What does it mean? ILM selling its model shop
I don't think it means that we're seeing the end of models and miniatures in feature films -- at least not quite yet. There are still plenty of instances where it is cheaper to create an object out of wood and glue than of microprocessor power and pixels.
I simply think that the model shop isn't a real profit center of ILM anymore -- the workload tends to be "burst-y" rather than consistent -- and that from ILM's perspective, it makes more sense to spin this group out, and continue using them as contractors. They're going to call the new company Kerner Optical -- a reference to old-school optical (rather than digital) effects.
In Variety, David Cohen and Gabriel Snyder write:
Unit ... will focus on all physical production, including models, miniatures and stage work.
Once spun off, Kerner Optical will aim to pick up the slack by seeking work that ILM would not get. Kerner will become a preferred subcontractor for ILM.
ILM's physical production unit never made the move to Lucasfilm's new HQ at the Letterman Digital Arts Center in San Francisco's Presidio.
It'll be interesting to see how well the model shop that helped launch the `Star Wars' and `Indiana Jones' franchises -- and won so many Visual Effects Oscars -- does as an independent entity. The biggest challenge will be bidding against `Young Turk' digital effects studios that are eager to land movie projects (and willing to lose money on the first few). Kerner will need to be phenomenally efficient...and have a great rainmaker on their side.