After Rhythm & Hues: Hollywood's visual effects studios struggle for new business model

“Life of Pi” won four Academy Awards Sunday night, the most of any film. One of the Oscars was for Best Visual Effects. But about two weeks before the Oscars, Rhythm and Hues, the company that produced much of the movie’s visual effects, filed for bankruptcy.

“Life of Pi” brought the third Academy Award to El Segundo-based Rhythm and Hues Studios, and the second one to supervisor Bill Westenhofer. His acceptance speech for the film about a boy fending for himself at sea on a raft was a chance to tell the world about the choppy waters facing his firm.

“Finally, I want to thank all the artists who worked on this film for over a year, including Rhythm and Hues,” Westenhofer said as the orchestra loudly played theme music from "Jaws" over him.  “Sadly, Rhythm and Hues is suffering severe financial difficulties right now. I urge you all to remember…”

His audio was cut after that so Westenhofer had to wait to make his point backstage.

“What I was trying to say up there is that it is ironic that at a time when visual effects movies are dominating the box office that visual effects companies are struggling," said Westenhofer.

Rhythm and Hues has been doing visual effects since 1987 and had more than 700 employees in Southern California. But when the company filed for bankruptcy protection earlier this month, it was forced to lay off more than 200 people. Many of those people had worked for more than a year on “Life of Pi.”

“For me, this was my third company to watch go bankrupt or be bought out,” said Rachael Campbell, who has worked six years as visual effects artist and was among those laid off. She said Rhythm and Hues is highly regarded for giving young artists their first jobs out of school.

“So for all those people who are brand new, it was a complete shock," said Campbell. "It’s crushing for them to watch an amazing industry leader like Rhythm and Hues to go down.”

But last September, another industry leader, Digital Domain, filed for bankruptcy. Founded in 1993 by “Avatar” director James Cameron, the company created effects for films like “Titanic” and “Tron: Legacy.”

Both Digital Domain and Rhythm and Hues are facing increasing competition from other parts of the world. Countries like Canada and India offer film subsidies and tax incentives.

Digital Domain’s CEO Ed Ulbrich says in order to compete for big projects, firms like his had to set up operations in those places and hire “lots of very brilliant, very talented artists that are not easily interchangeable or easily replaced and very high end technologists."

Ulbrich says that's expensive because he has to keep those employees on between projects.

“Any money that we may have made – which is very challenging – can get burned very quickly," Ulbrich said.

Visual effects artist Rachael Campbell said the studios are looking for the most work at the lowest price.

"We’re winning Oscars for them and they’re putting us out of business,” Campbell said.

Backstage at the Oscars, her former boss at Rhythm and Hues, Bill Westenhofer, agreed.

“Visual effects is not just a commodity that’s being done by people pushing buttons," said Westenhofer. "We’re artists, if we don’t find a way to fix the business model, we may start to lose some of the artistry.”

Before the Academy Awards ceremony, hundreds of visual effects artists marched in Hollywood near the Dolby Theater. One of them was Phil Broste. Broste wrote an open letter to Life of Pi director Ang Lee and posted it on Facebook.

The letter said Lee and others at his level in Hollywood are ignorant of the pain and turmoil of visual effects artists like himself. But Broste says since visual effects have become so popular and important to films, the companies that create them should work together some and not focus constantly on competing.

“The facilities do have leverage,” Broste said. “If they were to realize it, and utilize that leverage, they would be a force to be reckoned with.”

The future of that leverage may be kicking around at Digital Domain. It came out of a fast bankruptcy with two owners: A company from China and one from India. CEO Ed Ulbrich said he’s considering a new business model that moves away from the fixed bid that companies like his usually negotiate with film producers.

“Instead of making money on the ‘making’ of the movie, let’s make money on the success of the movie,” Ulbrich said. He said the financial outlook might be different for the team at Rhythm and Hues if its share in the success of “Life of Pi” went beyond winning an Academy Award.