Digital Domain Attempts To Go Public Today

Legendary Football Star and Digital Domain Investor Dan Marino’s Reaction To DD IPO

Later today Digital Domain will attempt to become a publicly traded stock on the New York Stock Exchange:

Digital Domain Media Group, a special effects company whose work appears in Transformers, TRON and Titanic, hopes to raise $54.8 million in an initial public offering of stock set for Friday.

I never agree with Fox News but their segment on Digital Domain was pretty much spot on.

Why is this such a huge story in the VFX industry?

Digital Domain is the only stand alone VFX company to have tried to go public and by doing so, they must publicly report their finances for all to see… and it isn’t pretty:

When adding in non-cash charges for depreciation and amortization and stock warrants to employees, the losses ballooned to $45.2 million in 2010 and $112 million in the first half of 2011.

Just “Paper Losses”?

According to DD CEO John Textor, who boosted his pay to $750,000 from $500,000, these are all just “paper losses”.

This was in reaction to a former business partner and Florida politician Carl Domino who tried to stop the state of Florida from giving subsidies to Digital Domain:

Every indication is that this is a failed business model,” Domino said this week. “I don’t know how long you can keep losing that kind of money.”

Seeking Alpha agrees:

An award-winning digital production company, DDMG is an artistic success but business failure to-date based on its income statement.

Executive Pay and Facility Overhead Costs Are Too Expensive

What’s interesting is that the vast majority of those losses were overhead costs for opening facilities in locations that are offering subsidies like Australia, London, Vancouver, Abu Dhabi, and Florida and compensation for executives and board members.

I went over the salaries of some of the DD execs and had to ask: With so many bonuses and extra pay in severance, what incentive is there for these execs to change the VFX business model?

And as far as the subsidies are concerned, the only location foolish enough to give subsidy money directly to Digital Domain is the state of Florida. It’s important to understand that the other locations offer subsidies to the US studios producing the film. DD is having it’s arms twisted into opening these other facilities to get the work and swallow the expensive facility costs. As you can see, $100 million in the first 6 months of 2011 is HUGE.

Will Digital Domain IPO Be Successful?

VFX artist Joe Harkins concludes that the DD IPO will fail. On the other hand Dave Rand is supportive.

I honestly don’t know. There have been many companies that have gone public without generating any profits. Hell I’ve done vfx for companies that never even generating a dime in revenue and they are still in business. DD is definitely generating revenue and are getting involved in creating their own IP and also co-producing a number of films.

This is the second time they are attempting to go public. The first time they didn’t even come close to this point. They’ve lowered the amount they are trying to raise from $115 million to about $60 million so the amount is much less. I seriously doubt they would try to list if they didn’t think the possibility for funding was out there.

Granted there are some huge problems and shady suspicions. The fact the IPO is happening on a Friday before the holiday and a small no-name accounting firm was hired to replace a big-name accounting firm brings back memories of the wrongful termination lawsuit DD lost to Ex-President Brad Call.

Will A Studio Buy-Out Digital Domain?

Don’t laugh but I’ve sometimes come to the same conclusion as one of the commentators in that Fox News segment above: That a bigger conglomerate will buy the big VFX studios out. Afterall, many VFX facilities like MPC, Imageworks, Cinesite, ILM, and Weta are backed by very large companies or producers with deep pockets.

The studios NEED visual effects in their films and while all you wanna-be director/editor/actor/student/waiters/cgtalk-trolls think its easy to just open your own shop and do big league effects, they still rely on the big facilities to get the job done.

Yes, they are treated like mules but the studios need them to tend to the VFX for their films and if one of them dies, that’s less VFX bidding competition.

It’s going to be a wild ride. We’ll see where it goes.

Soldier On.

32 Responses to Digital Domain Attempts To Go Public Today

  1. David Rand says:

    I’m 100% supportive yes. No matter what your feelings are about DD or the offering consider these points:. Maybe a better company should have come forth or maybe this really is not one that could. At any rate this is all we’ve got. Failure here hurts everyone. I’m a former broker, I worked in the syndicate dept (stock offerings) of Oppenheimer for years until I changed careers after working on the offerings of Alias and Wavefront before SGI took them over. I’ve seen worse companies do well and ones with better balance sheets fail. This being DD’s, an effectively this sector’s, first attempt at this excellent way of raising capital is really a milestone and paves the way for future shops to gain access to new markets and better ways of doing things. I’ve been on the staff of 5 shops that failed during my career while the projects they created went on to make hundreds of millions of dollars. Public offerings are how almost every success story in America got underway. Fedex started as a penny stock with losses, no one thought they’d ever be able to compete with the post office… A shop or vendor trying to get to the level of studio is an evolution that can help weaken the grip of the powers that hold most shops back, and hold us back. Maybe you don’t want to buy the stock but bad mouthing it is really like pissing in the wind. DDMG just started trading at $7.64 an number that will have impact.

  2. DD was shooting for an initial offering price of between $10 and $12 per share. The offering broke this morning at $8.50 and went steadily downhill. Investors will be left holding the bag. And owners/management will walk away with large bundles of cash and the urge to laugh their heads off. Once again.
    Eventually, the stock price will be so low that one of the studios will buy it for a song, to ensure a steady supply of cheap vfx. And employees will continue to subsidize this segment of our industry. Highly skilled Venice based workers will continue to attract the business with their talent, then the work will get sent to tax shelter low skilled facilities to churn out second rate product.
    There has to be a better way!!
    Jimmy Goodman

  3. Josh says:

    My thoughts is that like with most publicly traded stock companies you are beholden to the shareholders and stock market…Ever chasing that elusive quarterly profit. And in a effort to constantly chase profits it will lead to a further degrade of the workplace and further shifting of jobs out of CA and the rest of the US.

    So Im thinking this MAY be a positive for DD the company…But not the DD employees, especially those in the US.

    • Dave Rand says:

      Because of rule 144 insiders can not trade the stock for quite some time. I’m not sure the new waiting period. I’ll look it up later today. I did see two volume spikes for about 50K worth of the stock, one to buy one to sell. I sold today at 7.50 so as not to hold it too long in this volatility but I have every intention of building a position here like I did with SIRI Sirius Sat Radio, used to be a 60 dollar stock as XM then went to 15 cents. You can’t judge a company in the short term of it’s stock price especially in this goofy market. I still believe in DD as a survivor, the list of vendors that are still around from the 90s is tiny. The list of those you can buy stock has one entry. DDMG. I believe there is a huge future in our industry and have faith in DD and I hope others follow. Globalization is inevitable but so is the spread of demand for stunning digital imagery, better ways of working, and better channels of distribution not only in film, games, and advertising, but also in education and communication.

  4. David Rand says:

    They only sold 13% of the equity so a hostile buyout would not happen but privately anything is still possible. I really wish a union would notice us for our potential clout and not as a bargaining chip. I’m not referring to Jimmy or the two Steve’s at the guilde but those at the top that have more myopic plans. Meanwhile having a source of major funding close it’s doors on this sector because the first attempt had a cold reception, for whatever reasons, only hurts all of us. So my slogan is “long live DD!” cause we need all the help we can get …artist and shop alike.

  5. Paul says:

    Looks like it’s a success! Oops…I think they applied the same sinking algorithm to both the Titanic and stock.

    • David Rand says:

      …and your standing on the deck of your own metaphor

      • Paul says:

        …and your standing on the deck…pissing in the wind!

        Facebook’s worth billions of dollars and created thousands of jobs without going public. I don’t see why we should defend or support DD IPO in the name of jobs creation and what not.

        Long live DD? yes of course!

  6. meh says:

    Occupy VFX!

  7. Dave Rand says:

    FB is the exception to the norm I agree, and there usually is one. I believe there will come at time when they peak and that they will go public and it will be the hottest IPO in the history of the market. However, most of the largest success stories in the world (no need to list them just look at the Nasdaq 100 or the NYSE) came from revenue generated by this means. This is our frontrunner and I’ll do my part to support it by avoiding myopic comments and focusing on the positive aspects of this important event…and yes not pissing in the wind.

  8. bob says:

    I predict dd will fail to turn profit. Shareholders will get pissed. Dd will cut wages and benefits and drag our wages down even further then collapse.

  9. bob says:

    No offense taken we will see soon enough. Meanwhile how is that venture doing? Last I heard the market qualified it as a loser to stay away from. Can anyone advise me on how to short a stock?

    • Dave Rand says:

      Shorting a stock is when you sell shares your don’t own with the promise to replace them with shares you eventually have to buy to replace the borrowed stock, Of course the plan being to pay less for them than what you sold them for. You can do this in most margin accounts or accounts with a minimum balance. Keep in mind your potential downside is unlimited when you do this.

  10. David Rand says:

    Sorry I posted this in the wrong spot…. Because of rule 144 insiders can not sell

    the stock for quite some time. I’m not sure what the waiting period is. . I’ll look it up later today. I did see two volume spikes for about 50K worth of the stock, one to buy one to sell. Thanks for the link to the insiders names. Seems a positive to me. I sold today at 7.50 so as not to hold it too long in this volatility but I have every intention of building a position here like I did with SIRI Sirius Sat Radio, used to be a 60 dollar stock as XM then went to 15 cents. You can’t judge a company in the short term of it’s stock price especially in this goofy market. I still believe in DD as a survivor, the list of vendors that are still around from the 90s is tiny. The list of those you can buy stock has one entry. DDMG. I believe there is a huge future in our industry and have faith in DD and I hope others follow. Globalization is inevitable but so is the spread of demand for stunning digital imagery, better ways of working, and better channels of distribution not only in film, games, and advertising, but also in education and communication.

    • David Rand says:

      looks like it’s 90 days before an insider can sell DDMG.

      • Scott Ross says:

        what qualifies as an “insider”? I wonder if a trustee or another corporation owns shares or options, that is not controlled by an “insider” but that corporation or trustee has an agreement with another corporation that is not controlled by an insider but has a deal with an officer of the publicly traded company, is that insider trading?

  11. Dave Rand says:

    I believe rule 144 applies to any insider that received shares from the IPO. They can buy more, as some did about 10 days ago, about $10million worth, but they can not sell. I know DD has a jaded past and a crappy balance sheet but if you use the rest of the sector they belong to as a benchmark…they suddenly don’k look so bad. You can say it’s sad that our only horse in race in this sector is DD, I’ll stay on the side that is cheering them on. If they fail miserably it hurts everyone. If they make and produce quality content… well anything is possible. Pixar was once a small company with a questionable CEO (Steve Jobs) after his Apple firing. They went public two weeks after this little film called Toy Story came out and set the IPO record of the year, beating Netscape. I prefer to aim high, even if it’s just for the sake of others who may want to follow the growth power of IPO funding. Only helps the average vfx shop and maybe just maybe gets the Studios to “think different”.

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