Animation industry is Cinderella of Hollywood

After the $30 million (€28.36 million) or so blown on computer special effects in the film Titanic, and the even bigger digital smoke-and-mirrors budget for the much-anticipated Star Wars prequel opening in the US in two weeks, it seems we can't get enough of computer animation.

Consequently, Hollywood is suffering a shortage of the highly-skilled, specialised animators who create oceans, icebergs, planetary landscapes and light sabres out of bits and bytes. Small armies of animators are kept busy fine-tuning films during the editing process, when they create special effects that no one is supposed to notice. The big film studios routinely use computers to touch up scenes, perhaps lightening a sky or emphasising the metallic shine of an object, or even adding in or editing out items or people in a shot - in Titanic icy puffs of breath were added next to actors' mouths for shipboard scenes actually shot in sunny Mexico.

All in all, most people could be forgiven for assuming that the companies that create such magical effects for the film industry must be raking it in. But they'd be wrong.

For animation does not pay, despite the enthusiasm of a public that fully expects a diet of lush and spectacular effects when going to see blockbusters like Armaggedon and which has devoured feature-length animated films like Disney's Toy Story and A Bug's Life and Dreamworks' Antz.

"It's very hard to make money," acknowledges one senior British animation specialist who declined to be named. The studios earn plenty from the films, he says, and "the people at the bottom" - the actual animators - "are really well-paid. But in the middle" - the companies themselves - "no one makes any money off it". That fact has been Hollywood's dirty little secret for years, but still, tremors went through the animation industry last autumn when Mr James Cameron, Titanic director and co-founder of Digital Domain, quit in frustration reportedly because the company failed to make a profit from its spectacular work on Titanic.

"One of the reasons no one makes money is that the business doesn't scale," says Mr Craig Zerouni, an American who ran his own animation and effects company, Computer FX, for nearly 10 years in London. Now, he is back in California, working in Hollywood as a consultant to the film industry for special effects software company, Silicon Grail.

He says most animation houses are small, often with fewer than 10 people. Although hardware and software costs have dropped precipitously in the past 15 years - high-end animation work stations once cost nearly $100,000 and software could hit $80,000, compared to $3,000 for an adequate computer today - small studios still must buy the state-of-the-art computers and relatively costly software packages and editing equipment which enable them to produce film-quality effects. And, as both Mr Zerouni and the British animator point out, it still takes just as much time to do the programming that creates an effect as it did in computer animation's early days.

Mr Zerouni says that the film studios tend to arrive with big projects which require the small studios to hire in more animators and buy additional hardware and software.

"Being larger should make you more profitable and more successful," he says. "All that happens is you have a larger number to meet each month." That's because it's a buyer's market for effects. Animation houses are eager to get high-profile jobs from the film studios, so competition can be vicious. Mr Zerouni says that as a result, animators are wary of asking for reasonable costs for their work.

"Instead, we say `How much have you got?' and we'll take that."

Clients also rarely have a clear sense of what they want, he says, and ask for endless changes and adjustments, which are hard to budget for.

Because work can be highly cyclical, animation houses are willing to charge less in order to keep income flowing in each month. And, adds Mr Zerouni, costs for additional equipment typically aren't figured into the cost of sale. It all spirals into a financially-draining routine of trying to balance high costs against sporadic income that, apparently in Digital Domain's case, can fritter away even a $30 million budget.

"This has been the logic of this industry for the last five years. `I'll make it up on the next job' - but the next job never comes," he says.

The worrying problem of making ends meet in the animation industry was the subject of a high-profile panel discussion at last year's annual SIGGRAPH convention, the American mecca for the animation and special effects industry.

Industry pioneer Mr Phil Tippett of Tippett Studios argued that perhaps animation needed to be viewed not so much as a profit-making business as an art, like furniture-making or glass-blowing, where practitioners earn modestly but gain great satisfaction from their work.

But that attitude helps perpetuate the no-income business model because some companies are willing to grind down costs just to get the work, says the British animator: "There's too many lifestyle businesses around."

The one area of special effects work which can successfully generate income seems to be advertising work, where clients have big budgets and, because of the brief length of advertisements, concise needs.

"More money per frame is spent on a commercial than on anything else," says Mr Tim Morris, creative director at Windmill Lane Studios in Dublin and producer for FilmHouse, the studio's film and television special effects division.

"The problem with [feature] film effects work is the margin is very low." Budgets are easier to control in commercials, he says, because the structure of them is very defined. Even though clients inevitably ask for changes: "There's a huge fiddle process that goes on" - alterations can be accurately costed in the shorter production time (usually three to four weeks, says Mr Morris, compared to months for films) and smaller medium of an advertisement.

While Windmill Lane can do film special effects on a small scale, its focus is virtually entirely on the advertising and commercial market, says Mr Morris. Past projects include the animated 98FM television ad of a rocking Dublin skyline and the Aer Lingus in-flight safety video.

Advertising work is frequently what allows animation houses to balance their books. Even a large studio like Pixar, the animation company owned by Apple Computer founder and interim CEO Mr Steve Jobs, relied for many years on advertising work to pad out income.

In one development which is changing the landscape of the animation industry, larger animation houses like Pixar are now being bought up by big Hollywood film studios. During 1998, Pixar went to Disney, while PDI, the big animation company behind Antz, was acquired by Steven Spielberg's DreamWorks production company.

That gives such companies considerable protection from the uncertainties of the film market. But for the bulk of the small animation houses scrambling for work and film studio cash, no such safe haven is in sight. And, as Star Wars promises to whet viewers' appetites for more animated extravaganzas, animators will undoubtedly be full of both anticipation and dread, hoping this will be the year in which they stumble, finally, over an effective business model.