Keeping the lights on — Research into the VFX/Animation industry failures

This summer, I was supposed to be at Absolute, a London post-production and VFX studio with nearly thirty years in the industry. When I visited Absolute in April, people there mentioned how hard things were becoming for animation and VFX studios. They shut down just a month later. An article by Broadcast Tech reported that around seventy people lost their jobs.

I wasn't exactly shocked. There's a lot of talk at university about how difficult the industry is. Seeing this made me want to research the collapse for my professional practice blog posts. They weren't a small operation. They were established, respected, and clearly capable. What's actually going on?

Why are established and successful studios collapsing even when the demand for their services seems to remain strong?

The easy answer is AI, streaming cutbacks, or economic pressure. Those factors are real, but my research suggested a deeper structural issue. There is a big gap between the demand for VFX work and how little of that demand leads to stable businesses.

VFX is everywhere: films, advertising, games, streaming, and social content. The appetite for visual work has never been higher. Yet the list of studios that have closed in the last few years is striking. It is not just smaller operations, but also companies like MPC, which closed its Vancouver office after delivering The Lion King, and Rhythm & Hues, which filed for bankruptcy just days after winning the Academy Award for Life of Pi. These were not companies that failed because nobody wanted what they made. What stood out to me was that even studios behind genuinely acclaimed, big-budget projects were not protected from collapse. The issue does not seem to be demand. It seems to be the structure around it.

One thing I kept noticing while researching was how vulnerable VFX studios were compared to their multi-million dollar clients. They bid for contracts, lose jobs they spent time pitching on, win work at a fixed price, and absorb any cost overruns. If a production runs long, the studio pays, not the client. This model only works when everything goes smoothly, which rarely happens. Multi-billion-pound brands and movie studios get VFX studios to bid against each other and undercut each other. This leaves margins small. Then scope creep happens, clients requesting changes, extra rounds of revisions, and work outside the original brief, which pushes costs up. The studio absorbs these costs because the contract is fixed. They end up paying for more work than they priced for, on a contract that was already tight.

Losing money on individual projects is one way studios collapse. But there's another pressure that's harder to see from the outside. Studios like Absolute weren't primarily working on blockbuster films — a large part of their business came from advertising and commercial production. And advertising spend is historically one of the first things brands cut when the economy tightens. High-budget campaign work, the kind that sustained mid-sized post houses for decades, started shrinking. Some brands began moving toward lower-budget productions, and a growing number have started experimenting with AI-generated content for campaigns entirely. Coca-Cola and McDonald's have both recently received backlash for their terrible AI campaigns. When that revenue stream contracts, studios that depended on it are left competing even more aggressively for whatever work remains, which only accelerates the undercutting problem.

The CEO of Absolute, David Smith, said "The challenges facing this sector are real and widespread." That framing stuck with me because it points to the issue being bigger than one studio's situation. The same sequence keeps repeating across companies, sizes, and specializations. That suggests something systemic rather than a string of isolated misfortunes.

What I am left with is not a clear conclusion. The demand for VFX work is clearly real, and it is part of why I want to work in this industry. But there seems to be a real gap between the value VFX creates and the stability of the studios producing it. Whether the smaller studios emerging from the collapse of larger ones represent a better, more sustainable model, or whether the same pressures will eventually reach them too, is something I do not think anyone can say with confidence right now.

Understanding the business layer beneath the creative work matters. The craft alone, however good, hasn't been enough to keep the lights on.