation, it stinks to high heaven, and it's hard to eliminate... everyone will feel a jolt, and then some thrashing, and then they will calm down... it's like breaking a stallion... not easy, but it can be done...

patio567 said...

I am with you etmthree. We really need to all get together and set some parameters. It only works if we as an industry do it together (or enough of us for it to matter).

Maybe if there was some sort of a transition designed to help us get from one model to the next without giving our clients a heart attack.

Scott Squires said...

Live action really isn't a fixed bid. All of those people work for the studios. The producers and 1st AD work with the studio to come up with a shooting schedule based on what the studio is willing to pay for in production costs. Then someone keeps the director on track to make sure that the film is shot in the 45 day, 60 days or whatever the defined number of days is. Should it go over the studios have to cover the bill. It is from experience that they can do this but also they control the creative time noodling so they can adjust it as necessary.

Time and materials (cost plus) would be better for all vfx companies. Not just small to middle size. But what would cause the studios to go for that since they find plenty of companies more than willing to do it for less than it costs them and assume all the risk?

Other VFX Business models

etmthree said...

I agree, Scott. However, live-action production is a bit different in commercials, which is what I had in mind when I wrote this. The craftspeople really are working for the live-action prodco, not the advertising agency or advertiser. And yet, somehow, live-action companies are not nearly as pressed at the moment as VFX shops.

Also, I totally agree that all sizes of VFX shop would benefit from cost-plus billing. At the time this was written, nearly 2 years ago, my main concern was the struggling small shops. Now of course, even the large ones are in trouble.