The VFX Industry After AI Video Generation: How DNEG, Framestore, and ILM Face a $15 Billion Disruption
The visual effects (VFX) industry stands at the precipice of its most significant transformation since the transition from practical effects to computer-generated imagery (CGI). With the emergence of advanced video generation AI technologies, the $26.3 billion global VFX market is experiencing a seismic shift that promises to fundamentally alter how visual content is created, who creates it, and at what cost.
This technological revolution is particularly impacting industry titans like DNEG, Framestore, and Industrial Light & Magic (ILM)—companies that have collectively shaped the visual language of modern cinema through their work on blockbusters like Dune, Avatar, and Star Wars. As AI tools become capable of generating photorealistic video content in minutes rather than months, these industry leaders face both unprecedented opportunities and existential challenges.
Market Overview: A $15 Billion Growth Trajectory Amid Disruption
The VFX industry is experiencing remarkable growth, with market research indicating the sector will expand from $26.3 billion in 2021 to $48.9 billion by 2028, representing a compound annual growth rate (CAGR) of 10.9%. Simultaneously, the AI in VFX market is projected to surge from $4.33 billion in 2024 to $25.51 billion by 2034, with an aggressive CAGR of 19.38%.
This dual growth trajectory reveals a fundamental shift: while traditional VFX methods continue expanding, AI-powered alternatives are growing nearly twice as fast, suggesting an inevitable convergence that will reshape the competitive landscape.
The global VFX market is also projected to grow by an additional USD 15.24 billion from 2025-2029, driven by increasing demand for high-quality content and the integration of AI in VFX rendering. However, this growth comes with a caveat—traditional VFX workflows are becoming increasingly automated, potentially reducing the human workforce required for many tasks.
The Three Giants: How DNEG, Framestore, and ILM Are Positioned
DNEG: The Global Powerhouse Under Pressure
DNEG stands as the world's largest VFX company, with over 9,000 employees across 13 facilities in London, Toronto, Vancouver, Los Angeles, Montréal, Chennai, Mohali, Bangalore, Mumbai, and recently Sydney. The company's 2024 revenue exceeded $400 million, making it a dominant force in the industry.
Netflix's $350 million multi-year deal with DNEG through 2025 demonstrates the streaming giant's confidence in traditional VFX capabilities. However, this partnership also highlights a critical vulnerability: as AI video generation becomes more sophisticated, will streaming platforms continue investing hundreds of millions in traditional VFX workflows?
DNEG's CEO Namit Malhotra acknowledges the industry's transformation, noting that "the globalization of the VFX business has been happening for a while, but the opportunities for remote working accelerated by the pandemic have enabled this trend." However, AI video generation threatens to disrupt this global workforce model by potentially eliminating the need for large teams of artists for certain types of content creation.
The company's extensive Indian operations—representing four major studios—position it well for cost-effective production but also make it vulnerable to AI replacement of routine tasks that form the backbone of its offshore model.
Framestore: Innovation Meets Uncertainty
Framestore, with approximately 3,000 employees across eight locations including London, New York, Los Angeles, Chicago, Mumbai, Montreal, and Melbourne, represents the premium end of the VFX market. Known for groundbreaking work on films like Gravity, Blade Runner 2049, and the Harry Potter franchise, Framestore has built its reputation on creative excellence and technical innovation.
The company's recent expansion into Mumbai reflects the industry's ongoing globalization, but AI video generation poses unique challenges for Framestore's business model. As a premium provider, Framestore commands higher rates for complex, creative work. However, if AI can automate even sophisticated VFX tasks, the company may need to pivot toward more specialized services that require human creativity and oversight.
Framestore's strength in creature animation and photorealistic environments—areas that currently require significant artistic input—may provide some protection against AI automation. However, the rapid advancement of generative AI suggests this protection may be temporary.
ILM: The Legacy Pioneer Adapting to Change
Industrial Light & Magic, founded by George Lucas in 1975, remains the most prestigious name in VFX with approximately 2,000 employees and annual revenues estimated around $300 million. As part of Disney's Lucasfilm, ILM has the financial backing to invest heavily in AI research and development.
ILM's work on The Mandalorian showcased the industry's embrace of virtual production technologies, demonstrating how traditional VFX can integrate with real-time rendering and LED wall technologies. This positions ILM well for the AI transition, as the company has consistently been at the forefront of technological innovation.
However, ILM's premium pricing model—often charging $500,000-$1 million per minute of final VFX footage—faces pressure from AI tools that can generate comparable content at a fraction of the cost and time investment.
The AI Video Generation Revolution: Capabilities and Implications
Current Capabilities Disrupting Traditional Workflows
Modern AI video generation tools can now:
- Generate photorealistic environments in minutes rather than weeks
- Create basic character animations without motion capture
- Automate rotoscoping and object removal tasks
- Produce concept art and storyboards instantly
- Handle routine compositing tasks with minimal human oversight
These capabilities directly impact the bread-and-butter work that employs thousands of VFX artists globally. Tasks that previously required 8-12 weeks of artist time can now be completed in hours or days using AI tools.
Economic Impact on Traditional VFX Pricing
The cost structure disruption is dramatic:
- Traditional VFX: $50,000-$200,000 per minute of complex footage
- AI-assisted VFX: $5,000-$20,000 per minute of comparable footage
- Pure AI generation: $500-$2,000 per minute of basic footage
This 10x to 100x cost reduction for certain types of content creates an existential crisis for companies built on traditional pricing models.
Employment and Workforce Implications
The Numbers Game: Jobs at Risk
The VFX industry currently employs approximately 500,000 people globally, with major concentrations in:
- California: ~75,000 VFX professionals
- Canada: ~45,000 VFX professionals
- United Kingdom: ~35,000 VFX professionals
- India: ~120,000 VFX professionals
Industry analysis suggests that 30-50% of current VFX jobs could be automated or significantly transformed within the next 5-7 years. This particularly affects:
- Junior artists: Entry-level rotoscoping, basic compositing
- Routine animation: Simple character movements, background elements
- Concept artists: Initial design and storyboard creation
- Quality control: Automated error detection and correction
The Human Premium: What Remains Irreplaceable
Despite AI advances, certain areas remain human-centric:
- Creative direction and vision
- Complex character performance
- Innovative problem-solving
- Client relationship management
- Quality assurance for critical scenes
Companies like DNEG, Framestore, and ILM must rapidly transition their workforce toward these higher-value activities while managing the displacement of routine tasks.
Regional Impact and Market Dynamics
India: The Outsourcing Hub Under Threat
India's VFX industry, valued at approximately $1.2 billion and employing over 120,000 professionals, faces particular vulnerability. The country's competitive advantage has been built on:
- Cost-effective labor: 60-80% lower than US/UK rates
- Large skilled workforce: Extensive talent pool
- English proficiency: Communication advantages
- Time zone benefits: Round-the-clock production
However, AI video generation threatens this model by potentially eliminating the labor arbitrage that made India attractive. If AI can produce comparable results at similar costs regardless of location, India's primary competitive advantages diminish significantly.
FutureWorks CEO Gauray Gupta noted the shift: "Indian studios are now full of creative sequences and shots, not just RPM or back-office work." This transition toward higher-value work may be India's salvation, but it requires rapid workforce retraining and repositioning.
North America: Premium Market Under Pressure
North America, representing 34-36% of the global VFX market with approximately $3.88 billion in revenue, faces different challenges. The region's strength in creative leadership and premium content creation provides some protection against AI automation, but cost pressures are mounting.
Virtual production adoption in facilities like those at Amazon and Sony demonstrates how North American companies are adapting by integrating AI tools into hybrid workflows rather than being replaced by them.
Europe: Balancing Innovation with Protection
European VFX markets, led by the UK's established industry, are grappling with how to maintain their creative edge while adapting to AI technologies. The UK government's £150 million investment in AI-powered VFX research demonstrates official recognition of the industry's transformation.
Financial Performance and Market Pressure
Revenue Models Under Siege
Traditional VFX revenue models face fundamental challenges:
Project-based pricing becomes difficult when AI can complete similar work in a fraction of the time. Companies must shift toward:
- Consultation and creative services
- AI tool development and licensing
- Hybrid human-AI workflows
- Premium creative direction
Investment and Acquisition Trends
The industry's response to AI disruption is visible in recent transactions:
- Sony's acquisition of Pixomondo: $XXX million investment in virtual production capabilities
- Netflix's acquisition of Animal Logic: Strategic move toward animation and AI integration
- DNEG's $350 million Netflix deal: Commitment to traditional workflows amid uncertainty
These investments suggest major players are doubling down on hybrid approaches that combine human creativity with AI efficiency.
Technology Integration: The Path Forward
Hybrid Workflows: The New Standard
Leading VFX companies are developing integrated approaches:
AI-assisted traditional VFX where human artists guide and refine AI-generated content represents the most likely near-term evolution. This approach:
- Reduces production time by 50-70%
- Maintains creative control through human oversight
- Preserves quality standards for premium content
- Allows gradual workforce transition
Virtual Production Evolution
The integration of AI with virtual production technologies creates new possibilities:
- Real-time environment generation during filming
- Instant asset creation for LED wall content
- Automated background replacement and enhancement
- Dynamic lighting and atmosphere adjustment
Companies like ILM, with their StageCraft technology, are positioned to lead this integration.
Future Scenarios: Three Possible Outcomes
Scenario 1: Gradual Integration (Most Likely)
In this scenario, AI becomes a powerful tool that augments human creativity rather than replacing it entirely. Companies like DNEG, Framestore, and ILM transition their business models to focus on:
- Creative direction and oversight
- Complex problem-solving
- Custom AI tool development
- Premium content creation
Workforce impact: 30-40% job transformation, with emphasis on retraining and upskilling.
Scenario 2: Rapid Disruption (Possible)
Aggressive AI advancement leads to widespread automation of VFX tasks. Traditional companies struggle to compete with AI-native competitors offering dramatically lower costs and faster turnaround.
Market impact: Consolidation as smaller studios close or merge, major companies pivot to AI tool development.
Workforce impact: 50-60% job displacement over 3-5 years.
Scenario 3: Hybrid Domination (Emerging)
A new ecosystem emerges where traditional VFX companies become AI platforms, offering sophisticated tools combined with human expertise for clients who want speed without sacrificing quality.
Business model: Subscription-based AI tools with consulting services.
Workforce impact: 40-50% role transformation toward AI operation and creative oversight.
Strategic Recommendations for Industry Players
For VFX Companies
- Invest heavily in AI integration rather than fighting the transition
- Retrain workforce toward AI operation and creative oversight
- Develop proprietary AI tools for competitive advantage
- Focus on premium, human-centric services that AI cannot replicate
- Form strategic partnerships with AI technology companies
For Clients and Studios
- Experiment with AI tools for appropriate content types
- Maintain hybrid approaches for premium content
- Develop internal AI capabilities to reduce dependency on external VFX
- Invest in training for creative teams to work with AI tools
For Workforce
- Learn AI tools and integration techniques
- Focus on creative and strategic skills that complement AI
- Develop specializations in areas requiring human expertise
- Consider entrepreneurship in AI-assisted content creation
Conclusion: Navigating the Transformation
The VFX industry's encounter with AI video generation represents more than technological evolution—it's a fundamental restructuring of how visual content is created, valued, and delivered. Companies like DNEG, Framestore, and ILM, with their decades of expertise and substantial resources, are best positioned to navigate this transition successfully.
However, success requires acknowledging that the old models of large teams working on labor-intensive tasks are becoming obsolete. The future belongs to organizations that can seamlessly blend human creativity with AI efficiency, offering clients the best of both worlds: the speed and cost-effectiveness of AI with the artistic vision and quality assurance that only human expertise can provide.
The $15 billion growth in the VFX market over the next five years will primarily flow to companies that embrace this hybrid approach. Those that resist the AI revolution risk being left behind in an industry that has always rewarded technological innovation and creative adaptation.
For the 500,000 VFX professionals worldwide, the message is clear: the future requires learning to work with AI, not against it. The most successful artists and companies will be those who view AI as a powerful creative tool that amplifies human capabilities rather than a threat to be resisted.
The transformation is already underway. The question is not whether AI will reshape the VFX industry, but how quickly and thoroughly the established players can adapt to maintain their relevance in an AI-driven future.
As we stand at this technological inflection point, one thing is certain: the visual effects industry that emerges from this transformation will be more efficient, more accessible, and more creative than ever before. The companies and individuals who embrace this change will define the next era of visual storytelling.