Rhythm & Hues Studios, which served as the lead visual effects producer on the dazzling “Life of Pi” film, filed for Chapter 11 bankruptcy on February 13 — just days after the film won four prizes at the annual Visual Effects Society Awards and just weeks before it would win the Academy Award for best visual effects. Additionally, the 26-year-old company has laid off 254 of its 718 employees in the LA area.

This marks the second bankruptcy filing by a leading U.S. visual effects company in the past six months. Digital Domain also filed in September. “The developments come amid skyrocketing use of computer-created robots, animals and sets in all kinds of Hollywood movies,” reports the Wall Street Journal.

“Blockbusters like ‘The Amazing Spider-Man’ and ‘The Hobbit: An Unexpected Journey’ often have thousands of visual effects shots,” notes the article. “Even dramas and comedies today can include hundreds of them. The Parisian backdrops in ‘Les Miserables’ included many digital creations.”

But then why are these companies experiencing such financial pressures, amidst this ongoing demand? According to WSJ, because the “business of creating visual effects is getting less profitable, industry executives say. They blame a combination of factors, including generous tax credits in Canada, New Zealand and the UK; competition from low cost labor in developing markets; and ever-cheaper technology that is letting more competitors set up shop.”

As the article notes, “some work previously done by large companies like Rhythm & Hues can now be handled by low-cost boutique shops that take advantage of plummeting technology prices.” The results are similar to those of the “runaway production” problem, in which movies and TV shows are filmed outside of California because of generous tax credits elsewhere.

“Rhythm & Hues’ bankruptcy has prompted more discussions about what can be done to stabilize the business,” writes WSJ. “Even if the company gets back on its feet, it would face the same industry pressures.”