Musical Chairs

The churn in the VFX business continues.

Digital Domain 3.0, the post-bankruptcy incarnation of the Venice, Calif.-based visual effects company ... has yet another new owner.

Sun Innovation, a publicly traded Hong Kong company, has acquired the parent company of Galloping Horse U.S., which bought 70% of Digital Domain in the bankruptcy auction last September. Reliance MediaWorks will retain the remaining 30%.

Sun has not acquired Beijing Galloping Horse, which has apparently shed its majority stake in its former partner, DD, only 10 months after acquiring it. However, Galloping Horse appears to have turned a tidy profit on the investment. DD sold for a total of $30.2 million out of the bankruptcy auction. Sun paid $50.5 million for Galloping Horse U.S., whose main asset was its stake in Digital Domain. ...

So a quick $20 million profit has resulted. Visual effects studios seem to equal poker chips just now.

And how did the profit-margin happen?

The Galloping Horse-Reliance ownership, in the words of the Sun filing, “implemented a series of stringent cost control measures” at Digital Domain, “including among others, (i) reducing the number of unutilized production employees without jeopardizing the fluency of workflow; (ii) dismissing employees who have unsatisfactory performance,” and “implementing stricter cost control on other expenditures such as equipment purchases and office supplies.” The phrase “stringent cost controls” appears 10 times in the filing.

Salaries, benefits and staffing levels at DD were slashed following the bankruptcy. ...

When in doubt, slash wages and bennies. That always increases profits.