The visual effects industry, and the “movie magic” blockbuster films spend huge shares of their budgets on, are being lured away from California — and into two of the most expensive cities in the world.

In the summer of 1993, dinosaurs walked through America’s theaters. The first sight of them was breathtaking. There was the anticipation, as Laura Dern and Sam Neill’s helicopter landed and they bumped over green hills in their red Jeep. Then, finally, it came into view: a brachiosaur, plodding among eucalyptus trees, rearing up and stretching its neck to nibble at the treetops like a skyscraper-size giraffe. Neill sank to the ground, doing his best to appear overcome with awe.

In reality, Neill was probably looking at a lime-green backdrop, or maybe the film’s director, Steven Spielberg. But in a movie theater in New Orleans, David Breaux Jr.’s eyes filled with tears of real amazement. “When the brachiosaur stands up and picks the branch off the tree and then falls back and hits the ground — boom!” he recalls. “I was like, that’s what I want to do.”

Breaux, then 21, had just finished his second year at Columbus College of Art and Design in Ohio. Drawing, computers, movies and video games had been his passions since childhood, but it wasn’t until he saw the brachiosaur that he realized all these things could fit together. The dinosaur was created with “visual effects,” abbreviated in the movie business as VFX, the art of combining real-life footage with hand-drawn or computer-generated imagery. This was a distinctly different field from old-fashioned “special effects” — the illusions, like fake blood or dinosaur puppets, employed on set during filming — and Spielberg had just elevated it to magical new heights.

Breaux spent the next decade trying to get closer to that magic. After college, he took a series of jobs as an animator and as a character developer at video-game companies, first in Minnesota, then Indiana, then Texas. Each new job felt like progress: He was getting closer to Hollywood. Finally, in 2003, he was hired as a staff animator at Rhythm & Hues, an Oscar-winning VFX company in Los Angeles, renowned for its creature animation in movies like “Stuart Little” and “Babe.”

“That was the absolute highlight of my life at that point,” says Breaux, a tall man with deep-set brown eyes and a hint of Southern drawl. Even his traffic-snarled Los Angeles commute felt like an achievement: “You’re driving on the 405. You know, you’re there.” And the visual-effects industry was then more productive than ever. “Lord of the Rings,” “Harry Potter,” “Pirates of the Caribbean” — blockbuster films were falling over one another to dazzle audiences with the realest fake creatures and biggest battle scenes. Breaux worked on animating Bill Murray’s “Garfield” and bringing life to Aslan, the lion in “The Chronicles of Narnia,” before being designated the lead for a special project — a short film combining movie and video-game technology — in 2006. He and his fiancée had bought a house near Burbank; he had a clear vision for his life and his future in the industry.

About a month into their work on the short film, Breaux and his team were sitting in their office near Culver City, deep into production, when one of the artists got a phone call. He left to take it, and when he returned it was obvious that something was wrong; Breaux thought he looked as if a family member had died. But it had been Rhythm & Hues’s human-resources department, calling him to come into its office. He was being let go.

“We all felt really bad for him.” Breaux recalls. Then the next guy’s phone rang.

One by one, each of the eight team members got the same call. When Breaux saw his phone light up, his heart dropped. After he handed in his badge, he called his manager while driving home on the 405 for the last time. “Did I do something wrong?” he asked. It’s not you, she told him. We just don’t have the work.

Breaux’s layoff caught him completely off guard. But in retrospect, the warning signs had been there for months. Every Friday, the company’s owner hosted a meeting to update the staff on what movies the company had bid on, so they could see what might be coming down the pipeline. Breaux attended every week, and he had noticed that they were starting to lose a lot of bids. They weren’t losing to their established competition in Hollywood either. They were being undercut by cheaper labor overseas — not in India, Korea or any of the other familiar culprits, but in one of the most expensive cities in the world: London.

Movies, always the realm of fantasy, are now further removed from reality than ever. Actors do their acting in spandex suits on blank stages, delivering their lines to position markers and balls on sticks. Then an army of VFX artists transports them back in time, adds dragon companions or blows up their car. Audiences love it. Of the 25 top-grossing films of the 21st century so far, 20 have been visual-effects showcases like “Avatar,” “The Avengers” and “Jurassic World.” (The other five were entirely animated, like “Frozen.”) The typical blockbuster now spends about a third of its production budget on visual effects.

But while visual effects’ role in movie making is growing, its presence in Hollywood is shrinking. From 2003 to 2013, at least 21 notable visual-effects companies went out of business, including Digital Domain, which produced the Oscar-winning effects in “Titanic.” Rhythm & Hues finally filed for bankruptcy protection in 2013, just days before winning an Oscar for “Life of Pi,” though it has since been revived under new ownership, working largely on TV shows like “Game of Thrones.”

One factor behind these companies’ failure is a raft of tax-incentive programs that have popped up around the world in an effort to lure cash-starved VFX production companies — and their high-tech jobs and movie glamour — out of California. The chief destinations, at the moment, are London and another even more expensive city: Vancouver, British Columbia. The stunning, Oscar-winning spacescape of “Gravity”? Created by London’s Framestore. The fantastical jungles of “The Jungle Book”? Most of the credit (and the Oscar) belongs to the London-based Moving Picture Company. The grand, galactic battles in “Star Trek Beyond”? That work was led by Double Negative in Vancouver. The companies that make billion-dollar blockbusters possible are barely hanging on, and — for the most part — they aren’t anywhere near Los Angeles.

The mechanics of this large-scale migration start with the basic business model by which VFX houses are paid. “During the golden age, they had visual effects and optical effects in house,” says Scott Squires, an industry veteran who got his start in 1976 on Spielberg’s “Close Encounters of the Third Kind.” Movies would hire effects artists, who would be paid directly by the film production. But in 1975, George Lucas started a stand-alone outfit called Industrial Light & Magic to work on his passion project, “Star Wars,” and soon moved it north to Marin County. In 1979, Squires and five other visual-effects artists founded a company called Dream Quest. The advantages of independent effects houses were obvious: They could make more money, and maintain more creative freedom, as businesses than they could as individual freelancers.

But an unintended consequence was that the labor spent on VFX suddenly became uncoupled from the price the film production paid for the work. When visual-effects teams were working for movie studios, on studio lots, they were usually paid by the hour, like everyone else on the crew. But as independent vendors working on progressively bigger films, visual-effects houses wound up being paid for their work via a bidding system, which pretty much everyone now agrees was a terrible idea. The director or producer presents a plan for the movie, sometimes along with a storyboard. The visual-effects company then puts together a list of shots and a bid for what they’ll cost — as opposed to billing, after the film is completed, for hours worked or materials needed. One obvious problem is that what the director wants pretty much always changes over the course of making a film, leaving VFX companies stuck with the fixed cost in the contract. Some contracts even include clauses stipulating that if the filmmakers don’t like the effects, they can pull out of the deal — and ask the effects company to pay all the money back.

“Ultimately, the visual-effects facility winds up bidding on something that they don’t really fully understand, because they’re often asked to do something that’s never been seen before,” says Scott Ross, a founder, along with James Cameron, of Digital Domain. He compared the process to a building contractor’s bidding blindly on a new project: “We have no concept of what the house is going to look like. We’re not really sure if it’s going to have five or six bedrooms. We’re not sure whether there’s going to be a swimming pool or not. But you’ve got to give an incredibly competitive price.” The evolution of the industry — with computers and software growing cheaper, new workers entering the market and barriers to entry steadily lowering — only made that competition worse.

Then came the tax incentives. The practice of dangling tax breaks to attract film production is nothing new, but the fiercely competitive bidding for VFX work makes the industry especially receptive to this pull. And these companies, meanwhile, are especially attractive to the governments that court them: Salaries are higher than they are in many other sectors of movie production, and the high-tech creative work the houses do can (at least in theory) spill over and stimulate a local tech economy. Many places around the world, including several American states, offer incentives targeting the industry. But London and Vancouver have been the most successful.

For London, much of that success is owed to the “Harry Potter” franchise. Before the “Potter” films, the city had a healthy advertising and TV industry, but its feature-film industry wasn’t particularly robust. These eight major blockbusters, created in London over 10 years of production, were a huge win for the British film industry, with thousands of people working on each film. The British government didn’t want that to end with “Harry Potter and the Deathly Hallows,” and so in 2007, Gordon Brown, the chancellor of the Exchequer, announced the U.K. Film Tax Relief program, which offered a 25 percent rebate that covers postproduction costs, including visual effects. The program was intended, in part, to offset an unfavorable exchange rate at the time, but it was made even more generous in 2015: The amount a movie production had to spend in Britain to qualify for the rebate was reduced, from 25 percent of its total budget to just 10 percent.

Vancouver, even more than London, has relied on aggressive subsidies to build its VFX boomtown. Beginning in 2003, British Columbia created a labor-based tax incentive that at its peak, when combined with a federal film program, added up to a staggering 58 percent tax refund for all visual-effects labor costs incurred by movies using local workers. The credit has since been reduced to 53 percent, but it’s still one of the world’s most generous: If a studio pays $1 million in labor costs to a Vancouver-based effects house, it will get $530,000 back as a tax refund, even beyond its tax liability. Most of the time, none of this money flows back to the VFX company. But when movie producers are comparing bids from one house in Los Angeles and another in Vancouver, they know which deal will literally give them more than half their labor costs back.

For Hollywood’s VFX workers, it’s easy to be nostalgic for a time when movies were made entirely in their own backyard. When I met with Squires in a Studio City coffee shop, he told me about making “Close Encounters” in two buildings, just one block apart, with Spielberg dropping in each week to check on the progress of different parts. Today’s business model is far more complex: The brain directing most of the action may be in one place (usually Los Angeles), but different arms are distributed around the globe, managing various shots, scenes and characters. Having all the world’s vendors to choose from allows movie studios to mix and match different VFX houses like “flavors of ice cream,” says Bradley Friedman, a visual-effects supervisor and technical consultant who has worked on films like “Iron Man” and “The Incredible Hulk.”

As the digital-effects supervisor for Terrence Malick’s “Tree of Life” — an ambitious 2011 film that spanned from the birth of the universe to one boy’s Texas childhood — Friedman found himself inside a particularly complex system. The work clustered in three groups: “Astrophysical” and “microbial” effects were handled by two different houses in London, while “natural history” effects were led by Prime Focus, which was based in Los Angeles but had most of its workers in Vancouver.

The internet makes this kind of remote collaboration easier, but not as easy as you would think. The files involved are so huge — a typical four-second shot ranges from 1.2 to 9.6 gigabytes, and an effects-heavy film could easily involve more than 1,000 such shots, each in several different versions, along with assets like digital characters, props and backgrounds — that trying to shove them through the internet is a challenge. For most of the production for “Tree of Life,” Friedman and the London and Vancouver teams would send low-resolution videos back and forth. But eventually the fully rendered frames had to be shared. The regular internet isn’t quite up to this task, so the industry relies on private networks of high-speed gigabit fiber, stretching from Los Angeles to Vancouver or across the Atlantic to London. (“If you look really carefully all over Santa Monica and Venice, you will see that kind of stuff,” Friedman says.) But the “Tree of Life” production had its headquarters in a strip mall just outside Austin, Tex. It had to rent space at the head end of fiber cable in a warehouse even farther out of town; when work arrived from Vancouver or London, a production assistant would drive out to physically pick it up.

Visual-effects creation is a collaborative process, and its artists are extremely specialized. A worker might spend an entire career just lighting scenes, or adding texture to cloth, or simply simulating water, a complicated task that involves serious physics. The “Tree of Life” scene in which a predatory dinosaur appears to take pity on a wounded dinosaur and spares its life — supposedly meant to represent the moment when altruism first entered the world — was created by a team including, among others, three riggers (who built the dinosaur bodies), 12 animators (who gave the two creatures movement), two lighters, six compositors (who put it all together) and an animation expert, flown in from London to supervise the work being done in Vancouver. That doesn’t even include previsualization (rough sketches planning the scene) or the clay-model dinosaurs, sculpted and painted by a practical-effects company in Los Angeles, that were laser-scanned, sent to Vancouver and used as blueprints. Each puzzle piece — each new movement of a dinosaur’s head or glint of light off water — had to be reviewed in Los Angeles, Vancouver and Austin, assessed and revised as it went up the chain of command to Malick.

This is a far cry from the early days of the field, when Squires remembers laboring with a team of around 70 artists on “Close Encounters.” Now, blockbusters rely on hundreds of visual-effects workers per film: “Life of Pi” employed 500 artists in five cities, and IMDB credits nearly 2,000 people for the effects in James Cameron’s “Avatar.” (WETA, the effects company that led the movie, says the actual number may well be higher.) “Now, you’re a cog,” Squires says; with rare exceptions, the director probably has no idea who any given VFX artist is or what he or she is doing.

Visual-effects workers want American politicians to step up to protect the industry. But this modern work force doesn’t really fit into many of the solutions created for last century’s workers. There have been attempts at unionizing — VFX is one of the few major sectors of the film industry that hasn’t — but now that the market is global, artists are afraid of anything that might drive up labor costs. Daniel Lay, a former visual-effects artist who has become an activist for the industry, once wanted to petition the Commerce Department to add a countervailing duty (essentially a tariff) on visual effects created in subsidized markets, but he couldn’t raise enough support from the industry to pay the legal fees. Even if he could have, the lawyer his advocacy group worked with, David Yocis, admits that it would have been a tricky case to make. First, they would have to persuade the Commerce Department that visual effects constitute “merchandise.” Then they would have to figure out how to impose a duty on a bunch of data transmitted over the internet, a regulatory puzzle no one seems to have figured out how to crack.

It’s worth pointing out that most of the visual-effects artists I spoke to — in Los Angeles, Vancouver, London and elsewhere — say they enjoy the international nature of the work. Bob Wiatr, who worked at Sony Imageworks before moving to Vancouver, remembers that when he was beginning his career in the 1990s in Hollywood, the industry was all “white American males”; now he has colleagues from Mexico, Germany, Australia and South America. “It’s like a whole world in one place,” he says. “There’s always something to learn from someone else.”

Robb Gardner, a lighting technical artist who has worked on films like “Jurassic World” and “Rango,” reminisces about living in a hotel overseas for several months while working on one particularly big film. “Every floor of that hotel had workers from all over the world,” he says. But “they all had families waiting back where they came from,” he added. There’s a nickname for visual-effects workers’ spouses: VFX widows and widowers. Gardner has moved internationally for work six times over nine years and admits that it’s “a huge stress to your personal life.”

David Breaux Jr. still lives in Los Angeles and does work as a character animator for a group of superhero TV shows. The job is based in Burbank, close to home. But Breaux has worked there for two seasons without seeing any indication that he will officially be added to the staff. When I met him at his house one evening last month, he was exploring his options and had recently had two preliminary job interviews: one with a video-game company in Irvine, Calif., and the other with a major VFX company in London, which offered him the chance to work on what promised to be some of the biggest blockbusters of the next few years. “It’s a really scary proposition to leave the country,” he said, sitting on his well-worn couch in front of a brand-new 4K-definition Sony television, the room’s centerpiece. His fiancée sat in the corner listening, fiddling with her necklace. “We’ve spent a lot of years together,” he said, looking around. “People have given us stuff, and we’ve bought stuff.” There were posters from TV shows and movies he worked on, an old “Tron” arcade console, a “Tron” action figure.

“Every time you hear some sort of speech that’s supposed to inspire you, it’s: ‘Don’t give up on your dreams. Stick to it,’ ” Breaux said. The job in London should have been a dream come true, and his fiancée reminded him that moving could be an adventure: He knew people in London, he spoke the language, the transition wouldn’t be too hard.

The problem was the uncertainty of it all. Would they be moving for good? Should they sell their house, their furniture, their cars? Or would they be back in Los Angeles within the year? What if the office laid everyone off? Or asked them to move to Vancouver, or Louisiana, or New Zealand, or whatever location offered the deepest labor discount? For every place that decides it can’t afford to pay to keep the movies around anymore, Breaux said, “there are five more places that are like, ‘We’re going to get Hollywood here, and we’re going to be next!’ ”

He’s right to wonder whether London and Vancouver will keep their places atop the VFX heap for long. Yes, the Oscar for best visual effects has gone to companies based in London for the past four years, and British Columbia, which has invested just over $2 billion to support the film industry since 2003, is now home to 28 visual-effects houses. But Kevin Klowden, an economist at the Milken Institute in Santa Monica who has been studying the visual-effects industry for years, cautions that it might not last. His opinion is that the two cities’ fates may diverge. London already had a strong talent pool, even before the “Harry Potter” films and the tax relief, making it easier for a strong network of companies to develop. And its tax rebates are funded by the British lottery, a stable source of money that is less subject to political whims. Vancouver, on the other hand, “has always had a hard time supplying enough local talent,” Klowden says — and its generous subsidies could easily be changed or removed by any new government that doesn’t want to hand millions of dollars to movie studios every year.

Even with help from the government, visual effects can still be a hard business. Although London’s Moving Picture Company just won an Oscar for “The Jungle Book,” one former employee says it recently laid off that film’s entire compositing team. (The company declined to comment.) And many other places — including Germany, Australia and various Canadian provinces and American states — now offer incentives programs of their own.

The VFX industry “has already shown that it can move within a matter of a few years,” Klowden says. “The trend is such that you can very easily see it move again.” Digital industries, after all, are much easier to relocate than factories — as long as the workers are willing to follow.

[The New York Times]