The four Oscars won by The Matrix did more than inspire whoops of delight from crew members gathered around the television at a Sydney party this week. They drew attention to the visual effects industry that created much of the cyber-culture look for the sci-fi blockbuster.

Effects specialists might lack the profile of the country's actors and directors but they have been collecting more than their share of Academy Awards in the past five years. When Steve Courtley won for The Matrix, he joined John Cox, who collected an Oscar for animatronic work on Babe, and Gary Tregaskis, who won a scientific and technical award for developing the flame and inferno digital compositing software.

It's an impressive record in a tough global business. With computers revolutionising film-making, the effects business has been likened to e-commerce for its expansion and pace of development. "Every project is cutting edge," says one insider. "Every project requires a new solution," says another: "It changes every six months."

Technology is increasingly allowing "synthespians" (characters like Jar Jar Binks in The Phantom Menace) to be digitally created and virtually everything in a shot to be altered.

Since Hollywood-financed films started landing in Australia more frequently, attracted by the comparatively cheap cost of production and the locations, there have been opportunities for local effects houses. But it is a highly competitive business. So much so that in Hollywood, Disney has persuaded George Lucas's Industrial Light and Magic to accept deferrals (a lower upfront fee with a promise of more if the film succeeds) to work on the $US135 million ($223 million) film Pearl Harbour. This is seen as a measure of tough times facing US effects houses.

On The Matrix the effects were a feature of the film and, as special effects supervisor, Courtley was in charge of such physical effects as shoot-outs and a spectacular helicopter crash. Two Sydney effects houses, Animal Logic and D-Film (since bought out by Animal Logic), worked with Manex in California to create the visual effects.

The film's Australian producer, Andrew Mason, says locals produced some equally impressive effects for an earlier film, Alex Proyas's Dark City, but they were generally overlooked because the film was unsuccessful.

"There probably wasn't as rapid a recognition of the capacity of Australia as there should have been. But what Dark City did was enable a lot of people to have the confidence that D-Film could do a lot of work on The Matrix. And at the same time Animal Logic had been doing work on Babe, Face/Off and The Thin Red Line so they were in a position to demonstrate their capacity to carry out a lot of work on The Matrix as well."

Mason says The Matrix, shot in Sydney by Chicago's Wachowski brothers, was the biggest commercial success that Australian effects companies had been involved in."That's the way of things getting recognised. It's terrific to get the Oscars but it's even better to be associated with something which was a flat-out unconditional hit."

There is some irony in the fact that Mason's films, which include Dark City and Red Planet, are largely driving the expansion of the country's visual effects industry. He was a partner in an effects company that was forced to shut in the late 1980s for lack of work. At its peak, Mirage Effects employed about 50 people but closed when the winding back of the film industry's tax concessions choked production levels. Even with more offshore films being shot here, Mason says it remains hard for Australian effects companies because of the limited budgets of local films.

"There's no real consistent body of work from Australian films for these companies. Every Australian film now would use some sort of digital effects technology to a minor extent but you need to be operating at a certain budget level to be able to afford to do enough work to keep the company alive. And that's not happening yet."

The managing director of Animal Logic, Zareh Nalbandian, says The Matrix showed Australian effects houses can produce work equal to the best companies around the world. He believes four years of investment - including setting up a facility for films, television, interactive projects and commercials worth "the best part of $10 million" at Fox Studios - is beginning to pay off.

The company seems unlikely to pick up any of the work when the next two Star Wars episodes shoot in Sydney - that will go to Industrial Light and Magic. And Mission: Impossible 2 was post-produced in Los Angeles. But there is the prospect of extensive work on Red Planet and Moulin Rouge as well as lower-budgeted Australian films.

"Not all the projects that we do are profitable," says Nalbandian. "A large amount of the work we do on Australian projects is not. But it all builds a repertoire of experience and work that we can use to [demonstrate] we're able to do anything that's thrown at us."

Animal Logic's work on The Matrix included the visual code and gun lightning effects. The company has also worked on effects in Babe: Pig in the City, The Thin Red Line and Holy Smoke.

Nalbandian says that much of the company's work is deliberately invisible. "What we did on The Thin Red Line was just as cutting edge as on The Matrix."

The challenge in that film, which was post-produced in Los Angeles, included digitally adding landing vehicles that were carrying troops onto a beach.

"The director Terrence Malick hadn't made a film for 10 years, was a very traditional film-maker and had no interest in visual effects," says Nalbandian. "We were able to create huge scale in the scenes that incorporated large amounts of landing vehicles that were carrying the troops onto the beaches."

The company also digitally added a wartime cruiser based on photographs. "We created a computer-generated image which was then integrated into the shot into a totally photo-realistic way so the viewer is never aware there has been any trickery."

On the Babe sequel, the effects work included bringing animals together for a scene that would have been chaos to film otherwise. "Animals don't really like acting together so we had situations where there were as many as 16 different animals in a scene who were filmed independently and then brought together into totally believable situations."

Nalbandian says up to 80 per cent of the company's work in film and commercials involves the viewer not being aware of the effect. "Maybe 10 years ago the genre for visual effects was really Star Wars and Star Trek - the sci-fi genre. Now visual effects is part of the staple tool-set for film-making ... alongside art department, physical effects and animatronics."

On Holy Smoke, the company's work included creating the effects for hallucinations and dreams, the opening titles and "enhancing" shots filmed on location. This included adding a blood-red sunset to a scene shot on a grey day. "We were able to completely replace the sky to bring it into the context of the story and the soundtrack that goes over the top of it," says Nalbandian.

Academy Award winner John Cox says an Oscar definitely carries weight with Hollywood producers. "They no longer ask if you're capable of doing the work, they just ask if you're available."

Cox believes there is the potential for Australian companies to compete more for films being shot overseas because it no longer matters where the computer that will handle the work is located.

"It's not really location-specific any more. It's what comfort levels the director has with work being done here if he's in LA or somewhere else," he says.

As the effects industry's profile increases, there are stirrings of Federal Government interest in encouraging its growth. The director of the Australian Film Television and Radio School, Rod Bishop, says the Prime Minister's Science, Engineering and Innovation Council is to consider the effect on technological change on the film industry later this year.

He sees telecommunications costs as a major issue in the expansion of post-production services. "Telecommunications charges between Australia and America [are] more than the cost of the production of the digital visual effects."

Bishop says Rick McCallum, the producer of the two Star Wars episodes that are filming in Sydney, called Telstra to have a broadband cable connected to Fox Studios for the production. But the costs proved so prohibitive that they will be sending material to the US by a courier service. Telecommunications can "reverse the tyranny of distance" in the film industry, Bishop says.

A decision due to be made this month in the US will have a major impact on future work for Australian effects houses - where the next two instalments of The Matrix will be filmed.

Andrew Mason was able only to say that he was hopeful the Wachowski brothers would come back to Sydney. Also in contention for the back-to-back productions are Canada and the UK.

If the Wachowskis do return, there will be an extraordinary concentration of high-budget, effects-heavy films in production in this part of the world. Apart from two episodes of Star Wars, there are also three episodes of Lord of the Rings being filmed back-to-back in New Zealand. And news came yesterday that Arach Attack, an effects-driven comic thriller about giant spiders going on the rampage, is to be filmed in Australia from September.

Even with the importance of "invisible" work, film-makers delving into fantasy worlds will give technicians the chance to extend the country's reputation for international-standard visual effects.

Explosive ... (Top) Animal Logic created the "Matrix code" and helped Keanu Reeves fight. (Middle) And gave Kate Winslet a goddess makeover in Holy Smoke. Photos courtesy Animal Logic, Warner Bros., Miramax Films and Jan Chapman Productions.(Below) Hugo Weaving comes apart in The Matrix. Photos courtesy Animal Logic, Warner Bros.