Economy

Movie FX success no act

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Rising Sun Pictures has gone from teetering on the brink of business oblivion to being at the forefront of the global film visual effects industry – By MIKE PRESTON.

By Mike Preston

Visual effects have come a long way from smoke and mirrors, and the jaw-dropping results seen on movie screens is testament not only to the technology but to the skills of one Australian firm.

 

In 2001, Rising Sun Pictures teetered on the brink of business oblivion. The Adelaide-based visual effects company had just decided to give up bread and butter advertising work to focus exclusively on riskier feature film projects when the flow of new work suddenly dried up.

“That year almost killed us,” Rising Sun’s chief executive Didier Elzinga (above) says. “After the September 11 attacks and screen actors strike in the US, the studios stopped ‘green-lighting’ films and that created a vacuum in visual effects post production work that drove us right to the wall.”

Elzinga had to tell the company’s employees that they would not have a job in a few weeks if the business didn’t pick up some work very quickly. “People needed to decide if they would jump ship, but most stayed and three weeks later we landed work on Lord of the Rings: Return of the King and we haven’t looked back from there.”

The high profile film was the perfect entrée into the global visual effects industry for Rising Sun Pictures. Since then the company has grown to a business of 140 employees and annual revenue close to $15 million, with credits on films such as Sky Captain & The World of Tomorrow, Charlotte’s Web and Harry Potter and the Order of the Phoenix.

But involvement in these big name pictures does not mean that a profitable future for Rising Sun Pictures is assured – while the company grew revenue by 77.4% to $14.7 million. and went from 30 to 140 employees in 2005/06, it will only just maintain that level of revenue in 2006/07.

In part this reflects the intense competition players in the global feature film visual effects industry are faced with – Rising Sun Pictures competes with giants such as Industrial Light & Magic and regional players such as Animal Logic and Omnilab Media Group for film projects, most of which originate in Los Angeles.

The project-based, and often precarious, nature of the film industry also presents serious challenges, especially for smaller players based away from the Hollywood hub. To get work, serious resources often have to be put into preparing tenders, and even once projects have been won there is always the risk that they will fall over.

For Rising Sun Pictures, this means the potential for a cash flow crisis is always looming. “We’ve had projects where we’ve committed hundreds of thousands of dollars in terms of time and outlays and started work, only to have the project pushed back indefinitely,” Elzinga says. “That has happened twice in the last two years, and it’s both the money lost and other opportunities that you haven’t pursued that hurt you, so it can take months to recover.”

This uncertainty, combined with the fact that the business generally has all of its resources tied up in a few big projects with an average 18 month turnaround time, has meant Rising Sun Pictures has had to develop top-notch accrual accounting systems.

It also means getting cash flow management right is top of mind for Rising Sun’s management team. “Most people look at the profit and loss, then the balance sheet, and if they have time cash flow, but for us it’s the complete other way round,” Elzinga says.

As an Australian company working in the US-based film industry, Rising Sun Pictures has also had to become expert at managing the tyranny of distance, something it has managed through a combination of technological innovation – content sharing software it developed is now used across much of the industry – and plain old relationship building.

”We started off with a ‘meet locally, repeat globally’ strategy, where we’d build on relationships we’d developed working with people here to keep working with them when they went to the US,” Elzinga says. “But now that we know people in many of the studios ourselves, we often end up doing work with no Australian connection at all.”

But being on the other side of the world does have its drawbacks. Although Rising Sun Pictures benefits from a local fibre optic loop in Adelaide, Australia’s relatively lacklustre broadband infrastructure has created costs for the company, while the recent rapid rise of the Australian dollar against the greenback has put a squeeze on margins, despite some moderate currency hedging.

“A lot of American projects approved 12-18 months ago were all set at US70c; now they’re dealing with an Australian dollar at US88c. If they came with $100 million that means they’ve now got $10 million less, so obviously that has a huge impact on us,” Elzinga says.

Given these travails, it is hardly surprising that Rising Sun Pictures is currently considering opening overseas branches to its current offices in Adelaide and Sydney. Elzinga says they will only pursue further growth if it can be done without sacrificing the creative culture of the business, even if this means falling short of planned annual growth of 50%.

“We are a place where 150 really smart people create jaw-dropping images in a way other people can’t. Even as we grow, the major thrust of the business has to be around culture: we won’t continue to win those projects if we lose the passion for film and approach to craft that is our trademark.”

There is no doubt, however, that further growth is a necessity if Rising Sun Pictures is to ensure that the risk of business oblivion remains a thing of the past. “We will always grow much more strongly in some years than others, but over the years we’ve got aggressive growth targets we’ll be working to meet,” Elzinga says. “That’s what we’re going for, so we can lose a big project and not curl up and die.”

 

 

 

 

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