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VFX studios grapple with fallout from Netflix effect

Bidding processes, hiring strategies retooled to meet streaming demand boom
Artifex Studios founder Adam Stern at the Vancouver-based company’s VFX studio.

Netflix's (Nasdaq:NFLX) The Chilling Adventures of Sabrina may have stoked copyright controversy with the real-life Satanic Temple last month, but the supernatural series is also stoking business opportunities for visual effects (VFX) house Zoic Studios.

“The rise of streaming as a distribution platform is hands down the most transformative thing that I think that we’ve seen as a business so far,” said Zoic co-founder and executive creative director Andrew Orloff.

The Los Angeles expatriate came to Vancouver six years ago following the opening of a satellite studio in B.C. in 2006, allowing for closer on-set collaborations with producers for VFX-heavy series shot in Vancouver such as Sabrina.

Zoic’s core business for 16 years has been in episodic broadcast TV, but Orloff said demand for content from streaming – or over-the-top (OTT) – services like Netflix and Amazon Prime Video has shifted the way the business approaches everything from project bids to staffing.

PwC’s Entertainment & Media Outlook 2018–2022, released earlier this year, estimated Netflix would spend US$8 billion on content in 2018.

And a JPMorgan report earlier in the year estimated Inc. (Nasdaq:AMZN) would spend US$5 billion on content.

The demand for content has been spilling into the Vancouver film and TV sector, which has in turn spilled over to the local VFX sector.

“It’s been a bit of a new world over the past few years,” said Adam Stern, founder of Vancouver-based VFX house Artifex Studios.

“All of a sudden we’re doing post-production work for Facebook (Nasdaq:FB) [series]. So things seem to have changed quickly.”

While the team at Artifex is currently working on Oscar winner Jordan Peele’s Weird City for YouTube, like Zoic, the studio has primarily focused on traditional TV series.

But Stern said he realized within the past year that between projects destined for Netflix, Amazon Prime Video, Hulu and YouTube, most of the series his team is working on are now for OTT services.

“It’s always been hard in visual effects to enlist and retain great artists.”

Stern added that he’s been able to maintain a core team of around 30 people for most projects.

“There have been times where we just have not been able to find enough people to work on something, which means you’re driving people – unfortunately – harder, and it costs more money in overtime.”

Cuts to incentives two years ago haven’t stymied demand for VFX work done locally, according to data from Creative BC, the Crown agency that promotes the province’s film, TV and VFX sectors.

Creative BC data shows that approved tax credit certifications for digital animation and VFX rose from 83 in the 2015-16 fiscal year to 113 during the 2016-17 fiscal year.

That represents budgeted tax credits climbing from $369.6 million to $750.5 million year-over-year.

And Orloff said increased demand from OTT services has forced Zoic to adjust much of its business model.

When the VFX house was primarily focused on traditional broadcasters, its sales apparatus would bring in TV pilots in the spring just as work was wrapping on the typical TV season.

“We’d stay on those series in a very regular season pattern of delivery that was pretty much consistent for every show no matter how big it was,” Orloff said, adding that pattern has become almost non-existent over the past three years.

“The streaming stuff doesn’t come in seasonally. It comes in when it comes in.”

Stern, meanwhile, has been keeping an eye on bids to determine whether traditional broadcasters are willing to spend more than the OTT services. He said bids still appear to depend on the demands of the project as opposed to the platform on which the content is delivered.

Zoic has also had to change what were once predictable hiring patterns, while its sales apparatus needs to be prepared year-round to bid on new series.

“The danger is getting oversubscribed,” Orloff said, adding that while the studio’s head count has at times been as high as 300, Zoic has adjusted that capacity to 180 to concentrate on a smaller number of more profitable, high-profile projects.