Monday, May 05, 2008

Lowering Costs and Keeping the Work Here

Over the months I've been talking to quite a few project to project freelancers. Whether they work on features, commercials, direct to video, whatever. They seem to all have commented on the lowering of their wages.

While those with steady studio gigs may not see their rates fall all that much, those that work from job to job are getting hit hard. There are a number of factors going into this. Competing with outsourcing countries, ad agencies are getting pinched and want to see animation and effects budgets drop, the dollar doing so badly. You name it.

This not only has affected individuals, but the studios themselves. They are getting hit hard too. It isn't always a case of greed when they pay their freelancers less money, it is a case of necessity. They've got to be creative if they want to stay in business when they face competition from abroad.

Take Reel FX in Texas for example. Despite all the work going overseas, they continue to get some pretty big projects from the big studios. They're currently working on the direct to video project "Open Season 2" among others. They are constantly doing commercials that include characters from films such as Ice Age, Shrek, Open Season, Kung Fu Panda, and more. I do not know what the budget for OS2 is, however, I imagine it is pretty small if any of their previous projects are an indication.

So how do they keep the costs low enough to attract this work that would perhaps otherwise go overseas? For one, they are located in Texas. The cost of living is lower than California, and they can get away with paying their employees less. On top of that, they tap the freelance market by hiring people who work out of their homes. By only paying them for the work they do, they can control the costs and avoid the tax burden. Not to mention the avoidance of software, hardware, and facility overhead. Keep in mind that these remote artists aren't getting paid by the hour. Animators are getting paid by the approved second and others for completed task. The rates end up being bargain basement prices that don't normally work for those in the more expensive zipcodes, but could be fine for students or those in the less expensive areas. Imagine working for two or three weeks for a couple of grand. That was one figure that someone recently told me. This would of never worked in the 90's, but with today's out of work talent and boat load of students, it does.

In the past, when someone was a freelancer, they have generally been paid more per hour. After all, their rates should be higher since they are on call and have to survive those down times. Further, those that work as sub-contractors should theoretically get an even higher rate since they are working from home and burdening the hardware and software costs. So what happened? Why are freelancers and contractors getting paid so terribly by some companies? Thank the law of supply and demand. There is simply a larger supply of talent than there are jobs.

What I'm getting at, is that in order to be competitive and to have a chance against outsourced work, you need to be creative. Reel FX does pretty good work and they've built a system that allows them to get that work at discount prices. Maybe this should be a lesson to other studios.

I also know of a few studios in Los Angeles that have shuttered their expensive office space and sent everyone home to work from their individual spaces. A small office is rented for weekly meetings and to give a legit business address, but almost everyone is at home. The overhead costs are dropped and they can be more cost attractive to clients while still paying everyone good wages.

That is the key. Developing ways to be more streamlined, but still pay everyone fairly. Some are more successful than others. The ones that can do both will go farther. The ones paying bargain basement prices will have to keep targeting students or professionals looking for some after hours cash. Neither is a long term answer to retaining talent.

It is a balancing act. However, if you are shrewd, it is possible.


Anonymous said...

Okay, I think I can comment on this post, but not from an animator's perspective but from the perspective of a former IT executive turned animator.

First of all. People and fellow animators relax and take it easy. All this is identical to what happened in the software development and technical support areas in North America. Loosing jobs to countries where the labor is cheaper.

Let me explain what happened and where the market is now:

1) Lots of employers sent IT jobs oversees with the promise of saving money. The reality was the added time differences,communication and cultural issues resulted in lower savings than expected.

2) The result of a growing software industry in those countries caused many sub-par employees to be hired to meet demand. The outcome was poor work that had to be fixed or redone in North America. Again less or no savings.

3)The demand for workers in those countries caused a sudden growth in the middle class and competition for workers to fill demand. Wages increased as did turnover. Again less savings.

4)Lack of proper screening of employees and lack of security measures resulted in information theft, financial fraud and stolen trade secrets.

5)A fundamental lack of originality and self thinking. Certain oversees school systems reward students for memorizing material. Not for original thinking. Ask yourself this; where have most of the new ideas and products originated from?

These points caused many companies in North America to rethink outsourcing and do it more intelligently. This rethinking lead to the following changes:

1) Outsource all activities that don't add value to the organization but keep activities that are considered core business or trade secrets close to home. Never outsource that.

2)More stringent control over outsourcing and their employees. No more bait and switch.

3)Actually establishing remote company owed offices oversees and the movement of work over there that is lower in priority and can be done cheaper and requires less skill.

4)Use Rural Outsourcing *** move development to smaller towns within your country where there are great employees, the same timezones and no language issues. The wages are cheaper and travel is easy. Also Tax incentives.

The animation business has been outsurced for a long time. There will always be companies that look at the bottom line and sacrifice quality. There are also companies that hire and retain the best. Look at Pixar as an example. They have some of the highest paid and happiest people who in turn produce amazing products that make money.

One more point I'd like to make about production is that in the area of CGI animated films, every year we see better advances in the software and processors, things become faster and cheaper and require less people. Look at Jeff Lew's "Killer Bean Forever" a feature length animated film done by one person. Self financed. Amazing things are possible with a great team and fresh ideas. Add to that the cost are coming down to produce this stuff.

We're a global economy and wages are an arms race. Look at India, who is now loosing business to China because they are cheaper.

end rant. ....

Anonymous said...

A few classes in grammar and spelling might have prevented at least ONE job from being outsourced...

Anonymous said...

Another internet douchebag.

Anonymous said...

Oh &*%$# it's the grammar police run!

This comment is no doubt full of grammar problems:

The only difference with the IT industry and the animation industry is that the IT is diversified. There's no demand for animation. If there's a downturn in quality there will be less invested in animation and therefore less animation produced. Animation is a part of entertainment and we feed wax and wain of public interests. If the animation is bad, the public will blame the technique and less will be invested.

Don't believe me, look at the 1980s.

Marcos Gp said...

Spain and France did a good job on keeping the quality during the 80's...

Outsourcing Software Development said...

Outsourcing software development has become such a vogue and a full time vocation that today you have companies catering specifically to this aspect of the IT world. Outsourcing software development concept has attained full blossom within years of its birth. While the IT world is ever expanding and has become almost inevitable to mankind there were worries regarding the high prices of the IT services? In the modern times this issue has been somewhat resolved by hiring a offshore development team from a software company based in nations which provide the same services at much cheaper prices.