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Wednesday, May 17, 2006

Digital Domain acquisition: Is there a future for `blue chip' visual effects firms?

A Florida investment company called Wyndcrest Holdings is purchasing the visual effects firm Digital Domain for $35 million, according to the LA Times and the Hollywood Reporter. Two of the partners at Wyndcrest are director Michael Bay (`The Island,' `Pearl Harbor') and former football tosser Dan Marino. (That's Bay at right.)

My working thesis about the visual effects business is that, despite the growing number of big-budget movies relying on computer-generated imagery, the ability of "blue chip" visual effects firms (such as ILM, Sony Pictures ImageWorks, Digital Domain, and Rhythm + Hues) to command premium prices will drop. As hardware and software gets cheaper, and as more young people are trained with the skills to create impressive computer-generated shots, more start-up firms will be able to deliver high-quality visual effects sequences. They'll be so eager to build up their reputations that they will under-price the more established firms. (This is already starting to happen, of course, and it'll only accelerate.) The more established firms will try to make the case that, for movies with hundreds or thousands of visual effects shots, it doesn't make sense to farm the work out to a bunch of smaller shops. Unfortunately, Robert Rodriguez (and others) are already proving, with pictures like `Sin City,' that it can make sense to distribute work to several small visual effects firms.

Digital Domain and the rest of the big guys have always been able to charge a high price for their services by saying, `We can do effects that others can't, and deliver them on a timetable no one else can match.' They'll have to keep proving that's true, or find a new basis for competition.


  • ILM can underbid.

    They secured ALL the VFX work on Golden Compass by "delivering a package deal, including their own supervisor,that no one but ILM can offer" [to quote an VFX producer].

    I believe a similar situation happened with Transformers.

    Smaller firms may be able to be cheaper on a per sequence level BUT they can't compete with the economies of scale that the 'blue chip' VFX houses can offer.

    By Blogger stu willis, at 6:42 AM  

  • Unfortunately, the threat of newer, smaller vfx houses is not recent.

    The boutiques can lowball/underbid many of the established/larger houses and have been because they usually have less overhead. The risk is if the scope of the job gets larger or changes, the boutique may not be able to scale or speed up to meet the demand of the production. They are nimble but have less resources.

    The majors have larger overhead but also have the capacity to take on many jobs at once, completely. You'll never worry about delivering all your shots on schedule with them. If they want the job bad enough, they can match or undercut most places if they see it as a way to build a relationship with a filmmaker.

    Sometimes schedule, not budget demand you use multiple houses just for the bandwidth and focus (instead of one vfx house producer on the whole project, you have a vfx producer for each sequence) of delivering sequences.

    I'm babbling, basically what Stu said.

    I think the brass ring for most of the majors (ILM, DD, Sony, etc) is not higher profit margins from Service Only work. But to own/create/produce the film themselves and become a true production studio, making their own films.

    What shop doesn't want Pixar's success with creating their own films?

    By Blogger Alba, at 2:03 AM  

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