In Hollywood, SGI Revs Up to Regenerate Its Star Power
A long time ago, in an economy far, far away, computer manufacturer Silicon Graphics Inc. was a powerful force.
Hollywood studios courted its executives. They spent hundreds of millions of dollars on the company’s colorful and whimsically named machines -- “Indigo,” Crimson” and “Onyx,” among others. The technology gave birth to a new breed of big-screen special effects, from the shape-shifting Terminator to the exploding White House in “Independence Day.”
Digital artists fervently swore by the equipment. So did engineers, chemists and others whose work depended on visualizations of complex three-dimensional objects. Even Bill Clinton was a fan. The former president once walked into SGI’s cafeteria, sat on the edge of a table and confided to its executives that the U.S. government “ought to work like you do.”
Not anymore. Consumed by its own ambition and wounded by the surging popularity of the free Linux operating system, SGI has lost its star power in Hollywood.
Traditionally, SGI’s machines have been stand-alone units loaded with its own proprietary software, capable of harnessing the power of a super-computer. But these days, any number of off-the-shelf PCs, armed with Linux software, can do the same job.
The result is that the company whose machines gave birth to the dinosaurs in “Jurassic Park” is fighting to avoid its own extinction in Tinseltown. Indeed, SGI now finds itself having to woo Hollywood with its own breed of Linux-based gear.
SGI’s fading fortunes in the media industry mirror a general downturn at the Mountain View, Calif.-based company. Its sales, which peaked at nearly $3.7 billion in fiscal 1997, fell sharply to $1.3 billion last year. Its staff has been cut by more than half in the last five years, and the number of Wall Street analysts who track the company has dwindled to three.
The company has sold nearly all of its vast real estate holdings, leasing back only a few buildings nestled amid stately pine trees. One looming structure, its former North American sales offices, now houses the Computer History Museum.
“We have a couple of SGI machines in our collection,” said Chris Garcia, historical collections coordinator for the museum. “Their machines were important.”
Although Hollywood made SGI famous, it never has accounted for more than a small slice of the company’s sales; these days, it’s only 10%. Government and defense contracts make up the biggest chunk of SGI’s revenue, at 35%. Science and manufacturing clients each contributes 20%, and the energy industry accounts for 10%.
Yet despite its relatively small contribution to revenue, the entertainment industry always has been a key market because it keeps SGI on its technical toes. Hollywood’s voracious appetite for bigger, badder and more-realistic special effects pushes the company’s research and development teams.
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Catching the Wave
SGI hopes to lure the industry back with a new line of Linux-based machines. Last month, after reporting a fiscal second-quarter loss of $17 million on revenue of $263 million, Chief Executive Bob Bishop touted the new Altix 3000 line of high-end Linux servers, which will ship this month. A day later, the servers won “Best of Show” honors at the 2003 LinuxWorld Conference and Expo in New York. They cost $30,000 to $1 million each.
The Altix line is designed to help digital artists manage the zeros and ones that produce pictures on the big screen. As the moviemaking process shifts from traditional film techniques to a purely digital system, the amount of such data is exploding. Powerful computers are needed to make it all work seamlessly and securely.
“Our servers can do that, faster and better than anything on the market today,” Bishop said in an interview. “We don’t intend to back out of the media space. We’ve just shifted to a higher hill.”
So far, few people in Hollywood seem to care. Sony Pictures Imageworks already has replaced 600 of its 1,000 special effects computers with Linux machines made by Dell Computer Corp. and sold off millions of dollars worth of SGI equipment for pennies on the dollar.
“There was a time when SGI was the only one you wanted,” said George Joblove, senior vice president of technology at Imageworks in Culver City. “They had to be really smart to stay ahead of the game, and they couldn’t. Linux running on a PC is faster and vastly cheaper. Everyone I know is moving away from SGI.”
Silicon Graphics sprang from the mind of Jim Clark in 1982. As an associate professor of electrical engineering at Stanford, he designed a computer processor that included the algorithms necessary to create 3-D graphics. Hardware could handle complex graphics jobs more quickly and efficiently than mountains of software code.
Clark’s goal for SGI was ambitious: to make it easy to create virtual worlds and virtual creatures in a three-dimensional space. His engineers produced a steady stream of computers running on its proprietary IRIX operating system that for the first time let artists and scientists mold, rotate and even wander through 3-D objects on their computer screens.
By the late 1980s, the company was turning out tens of thousands of machines a year with price tags as high as $80,000.
The company’s first customer was NASA. Its second client was Walt Disney Co. The federal government and the silver screen became the company’s cornerstones.
Most of the key companies producing special effects software wrote programs that worked only on SGI’s platform, and the machines emerged as a status symbol in Hollywood. A fanatic sense of loyalty among digital artists fed the company’s sense of elitism.
For a visual effects house or post-production studio to create effects on a lowly personal computer was more than just a social faux pas; it was a sign that something was fundamentally wrong. Either the shop didn’t have enough money to pay for the necessary tools, or worse -- they just didn’t get it.
That cachet helped put SGI’s revenue on a growth curve of more than 45% a year from 1986 through 1997, topping out in excess of $3 billion.
But by then, Linux quietly had begun its assault on Hollywood.
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OS Free, PCs Cheap
An operating system designed for heavy-duty server computers and technology sophisticates, Linux is essentially free. For budget-strapped effects houses, the best thing about Linux is that it runs on cheap PCs.
Digital Domain, the Venice-based shop that worked on Oscar-winning films such as “The Abyss” and “Terminator 2: Judgment Day,” was among the earliest adopters. During the making of “Titanic,” Chief Executive Scott Ross drafted nearly every employee to work on the incredibly time-consuming project.
Suddenly, feature film artists using SGI workstations were sitting next to -- and doing similar work as -- artists from the TV-commercials unit who were using PCs. Cultural chaos roiled through the offices, as PCs began “encroaching on the hallowed halls” of SGI, Ross said.
“These were men and women who had spent years creating a skill set with SGI machines and were making a healthy salary because of it,” Ross said. With Linux, “you no longer needed to be a programmer to be a digital artist. That scared a lot of people.... We had people leave us over Linux.”
At the same time, a growing number of effects houses were tiring of SGI’s dominance in the Hollywood market and the arrogance it engendered. Again and again, say effects workers, SGI executives dismissed the idea that any other graphics technology could compete with theirs.
“I remember going to Mountain View with [director] Jim Cameron to meet with them,” Ross said. “They were quoting us these prices..... They were so outrageously expensive. They refused to believe anyone in Hollywood would leave them.”
Over time, though, the company realized it was in trouble. As PCs became more powerful, the advantages of its machines eroded. SGI’s cadre of independent software developers began to adapt their products for other platforms.
Meanwhile, the Linux threat was spreading beyond the desktop to so-called server farms, where scores of high-end computers manage, manipulate and store libraries of data.
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Hungry for Speed
Industrial Light & Magic, the San Rafael, Calif.-based effects shop best known for its work on the “Star Wars” series, has swapped nearly all its SGI desktop computers and servers for cheaper machines running on Linux. Although the cost savings was attractive, the big draw was speed, said Cliff Plummer, ILM’s chief technology officer.
Animation is one of the most processor-intensive applications in the computer industry, so anything that speeds processing times is crucial. After operating as a pure SGI shop for nearly a decade, Plummer said, ILM now gets twice the processing power at half the cost.
ILM wasn’t an isolated case, as Greg Estes, SGI’s vice president for corporate marketing, discovered at an industry summit in 2001. Gazing out at the crowd of visual effects workers gathered in Santa Barbara, Estes sat at a table with representatives of some of SGI’s biggest competitors: Dell, IBM Corp., Hewlett-Packard Co., Compaq Computer Corp. and VA Linux Systems Inc. They had come together to talk about machines of the future.
One person in the audience stood up and asked a simple question: “Which one of you vendors is going to step up to support our needs on Linux the way SGI has on IRIX?”
The panel sat silent. Estes was stunned. In the movie world, Silicon Graphics’ time had passed.
Fearful of losing customers, SGI had developed a Linux-based desktop machine in 1999, but had pulled the plug months before the summit when it realized it couldn’t compete against commodity PCs. SGI also had abandoned a separate effort to make Linux-based servers when Intel Corp. mothballed the Itanium chip line it intended to use.
So, determined to woo back its Hollywood clientele and keep other key customers, SGI dusted off its Linux server project. When Intel released prototypes of its updated Itanium chips last summer, SGI finished the Altix.
With the new Linux servers, SGI is gambling that its ability to share memory across a cluster of machines will be a compelling sell.
Using powerful 64-bit processors, the machines share data more efficiently than the general-purpose 32-bit systems that are sold by HP, Dell and others, Bishop said. For an effects studio, that means a computer can create a sneer on Gollum’s face or the frenetic fight sequence between Yoda and Count Dooku as much as 10 times faster.
Although the technology is promising, there’s no guarantee that it will solve SGI’s problems in Hollywood. Several hardware competitors such as HP have jumped into the 64-bit Linux server arena. Nor is it certain that the changing market forces that SGI has endured in its media group won’t seep into the rest of its business lines, said Richard S. Chu, who follows the company for SG Cowen Securities and does not own its stock.
Acknowledges Bishop: “If people aren’t willing to pay for that performance, then we will have a problem.”
