Is the special effects business in trouble?

Common sense dictates that special effects sell movie tickets. If you look at a list of the most successful movies in the world, 18 of the 20 highest-grossing live-action films are notable for their high-quality CGI. Big, splashy effects drive people to seats, get them to buy DVDs, and frequently win critical acclaim. One recent example of Life of Pi, a Best Picture nominee that uses extensive 3D effects.

But outsourcing and competition from other studios are driving major special effects companies into financial ruin. This week, Rhythm & Hues, the company responsible for Life of Pi's effects, filed for bankruptcy, even while it has three other major projects on its docket.

The Chicago Tribune reports a number of reasons why this could be happening. Visual effects are expensive, and even though big-budget spectacle ropes in audiences, studios will always opt for the least expensive work. Tax credits and lower international wages are forcing American VFX companies to stretch themselves thin, leading to even the most profitable studios facing financial strain. It affects the creative process too; Yahoo! News quoted an R&H employee saying that "People can't be creative if they're constantly worried about their jobs."

Labor issues are a recurring problem in the film industry, but until now, visual effects studios have seemed to escape unscathed. But soon the industry might need to rethink a key component of its business model.