Special-effects studio Digital Domain to launch stock offering

Digital Domain, one of Hollywood's top special-effects shops, is ramping up its plans to go public.

The Venice-based company, which created special effects for films including "Titanic," "Pirates of the Caribbean: At World’s End" and "Transformers," hopes to sell 6 million shares at $12 to $14 each, according to the updated prospectus the firm filed today with the Securities and Exchange Commission.

Read the filing here.

The company, whose roots go back 15 years, was purchased in May 2006 for a reported $35 million by an investment group that included director Michael Bay. The group first announced plans for a stock sale in December, but many new offerings were sidelined in the first few months of this year by Wall Street’s upheaval.

Digital Domain is well known for its work in feature films and TV advertising. Yet the business has been bleeding red ink: The company lost $20 million last year on revenue of $78 million.

"Since 2004 we have been unable to generate revenues sufficient to be profitable," the firm warns in the prospectus.

Times staff writer Richard Verrier wrote in a profile of the company in May 2007 that "differences among the former owners" -- who included director James Cameron -- "and a lack of investment capital hampered the company in recent years. That allowed rivals such as Sony Pictures ImageWorks, Rhythm & Hues and Peter Jackson's Weta to cut into Digital Domain's core effects business."

"Compounding matters, Digital Domain and other U.S. visual-effects houses have been squeezed by rising labor costs and competition from rivals in Europe and Asia that are able to produce effects at a fraction of the cost," Verrier wrote.

In one good sign for potential investors, none of Digital Domain’s existing shareholders is selling stock in the deal. All 6 million shares would be sold by the company, raising $70 million (after expenses) if the stock is sold at $13 a piece, Digital Domain estimates.

The company says it expects to use $25 million to pay off debt and the rest to expand the business -- including a push into video-game development and production.

The stock would trade under the ticker symbol DTWO. San Francisco-based brokerage Thomas Weisel Partners is leading the underwriting group.

Photo: ParamountPictures/20th Century Fox

Posted April 7, 2008

Comments

[captain_ipo]

Who in their right mind buys into an IPO for a company that loses $20M -- and is in a low-margin business with near-zero prospects for growth? What am I missing? Add to that a US and/or worldwide recession, along with the typical mismanagement created by "artist/director" run firms, and this is a sinking ship.

[ReaderGuy]

Does the LA Times actually use business writers for these pieces? Digital Domain shows the losses are mostly accounting charges that are one time write-offs. The writer quotes the Risk Factors section like it's the whole story. The Risk Factors are supposed to sound really ugly. That's the world that the attorneys have created. The writer should know this and not write an imbalanced article based on the intentionally dire acts of the risk factors.

[KingOfTheWorld]

ReaderGuy,

There is only one line from the RiskFactors - the one about profitability - the rest of the negative statements are from the previous profile of the company. BTW, how many years of "one-time write-offs" do you allow a company before you demand to see some profit?

The bottom line counts even if it happens to be mentioned in that attorney-generated RiskFactors section of the prospectus.

...or maybe you are referring to the fact that the Times chose a picture of the Titanic to illustrate the article...

this one is a dog...too bad it won't have a big enough float to short adequately...

KOTW

[Nightmares whilst still awake]

This IPO is what is wrong with the USA. It is a mini Enron. Fat cat investors risk none of their own money to dress up a pig and then sell it off to the public for big bucks with no hope or intention of building a sustainable thriving business. Visual effects companies never make money... they are a capital eating machine with little to no margins, their employees are overly compensated, the equipment short lived and expensive. The Indians and the Chinese will eat these guys up! DTWO has never developed content, this is NOT the next PIXAR!

[Buddy Ackerman]

All 3 films nominated for the Oscar for Best Achievement in Visual Effects were worked on by the artists at Digital Domain. The VES nominations were also impressive. I mention the artists because that is what any visual effects company is really about. The talent, passion, and dedication of the people there is second to none.

In this day and age nearly every film made, whether it's an effects-driven tentpole pic, horror film, or even indie, needs some manner of visual effects work. Films like Pirates of the Caribbean and Transformers are driving the standards of what's possible ever higher, and the audiences in turn expect more each time.

I've been a studio exec for over 25 years, and have worked with every major VFX house as well as many smaller boutique places. The cheaper overseas labor may be able to temporarily handle the most basic of tasks, but will not be able to compete on the level of the most complex and challenging work that requires greater talent and facilitates a more personal client interaction.

[vfxpro]

I agree, this is what is wrong with USA. Executives rising through the ranks of top companies like ILM, failing their way to the top, then when they see the writing on the wall, find a VC group that has no clue about Hollywood or film making, seize the opportunity to take them to the cleaners. Top 3 exec's making $500k salaries, 3 day work weeks, lavish car allowances, they are all "big hat, no cattle". Speedracer is "new" Digital Domain's first of many failures to come. Their CTO doesn't even have a technical degree. No wonder their rendering infrastructure is falling apart during production.