Why Hollywood Makes Digital Magic in the U.K.

London is tops for the visual-effects industry—Brexit or not.

Inside an art deco building on the edge of London’s Soho district are hundreds of programmers and graphic designers working on Rogue One, the Star Wars spinoff film due out in December. As you enter, a large photograph of kids playing in Darth Vader and Stormtrooper masks is the only obvious hint that this is the London outpost of Industrial Light & Magic, the visual-effects company founded by George Lucas and now owned by Walt Disney. Based in San Francisco, ILM opened the London office at the end of 2014, hoping to tap into the city’s growing band of digital artists as it prepared to tackle effects for a new Star Wars trilogy.

The U.K. has produced three of the world’s five biggest visual-effects companies, turning London into a global hub for film production. Its status recently got an unexpected boost: The 10 percent drop in the pound after the U.K. voted to leave the European Union has made it even cheaper for Hollywood studios to outsource film production to London. “There’s a lot more interest now in moving work to the U.K.,” says Sue Lyster, the executive in charge of production at ILM London, which employs more than 300 people.

The British government first introduced tax breaks for film production in 1997. Two years ago, it made the incentives more generous: Any film with at least 10 percent of its production in the U.K. gets a 25 percent cash rebate on the amount it spends there, capping out at 80 percent of a film’s budget. Brexit could make that deal even sweeter. EU rules against state aid forced the government to cap tax credits at 80 percent. If the U.K. leaves the single market, the government could extend the break to 100 percent of film production costs if it wants.

Britain’s three leading visual-effects houses—Double Negative, Framestore, and Moving Picture—are centered around Soho, London’s cramped creative heartland. Together they employ more than 5,000 people globally and generate an estimated £250 million ($332 million) of annual revenue. U.K.-based production houses have won the last three Oscars for best visual effects—for 2013’s Gravity, 2014’s Interstellar, and 2015’s Ex Machina.

An actor floats on wires in front of a large prop and a green screen.

For The Martian, Framestore turned Matt Damon’s performance before a studio green screen into a harrowing scene above the Red Planet.

Source: Courtesy Framestore

Even before the pound’s recent slide, London-based houses had amped up this summer’s biggest blockbusters. Double Negative, which won an Oscar in 2011 for Inception and in 2014 for Interstellar, labored over the wild Las Vegas car chase scene in the latest Jason Bourne installment while also reimagining the Enterprise in Star Trek Beyond. Framestore perfected the jungle and gorillas in The Legend of Tarzan. And Moving Picture is already generating Oscar nomination buzz for its work on Disney’s update of The Jungle Book, which filmed the Mowgli tale entirely in a computer-generated world without any outdoor locations.

Hollywood’s reliance on mega-spectacles has made the green screen central to today’s moviemaking. The top-10 box-office list of 2016 is dominated by films with heavy visual effects. Digital artists can do everything from removing a crane from a sloppily filmed scene to designing a 10-shot action sequence that can cost upwards of $10 million for visual effects alone.

Computer-generated imagery accounts for about a third of the cost of the average $100 million-plus blockbuster, double what it was a decade ago, according to William Sargent, co-founder of Framestore, London’s oldest visual-effects house. “The nature of filmmaking has changed over the past 5 to 10 years, and it’s accelerating as directors mix and match physical and digital,” Sargent says. “Our market is growing, because the computer-generated component is going up.”

Tax breaks have enabled British houses to undercut U.S. rivals on price. As a result, many of the leading Hollywood visual-effects companies have struggled. In 2013, Rhythm & Hues Studios, based in Los Angeles, filed for bankruptcy after 25 years in business. Eleven days later, it won an Oscar for best visual effects for Life of Pi.

It was British author J.K. Rowling’s works that ignited London’s visual-effects industry. The eight Harry Potter films generated a steady stream of work for U.K. companies, allowing them to expand. “Over eight years, the whole industry shifted from the West Coast of the U.S. to London,” says Tim Burke, the visual-effects supervisor on Fantastic Beasts and Where to Find Them, a Potter spinoff that will be released by Warner Bros. in November. All three of the big London effects houses are creating computer-generated creatures for the film.

Before the Brexit-induced drop in the pound, Canada had been stealing work from the U.K. with even bigger tax breaks. Vancouver reduced its tax breaks in May, but studios can still get a mix of provincial, federal, and visual-effects credits covering 53 percent of labor costs if they shift work to the city. Montreal’s tax incentives are even more generous.

Those benefits have led London’s visual-effects companies to set up Canadian offshoots. In 2013, Framestore opened an office in Montreal, where it now employs 350 people. The following year, Double Negative sold itself to India’s Prime Focus World to get the cash to expand to Vancouver, where it has 450 staffers. “We were missing out on work, because it was being done in Vancouver,” says Alex Hope, co-founder of Double Negative. “To stay competitive, we wanted to expand both in the U.K. and Canada.”

While the pound’s slump may put a brake on work drifting to Canada, ILM’s Lyster is worried about the ability to hire junior talent to feed the industry if the U.K. imposes visa requirements on EU citizens. Senior visual-effects artists would easily pass a skills and income test for U.K. work permits, while new graduates from Europe may not. Still, until Brexit becomes a reality—which could take years—Hollywood will likely be looking at London as a bargain.

The bottom line: The British pound’s post-Brexit drop has made London-based visual-effects houses even more attractive to Hollywood.

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