Strategy and the Visual Effects Industry

A couple of years ago, I wrote a piece reflecting on my time making software for the visual effects (VFX) industry. Since then, I’ve been on the other side of the fence, working directly for a VFX company. This experience confirmed some of my assumptions, but also revealed many new insights.

In short, the VFX industry is doomed.

Ok, I apologise, that was needlessly dramatic. And it’s clearly not the case. VFX is going strong, as much as it has been for the past few decades. The industry just pulled througha major crisis in the form of writer and actor strikes, with productions shut down completely in some cases, and delayed in others. VFX artists turned up for work as normal, but for some there was no work to be done. But that’s over now, and things are getting back to normal. There are Marvels galore.

“Normal” though, is where the problems lie. I mentioned previously that the industry operates on razor-thin margins. That’s still the case, and doesn’t look set to change any time soon. But now I feel I have a much better understanding as to why this is the case.

There are a handful of large VFX companies in the industry. They employ thousands of artists and support staff, and they compete with each other to win the relatively limited volume of high profile, high budget work available from the handful of large production studios.

The way they compete with each other is by being “the best” at making VFX. This a well-documented, terrible strategy:

Strategy starts with thinking the right way about competition. Many managers compete to be “the best” — but this is a dangerous mindset that leads to a destructive, zero-sum competition that no one can win.
– Strategy Explained

Examples abound to prove the point. My former company claimed to be the best in the world at simulating creatures, as did at least 3 of their closest competitors. They had offices in the major production centers across the planet, while cutting costs through outsourcing to the cheapest artists in the world, for all but a handful of tasks. The endless narrative was that change (in the form of everything from peoples’ working patterns to the type of work being done) was desired, but would take careful negotiation with clients.

Efficiency of process is valued above everything else. If there’s an easy way to cut costs on something, that’s work that will easily be prioritised. But rather than being used to increasing margin, or investing in other areas of the business, any financial advantages are realised as a way to lower bids. In short, new value created is simply handed over to customers, who assume little to no risk.

At one point, one of the Product Managers on my team, working on a new kind of service with a potential independent, net new revenue stream, told me that a competitor working on an equivalent service, was offering it to its clients free of charge– the idea being that those clients would then stick around to order more of the traditional visual effects work from them. Effectively, they were treating it as a customer acquisition channel for their well-established, strategically-challenged core business. “How are we supposed to compete with free?” he asked me. “Make something worth paying for,” was my response.

Unfortunately, the rest of the company disagreed.

During the strikes of 2023, the visual effects industry broadly took a beating. Every high profile episodic series or movie ground to a halt, while everyone sat around to wait for writers and actors to negotiate better terms for things they clearly didn’t fully understand or appreciate, while the many thousands of people who also work on those things tried to weather the ensuing months of hardships, forced to show solidarity for a cause they couldn’t care less about (and for people who would almost certainly not repay the favour), only to find nothing beneficial waiting for them on the other side. Many, many people (actors and writers included) have been without a job as a result of the strikes, and the situation is unlikely to improve any time soon.

At my company, everyone tightened their belt and just kind of hoped for the best while it was happening. I wanted to take the opportunity to look into what we could do as a business to protect us for something similar happening in the future. But it fell on deaf ears, as people were just relieved to be able to resume business as usual once the strikes ended.

To me, it felt like we’d survived a storm, then gathered up all the wood we could, and use it to build some drying racks, instead of a shelter.

My personal experience, along with some anecdotes, isn’t sufficient to signal the end of an industry that has survived like this for decades. But there’s a lot here to be objectively worried about. To apply Porter’s Five Forces framework to the industry:

1. The threat of new entrants is low (for the time being, but you can see this changing with the current crop of generative AI tools maturing)
2. The threat of substitute products or services is low (again, generative AI may change this)
3. The bargaining power of suppliers is low
4. The bargaining power of buyers is absolute

The strikes should have been a wake-up call regarding that last point. The visual effects industry exists at the pleasure of the production studios. Arguably this has always been the case, but given that writers had to very publicly stop work for 6 months to effectively beg not to be wholesale replaced with Large Language Models at a fraction of the cost (and let’s face it, probably very little difference to the average consumer in most cases), I just don’t see anyone giving a damn if the visual effects industry finds itself in a similar position.

I do want to end on a more positive note however. A lot of experimentation with generative AI over the past few months has convinced me that there absolutely is a place for human artists going forwards. Generative AI inherently has no sense of taste or style, it can’t truly iterate in a reasonable way, and it for sure can’t work for clients who themselves don’t really know what they want.

There will be artists, and hopefully the technical barrier to entry will be lower, meaning that there will be more than ever. I just think they won’t be working within the system we have today.

Burning Bridges: A close-up shot of a rustic wooden bridge engulfed in flames, with thick, grey smoke billowing up from beneath the charred wooden slats. The bridge’s wooden planks are cracked and blackened, some already consumed by the fire, while others still smoldering with orange embers. The metal supports underneath the bridge glint dully through the haze, partially obscured by a veil of flames licking at the air. Every inch of the bridge’s surface is scorched, charring off a layer of old wood to reveal fresh, darkened surfaces beneath. A few wispy tendrils of smoke curl upwards, as if attempting to escape the inferno, while larger plumes rise in majestic columns towards the top of the frame. The fiery destruction seems to have no bounds, with flames spilling over the edges and licking at the air like a hungry beast.