What's best for *you*?

The VFX and Motion Design labor movements are real.  Maybe better to call them 'workplace reform" or "fair trade" movements? Regardless, they are resonating with a lot of people in those fields, both artists/craftspeople and employers/managers.

Let's put aside, for the moment, what might be the best way to achieve the goals of the movements -- union, guild, foundation, code of ethics, pistols at dawn...

We can pick out some common goals:  affordable/portable health benefits, portable retirement plan, proper tax/employment classification, Social Security payments, overtime pay, prevention of workplace abuses.  That should be good for a start, right?  Sounds good to me.  Now, regardless of how these goals are achieved, they have to be paid for.  By whom? 

The VFX/design shop owners who are supposedly getting rich off the sweat of your brow? 

That might be possible if that were true.  However, most shop owners are practitioners themselves (let's ignore the Carlyle Group, Barclay's, Wyndcrest, Lucasfilm, and anyone else big enough to not pay taxes), and tend not to be as focused on the bottom line as they perhaps should be.  Based on my experience as a business (co-) owner, I'd have to look at what those things cost, and see what I could afford to carve out of a not very large margin.  Let's see -- okay, union P&W adds about $4/hour/employee.  Adding someone to payroll -- maybe $75, but that's for *each* time that person is hired for a project.  Overtime -- well, we usually assume a 50-hour week, so that means 2 hours of OT every day, at 1.5x.  Gee, this is getting complicated, I'd better hire a payroll service and pay my accountant to keep things straight. And unemployment and disability insurance -- nearly forgot that! (The last time I forgot that it cost me well into 5 figures...)

Okay, let's wave our hands and say that the traditional freelance/staff differential of 20% applies.  That is, if you're used to making $1000/week freelance (1099 and all that), you'd be paid $800/week for a staff position with nominal benefits and PTO.  So to an employer, if your effective hourly rate (assuming your day rate = 8 hours at straight time and 2 hours at 1.5x) were to stay the same as it currently is, labor costs would go up by 20%.  But that's a minimum. Whenever there's a need for OT, you'd be working the same 15-hour days as you do now, but the employer *must* pay 1.5x for those hours -- no more "comp days!".  So that's, oh, maybe another 10-20% of total annual labor costs, based on personal experience.  So total labor costs would rise by 30-40%, instantly.

Now, I'm a demonstrably poor businessperson, so my math might not be right, and maybe my experience isn't relevant.  But for the sake of argument, I'm willing to look even more foolish and say they are.  For small owner-operated shops, on VFX jobs, I think gross margins (EBITDA) may hover around 30%, net profit around 5%.  Design/mograph -- gross margins may be around 50%, net around 20%.  Labor costs seem to run about 30-40% of budgets in either area.  So for VFX, increasing labor costs by even 30% would cut gross margins to 18%, and net profit to, uh, a 7% loss.  Design goes to 38% margin, 8% profit.  Uh-oh.


That's unsustainable, especially for VFX-oriented small shops.  In fact, 5% profit is unsustainable, unless you assume the shop owner will work 100-hour weeks forever to make up for every mistake or shortfall.

So maybe design shops will pay for some of this.  VFX shops can't.  That means if you want those good things (affordable/portable health benefits, portable retirement plan, proper tax/employment classification, Social Security payments, overtime pay), you're going to have to pay for them.  You want OT after 40 hours (because the IRS says you're an employee, and there's no way around that)? Then you'll have to charge less. Probably not as much as it would cost you as an individual to buy your own health care, set up and manage your own S-corp or LLC, buy your own hardware and software, pay your own insurance, unemployment, disability, Social Security, vacation and sick days; but still a significant amount.  (If you're at the earnings level where this isn't true, you should already be taking care of those things yourself -- congratulations!)

Let's say that somehow, VFX and design shops manage to convince their clients to pay cost-plus or time-and-materials instead of firm-bid. Which means that shop owners won't have to eat every bit of overtime regardless of cause.  Even then, in order to just stay in the same un- or barely-sustainable position they're in now, *you* would need to be willing to earn 20-30% less per year. (This would be a result all these changes; for example, diligently paying overtime to employees -- if an employer has too much OT per employee, it's more sensible to add more employees, so no one will work tons of OT, even if they want to.) In return, you'd have more time for yourself and your family, less stress, some health insurance, decent retirement savings, unemployment insurance, probably more steady work, and probably fewer hassles from the IRS in the future.  Would you really choose that?


If you're over 35, and/or married with children, I'd bet yes.  For everyone else (the majority of the employee pool), mmmmmaaaayyybee not.  When I was young and stupid(er), I thought "make hay while the sun shines," and worked every chance I got. Now I regret some of the hours, days, and months I spent working when I could have been in the world, living. I think most of us in the business tend toward this behavior.

So, really:  are you willing to take a 25% annual take-home pay cut in order to help secure a better life for yourself and your family, and a healthier industry in which to work?  If you're not, then all the talk about organizing, sustainability, and fairness is just... talk.  Are we serious about all this?  Then we have to be willing to pay for it. 

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might unions be *good* for VFX/animation companies?

Naturally enough, when we talk about organizing VFX and animation workers, we focus on the benefits that would (we hope) accrue to the workers. It seems as though most of us assume that these benefits would come directly out of the pockets of the VFX business owners, who are already struggling.

What if they didn't?

We've been hearing and reading a lot about the VFX companies' woes, which boil down to inadequate compensation for the services they provide, given their operating costs. Adding the cost of union labor to their balance sheets would have to hurt their already-narrow margins.

What if it didn't?

Let's look at live-action production.

First, compare the overall business health of union-signatory major film studios with non-signatories. Ignoring the fictions of studio bookkeeping, I think it's fair to say that the signatories are generally better-off, as businesses. Look at their physical plants, their longevity, their executive compensation, their benefits packages for non-craft employees, their production slates, their assets. I'm pretty sure that the signatories all rank higher in all of these categories.

Now make the same comparison in commercial production companies -- you find the same pattern. There are some non-signatory company *owners* who make more money than they might if their staffs were organized, but I would argue that their businesses are less-healthy -- that these are fundamentally greedy people out for a short-term dollar, uninterested in building value in the business itself.

What's going on here? Shouldn't the companies burdened with union and guild agreements be suffering more than the others?

What if organized labor and collective bargaining actually *benefit* businesses as much as employees?

Now, correlation doesn't necessarily indicate causation. Even if this is a causal relationship, maybe it runs the other way -- perhaps only healthy businesses can afford to hire union labor. But that doesn't seem likely -- I think there are very few, if any, examples of non-signatory companies becoming really rich and healthy, and subsequently deciding to become signatories. What would motivate them to do so, especially if organized labor is universally burdensome to management -- wouldn't a strong company find it easier to just ignore it?

What would the mechanism be then? How does signing a bunch of union bargaining agreements make a production company or a film studio healthier, when everything else stays the same?

I think the answer is simple and subtle: it imposes standards. Standards of fairness. Standards of costs. Standards of work rules. Standards of, indirectly but perhaps most importantly, fiscal responsibility. Collective bargaining agreements are not negotiated company by company -- they are industry-wide (at least within a given local's jurisdiction). This creates exactly what VFX shop owners continually cry out for: a level playing field.

Standards make it impossible for a signatory to shoot itself in the foot by saying "we'll do this one project for half what it should cost" -- for whatever reason (We're building our reel, it's just this once, they'll bring us the next one at full price, it'll be so cool, etc.) But what about the non-signatory (or out-of-state or overseas) competitor who *will* say that? How do we keep the job from running away? Again, the same way as the live-action production industry: reciprocal agreements with other locals, guilds, and unions.

If one of the majors let its SAG agreement lapse, and tried to hire non-union actors, not only would any SAG talent refuse to work and picket the studio, its DGA, WGA, IA, IBEW, and Teamster workers would honor the SAG picket line. If a signatory live-action commercial production company tried to hire non-union camera crew, the grip and electric and carpentry locals would honor Local 600's picket line.

The reciprocal honoring of picket lines means that if a studio violates one of its bargaining agreements, it effectively loses *all* of its labor. This in turn escalates the issue -- the studio could, in principle, run away completely, but that would move it out of the labor market it most wants to be in. The size and competence of the local workforce is a powerful motivation for the majors to stay in L.A. -- although we are seeing more and more runaway production as alternative pools of talent deepen, which is worrisome.

If feature VFX houses were organized, especially through an existing powerful union like the IA or DGA, reciprocity would make it possible to, um, encourage the major studios to take their work only to union shops. Those shops in turn would not be willing to bid the job irresponsibly or unethically, as their own bargaining agreements would impose standards that would make that behavior too risky. For example, if a bargaining agreement strictly compelled a shop to pay overtime, it would be strongly discouraged from deliberately bidding a job with too few staff or too short a schedule. So, in addition to ensuring workers' fair treatment, the agreements help ensure rational, more profitable behavior from shop owners and managers.

Now, what about the small shops, the upstarts, all of us trying to break into the business or make our own way? There is no doubt that restrictive and exclusive union membership and eligibility rules stifled innovation and growth in VFX and commercial production for a very long time. Some craft locals continue to work in this unenlightened manner. For VFX organization to work, this simply cannot continue. If, and it's a big if, the IA or IBEW can, in their entirety, move out of their mid-20th-century mindset and make it easy and desirable for people to join the unionized workforce, this can work.

In this scenario, a small group of artists wanting to create a new company to do VFX work might, as they often do today, seek subcontracts from larger shops. Assuming those shops and their studio clients were organized, it would be necessary to make it easy for this new entity to work as a signatory as well, and easy for its employees to join the labor organization. Easy, but not free. Realistically, there will be some costs associated with this, a barrier to entry -- which in my view is a good thing. It has become too easy for anyone to buy a few workstations and start soliciting work without any real understanding of what makes a business work well (goodness knows that's what I've done!). Those of us who want to run companies need to do our homework better than has been usual. If you make it possible for any fool to not only start a business but compete in the marketplace, and further, encourage self-destructive behavior like underbidding and working impossible hours, then, well, you get a market of fools -- and those who prey upon them.

This has gotten too long. If you read this far, thanks!

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