After weeks if not months of rumors, issues and falling stock prices,  "Digital Domain Media Group, Inc. (NYSE: DDMG) today announced that as part of its previously announced strategic realignment, and to ensure the long-term future of its core business and facilitate a sale of assets, it has filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court."

What does this mean?

The idea of Chapter 11 bankruptcy protection is to give a company time to negotiate with its creditors, since during that time the creditors cannot pursue any debts or claims. The company must file a plan of its reorganization with the bankruptcy court, and the creditors are participants in the bankruptcy proceedings, that is, they can investigate the operations of the company. The creditors must vote on the proposed plan, and the court will review it for feasibility. Then the company must carry out the plan.

If the company's stock is publicly traded, like DDMG is on the NYSE, the stock will generally be delisted after a Chapter 11 filing has occurred. (If DDMG was listed on the NASDAQ, the letter 'Q' would be aded at the end of the stock symbol to indicate the company is in bankruptcy). Usually, delisted stock quickly becomes over-the-counter (OTC) or off-exchange stocks, and then after a Chapter 11 plan has been confirmed by the court the shares are terminated altogether.

The iconic pirate flag over the Venice home of DD.

To understand what happened today one has to understand the structure of what people loosely refer to as Digital Domain or DD. While DD started as a visual effects company and is known as the company behind such amazing work as The Curious Case of Benjamin Button, Titanic, Apollo 13 and True Lies, the company DD had morphed into multiple companies in recent years. The part most people think of as DD - is actually Digital Domain Productions Inc (DDPI). It is the core - started in 1993 and the primary provider of these great Oscar winning feature films. If you have visited the DD offices in Venice then this is what you visited. This bit was started by Scott Ross (who ran the company in its glory years) joined by James Cameron and Stan Winston etc, but none of these original players - are owning, running or managing DD now. There is one exception since day one: Ed Ulbrich, a respected actual visual effects expert has been with the company, and he is now central to the story moving forward, but we will return to him in a moment.

In addition to that core there is a DD commercials division. This is lead by Mothership Media Inc, and it focuses on creating advertising, branded content and it was the bit that created the virtual likeness of rapper Tupac Shakur at the Coachella Valley Music Festival.

Then there were some studios elsewhere. In no order, there is a Vancouver production company, Digital Domain Productions (Vancouver) Ltd, San Francisco and Florida.

And Florida is where the to speak. Above all the companies mentioned is another Digital Domain, called Digital Domain Media Group. This is known as DDMG, and the name is confusing, but it is very much the company that owned all the other bits and wanted to expand into Florida. DDMG owned nine companies but DDMG only ever owned 86.9% of DDP. The remaining 13.1% was owned by various minority shareholders, so for example, as of earlier this year when we wrote about this, Michael Bay is an equity partner in the feature film visual effects company DDP Inc, but is not an equity partner in the broader Digital Domain Media Group.

Digital Domain, Digital Domain Productions and even D2 Software - the birth place of Nuke - are all incorporated in Delaware. But the newer companies are incorporated in Florida. So DDMG, the land holding company DDH Land Holdings I & II (owning property in West Palm Florida), DD International, Tradition Studios (which was producing an animated feature) and DD Tactical are all incorporated in Florida - as is DD Stereo group - which is the re-modelled In-Three (that also owns the patents that have been much in the news lately regarding stereo conversion).

In November of 2010, Digital Domain Media Group (parent company of Digital Domain Productions, Venice) bought the Thousand Oaks, Californian based, In-Three Inc. and announced that it was moving it to Port St. Lucie, Florida, where Digital Domain Media Group DDMG has its HQ. Finally, Mothership is incorporated in California and the Vancouver group is of course a Canadian company.

If you were to use a rule of thumb - the Florida parts and the parent company are now separate from the Delware/Calfornia/Canadian parts. In other words, the core effects 'business' that is the DD most people would think of as being DD, is back being the core DD of old - with offices in LA, San Fran and Vancouver. The independent film production, stereo conversion and extra bits are all dead or closing down it would seem and this leaves the last controversial piece of the puzzle - the education arm.

The education arm, the Digital Domain Institute, was a partnership with Florida State University and it appears that while it is still using the name Digital Domain in some capacity - for now - this education unit is now fully a part of FSU, and nothing to do with the effects business or DDPI in California/Vancouver.

Where to from here for DD (DDP, Inc)

Digital Domain, in the DDPI sense, is still open for business. It has great artists still working on great shots. This is important. If all the DDP staff had been let go, it would be almost impossible for the company to 'restart' or 'reboot'.

Ender's Game: a while ago DDPI took on the role of effectively investing in the film Ender's Game, it was also the principal effects supplier. This gives DDP an actual 'blue sky' opportunity to make some real money if the film goes well.

Mothership (founded in 2010): the commercials division is busy and has done work such as the new Lady Gaga perfume launch, and after the success of "virtual Tupac" is working with CORE media to create and co-own the virtual likeness of Elvis Presley.

Moving? To add to the confusion, even before all this blew up, DDPI at Venice was going to have to move. DD did not own the Venice office, and the landlord leased the space to Google, so DD Venice will soon stop being located in the traditional home or site of the making of everything from Apollo13, Titanic, Star Trek, True Lies and Benjamin Button.

The core DD business is now likely to be sold, and there is one public bid for this section of DD, for US$15M. The sale of DDPI (basically the West Coast operations LA, SF, VC) will be to the winner of an auction to be held on September 21st, baring a court changing that date. There is an offer on table from an investment group - Searchlight Partners Capital for $15 million. There are some articles suggesting Prime Focus may also bid, (but fxguide could not independently confirm this). The Searchlight bid has been called by some, (including in a tweet by former DD'er Scott Ross) a  'Stalking-Horse Bid'. This means that an initial bid is made on a bankrupt company's assets from an interested buyer chosen by the bankrupt company. From a pool of bidders, the bankrupt company chooses the 'stalking horse' to make the first bid. This allows the distressed company to avoid stupidly low bids on its assets. Once the stalking horse has made its bid, other potential buyers may submit competing bids for the bankrupt company's assets. In essence, the stalking horse sets the bar so that other bidders can't low-ball the purchase price. It is still a valid bid,  but also it sets the floor.

What is really important is to resolve this sale very quickly. Major studio work is currently being done at DDPI and a long sale would run the risk of the studios pulling their work and taking it elsewhere. What needs to happen is for a very fast sale to occur and a stable new DD to emerge, focused just on doing what the rest of the world thinks DD is known for: great visual effects by talented artists. This falls in large part to Ed Ulbrich, and he is a proper visual effects industry asset. Ed Ulbrich spoke in 2009 representing a "team of filmmakers, artists and technologists who've been working on a significant breakthrough in visual storytelling -- a startling blurring of the line between digital creation and actor". Ulbrich was the executive VP of production at DD, for whom he's executive-produced Academy Award-winning visual effects for Titanic, What Dreams May Come, Fight Club, Zodiac, Adaptation and other features, as well as music videos and more than 500 commercials. In 2007, he was named in the Creativity 50 - top innovators in advertising and design. And in 2009 he gave a great TED talk on "How Benjamin Button got his face".

Ulbrich could very well be the right guy to fight the way back to DD as a leading visual effects company, without the tax credits, state grants, education deals, Florida focus of the last few years. He is bright and respected and - assuming he and the team can act quickly,-  the new refocused, cut-back DD stands a chance. But will not be easy. Apart from the the obvious issues of handling the sale, DD will have to work hard to convince new productions and new films that it is stable, without discounting through the floor to win work. Furthermore, DD will have a harder time attracting new key staff.

Finally, this industry is already harsh and running on thin margins, so good companies without any bad press have struggled and failed recently. On a good day DD would still face stiff competition, razor thin margins, relocation fees and a complexity of government and state grants and subsidies - mainly aimed at moving work away from DD's core Californian base.

The first "Hearing to Consider the First Day Motions" will be held on September 12, 2012 at 10:30 a.m. ET, in the United States Bankruptcy Court, District of Delaware.

Law Suits

There are likely to be law suits, in cases such as this it is almost to be expected. One interesting one is for recovering money for those who were let go.  Earlier today, according to published reports, Outten & Golden filed suit against "DDMG, Inc., et al., seeking to recover 60 days wages and benefits for former employees under the Worker Adjustment and Retraining Notification ("WARN") Act.

They contend that "DDMG ordered mass layoffs on or about September 7, 2012 at its Port St. Lucie, Florida facility without providing its employees with advance written notice." The case is pending in the United States Bankruptcy Court for the District of Delaware. (Generally, the WARN Act in the USA requires companies to provide their employees with 60 days written notice in advance of a mass layoff or plant closing. In the absence of such notice, employers may be liable to each affected employee for 60 days wages and benefits).

Will it win? No one knows but it may well not the last Law suit in this matter, not even close.

Who to feel sorry for

There are many people to feel sorry for, and in no order here are a few:

• Employees who lost their jobs - especially those who relocated to Florida
• Students who started training at the for profit DD iInstitute thinking it might lead to a job in Florida. DDI started training formally at the start of this year, so these students have paid real money for an education that is now still valid but far less connected to any chance of employment
• Employees of In-Three who moved when the company was bought
• People including many employees who owned or bought stock in their company, they have seen their investments all but wiped out. At last look we saw the stock was trading at just 9c, from a 52 week high of $9.20. So $20,000 invested in DDMG would now be worth $195, if it was still trading and you could get that. In 10 months some $400 million of shareholder value has been wiped out, and that is before multiple Florida grants and subsidies have been applied
• Tax payers in Florida who have seen a huge amount of public money evaporate in an age of very tight state revenue. (Although some of the land given to DDMG will revert back to the city if DD cant meet its obligations by December 31st, 2012)
• Equipment, vendors and general suppliers left being owed money
• Every day artists who have faced and are facing uncertain times, questions about benefits etc and an unclear future
• Ed Ulbrich - he has his work cut out, but on behalf of DD staff who remain and those of us who enjoy their work, we wish him the best

Note, we did not put John Textor on this list.

John C. Textor has resigned, effective immediately, from his positions as Chief Executive Officer and Chairman of the Board of Directors of DDMG, as a member of the Board of Directors of DDMG, and from all positions as an officer and director with all subsidiaries of DDMG.

See our original 1996 story when Wyndcrest first bought DD.

See also our interview with John Textor earlier this year.

Thanks so much for reading our article.

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11 Responses to Digital Domain, what does it all mean?

  1. Great article…but you feel sorry for Ed Ulbrich? WTF ! His pay is listed as $635,000 and he’s still getting it under Chapter 11. He was a board member. He attended the meetings. He signed the minutes and saw the financials. And along with the rest of the board did NOTHING to help staff, suppliers, the state of FL etc. get paid anything of what they’re now owed. While we’re here let’s name and shame the rest of the board still pocketing the cash:

    Darin K. Grant
    Edwin C. Lunsford
    Jody R. Madden
    Jonathan F. Teaford
    Edward J. Ulbrich

    All of them presided over this disaster. Incompetent and impotent all of them. The ex-staff and creditors may have to go court to try and recover what they’re owed but the least our industry can do is shun these scum: expel them from the VES, revoke their Academy positions etc.

    Posted by nameAndShame DD on
  2. Thanks for an interesting summation of the issues that faced DDMG. I know it’s petty, but I have to say it, because words are indeed powerful and if said enough, those words tend to be believed as the truth… even though they may be totally false.

    Digital Domain was not started by James Cameron nor was it started by Stan Winston. Digital Domain was started by yours truly, Scott Ross. I came up with the idea of starting a new VFX company in 1992. At the time, I was planning on leaving LucasArts and starting a new ILM… and in fact, many of ILM’s top creative, technical and business folks were part of that effort. And when I say top… I mean all of top management, the two top VFX sups, an ex ILM vfx sup/art director that had become a director and a few very key technical people.

    We took many meetings with financiers and investment banks in the hope that George might sell us ILM and the rest of LucasArts. George was not a seller and once we realized that, everyone in that group bolted, leaving me holding the bag.

    At that point, with business plan in hand, ( called Phoenix Effects, aptly named I thought) I was contacted by Jim Cameron who had heard on the street ( through Scott Billups) that I was starting a new company. Jim asked if he could be part of this new venture and he wanted to bring his buddy Stan Winston to the party. We all got together and then Digital Domain was born. I changed the name on the Biz Plan and personally contacted many investors. I had a previous relationship w IBM and they brought in the $$$. I ran DD from its inception until the sale to Textor in 2006. I had little to no support from Mssrs Cameron and Winston during the time they were “involved” (1993-1998). From 1998 until 2006, I never saw them and never spoke to Cameron.

    I, of course, had a great deal of help during those years… I did not ” do it myself”. The artists, the clients, the tech folks and the other admin people had a HUGE involvement in its success. And DD was successful. A great culture, great work, and after Cameron’s departure, mostly profitable. The company was sold in 2006 with a large cash position and NO debt!

    What happened after 2006 was a perfect reflection of the new American form of Capitalism. It’s corporate ethic was the same as Bain Capital. though without the CEO running for President ( though I would watch what happens in FLA). At the end, most everyone got completely screwed… the FLA employees, the shareholders, the state of FLA, the cities of PSL and WPB, the students at FSU, the investors…. everyone. Lets see what becomes of Mr. Textor.

    As for Ed Ulbrich, my heart goes out to him as well as all the employees of DD. I hired Ed back in 1993 when he was just 29. He’s spent 20 years at DD, has three great kids and married DD’s ex comptroller. He’s done an admirable job over the years. He helped build the old DD and had run one of the most successful commercial production VFX houses of all time. I’m not sure how privy Ed was to Textor’s shenanigans. I’m not sure how much input he actually had. I know Ed as an upright guy. He too had a family and needed to support his wife and kids. I can say that when Ed worked for me those 13 odd years, though at times we disagreed…he always held the passion of DD…. the Company that I started.

    I wish him luck.

    Posted by Scott Ross on
  3. I am sorry I did not mean to imply you didnt start it, I was trying to indicate that unlike Cameron, et al. – you ran the company.
    Sorry Scott. I have now edited the paragraph in the story to better reflect events.

    Posted by Mike Seymour on
    • Thanks Mike for setting the record straight. Several people, including Mr. Cameron and his biographer Rebecca Keegan, have been trying ti rewrite history. It’s funny that Jim now says that he and his partner Stan Winston created DD, totally leaving me out of the picture. Pretty soon, he might be saying that the Holocaust never happened!

      You might have heard by now that I am trying to put together a team and the financial resources to buy back the company that I started in 1993. It sorta reminds me of when Steve Jobs returned to Apple. I love DD and have been devastated by watching what Mr. Textor and his management have done to the Company. I had seen this coming for several years… and I’ve been vocal about it.

      It shocks me that once again, a corporate raider, financial dude, like those CEO’s on Wall Street that ruined our economy, could be so cavalier with people’s lives… all the while making sure that he and his cronies were getting rich. It is a great example of just how wrong America has gone. I hope that he and his type will be brought to justice and that examples be made of this grossly negligent behavior.

      I for one, am doing everything in my power to return to DD and right those wrongs. I believe my track record speaks for itself. I look forward to bringing the glory of the old DD back to the Company. I look forward to allowing men and women the opportunity to create great images, get paid fairly, have reasonable work schedules, build great sw tools and have lots of fun doing it. I’ve done it before… twice. Whether it was ILM or DD, while I was at the helm, those companies won Academy Awards, created great SW tools, prospered and we had tons of fun doing it! I know I can do it again… and with the help of creative folks like Ed Ulbrich.. we can make that happen.

      I was pretty disturbed that the judge in Delaware was strong-armed into a fast close. At present, I am working diligently to put together the financial where with all to enter a bid…. but 7 days is a very short time for a dude that doesn’t even have an assistant, let alone the infrastructure of a Prime Focus World.

      Let’s hope it all works out…. for the DD employees because after all they’re the true assets of the Company.

      Posted by Scott Ross on
      • Go Scott!

        Posted by John K. Goodman on
  4. Thanks for making it so clear Mike .. toplist Thanks to you Scott. I wish there were more of you. You are simply Great.

    Posted by toplist on
  5. This DD confusion is almost painful to read. It seems more and more this Madoff style financiers are running the show. We had a run-in with a out right Poniz scheme for a film finance at the end of 2010, guy was ripping off dozens of eager and naive producers film makers etc and only got caught because one person got suspicious and did some background checks etc and ops…
    This is the end of a period of film making, we are at the burning phase i just hope there a new bird to emerge…

    Posted by eamon jones on
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