Will Technology Double the Size of the VFX Industry?

Market research firms forecast industry growth using Compound Annual Growth Rate (CAGR). Much like compound interest on savings, CAGR is a percentage by which an industry is expected to grow year on year.

If you do a bit of Googling, you’ll find current estimates for the global VFX industry ranging from 6.7% to 14.2% per year, with most projections clustering around 11% per year:

We shouldn’t put too much faith in these numbers. Data you find for free on the internet comes from market research firms that mass-produce reports on niche industries. Their understanding of the dynamics of the VFX industry is probably pretty superficial.

That said, all these estimates have one thing in common: they assume the industry will grow exponentially over the next few years.

Why do these forecasts matter? They’re one of the (many) data points that investors look at when they’re deciding whether to get involved in the VFX business. At an 11% compound annual growth rate, the VFX industry would double in size in a little over 6 years. If you invested in a VFX studio during this period, you’d expect it to be easy for them to grow.

How realistic is it to think that twice as much money will be spent on VFX in 2030 than in 2024? If USD $10BN is being spent on VFX now, will we be spending $20BN in six years’ time? How do the market research firms explain this dramatic growth?

One factor they point to is technology. Advancements in technology that drive an industry create “tailwinds”, favorable market conditions that promote growth, boost profits, and make investments more attractive.

So will technology cause the VFX industry to grow bigger -- perhaps even double in size -- over the next 6 years? Here are three candidates:

1. Virtual Production

If virtual production replaced location photography in scenes that would otherwise not use VFX, this could lead to a real increase in the volume of VFX work. 

But the reality is that virtual production is still mostly an option for when a location shoot isn’t viable – too dangerous, too distant, too expensive to build practically. It’s best viewed as an alternative to post-production VFX, not an addition that will drive overall growth of the VFX industry.

2. AI

AI is often presented as a threat to creative industries, one that will replace large amounts of artistic labor.

That isn’t going to happen anytime soon – the technology isn’t there yet (which is not to say it won’t get there eventually). But if it did, this would up-end the VFX business model of today, which is based on how many days of labor it takes to create VFX. All things being equal, this would cause the amount of money spent on VFX to shrink, not grow, as software accelerates time-consuming creative tasks that are currently performed by people.

To grow the VFX industry, AI would have to make VFX accessible to more projects. The obvious candidates are projects with budgets that were previously too small to take advantage of VFX. These projects seem unlikely to drive substantial growth in the amount of money spent on VFX globally.

3. Realtime 3D

While Realtime 3D (RT3D) is much less hyped than Virtual Production and AI, it’s the technology most likely to genuinely increase the size of the VFX industry.

Like Virtual Production and AI, real-time 3D can be used as a tool to enhance and accelerate existing VFX workflows. By itself, this doesn’t result in industry growth. However, as real-time 3D starts to become more common in VFX for film and television, a greater number of VFX studios will develop capabilities that lend themselves to a broader range of tasks in games, immersive experiences, and user-generated content. Real-time 3D allows VFX techniques to be used in new venues and new types of experience.

Technology may make VFX cheaper, and thus more accessible to a broader range of projects, but it remains to be seen whether that will result in net growth of industry revenue. For a more realistic take on industry growth over the next few years, we need to look at demand for the end-product: audience interest in consuming more content that uses expensive, high-end VFX.

It's worth noting that more viewers doesn’t automatically mean more spend on VFX. What they’re watching, and where, matters. If audiences are less interested in superhero movies (which may or may not be the case -- simply using this as an illustration) then that’s one big driver of VFX spend we won’t be able to rely on in the short term. Similarly, if interest in long-form screen entertainment with high production values diminishes, it’s unlikely the VFX spend for TikTok videos and mobile games will offset having fewer blockbuster features and AAA titles.

The other thing to keep in mind is that individual VFX studios will win or lose depending on the strategies they adopt to survive, and thrive, in the market. We'll see some VFX studios triple or quadruple in size in the next few years, while others go out of business. Being clear-eyed about the real drivers of the VFX industry will make all the difference.