Tuesday, September 11, 2012

Death Spiral, Part II

This is getting attention 'round and about. Is it really a surprise?

Debt-laden digital effects firm Digital Domain Media Group said Tuesday that it has formally filed for voluntary Chapter 11 bankruptcy. 

It also said it has reached a purchase agreement with Searchlight Capital Partners, which will acquire Digital Domain Productions and its digital visual effects operating units in the U.S. and Canada for $15 million.

"The sale will be the subject of a public auction, and DDMG is required to engage in a process of seeking the highest and best bid for these assets," Digital Domain said. ...

DD's animation studio went down in Port St. Lucie, Florida, after the state government sank some significant coin into getting the facility launched, and now ...

Florida state and local officials are investigating the company’s use of millions in subsidies, including funds to develop the Digital Domain Institute, a partnership with Florida State University to teach digital arts. Last week John Textor abruptly resigned the CEO job at Digital Domain saying he’s “in profound disagreement” with the decision to close its Port St. Lucie operation. Textor said that leaving would give him “greater flexibility to independently consider other strategic alternatives for the Company

I would say that Mr. Textor leaped overboard as his company slid beneath the waves, but if he wants to put a happier spin on it, fine by me.

The effects business has been fraught with low margins ever since the studios figured out they could offload high costs onto the backs of digital sub-contractors who would cheerfully cut each other's throats under-bidding each other.

Sixteen years ago, effects veteran Jim Hillin said to me:

"The studios are figuring out they can save money outsourcing the effects rather than doing them in-house. The effects studios make no money, and the studios avoid paying overhead ..."

It hasn't changed much from '96 until today, except that many effects people make smaller salaries than they did a decade and more ago, since the supply of talent has caught up with marketplace demand.


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