What does DreamWorks’s Canadian Outsourcing Deal tell us?

2015 did not start well for the US VFX industry. DreamWorks Animation just announced to shut down one of its main studios, PDI DreamWorks, in Redwood City, California. In the wake of this unexpected move approximately 500 people are losing their jobs. In another unexpected move DreamWorks will outsource the adaption of the children’s book series Captain Underpants not to India or China but to Montreal, Canada. From there the Canadian outpost of the French studio Mikros Image will handle the production. Many are asking themselves why DreamWorks did not use their Asian outposts to outsource this project. Was it really because most of that [prior outsourced] work came back to be done in California. as the VFX Soldier blog put it?

I doubt that. Having worked in Asia, and having analysed this market for my book, I could see for myself that our  VFX colleagues from China and India are just as talented as those from the West. Artists who are currently not performing at Western standards, will be soon. Their Western supervisors and colleagues will take care of that. The work from Asia does already blend in seamlessly with the work from the West. If this was not the case, why would DreamWorks trust its Kung Fu Panda IP in the hands of Oriental DreamWorks where 1/3 of the work will be produced? With The Tibet Code, Oriental DreamWorks is planning its first original animated film, and one film each year after that. The Oriental devision will not only aim at Asian markets with this new IP.

Jeffrey Katzenberg told the Xinhua News Agency that “The Tibet Code will be turned into an animated film with the potential to become a global blockbuster.”  

At this point we can only speculate what role DreamWorks Dedicated Unit (DDU) in India will play in the future. The unit within Technicolor is owned by Technicolor not DreamWorks. But DreamWorks hires and trains the artists. At first DDU had worked only on TV and DVD specials. Later the unit shouldered  full sequences of Puss in Boots (2011) and even more work on Penguins of Madagascar (2014) – how much exactly is hard to find out. But if this trend continues I assume it won’t take long till DDU takes on full movies. Lucasfilm’s Singapore ILM unit started out similar by working only on a few sequences for Rango (2011). Now they just finished Lucasfilm’s new animated movie Strange Magic (2014) as the only animation studio — and it looks great!

This tells me that DreamWorks continues to have plans for DDU even though they have not chosen them for Captain Underpants. It could also just be that the headquarter just continues to use DDU to outsource shots and sequences instead of full movies.

As I see it DreamWorks took Captain Underpants to Canada mainly because they need more time for restructuring after all those box office disappointments. If I had to take a wild guess I would further assume that India may not be ready just yet to take on a full show. Who knows, since DreamWorks does not own the Indian unit, they may never plan that. Their commitment to China with a 45% stake seems to be much more lasting. But the DW Oriental studio seems to be fully booked for now. However, by outsourcing Captain Underpants to a Canadian Studio, DreamWorks can utilize a low priced VFX service together with Canadian subsidies. And DW can do this without the risk of running their own studio in Canada. These are two benefits they wouldn’t get in India. It’s also interesting to note that this is a much more careful move compared to Sony Imageworks who just moved all their operations to Vancouver. After all, now that the US VFX and animation industry seems to enter a full capitulation phase, who knows for how long these Canadian subsidies will continue to be in place? All it might take is a return of the global financial crisis. Something that is not too far off if we look at the shockwaves that the Swiss Central Bank sent out when it unpegged its Swiss Franc from the Euro.

Considering the economical situation DreamWorks currently finds itself from publishing too many unsuccessful movies, this is sad but still an understandable move. Wall Street seems to like it. DreamWorks’s stocks went up by 6% after the announcement.