FOX's Special Effects Cost Cutting

Have you ever been in a meeting with an internal stakeholder who doesn’t want any help on their category because it’s too complex, or is the creative service that can’t be effectively sourced or managed by anybody but the supplier and that stakeholder himself? Then this story is for you…

In the Business Week article “The Cheapest Suits in Hollywood”, Ron Grover tries to explain the recent financial success of FOX (NWS). One piece of course is having movies that people want to see - including my children’s’ favorite Horton Hears a Who. The second piece is making those movies for less money than anybody else.

Horton, which features the voices of Jim Carey and Steve Carrell, was made for just over $85 million. According to Grover, that’s nearly half of what a typical Pixar animated feature costs. But how do they do it?

The most interesting strategy appears to be on Special Effects, where FOX has hired an “in-house effects czar,” i.e. a category manager to control the cost and value of special effects used for FOX film projects. Unfortunately, they don’t identify this film world supply management pioneer by name, but they do talk about some of the strategies they employ:

• Competing special effects houses to get the best price
• Multi-sourcing - using several shops on a single project to take advantage of individual strengths and maintain competitive pressure

What can you take away from this?

FOX staffed this position based on an understanding of their spend - where controllable costs exist on their film projects - and made a strategic investment in staff that would have the knowledge that could make a difference in controlling those costs. Which categories in your organization make a material difference in financial success and what is your source in category knowledge?

Second, the strategy outlined in the article leaves most of the decision making to the producers of the individual films. While FOX certainly plays a role in managing negotiations and influencing strategy, most of the raw decision making is left in the hands of film producers. Just about every sourcing organization I know has, at one time or another, gotten bogged down in real or perceived dilemmas of who will be “in charge” of a category that can be the equivalent to Napoleon fighting a winter land war in Russia.

Think about the strategies used by FOX Studios the next time you go to work on a complex category and you’ll improve the chance that your project will be “green lighted.”