Digital Domain: From Hollywood to NASDAQ
Hollywood special effects house Digital Domain — who has realized the effects for such blockbusters as Transformers, iRobot, Pirates of the Caribbean, and Titanic — intends to go public with an offering of 6 million shares valued at $68.8 million, reports Seeking Alpha. As a result, the company released an updated S-1 filing which offers an interesting, if not grim, insight into the competition and pressured margins of the special effects business.
The visual effects and animation industry is very competitive. There are typically multiple visual effects and animation studios bidding for the same project. The high degree of competition in the market suggests that reputation, size, financial strength and tight cost management will be increasingly important for success.
While special effects have become an essential staple of summer blockbusters, the economics for their creators would appear suffocating: since 2004, the company has failed to generate a profit, with losses of $19.9 million in 2007, $1.67 million in 2006, and $4.17 million in 2005. Digital Domain may not be the best proxy for the industry at-large, however, as reduced capital investment in recent years has ceded power to the likes of Industrial Light & Magic, ImageWorks (SNE) and Peter Jackson’s Weta.
Most interestingly, the filing sheds light onto Digital Domain’s shift toward simultaneously developing effects-driven feature films and video games with the same engine:
It is our intent to focus on entertainment properties that can be exploited through the convergence of feature films and video games, and we have entered into an agreement with Warner Bros. Pictures to produce a digitally-animated “proof of concept” piece for the possible future joint development of a full length animated feature film and video game based on the 1980’s animated television series Thundercats, with both the film and the game to be produced within the common architecture of a video game engine.
Yet it is also quick to point out: “We have no experience producing or releasing visual effects-driven or animated feature films and no recent experience developing video games”. At a proposed share price of $12-14, your money might be better served by simply enjoying their impressive work on the big screen for now.
Related Information:
- Digital Domain’s Amended S-1 Registration (SEC.gov)
- Digital Domain Sets Expected IPO Terms (Forbes)
- A Blending of Screens (LA Times)
