"They do so much more in preproduction, in script development, before filming ever starts,'' he said. "They can point out where there might be problems, and ask the right questions: Are there too many characters? How do we create this world? They know that the earlier they get involved in a project, the more they can correct in advance.''
To maintain this degree of control, I.L.M. bids most films as a one-stop shop. Although it has been known to quietly rescue other effects houses on failed projects, it does so without credit. Similarly, on commercials, most houses supply only effects, but I.L.M. produces and directs the entire spot. I.L.M. branched out into commercials to balance out the cyclicality of the feature film business, but has found that ads also lead to more efficient processes.
Because every film is different, and the effects for each must be more dazzling than the last, I.L.M. has few opportunities to amortize its own costs. One exception is in software development. Writing its own programs gives I.L.M. an edge over shops using off-the-shelf software, and the cost can typically be spread over multiple feature films before filtering down to advertisement work.
"Our goal is to stay two to three years ahead of what can be accomplished with commercial software vendors,'' said H.B. Siegel, I.L.M.'s chief technology officer. "Our own tools give I.L.M.'s films that special edge, that special look. Our goal is to get the shot onto film the way we like. At that point we can often leverage the investment going forward.''
For example, "the hair and fur work we did in Jumanji was leveraged in 101 Dalmatians," Mr. Siegel said. Jumanji, a Robin Williams vehicle, featured a computer-generated lion rampaging down a city street, while in 101 Dalmatians, the recent remake of Disney's animated classic, computer-generated puppies filled out the crowd scenes and performed stunts deemed too dangerous for the dog actors. No one had previously created realistic hair and fur in a computer-generated image.
Much of the software development at I.L.M. is done on the fly, as needed, with little time for prototyping or testing. "It's akin to the Manhattan Project,'' Mr. Siegel said. "People are being asked to solve these really difficult problems in a production setting.''
Retaining exceptional people has become a greater challenge for Industrial Light and Magic with the proliferation of competitors. Mr. Morris said increased competition has had little effect on revenues, because of the growing use of effects. About 70 percent of the movies made last year used special effects and I.L.M. works on just 10 to 12 films each year, generally the most ambitious ones. But competition has increased I.L.M.'s costs, because newcomers looking to lure talent have offered inflated salaries.
"Between Sony and Disney, they've totally disrupted the marketplace by trying to buy their way in,'' Mr. Morris said, adding that he believes the studios will find it no more profitable to keep effects artists on retainer than it was to maintain staffs of actors, writers and directors, which no one does anymore.
"The special effects model was already not too profitable, and you don't cut costs by offering people multiples of what they've been paid,'' he said. "Where the studios blew it was not letting the free enterprise system rise to the occasion.''
In any event, the studios have succeeded in hiring away artists and programmers that I.L.M. could ill afford to lose. Others have left to start their own effects shops; Scott Ross, chief executive of Digital Domain, is a former general manager of I.L.M. To prevent a full-blown exodus, I.L.M. has had to respond creatively.