It’s Tough to be a Bust: The Rhythm and Hues Bankruptcy

Written by Joseph Kleiman. Posted in Disney, Disney Movies, IPM on MiceChat

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Published on March 27, 2013 at 3:59 am with 13 Comments

With the movie awards season now behind us, one film secured its place in the pantheon of great visual effects films by winning the Annie for Outstanding Achievement in Character Animation in a Live Action Production, the Visual Effects Society (VES) Award for Outstanding Visual Effects in a Visual Effects-Driven Feature Motion Picture, and the BAFTA and Oscar for Visual Effects – Life of Pi.

You might have seen the film winning one of these awards or even watched live as VFX Supervisor Bill Westenhofer was ushered off the stage to the score from JAWS as he attempted to address the financial problems that the visual effects house behind the movie, Rhythm + Hues (R+H), was suffering.  But were you aware of the four hundred visual effects artists that marched on the Dolby Theater that Oscar evening?  They were doing this because a week before the Oscars, and only a day after winning the BAFTA, R+H filed Chapter 11 bankruptcy, laying off more than two hundred visual effects artists without pay.

 

Atlantis: Race for Atlantis: The IMAX 3D Ride

As a journalist who covers the attractions, museum, and giant screen (IMAX) fields for a number of trade publications, I’m really only interested in such a bankruptcy when it affects one of these disciplines.  And such is the case with Rhythm + Hues, whose attraction work dates back to 1982 and the opening of Epcot Center, where they provided the computer animation for the original Universe of Energy.  They later created the Big Bang segment for Ellen’s Energy Adventure.  Other notable work include The Funtastic World of Hanna-Barbera for Universal Studios Florida; Star Trek The Experience: Klingon Encounter and Race for Atlantis: The IMAX 3D Ride, both in Las Vegas, Le Visionarium (Timekeeper) for Euro Disneyland, and two attractions for the new Ferrari World in Abu Dhabi.

It’s Tough to be a Bug

If you’re a Pixar fan, then you’re likely fan of its It’s Tough to Be a Bug at Animal Kingdom and California Adventure.  But that 4D experience wasn’t made by Pixar – it was animated by R+H.  I spoke with Charlotte Huggins, who in 2011 joined R+H to restart their Special Project Division.  Charlotte’s credits as a producer include Disney’s Honey I Shrunk the Audience and the blockbuster Journey series of 3D films (including Journey to the Center of the EarthJourney 2: The Mysterious Island, and the upcoming Journey 3).  She told me that there are a number of projects they are either working or bidding on.  These include a number of projects for a major new park in China.  Although, due to the bidding processes and confidentiality, she was unable to disclose what projects, I’ll let you take a guess at what park.

Journey: Journey to the Center of the Earth 3D

Here’s a very simple explanation of what happened to cause the bankruptcy: Visual effects companies by their very nature as contractors are reliant on jobs to bring in money.  If a job scheduled into the budget disappears – either because a studio dropped a film or pulled the project to send to a lower bidder, that will have an effect later on upon the company’s bottom line.  Such a thing happened a year ago with R+H.  When it did, management realized they had around eleven months to a year before things got really bad.  They started courting an investor who would infuse the company with a new supply of cash.  Everything was looking good and then September 11 happened.  For on September 11, 2012, another giant visual effects company, Digital Domain, filed for bankruptcy.  The investor got cold feet and pulled out.  With only a few months to go before disaster hit, the company began operating on $17 million in loans from Fox and Universal, ensuring that it would complete projects for those two studios.  Eventually, it had no choice but to declare bankruptcy.

Outside the US, subsidiaries of R+H continue to do well.  The Canadian arm of the company, which is subsidized by the Canadian government, continues to sign onto new projects.  And in Taiwan, a large new facility is going online.  And here, a bit of confusion lies.  Most of the industry trades when covering this Taiwan complex either incorrectly refer to it as an animation facility or don’t mention what it does at all.  That has caused a bit of anguish among American vfx artists, a number of which were laid of by R+H without pay when the company filed for bankruptcy.  According to people I’ve spoken with at R+H, the Taiwan facility, which is co-owned by the local telecom company, is primarily a rendering facility, and in fact is a larger version of a rendering facility built for Life of Pi.  With higher frame rates, resolution, 3D, and image detail now coming to theaters thanks to digital cinema technology, the company needed the ability to process ever higher amounts of data.

Star Trek: Star Trek The Experience

 

So what is it that caused two major American visual effects firms to file for bankruptcy in a six month period?  To find the answer, I went to two leading producers of vfx-heavy film-based attractions.  Doug Yellin is Executive Producer at Matilda Entertainment.  His credits include Borg Invasion 4D at Space Park Bremen in Germany and Star Trek: The Experience in Las Vegas, the IMAX film U23D, and Beyond All Boundaries, the signature film at the National WWII Museum in New Orleans.  Here’s what he had to say:

Creating world-class digital VFX requires highly-skilled talent and ground-breaking innovative software .  VFX companies need to have massive infrastructure to support this creative workforce and technical development. This requires money.  A lot of money.  Money that is spent before the jobs are paid for…leading to an all to familiar chicken and egg scenario…where large companies are living from paycheck to paycheck.  Doing great work alone (and DD and R &H certainly have done and will continue to do that!) is sometimes not enough to navigate the financial whitewater and foreign competition.

Life of Pi, featuring a fully rendered, Computer Generated, Bengal Tiger

My company is currently involved in a VFX intensive special venue project.  We are working closely with VFX companies to ensure that our partnership will be mutually sustainable and deliver world-class guest experiences.   The recent troubles at DD and R & H are certainly unsettling.  However I am very hopeful that both of those companies will not just survive, but go on to continue doing visually stunning creatively groundbreaking VFX work. 

Brent Young is President and Creative Director at Super 78.  His credits include Madagascar: A Crate Adventure at Universal Studios Singapore, Shamu’s Believe at SeaWorld Adventure Parks, and Curse of Darkastle at Busch Gardens Williamsburg.  Brent is also co-host of the Season Pass Podcast, which I highly recommend.  Here are his thoughts on the issue at hand

VFX is a very tough business for several reasons:

  1. There is very little barrier to entry. 
  2. It’s very difficult to maintain a clear competitive advantage. 
  3. Supply is going through the roof where fewer big projects are being green lit. 
  4. The profit margins are razor thin or non-existent. 

While news of these bankruptcies is incredibly sad, and we are doing everything we can to support our fellow artists, these developments are not a complete shock to digital content producers. Unfortunately, these two bankruptcies follow a long string of facility shutterings in California. We are now seeing some high-profile shops suffer a fate similar to that which small- to mid-size studios have been experiencing for years. 

The simple answer is that technology-driven industries like VFX have evolved and the costs to produce animation and visual effects in California are soaring.  This is a very similar scenario what the 2D animation business experienced in the late 80′s and 90′s – when the quality of overseas facilities began to match the output of local shops, and studios, looking to lower production costs and minimize risk, sent that work abroad. The sad irony is that many of these outsource facilities were trained by bigger facilities to take their overflow and their lower-cost projects. Foreign government support in the form of subsidies, training programs, and equipment then compounds the problem, resulting in significant business changes and evolution.  

Both studios contributed some amazing work to the special venue industry. And we owe our beginnings in special venue to R+H.  But I don’t see this having much, if any impact on the creation of quality animation or media for special venues. It may, on the flip side, have a positive effect for the producers that are dedicated to servicing this industry. Owners and operators may look for the security in more specialized groups. Because the cost models and long schedules are very different for special venue than feature films, owners can’t afford to lose their facilities during a project. Especially if a facility is heavily invested in proprietary tools and closed systems. Owners and developers will need to understand if their project assets are completely portable if a facility can’t complete there work. The bottom line is that there will always be creative and experienced digital producers to take the dreams of the the owner and developer and make them a reality..

Next time, I’ll take a look at Disney’s role in the Digital Domain bankruptcy and report from the IMERSA Summit in Denver on how digital dome technology is changing the way you experience attractions, live theater, cinema, and nightlife.

And now, here’s a chance for you to help me write a new article.  I will be in Anaheim April 5 and 6 representing Micechat at the Themed Entertainment Association’s annual summit and the Thea Awards.  This year, Disney’s receiving four awards!  Visit their blog at http://theaawards2013.blogspot.com/ and take a look at the projects that will be profiled on the 5th at Case Studies Day and receiving Thea Awards on the 6th, then email me your questions for the attraction designers to [email protected].  I’ll ask as many as I can, as long as they’re reasonable.

 

About Joseph Kleiman

InPark Magazine (IPM) is a multi-media news source for the themed entertainment industry. IPM covers the latest trends in theme parks, waterparks, museums and attractions. Designed for those involved in and appreciative of themed entertainment, IPM includes digital and print magazines, weekly newsletters, feature interviews and an online archive. Some recent contributors include Bob Rogers, Gary Goddard, Jeremy Railton, Craig Hanna and countless other former Disney Imagineers. Browse or subscribe for free at InPark Magazine. Like us on Facebook

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13 Comments

Comments for It’s Tough to be a Bust: The Rhythm and Hues Bankruptcy are now closed.

  1. Joseph, this is a fascinating article and a great piece of journalism. I think a lot of folks would be surprised just how much Disney is dependent on contractors for all of their attractions these days.

    The R+H bankruptcy has obviously created opportunity for some of the smaller firms. Have you heard what has happened to the open contracts? Are they operating through the bankruptcy, were they farmed out to subsidiaries and partners, or were the projects shut down?

    • To answer your question, Dusty, Rhythm and Hues studios is still operating through a loan from Universal and Fox to finish it last remaining features. So work is still going on in Los Angeles and around the world.

      I would say that the bulk of the opportunities that seems to be happening is for work outside of California and the United States. I feel that this is bad for Los Angeles if movies are now made in other places. After all we have a strong tourist industry which drawing people to Hollywood. People might realize that few movies are being made here and stop coming.

  2. Interesting, I’m surprised Pixar wasn’t used for it’s tough to be a Bug , but that was before it was Disney’s company and I’m sure it was a good warning to PIXAR. My favorite Special Effects house ILM, kept healthy with projects from its parent company Lucasfilm. Now that Disney owns both, they can do Pixar and ILM projects almost at cost. Bad news for R&H though, unless they’re inspired to sell to studios for a more steady production schedule and a more stable career for its employees.

  3. Thank you for the great article about the real-life business behind the screen’s fantasies. Last night I watched the old Harryhausen “Clash of the Titans,” and I can’t help but contrast the image of Mr. Harryhausen working alone in his garage with the current global visual effects industry. Things change, things stay the same…

  4. Fascinating article. I have been following the R+H bankruptcy but had no idea of their impact on the theme park attractions I love! The VFX issue is a real and very scary one for all the front line artists who are at the mercy of large companies and international business. Articles like this one keep the spotlight on the issue and help keep it on the public’s radar. Thank you Joseph!

  5. I currently work for Rhythm and Hues Studios and am finishing my last project there. Unfortunately, the future is unclear about what its future will be.

    I feel that the VFX industry is mirroring what happened to the animation industry decades ago. Studios sought to cut costs by farming out work to foreign countries and the quality of animation dropped for most studios, except for Disney who believed in quality above all else. Today many new VFX studios are poping up around the world, but have less trained and less paid workers. While there is quality work being done in some places, certainly not all is done that well. Watch “Olympus as Fallen” and see poor quality visual effects done cheaply. I am hoping that in the future visual effects will have a revival in California, but for now like so many industries, VFX work is leaving the state.

    • Sad situation to be sure. I hope that VFX work does indeed recover in California.

      Best of luck to you JiminyCricketFan.

  6. Interesting article but I am a bit perplexed by two statements -

    This is fascinating to follow. However found some contradictions in the article.

    Early in the article is the following statement “Creating world-class digital VFX requires highly-skilled talent and ground-breaking innovative software . ” There is also comments about the large amount of infrastructure (IT) required.

    The article then goes on to list 4 main issues surrounding the current state of the VFX industry the first two being Few Barriers to Entry and Difficult to Maintain a Clear Competitive Advantage. These seem to be counter to the initial statement.If you need highly trained individuals and huge investment in resources that is a large barrier to entry. If your trained team is highly skilled artists it would seem that you can differentiate your work (certainly ILM has leveraged this for years.)

    No doubt there are many small upstart visual effects companies and many of these VFX laden movies have so much work that many different companies get a small piece of the action but only the big effect houses can pull off the big special effect extravaganzas. Unfortunately the high costs of business in California is pushing all this work to other states and countries.

    • themur,

      You’re quoting the opinions of two different people, both of whom are leading attractions producers. Your first quote is from Doug Yellin. The second is from Brent Young. I asked both to give their opinions as to why two major vfx companies filed for bankruptcy within a six month period. As with any matter of opinion, observations will vary from person to person.

      Best,

      Joe Kleiman

  7. There was a long article in the Torrance Daily Breeze about this last week. It included a photo of the picket line outside the Oscars. One artist had a sign that read: “Imagine ‘Titanic’ without the boat. Imagine ‘The Avengers’ without the Hulk. Imagine ‘Avatar’ without everything.”

    Until that article, I had no idea that this was happening. Did you know that Ang Lee complained about the cost of the FX work on “Life if Pi?” He should be grateful for what they did. I could not tell the CGI tiger from the real one.

    Good article. This will not be settled for a long time, I fear

  8. I’m also in the VFX industry…going on 18 years, I have friends that work at both Rhythm and Hues and Digital Domain in Florida…..( past tense with DD Florida)

    I was just discussing the plight of the VFX industry with someone this morning. There are a couple of key problems, (from my perspective). Problem number one, we as a group do not have a single unified body/voice. We do not have a union or any type of collective bargaining rights with the studios. So the studios treat all VFX houses with little-to-no regard for their well being.

    Furthermore they treat the VFX artists with contempt and can’t understand why things take so long and cost so much money. Yet we touch 90% or more of ALL movies. (Think about it, even romantic comedies, will have someone driving in a car….10 times out of 10 there’s a blue / green screen outside their car windows.) We even are creating main characters in the biggest blockbuster movies released in the last several years. ( Perhaps you’ve heard of Gollum, the Hulk, The Tiger in Life of Pi….) But why should we have the same rights as everyone else in the production? (sarcasm) It’s aggravating. We are often snubbed out of recognition in the form of screen credit. Even when working on a movie for 6 months to a year creating entire worlds and characters…the studios often will give a meager allotment of credit spaces…. and the kicker…. ALL of the other departments get every person that worked on it, not limited to but including… caterers, drivers, stand-ins, etc. (I’m sure there are exceptions to every rule…this has just been my experience.) (I’m also not knocking any other group….I think everyone who works on a film deserves screen credit.)

    Are we not as important to the production as everyone else?

    The second problem (from my perspective,) is that VFX has become a race to the bottom. The current price wars and underbidding between shops often comes at a price so low the shops can’t always afford to pay the artists doing the work. With government subsidies, film productions are constantly lured to other states and countries around the world. If a VFX company doesn’t have a satellite office in the subsidized city, they can’t even bid on the show. So VFX companies, in a last ditch effort to get the work, even at a loss…will invest money in opening a second, third, fourth, etc. location to stay ahead of the subsidies. So they spread themselves thinner, and thinner, and spend more and more money, out of pocket…that they don’t have. (Which was part of R&H’s problems)

    This does not mathematically work out. Ever. And more and more shops will close their doors.

    We need a union. We need to end government subsidies. We need equal rights and profit sharing. We need the respect of the studios, but I just don’t know if it’s possible to turn this thing around this late in the game.

    (Just my two cents worth)

    When I first got into this industry, we were considered wizards and praised for our amazing effects. Now….from the studios point of view, any trained chimp could do what we do on an iPad….it’ll be just as good.

  9. Wow I did not know that the Tiger in the Life of Pi was CGI! That has blown my mind, because I truly believed the tiger was REAL! WOW!

  10. When the tiger was alone, it was usually real. When it was in the same shaot as an actor, it was usually CGI.