Digital Domain In Financial Trouble

Variety reports:

Digital Domain Media said Tuesday it has defaulted on payment obligations and is in two sets of talks, with a lender, and a strategic partner, to emerge from financial crisis.

Investment site Seeking Alpha:

Unlike Nokia (NOK) or Ford (F), a small company like Digital Domain Media Group has a less likely chance to rebound. However it is anyone’s guess as to whether they can. Other than losing money and defaulting on Senior Notes the company does have artistic ability.

Doesn’t look like DD is going to make it. Good luck to everyone.

Soldier On.

87 Responses to Digital Domain In Financial Trouble

  1. Scott Ross says:

    A sad day…. hope they make it. It is a great company with very talented men and women.

    • WOPR says:

      I remember a man calling us Idiot Savants. I think it was better to be this then greedy.

      • Vfx says:

        It was james cameron who said that because he found the employees capable of putting great focus onto one small thing, but incapable of stepping back and seeing the whole picture. I think it points to many problems at DD where details are often over worked on without stepping back and doing the broad strokes first.

  2. Very Sad says:

    Sad day indeed… I really hope they can turn it around for the sake of the people who are working there.

  3. occlude says:

    I hate to say it- I was right when I predicted the IPO would fail, but even I didn’t think it could tank this violently. This is some serious mismanagement happening right now.

    With the local trades reporting, it’s going to seriously damage incoming business opportunities. I would think acquiring work will be near impossible. Sad, they are so great at what they do.

    I hope all my friends there make it out ok.

  4. Yannick says:

    Somehow I doubt that DD is going to give the 100k to the VFX Trade organisation.

  5. True Indie Project says:

    I don’t know how to feel about this. American business practices have changed.
    Old business practice:
    1. Entrepreneur borrowed money to finance idea
    2. Paid himself/herself and everybody else a decent wage
    3. Business thrived.

    New Business practice:
    1. Sold old thriving business to large corporation
    2. New Money is borrowed from banks based on past performance
    3. Executives are hired at huge cost and paid for through borrowed money.
    4. In order to make profits seem larger, employee wages and benefits are squeezed
    5. Executives continue to get paid as others are laid off and profits dwindle.
    6. Corporation declares bankruptcy to make sure executive compensations are paid out, before banks and creditors can lay claim on assets
    7. Employee benefit/insurance accounts are liquidated by creditors

    This new US practice has got to change. I bet DD still had huge revenues last year. Where did all the money go? I’m sure it didn’t go to the employees.

    • From what I understand, DD hasnt been profitable for years. You should double check your facts because I think you would lose that bet True Indie Project.

      • Scott Ross says:

        DD has not been profitable since the new management has taken over.

      • edwardh says:

        He was talking about revenue, not profit. And here is an interesting article on the topic that appears to show that Textor’s salary alone accounts for 10% of DD’s loss in 2011. And I’m guessing he’s not the only one cashing in heavily.
        Plus, there are many tricks to distort figures in whatever way for whatever reason, so who knows what the reality behind them is…

      • edwardh says:

        Well… actually, his salary is a much smaller part. I misspoke. Miswrote. Whatever. You can see the breakdown of it all in the article for yourself.

      • Scott Ross says:

        edwardh…. you said…

        “Plus, there are many tricks to distort figures in whatever way for whatever reason, so who knows what the reality behind them is…”

        well, I don’t fully understand spline curves or NURBS… but having run VFX facilities for 20 years or so….. I do.

      • edwardh says:

        I only saw your post explaining the situation after I posted mine.
        And your explanation sounds quite reasonable. But… please excuse me for staying a bit skeptical (although I will of course accept it for the lack of a more elaborate one). Mostly because you didn’t provide any sources for e.g. the 70% and that “BIG vision” (which sounds more like severe mismanagement to me).

      • Scott Ross says:

        edwardh… my source is me….

    • Scott Ross says:

      well, actually a great deal of money went to the employees…. about 70% or so… it always does in VFX. The most expensive part of running a VFX business is salaries. Now, what has happened to the rest of the revenue? Tons of expansion….expensive DDMG management, new studios, financing of movies, corporate governance, legal fees, pay outs on lawsuits, capital purchases, expensive travel. BIG vision…. small purse.

      • Devin Fairbairn says:

        Im curious about this figure (vfx artist salaries). How much of these salaries are spent on overtime? If a fair share of it is due to overtime, I would think that figure indirectly inflated through either too short of time frames or mis-management (or both).

    • Ned Wilson says:

      John Textor’s compensation for 2011 amounted to $16,075,043. This is composed of $791,372 of actual salary, $407,000 in bonus (aren’t these generally awarded when a company shows a profit?), $8,351,210 in securities options, and $6,525,461 in “other” compensation. Executive compensation for 2011 totaled $28,028,128. Not bad when the company as a whole posted a $75M loss in 2011.

      Scott, Morningstar claims that DD reported operating income of $3M on revenues of $22M in 2009. Am I reading this correctly and did the company turn a profit that year?

      • Scott Ross says:

        2009 reporting was strange as the company has stub years, new names, new structures etc… also be aware of GAAP financial accounting, often times the numbers can be misconstrued… for example Textor did not make $16MM in 2011, as $8MM of it was in options that are way under water…. and at this point he will see no value whatsoever in those options….

  6. I can’t imagine a VFX world without DD. A sad day indeed if they do have to close up shop. I personally enjoyed my time there and felt the artists were all top notch.

    • Scott Ross says:

      me too… it was SIGGRAPH 1993, I was walking around the floor and my name tag said Scott Ross, Digital Domain. No one had heard of this young UpStart company, though the year before my name tag said Industrial Light and Magic and everyone was buying me drinks. In 1993, nobody was buying me any drinks….. Three years later, I was buying everyone drinks… and happy to do so. DD is a great company…. I so want them to shine!

      • Yar says:

        Maybe it’s time to get back from retirement and take the helm of the pirate ship once again. I’m sure they could use a better captain.

      • VfxArtist says:

        That DD doesn’t exist anymore. In fact that environment for Vfx doesn’t exist anymore. No offense to Mr. Ross’s history, but I don’t understand why people want to return to that time. We need a fresh look at what Vfx will be regarding an LA presence. For me, there are a lot of old habits in Vfx that need to be discarded. Currently it’s still too top heavy and is attempting to commoditized it’s human capital at a time when it should be their main assets. The toolsets are now commoditized (as it should be). Even in the black box days of Vfx, as expensive as the gear was, it was the people and artist who mattered most. You competitor could also sink a million and a half in a D1 room as well. So how much you spent eventually became irrelevant. it was the talent.

        Now the turnover of people has really IMHO removed any consistency and marketable strength in a facility. Its introducd a disposability mindset with people. Its unhealthy and it hinders creativity and growth. You end up with just pirate technicans When you are not selling talent and creativity, you will hit a price ceiling really quick.

        I think the core goal should be to figure out what new model to have for a local presence in Vfx. Focusing on globalizing and creating a sort of company empire, having relations with communist and Muslim countries for solely exploiting their lack of labor rights and cheap labor, I think that’s a huge “if” for a business that was never on firm footing. Relying on brand name only goes so far with wall street…. Eventually they want to see the money.

        I say we build a sound, grounded local industry in LA. Clients will have to pay more to be local, but they will know the artist by name. Clients, the right clients, will want that. It’s always been my experience with local clientele that the ones who want that will play. Meanwhile the ones you underbid to get the gig in? They will squeeze you the whole time, because it was always about getting the cheaper product, not the best product.

  7. dlight says:

    I wonder what will happen to that sch (slave labor camp OOPS) ool in Florida?

  8. edwardh says:

    Interesting… I assume many of you were chiming in when it came to criticizing or even damning DD because of their partly awful practices.
    Yet, when now, they are finally going down, it is a “sad day”?! What the hell?!
    Of course it’s unpleasant for the company’s “human resources” but big structures such as DD don’t tend to change unless they’re torn down and built anew. Which is likely going to be the case, as it usually is whenever either a company goes down completely or a branch closes. DD will obviously leave a huge hole but all the talent/manpower will still be there, hopefully forming new studios with higher ethical standards.

    • Scott Ross says:

      while companies are not people… companies are comprised of many different factions… in the case of DD, it would be very sad if the wonderful employees of the company were harmed…there are many that have moved to FLA…. they could be up a creek without a paddle.

      • shades of New Mexico….

      • Ymir says:

        New Mexico closed for entirely different reasons, but still the same that many people were stranded there after moving for the company. Unless, of course, they wanted to move again to Vancouver.

      • yeah, that’s what I meant…”there are many that have moved to FLA…. they could be up a creek without a paddle.”…just replace FLA with NM

      • Ymir says:

        To make it doubly worse, many from NM moved to FLA over the summer.

      • edwardh says:

        Did I ever imply that it would be good for people to be harmed?
        Quite on the contrary, why do you think I used the term “human resources” in a sarcastic way? Of course I hope that people will get out of this OK. I guess I’m just relatively optimistic that they will.

  9. Caleb R. Owens says:

    Very sad. Even more sad it happened so fast. Will Textor and the senior execs lose? Probably not. Taxpayers lose, workers and their families lose and the industry loses.

    Could this be the final wake up call for artist and workers?

    How about an organized rally outside DD when the news is finally announced that one of the great vfx powerhouses is closing it’s doors for good? Takers or more anonymous posts?

  10. Ned Wilson says:

    Is anyone aware of the status of Mr. Textor’s $12.5M loan from Palm Beach Capital? I understand that the principal was due and payable last Friday, but that he was in the process of negotiating an extension.

    • Scott Ross says:

      According to form SC 13D of 8/29, Mr. Textor .. “and the Lenders have agreed in principle to extend the due date of the Loan Agreement and are currently negotiating an extension of the Loan Agreement.”

      An interesting point here is that Mr. Textor borrowed the money to buy $10mm of DDMG shares at IPO. It seems that the issue of PBC lending the money to Mr. Textor to buy those IPO shares was not disclosed until very recently, when the loan was due and Mr. Textor couldn’t pay. I recall that various publications reported on Mr. Textor having such faith in DDMG that he ( the CEO) personally bought $10MM at IPO price. Additionally, I wonder if the $10mm of IPO shares were necessary to float DDMG at IPO. Did the new banks that underwrote the IPO need a certain volume for the IPO because they were undersubscibed?

      Finally, a law suit between DDMG/Textor and Carl Stork was recently settled even after jury deliberations had started. Textor/DDMG agreed to pay Mr. Stork $5MM. Having read the complaint of Stork vs Textor et al, it seems that Mr. Stork alledged that Mr Textor had hidden bona fide offers from an Indian company that had offered to purchase DD for $60MM and in hiding that offer from Mr Stork and the board, offered Mr. Stork considerably less money for his shares, explaining to Mr. Stork that the Company was not worth very much money. Fiduciary responsibility?

      • “I wonder if the $10mm of IPO shares were necessary to float DDMG at IPO.” – I think you’re hitting the nail on the head there, Scott. The first indications were that there simply wasn’t enough investor interest in the company – it looked like they would withdraw.

        I didn’t feel the IPO was a good move for DD, at least not without diversifying their business first. VFX is such a small margin business even under the best of circumstances, it’s not appealing to traditional investors. Nobody realistically expects a public vfx company to ever pay out dividends; growth rates are frequently glacial (and as they grow larger, companies tend to take on larger projects with smaller margins), and in many cases the loss of one or perhaps two big (and always fickle) clients can tank the company. It’s a scary company and industry for investors.

  11. CGChick says:

    What’s going to happen to all the people who were just hired for the Florida campus?

    DD will fall and thus remove one of the last major VFX companies based out of the US. I’m truly starting to wonder if this is the end of the American VFX business. Administration is still in America of course but the vast majority of artist/technical/R&D work is not. How depressing.

    I worked at DD Venice on a project contract once. I feel so sad for my former supervisors and leads who are still there. They were good people, I enjoyed working with them.

  12. Concerned VFX Professional says:

    I liked working at the Venice studio during my time there….but sadly most of the local work was sent to their Vancouver office…at least animation wise.

  13. dave says:

    The rudder fell off the DD ship ages ago

    dave

  14. KS says:

    and here’s the other issue.

    DAMAGE is done! DD will lose it’s current projects because the Studios will not be taking a chance on them going under. No Way, No How.

    They are cooked. We wee this all the time….a facility who has even a shred of a possibility of not being able to deliver will get it’s crap yanked. They aren’t going to wait n see if DD pulls through…not at the cost of not getting their shots delivered.

    DD is on borrowed time because the snowball rolls from here.
    Smart employees see that they may not (likely will not) get paid for current work which means they are preparing to bail as we speak. When the employees bail, shots don’t get done. It’s simple.

  15. serg says:

    This is very troubling! In worse case if DD were to close it would leave anywhere up to 600 (between LA, SF and Van) VFX artists out of the job. Add on the Florida operations and those numbers are even higher. There’s little chance the industry could absorb that amount of people quickly enough without some serious damage being done to a lot of people.

    I sincerely hope that DD finds it’s way out of the current financial troubles and keep the artists employed. It is sad to see that this is happening at a time when a studio is actually doing relatively well with a full slate of on going projects… really boggles the mind!

    • Paul says:

      Why necessarily worry about absorbing 600 people into the market if DD collapses? How about a brand new entity with most of these folks?! It’d probably be leaner but it’s not like, as oppose to what you’re saying, the market could do without the power of these people is it? I mean there are tons of VFX to be produced no matter what right?

      • Max says:

        Exactly Paul! Why NOT a new entity, some how, some way the vfx for the features they have must be done. Unless they are completely taken away and even then, where is it going to go? What facilities are going to take on the work?

        Either way I hope DD makes it out ok. It’s a great place, I’ve worked there many times over the years and always looked forward to going back.

      • Anonymizer says:

        Running a business is no easy task. Running a VFX company is a very difficult business, even when there are many talents you can readily picked from. When you are the owner of the company, there will also be many people’s livelihood that depended on your success. When you screw up, so are their lives. It’s a great responsibility I wouldn’t take so lightly if I were you.

  16. ugh says:

    I can picture Rhythm & Hues and Sony Imageworks waiting on the branch like vulture, ready to race down for the scraps (projects) from the carcass of Digital Domain.

    • Anonymizer says:

      Unless you understand RH and Imageworks as a whole, don’t make such speculation. It’s not as simple as you think, and neither will it be pleasant for anyone here if DD goes down.

  17. Scott Ross says:

    I agree…. I would not want to be John Textor right now. He had a huge vision…. and he is VERY motivated to figure this all out. I hope it’s not too late.

  18. sloppy cheese doodles says:

    @Ned

    Simple question…which parts of DD are worth $51 million combined? If my memory serves me correctly, Wyndcrest paid around ~$36 million for the entire company – and the company hasn’t actually increased in value since then.

    Where is Textor going to go to find money at this point. As far as I can tell, he was pretty much at the end of his Rolodex already. And the international ‘partners’ like Reliance are probably happier collecting $70 million without having to actually run a facility – any deal involving a international element will likely not end well for the North American facilities in any case.

    As I made clear in the other thread, I think there are profound structural problems with how the business is organized, and they won’t really go away if you just pump more money into the company. Plus, I wouldn’t be terribly surprised if everything that was currently in progress feature-wise in Venice was yanked by the end of the month.

    I think the best you can hope for is that the creditors force Textor to take the company private and everyone gets paid through the holidays. He’s been looking for an excuse to dump Venice/Playa for a while and financial troubles certainly provide a convenient one.

  19. WOPR says:

    I have great memories of working at DD. Always hoped to go back one day. I’m sure I would not recognize the place even if I did. A shout out to the boat population team.

  20. Honeybadger don’t care.

  21. Caleb R. Owens says:

    @realist I hope you are right as well. The problem is that this is an entirely different set of circumstances. Being a public company is a lot different than a struggling private one. Not to mention the negative PR is a massive issue that can scare off clients, investors, stock owners etc. etc. I hope it all turns out positive for the artist, workers, and Florida tax payers, but this is seemingly a big whole to climb out of, and it’s getting bigger.

  22. Dave Rand says:

    Let’s hope someone see the value, especially the core group of talent that is so valuable, and gives these guys a break…

    Share Price is under a dollar now. What that means is the potential for delisting from the NYSE (like having your house towed from Beverly Hills to South Central LA)

    ” A penny stock is the widely used Wall Street term that refers to the shares of companies that trade for under a dollar. The New York Stock Exchange carefully maintains standards that prohibit these stocks from daily trading on the exchange, if their share prices decline to below $1 over an average 30-day period. The exchange is generally willing, however, to work with these companies by granting a grace period of six months to come back into compliance.”**

    **Read more: NYSE Delisting Rules | eHow.com http://www.ehow.com/list_7585613_nyse-delisting-rules.html#ixzz25chbHu24

  23. Dave Rand says:

    A bit of a break just announced

    “Digital Domain Media Group senior lenders agree to limited forbearance (halted)
    Font size: A | A | A
    3:25 PM ET 9/5/12 | Briefing.com
    Co announced that each of the holders of its six senior secured convertible notes in the aggregate original principal amount of $35 million issued by the Company on May 7, 2012, has agreed to forbear from enforcing its remedies under its Senior Note until such time as it elects to withdraw such Forbearance on not less than 48 hours’ advance notice to the Company.

    As previously announced, co is continuing to evaluate its alternatives, including (i), in conjunction with the holders of the Senior Notes, a term sheet received from an institutional investor proposing a senior secured debt financing transaction that would potentially refinance obligations under the Senior Notes as well as provide operating funds to the Company, and (ii) a term sheet received from a business partner relating to a significant equity investment in an operating subsidiary of the Company. As previously disclosed by the Company in a Current Report on Form 8-K filed by the Company with SEC on September 4, 2012, each of the holders of the Senior Notes advised the Company on August 21, 2012, that its Senior Note is in default. “

    • Andreas Jablonka says:

      thats kind of what i predicted: let em finish enders game see if it makes cash if not pull the plug. honestly surprised all lenders agreed to this but im happy DD is not going away just yet.

  24. Anonymous Artist says:

    Hi Scott,

    Since I know you have the experience on the subject, I have to ask you; What do you think about the fact that VFX artists, while expensive are continuously being squeezed by studios (animation or vfx for that matter) while above the line people are getting such disproportionate payouts (e.g. Pirates and Iron Man)?

    The salaries of the workers is only a fraction of the cost of their payouts alone. When will not only the companies but ARTISTS stand up and say enough? Our work is hard and takes time and talent. Film production studios don’t seem to be aware of this.

    What is your take and do you have any ideas on what we as artists can do (aside from accepting status quo and moving across the world?)

  25. Almost There... says:

    DD has officially closed it’s doors. It’s over now.

    • Number Cruncher says:

      DD *Florida*. You know, the division that had 300 employees and no revenue. DD LA & Vancouver are going to be fine.

      • Ymir says:

        I would imagine Venice and Vancouver will follow suit once shows they’re working on wrap up. This is a bad day to be an effects artist.

  26. Patrick says:

    Digital Domain Florida is closed. Textor is no longer a part of Digital Domain. Three hundred people who all relocated themselves, families, bought homes etc, all have to pack up and move.

  27. CGChick says:

    Unfortunately the inevitable just happened about an hour ago.😦

  28. DDI Student says:

    Digital Domain is closing operations in Port St. Lucie, the company announced Friday morning.

    http://www.wptv.com/dpp/news/region_st_lucie_county/port_st_lucie/reports-of-digital-domains-facility-in-port-st-lucie-closing#

  29. fascinating and depressing to read an unbiased outside financial evaluation of our industry, especially this part:

    “Add on top of that the complication of government tax incentives that distort the economics of an already low margin industry. Canada, the UK, Australia, Singapore, and other countries have significant tax incentives to develop film industries in their own countries.
    For instance, work done in Vancouver ends up costing $0.50 on the dollar once all the tax credits are factored in. Shortly after a new country or US state initiates one of these large tax incentives visual effects houses race each other to set up satellite offices in the new tax haven.
    The winner enjoys a momentary advantage over the others but this is gradually competed away when others set up shop in the same place or when a new country or state creates a new tax incentive that a competitor was able to take advantage of first.”

    the rest is just extra-depressing, and DDMGs “warrant” situation will blow your mind. I’m not un-savvy financially but there are so many devices like this, seemingly designed to increase liability it certainly blew mine…

    http://caps.fool.com/Blogs/digital-domain-media-group/759273

  30. Dave Rand says:

    A friend of mine had his medical equipment shipped ahead of his arrival, was told last minute to stay home, no job. Below is another story, one of many. Are you tired of being treated like a migratory melon picker from a third world country? WTF is it going to take for an industry that creates amazing profits to treat it’s creators with some class?

    I say being responsible is fighting for a say in your own future.

    Anyone who enters a business relationship and surrenders all the leverage to the other party can expect to lose.

    How do you gain leverage? Just on your awesomeness and talent alone…maybe, but combine that with the awesomeness and talent of everyone and you’ve got what the other side has….organization.

    Nothing wrong with being a smarter business person or group that’s the very substance that makes up corporations that employ you.

    A balance business relationship actually helps both parties. That’s business 101.

    Ask yourself if this would be happing (see link below) if a trade organization and a union were in place:

    http://bit.ly/QrvAUZ

  31. VFXguerrila says:

    Honey badger…Im with you! Worry not cuz if these people are serious about making good VFX then they will quit worrying about the name of the studio and build anew. They will rebuild smarter…with new energies and leave what didnt work behind.
    We will organize in new ways and create more studios that all create amazing products. Not room for these giants anymore. Sorry, if you want an empire your going to be in the wrong business. We build dreams and empires are for old men obviously bored with their lives.

    • Anonymizer says:

      I’ve seen many tried to “rebuild smarter” and “leave what didn’t work behind”, but in the end the same old problem persisted even with the best of intentions.

      Run a VFX business is no easy task. VFX work in general is very challenging. If you have been in this business long enough and further in the back-end to understand the challenge.

      Large companies have a certain benefit that they can handle with a degree of reliability a massive scale of work and push it through its pipeline efficiently and consistently– something that small studios simply doesn’t have such resources for.

      The more work is being decentralized, the greater the challenge it is to manage the projects and pull them all together.

  32. […] here: Digital Domain In Financial Trouble | VFX Soldier hopfeed_template=''; hopfeed_align='left'; hopfeed_type='IFRAME'; hopfeed_affiliate_tid=''; […]

  33. […] to go through downturns and that there was a need for healthy VFX vendors like a Sony Imageworks, Digital Domain, or Rhythm & Hues to pick them up. Not anymore, that ecosystem of work was destroyed by […]

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