Visual effects artists routinely work miracles onscreen, helping Hollywood generate billions of dollars every year at the box office. Still, the VFX industry is now in a state of crisis. In the past seven months, two leading F/X houses, Digital Domain and Rhythm & Hues, have gone into bankruptcy, and several other companies have had to lay off workers. “Right now it’s near rock bottom,” says Peter Oberdorfer, a former VFX artist who now runs a digital-technology consulting firm. “The pressure is building to a point where it could get volatile for everybody involved.”

In this week’s issue of Entertainment Weekly, The Hobbit director Peter Jackson, a digital effects pioneer who co-founded the F/X company Weta Digital, says studios are taking advantage of an oversupply of F/X houses to drive down prices. “Competition between VFX houses, which the studios obviously use to their advantage, has resulted in VFX houses operating on tiny profit margins,” Jackson says. “And when we talk ‘profit,’ it’s not about the owners buying a Porsche at the end of a big movie — it’s about having a nest egg to ride out the slow periods.”

Another significant factor: frustrating communication breakdowns between filmmakers and VFX artists that can lead to hundreds of thousands of dollars of wasted work. Roland Emmerich, the director of Independence Day and the upcoming White House Down, acknowledges this is an all-too-common problem. “In the last two or three months [of a production] you have to finish hundreds of shots. You’re so overworked and stressed, it’s hard sometimes to look at everything. I always try to manage that a little better, but there’s always the human factor that could fail.”

Even after the collapse of Digital Domain and Rhythm & Hues, Jackson doesn’t believe that studios truly understand the need for F/X companies to charge sustainable prices. “Studios have to answer to their shareholders and will always try to get the cheapest possible work,” he says. “If anything, it’s a wake-up call to the F/X companies to address the weakness in our industry.” But with VFX layoffs announced regularly now — and more houses expected to shut down — one high-ranking studio exec acknowledges that the studios need to be a part of the solution: “We as a studio need these companies to be thriving and innovating — that’s our bread and butter. I guarantee you, there’s no one who defends the current visual-effects business model. It’s been brutal.”