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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.


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