12th September 2012  "Titanic" Effects Maker Digital Domain Sinks into Bankruptcy.

After providing special effects for some of the biggest movies in Hollywood an over ambitious expansion plan has forced Digital Domain Media Group Inc. (DDMGQ) into bankruptcy.


Founded by "Titanic" and "Avatar" director James Cameron and others in 1993 Digital Domain was one of the best-known visual effects houses in the industry and provided effects for films such as "Tron: Legacy", the "Transformers" franchise and this summer's blockbuster "The Avengers".


Digital Domain only went public on November 18th last, pricing shares at $8.50. The offering raised $36.5 million with shares falling 16% to $7.15 on the first day of trading. Shares remained below the IPO price until April of this year when the company produced a hologram of rapper Tupac Shakur that appeared at the Coachella Music Festival. Talks of a tour and the massive attention the hologram attracted boosted the share price to $9.00.


More recently Digital Domain produced a hologram of Ronald Reagan which was meant to be featured at the recent Republican National Convention but was axed for fear it would be "more interesting than Mitt Romney."


Earlier this month the company defaulted on a debt of $35 million owed to investors, followed by the announcement that it was closing its animation studio at Port St. Lucie, which Florida state had committed $135 million to subsidise the construction of, and laying off most of the 320 employees there. Shortly after Chief Executive John Textor, who had pursued a number of ambitious projects such as the animation studio, resigned and was replaced by Ed Ulbrich, previously the companies Chief Creative Officer.


Tony Wible, an analyst with Janney Montgomery Scott, laid out what led to Digital Domain's bankruptcy: "Special-effects is a low-margin investment so they tried to leverage their expertise. The problem is that the investments were costing more than they were able to bring in." As well as the Port St. Lucie studio they had invested in studios in Abu Dhabi and London, a college program and tried to get into producing movies, partnering with Lionsgate (LGF) to produce the upcoming movie "Ender's Game". The film has cost over $100 million and as of June 30th Digital Domain has contributed $17.2 million towards production.


Share's in Digital Domain fell below $1 before dropping to $0.55 on news that the company was filing for Chapter 11 Bankruptcy to "ensure the long-term future of its core business" and trigger a "sale of assets." It has already reached a deal with Searchlight Capital Partners to sell its subsidiary Digital Domain Productions Inc. for $15 million.


As of June 30th Digital Domain had assets of $205 million and liabilities of $214 million. In the first quarter of the year it posted a loss of $14.8 million.



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