HDRI Consulting: For Investors

We can help investors:

Evaluate M&A opportunities

Understand competitive positioning and opportunities for diversification

Model growth scenarios

Future-proof businesses with a roadmap of developing capabilities

Forecast revenue and achieve increased visibility into the sales pipeline

Implement BIS dashboards that provide real-time visibility into project financials

Create sustainable competitive advantage

Professionalize growing companies in the VFX spaces

Resources

Top 3 Things
VFX Companies Exaggerate When Talking with Investors

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There's More Demand for VFX Than Ever

The Visual Effects (VFX) industry provides creative services at a global scale to the biggest brands in content. Netflix, Amazon, and Apple are in a content arms race to win subscribers for their streaming services, and traditional Hollywood studios like Disney and Warner Bros. are stepping up their efforts to compete. The demand for new content is at an all-time high, driving unprecedented demand for visual effects services. There is a steady deal flow of M&A transactions as steady tailwinds attract investors. But how long will it last?

“The Visual Effects industry is a unique combination of industry dynamics that are better understood in other industries.”

Investor FAQ

How should I think about the VFX industry?

Visual Effects is, first and foremost, a service industry. It’s a common and damaging mistake to lose sight of this amid the technical and creative complexity of the work.

Worldwide, the VFX industry serves a small number of powerful major clients. A moderately fragmented marketplace of VFX service providers, small and large, pursue those clients. No single player accounts for more than 8% of global revenue.

‍VFX involves producing large numbers of custom deliverables -- each of them essentially a “one off” -- in a timeframe specified by the client. As a result, the industry has an unusual mix of personalized client service and factory-scale operations.

Will the VFX industry continue to grow as predicted?

The current surge in demand for VFX and Feature Animation services is driven by tech companies (Netflix, Amazon and latecomer Apple) pouring money into a “content arms race”. This has forced traditional Hollywood Studios to respond with their own OTT platforms and increased demand for content. This should continue so long as the big tech firms consider original content creation a good strategy for their broader purposes.

Will major studio clients move VFX capability in-house?

With one notable exception, the traditional Hollywood studios have tried, and failed, to sustain internal VFX groups. They have found this to be work that is better done by dedicated vendors.

Creative services are not a core part of motion picture studios’ business model. When such clients acquire VFX companies (Netflix’ acquisitions of Scanline and Animal Logic, for example) or grow internal VFX groups, the driver is generally to secure production capacity needed for their own content rather than an inherent desire to own the means of VFX production.

You can read a more in-depth answer in our Resources section.

What’s more profitable – VFX work that is relatively simple, or more complex?

Despite the overall higher cost and clients’ willingness to pay for complex work, margins for more complex work are more volatile than for relatively simple work.

Less complex work has become largely commoditized. In smaller volumes, it can be done well by smaller teams using off-the-shelf software, and it must often be performed in low-cost geographies for pricing to be competitive. However, the tasks are well-defined, and this limited uncertainty means bidding tends to be accurate.

Work that is technically more demanding requires larger teams with greater specialization, and thus more overhead cost for the company performing it. It also tends to be creatively more complex, and the need for R&D and creative exploration with clients to create marquee VFX work makes bidding and execution of that work more uncertain.

Will new technology change the structure of the industry and reduce reliance on skilled labor?

Don’t hold your breath. AI image generation software, real time graphics engines and virtual production are exciting new technologies in the space. But they won’t reduce the VFX industry’s reliance on skilled labor anytime soon.

Filmmakers demand both the highest possible quality imagery, and the ability to direct the creative in their films to a minute degree. Contrary to the impressive technical advances showcased in press releases, pushing the envelope of scale and quality in visual effects still relies heavily on “brute force” – large numbers of skilled artists putting in the time needed to make it great.

Capturing real life and other semi-automated processes still require manual cleanup. Imagery that was supposed to be final when captured on set still gets revised in postproduction, as the filmmakers refine their story and vision.

Will sustained industry growth lead to a more diverse (or at least more numerous) client base for Film & TV VFX?

Doubtful. A handful of big companies associated with Hollywood and Silicon Valley are still the only reliable producers of sufficiently large scale, big budget content globally to support global VFX and animation companies operating at scale.

If you want to truly de-risk and diversify a VFX business, look to new forms of media, experience design, and how related technologies are being used in other industries (e.g. brand experiences, defense, automotive).

Why don’t more VFX companies offer a broader range of post-production services?

Film and TV clients seek out specialists who they trust to deliver the highest quality work in each facet of the filmmaking process.

Established post houses that provide a suite of post-production service (dailies, editorial, color, finishing, distribution) may have success bundling VFX services in with their other offerings. This is likely to be less specialized or high quality VFX work for smaller productions, which has become increasingly commoditized.

Conversely, dedicated VFX companies pursuing high end VFX work rarely make a compelling case for bundling their specialized services with other high end services that fall outside their core VFX business.

Advertising and brand clients are generally more amenable to bundling post-production and even live action production with VFX services for the convenience of having a “one stop shop.”

Do clients typically award projects to one VFX vendor, or many?

Major feature films and VFX-heavy series have their own client-side VFX leadership and production management team, who almost always choose to spread work across multiple VFX vendors. This allows them to mete out VFX work with different levels of complexity and scale to VFX vendors who are optimized to deliver that level of work, as well as de-risking the delivery of a large volume of evolving imagery across several suppliers.

Smaller VFX projects often lack the scale and budget to justify their own client-side VFX team. These projects have more to gain from having a single VFX vendor that also supervises and production manages all their VFX needs (“full service”). Handled correctly, this type of arrangement can be advantageous for both the client and the VFX company, as it provides opportunities for them to partner more effectively.

Learn More

For Investors

We can help investors:

Evaluate M&A opportunities

Understand competitive positioning and opportunities for diversification

Model growth scenarios

Future-proof businesses with a roadmap of developing capabilities

Forecast revenue and achieve increased visibility into the sales pipeline

Implement BIS dashboards that provide real-time visibility into project financials

Create sustainable competitive advantage

Professionalize growing companies in the VFX spaces

Top 3 Things
VFX Companies Exaggerate When Talking with Investors

There's More Demand for VFX Than Ever

Investor FAQ

Management Consulting for the VFX Industry.

Schedule a Call

LinkedIn

Phone: 3IO-99O-65I2
PO Box 85 Miramonte CA 93641

For Investors

We can help investors:

Evaluate M&A opportunities

Understand competitive positioning and opportunities for diversification

Model growth scenarios

Future-proof businesses with a roadmap of developing capabilities

Forecast revenue and achieve increased visibility into the sales pipeline

Implement BIS dashboards that provide real-time visibility into project financials

Create sustainable competitive advantage

Professionalize growing companies in the VFX spaces

Top 3 Things VFX Companies Exaggerate When Talking with Investors

There's More Demand for VFX Than Ever

Investor FAQ

Management Consulting for the VFX Industry.

Schedule a Call

LinkedIn

Phone: 3IO-99O-65I2PO Box 85 Miramonte CA 93641

Reach Out

Top 3 Things
VFX Companies Exaggerate When Talking with Investors

Phone: 3IO-99O-65I2
PO Box 85 Miramonte CA 93641