While the global VFX industry struggles, Framestore is set to nearly double in size due to its acquisition of Company 3 and Method.
In a torrid year for the VFX industry in which the mass halting of live action shoots forced a number of facilities to downsize, one company has managed to dramatically expand.
With the acquisition of US-based creative services group Company 3 and Method (C3M), London-headquartered Framestore has become the world’s second biggest VFX company by headcount.
C3M which includes VFX shops Method Studios, Encore and EFILM, has 3,500 ‘artists, experts, engineers and innovators’ on its books, now added to Framestore’s 2,500 employees.
The 34-year old company, which made a profit of £19m on turnover of £91m in 2019, has operations in Canada, the US and India. The C3M acquisition boosts capacity in those territories while adding a division in Melbourne.
The sale was financed by Aleph Capital and Crestview Partner which will become the majority shareholders of the enlarged company. It is unclear whether these venture capital companies have taken over the 70% share in Framestore owned by Chinese state backed Cultural Investment Holdings since 2016. Framestore’s management team, including co-founder and chief executive William Sargent, retain minority stakes.
Upcoming films on which it has worked include Fantastic Beasts III, a CG and live action remake of The Little Mermaid and The Midnight Sky.
Pandemic impact
Framestore’s fortunes contrast with rival VFX giants as Covid-19 ripped through the sector.
DNEG, the world’s biggest since 2014 with close to 7,000 staff, shut down its episodic unit in LA, reportedly costing 20 jobs. This time last year it had hoped to raise £150 million ($191 million) from an initial public offering which would have valued the company (based in London and with major operations in India) at £600m. Yet as lockdown bit, it sought to introduce salary reductions of between 20% and 25% as a way of preserving jobs.
“This is not just about our company; this is an industry-wide issue that is affecting all companies in our sector,” Namit Malhotra, the company’s CEO, told Cartoon Brew.
“This decision to introduce salary reductions has not been taken lightly, and our aim is to preserve the jobs of as many of our employees as possible while ensuring that we continue to deliver the best possible work for our clients. To help mitigate the effects of the reductions we are introducing an equity program to help fund the repayment of sacrificed salaries.”
A few weeks later, under pressure from Bectu in the UK, the facility partly reversed its plan, saying it had found additional funding from business partners.
That prompted Bectu Assistant National Secretary Paul Evans to comment: We urge DNEG to salvage what is left of their reputation for being a good employer by withdrawing its ‘dismiss-and-rehire’ threats. They have created a fig-leaf claim about a business-partnership finding the funding, but our members can see this for the sleight of hand that it is.”
Meanwhile, Technicolor’s earnings slid 48% in the third quarter 2020 with its production services division, encompassing VFX, down 53.7% year-on-year. Technicolor blamed this on, “the pre-Covid-19 delays in awards coming from one key client, and by the subsequent pandemic-related impacts on production around the world.”
Its VFX and post division were hit when 50 sets of dailies stopped overnight in March. In May, the company merged its Mill Film and Mr. X division under the Mill Film brand and later filed for Chapter 15 in the US as part of a company-wide restructuring to pay down €1.44 (USD$1.59) billion in debt. A debt financing deal worth €420 million and the equitization (stock for cash) of €660 million has steadied the ship.
Christian Roberton, who came up through the ranks at MPC, is newly promoted to president of Production Services and had been tasked with streamlining the operation. The company is “now in negotiations on major VFX tentpole projects that were delayed during the first half from one key client.”
The other century-old film entertainment brand Deluxe underwent its own last minute aversion of bankruptcy last October. Nonetheless, Covid-19 couldn’t have come at a worse time for a company trying to re-emerge from $1bn of debt. Its portfolio of VFX and creative post companies split from Deluxe in the summer operating as C3M under original founder Stefan Sonnenfeld before being bought by Framestore.
Disney-owned ILM is the other major VFX company of similar scale to Dneg and Framestore but its staff count and earnings are unclear, although there are no reports of widespread redundancies.
“Our vision for the future of our industry is storytelling across all the media of content delivery — from mobile to Imax; and headset to theme parks,” William Sargent, Framestore
Likewise, at Weta Digital (with around 1500 permanent employees), Cinesite (around 1000) and Pixomondo (600) there are no reports of permanent damage although Pixomondo CEO Jonny Slow said that cuts such as reduced hours, unpaid leave and redundancies have come into effect for around one-third of his workforce.
“VFX companies have lots of fixed costs in the form of employees, offices and tech,” he told Deadline. “That relies on a steady stream of new business to keep it going.”
Scale of resource
While Covid-19 has undoubtedly accelerated remote production workflows in visual effects as in other parts of the industry, scale of physical presence is still considered important in a business characterised by thin margins.
“It would be very difficult to deliver a thousand shots on a big studio picture or the 1200 shots we delivered for His Dark Materials Season 2 with pop-ups everywhere,” says Fiona Walkinshaw, Global Managing Director, Film, Framestore. “The results would not look as good. You would not have the consistency of one company delivering that work. Nor would studio or episodic TV clients be comfortable working with multiple smaller groups delivering shots and assets on the very biggest projects. Ultimately, we are all beholden to delivery dates and there’s a lot of pressure put on suppliers to stick to milestones along the way. Our payments are scheduled against those milestones. With lots of little companies it would be hard for a studio to be sure they are going to get all the work on time.”
The facility’s work also spans VR/AR experiences and graphics for theme parks where studios are able to extend their intellectual property. For example, Framestore played a leading role creating the character ‘Rocket’ for Guardians of the Galaxy and then worked with Disney to develop a Guardians of the Galaxy theme park ride.
“Our vision for the future of our industry is storytelling across all the media of content delivery — from mobile to Imax; and headset to theme parks,” said Sargent in a release.
Walkinshaw adds, “Working with the same assets for a TV spin-off and a ride is definitely more efficient under one roof. Efficiency is what a lot of clients are looking for. If you’ve done Spiderman in a movie and they want a ride they want to use the same team.”
Whether the deliverable is 2K, 4K or higher rendering pixels remains a huge cost tied to hardware and directly related to a facility’s efficiency.
“We use Google rendering for peak provisioning alongside our render farm but there is a pressure for us to continually develop rendering technologies that are as quick and efficient as possible,” says Walkinshaw. “We have teams dedicated just to that.”
Games engines don’t yet provide an answer. “They still cost to licence and to run and they don’t yet deliver feature film quality,” she says.
While there is movement toward cloud workflows in VFX, the volume of shots for projects like Wonder Woman 1984 on which Framestore bids, means that on-prem workflows are still more efficient.
“We put in a work from home platform at the start of lockdown with a virtual private network into desktops with encrypted secure access and workflows around dailies sessions. The end product that we’ve delivered remotely has been amazing but it takes a lot of time and effort.
“More importantly, the long term impact of us all working remotely would be a loss of the creative mindset and mentoring of more junior talent and the cross collaboration of ideas. Those don’t happen as easily when we all in our own rooms at home.
“It’s really important to get back to an environment where we can all work more collaboratively.”
Brexit visa alert
Post and VFX companies were not required to close during the lockdown, allowing them to continue by using a combination of working from home via remotely connected equipment or social distancing measures.
“However, while some had work in their pipelines at the point of lockdown, demand for their services has dropped significantly and (as of May) almost dried up, as the filming of new material halted,” reports Neil Hatton, CEO of trade association UK Screen Alliance.
Absent Covid-19 and spend on film and high-end TV production in the UK was on target to hit record levels this year, according to the BFI Research and Statistics Unit. It estimated that total spend of productions January to June 2020 would have risen from £699 million to £1.87 billion - the largest ever reported.
The VFX industry is worth £1bn to the UK economy alone according to a BFI report of 2018 but Brexit even with a deal threatens to undercut this.
While UK Screen is taking credit for getting almost all artist and production roles added to the Shortage Occupation List of the government’s Point’s Based Immigration system for skilled workers, the fact that once free movement ends at on 1 January 2021, new EU recruits will be required to have visas. UK Screen totals this at £2.5 million a year for VFX and animation employers
“The immediate impact is going to be very real cost of visas. A third of our crew in film and episodic are form the EU. We recruit heavily from the EU; we have to,” says Walkinshaw. “Our business is growing, we need a mix of talent and we recruit from lots of colleges in Europe because the skillsets are there. The very real impact is cost in what is not a big margin business. It takes a lot to deliver such a high-end creative product where there are a lot of variables in the course of production of and to deliver that and maintain your business is always quite challenging. Any cost impact will be felt genuinely felt on our bottom line.”
That said, visas also cost when Framestore recruits in Canada. “London is a more expensive cost centre to start with,” she says. “It’s incredibly disappointing that visa laws charges are going to be quite considerable.”
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