Monday, July 13, 2009

#0014 CG labor issue: Part 3, the Satellite office

If your VFX or CG production company is in a large city, like Los Angeles, finding ways to increase capacity without a large increase in cost should be a concern, and satellite facilities may be an option.  

In post #0011, we looked at the possible capacity problem:
"Some leaders of the visual effects business, both at vfx shops and at studios, are warning there could be a shortage of vfx capacity within a year -- a shortage that could drive up costs and even threaten release dates." 
--David S. Cohen VFXTalk
At some point in the near future, the economy will revive for visual effects and other CG work, and the question execs will face is whether or not production capacity can be restored or expanded quickly enough while still recovering from reduced cash flow.  Even though, when the time comes, there may be a great deal of unemployed talent available to be snapped up, some will be lost to career changes. When this economy breaks good VFX production in the US could take another hit simply because we don't have the production capacity and filmmakers will outsource even more production.

Outsourcing Costs Will Rise
While opening a shop in India, or buying services in Morocco may be a perfectly great way to get work done, prices for overseas outsourcing will gradually rise.  I read in the Los Angeles Times in March 2006 that outsourcing contracts tended to move to less expensive countries every few years because talented labor brought rising wages. While this is great for world-wide capacity, it has the negative effect of building infrastructure and talent that will at some point rise to prominence and begin replacing the Hollywood filmmakers and decision makers themselves.  Keeping as much core competency local as possible is good for US filmmakers.

Buy Low, Sell High

Now is actually a good time to look at expanding facilities, or draw up plans to expand facilities, using a 21st century model with a core facility in the urban center and subsidiary facilities in outlying areas nearby.   While this may seem expensive, it will be less expensive than expanding capacity within high density and high rent urban centers.
Opening satellite facilities in low-rent, comfortable, affordable, suburban cities outside the main hub helps solve the problem location brings to attracting a workforce and will allow companies to double in size without doubling costs.  Many artists, seeking affordable housing, live an hour or more from jobs. Because this is often a quality of life issue, workers might be more willing to relocate to a similar bedroom community.  For example, a worker might consider a relocation from a $200,000 home in one outlying city to a similar home in another outlying city before moving into the core, where an affordable home is out of the question.
A satellite facility would be located between 90 and 150 minutes from the main facility.   Ninety minutes is approaching a major threshold for commuters, and a practical one for employers wanting workers fresh and alert. It's far enough away to keep everyone from asking to go there, and close enough that an executive could make a visit and not be out of the office overnight.  Finally, it's far enough away to get very reasonable rents.
Some Benefits of A Satellite Operation
  • access to an experienced and familiar labor pool
  • workers close by for collaboration
  • supervisors and management are close enough to meet
  • main offices close enough that workers could participate in company training
  • labor can be kept inside company morale-building programs
  • offices outside high-rent zones
  • lower city and property taxes
  • ease of expansion in contraction through short term leases
  • attract workers who don't want to commute to city core
  • increased worker productivity due to shorter commutes
  • civic participation in traffic abatement programs; may qualify as a remediation
Not a new idea
Some may ask why not just move to Nevada, Arizona or New Mexico.  Sony Pictures Imageworks did just that in 2007, in part, opening a facility in Albuquerque, New Mexico.  I'm sure this move accomplished much of what I am talking about.  Likewise, Imageworks has tapped remote resources by opening facilities in Novata, California and Chenai, India.

The downside is that these facilities are far enough away to stretch communications to the limit and require an overnight (or extremely long day) to get any face time with workers in Culver City.  The idea of the satellite office is to attract and keep talent in the greater metropolitan area while allowing the highest degree of collaboration possible.

Other companies have multi-national operations, with offices in Los Angeles, New York, Canada, England, etc.  So the concept is not entirely new.

Keeping Your Base Strong
No matter where yourbase of operations is, you want to keep it strong.  For many companies, the base is Southern California, which still has perhaps the single largest labor force in visual effects, games, multi-media and animation.

But this could erode if work continues flowing outside.  While satellite operations in California will not stop outsourcing to other states and other nations, nor should it, it will help to preserve the talent base and keep production capacity high.  The labor market here is big enough and scattered enough, that one or two satellite operations a 90 minute drive or so from the main office could reap benefits for local companies.
With all the talent we have here in SoCal, we should be looking at ways to reduce overhead and wages here. Workers not faced with half million dollar mortgages and long, costly commutes will and take and can be offered lower wages. Overhead can be brought way down in outlying areas.

I'm not just talking about Los Angeles. This could be said for London, New York, Melbourne and dozens of other cities.  At some point cities become too big, and dispersing the work force makes some sense.

It seems to me that a studio with several facilities in the same time zone with highly talented pros could be a good thing.
Perhaps you have a thought on this?  Please jump into the discussion, comment on this article or write me at
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