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.”
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?
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.