Industrial Light and Magic
How One VFX Company Does More Than “Stay Afloat”
http://disney.wikia.com/wiki/Industrial_Light_%26_Magic
Background
While dozens of visual effects companies have gone out of business since the turn of the millennium, post-production company Industrial Light & Magic has doubled its employee base from 750 to over 1500 since 1997 (Cohen, 2014; Horn, 2014). Referred to as ILM in the industry, Industrial Light & Magic is the dominant visual effects provider, having worked on seven of the top ten box-office hits of all time (ILM.com). The company was founded by George Lucas in 1978 when no existing company could pull off the post-production that he needed for Star Wars (French & Kahn, 2015). Following the achievement of Star Wars in 1977, ILM found further successes with E.T. in 1982, Back to the Future in 1985, Jurassic Park in 1993 and Pirates of the Caribbean in 2003. In more recent news, ILM became a part of a major mass media corporation in 2012 when Disney bought Lucasfilm, of which ILM is a subsidiary (Seymour, 2012). This eventually led to the latest 2015 installment of Star Wars, post-produced by ILM, which became the highest-grossing movie of all time in just twenty days (D’Alessandro, 2016). Needless to say, Industrial Light & Magic is the premiere option in the visual effects industry.
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Business Model & Assets
With so many visual effects and post-production companies facing failure for the past twenty years, one may wonder how ILM has been so successful. It all comes down to the company’s assets; ILM leverages its artists, talent, software and track record to its own advantage. In many ways, ILM’s assets are a major part of its business model. The very fact that Disney owns the company is an asset; ILM gets projects from Disney and its subsidiary production studios, including the upcoming films Captain America: Civil War and Doctor Strange from Marvel Studios (“San Francisco,” 2016). Other mass media corporations also give ILM work, including upcoming films Teenage Mutant Ninja Turtles 2 from Viacom’s Paramount Pictures and The Great Wall from NBCUniversal’s Universal Pictures (“San Francisco,” 2016). Unlike most visual effects for film companies, ILM has also found major success in the profitable business of visual effects for commercials (Fisher, 1997). This healthy, sustainable business helps to offset the risks of the more unsteady film visual effects projects. Yet regardless of how unpredictable the industry may be, ILM is unique in that it has the experience that other visual effects companies do not; it can take creative control of products, make accurate predictions of post-production costs when submitting bids and even expend overhead costs to develop ideas before winning a bid (Fisher, 1997). Thus, although ILM places higher bids than most other visual effects companies, it has the leveraging power to convince studios to choose them (Fisher, 1997). ILM keeps much of its business a mystery to the industry, but other key aspects include the fact that it develops its own editing software to produce unique, innovative shots, as well as offering its talent long-term contracts with “unlimited upward mobility, where advancement can occur quickly” (Fisher, 1997). These are all aspects of ILM’s business that other post-production companies simply do not have the power or capital to do.
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Revenue Model
However, a business model itself does not make money, so it is important to understand how Industrial Light & Magic turns their business into a revenue model. A major problem in the visual effects industry is overspending by post-production companies; due to directors changing ideas but only paying the company a one-time fee, the companies will have to work overtime and over-budget to complete the project (Watt, 2014). To avoid this, ILM does two things that were previously mentioned: first, it gives accurate, costlier bids based on experience and leveraging power (Fisher, 1997). Second, ILM will include with its bid plenty of pre-development and research as to make sure that it is on the same page as the director and producers (Fisher, 1997). This way, the bid that comes in, often in the tens of millions of dollars, is right on par with what ILM will actually need to spend to post-produce the film with enough room for a profit. Furthermore, ILM has mastered its budgeting; just as tasks are divided into teams, so are budgets. Thus, in many ways, “the department heads run their units as little businesses as well” according to Ben Morris, ILM’s Creative Director (Fisher, 1997). Every step of the way, someone is accountable to make sure that his or her department does not go over-budget. However, just like all post-production companies, ILM is a royalty-free business. Regardless of what revenue the film may yield, ILM only receives the bid price.
What’s Next?
The future of Industrial Light & Magic seems bright; with four Star Wars and Star Wars-spinoff movies slated for release through 2019, steady business will continue (Hayes, 2015). Additionally, ILM is under strong leadership. Lynwen Brennan, the current President and General Manager, has overseen the company’s expansion into Vancouver and London while also growing the Singapore studio (“Leadership,” 2016). The Head of ILM Studios is Sam Mercer, whom is responsible for the executives in charge of each of the four ILM studio locations (“Leadership,” 2016). Out of the fifteen executives listed on ILM’s leadership page, seven of them are women, a mark of gender diversity that the company prides itself on. Finally, with new ventures such as ILMxLAB, a self-defined “laboratory for immersive entertainment,” ILM has entered the field of virtual reality (“Lucasfilm,” 2015). There is no telling whether that will be a worthwhile investment as of yet, but with the capital and power that Industrial Light & Magic has, why not?
Lynwen Brennan, President & General Manager
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Works Cited
Cohen, D. S. (2014, February 12). ‘Star Wars,’ ‘Avengers’ Spawn Industrial Light & Magic’s London Expansion. Retrieved February 07, 2016, from http://variety.com/2014/biz/news/industrial-light-magic-london-star-wars-avengers-1201099729/
D’Alessandro, A. (2016, January 06). ‘Force Awakens’ Passes ‘Avatar’ As Top-Grossing Film At Domestic B.O. In Only 20 Days. Retrieved February 07, 2016, from http://deadline.com/2016/01/star-wars-the-force-awakens-highest-grossing-film-domestic-box-office-record-beats-avatar-1201676602/
Fisher, L. M. (1997, April 1). How to Manage Creative People: The Case of Industrial Light and Magic. Strategy Business. Retrieved February 5, 2016, from http://www.strategy-business.com/article/15151?gko=144d6
Hayes, B. (2015, January 29). Disney Confirms Release Plan for ‘Star Wars’ Episode 8 and 9. Retrieved February 10, 2016, from http://screencrush.com/star-wars-episode-8-9-release-confirm/
Horn, L. (2014, February 26). Life of Pi’s VFX Team Explains What’s Wrong With Their Industry. Retrieved February 05, 2016, from http://gizmodo.com/life-of-pis-vfx-team-explains-whats-wrong-with-the-in-1531864103
Industrial Light & Magic at Lucasfilm. (n.d.). Retrieved February 04, 2016, from http://lucasfilm.com/industrial-light-and-magic
Leadership. (n.d.). Retrieved February 8, 2016, from http://www.ilm.com/leadership/
Lucasfilm & ILM Launch ILMxLAB. (2015, June 12). Retrieved February 9, 2016, from http://www.ilmxlab.com/assets/pdf/ilmxlab-press.pdf
San Francisco. (n.d.). Retrieved February 04, 2016, from http://www.ilm.com/offices/san-francisco/
Seymour, M. (2012, October 30). Disney buys Lucasfilm and thus ILM. Retrieved February 06, 2016, from https://www.fxguide.com/featured/disney-buys-lucasfilm-and-thus-ilm/
Watt, B. (2014, February 27). Winning an Oscar in bankruptcy: Rhythm and Hues and the visual effects biz one year later. Retrieved February 9, 2016, from http://www.scpr.org/blogs/economy/2014/02/27/15946/winning-an-oscar-in-bankruptcy-rhythm-and-hues-and/