Digital Domain files for IPO

dscn1110cu.jpgDigital Domain this week filed with the Securities and Exchange Commission for a $100 Million Dollar Initial Public Offering. According to the filing, DD “will use our remaining net proceeds from this offering to implement our growth strategy by, among other things, expanding our technology development and licensing program and attempting to enter into the production of animated and visual effects-driven feature films and the development and production of video games, as well as for general corporate purposes, including working capital and capital expenditures.”

An article in the Hollywood Reporter includes speculation that the IPO is a move to attract a buyer. Earlier this year Digital Domain acquired The Foundry and moved development of Nuke compositing software to the UK.

What impact will this have on the development of Nuke? From the filing, which lays out the company’s growth strategy, one would expect little change. Click through for highlights from the filing.

There is a ton of information about Digital Domain which can be found in the SEC filing. Some key elements (taken from the SEC filing):

Industry Background

We provide digital imagery to the filmed entertainment, advertising and video game industries, while also providing high-end technical software solutions for the visual effects and animation industry.
Filmed Entertainment Industry. According to Veronis Suhler Stevenson, or VSS, box office and home video spending in the United States generated $35.4 billion in 2006, with an expectation to reach $44.3 billion by 2011, a 4.6% annually compounded growth rate. We believe the growth of the sector will be supported by online DVD rental services, online film streaming services, the popularity of high-definition DVDs, and an increase in the number of digital cinemas. Animated and visual effects-driven films have been a key driver of the growth of the filmed entertainment sector. For example, the top 20 grossing films of all time, the top 10 grossing films of 2006, and the top 10 grossing films of 2007 (through September 30, 2007), ranked by worldwide box office revenues, were made using significant high-end visual effects or computer-generated animation.

Commercials Visual Effects Industry. According to VSS, the aggregate size of the visual advertising industry (comprised of all segments of the $209.8 billion advertising industry, excluding broadcast and satellite radio) in the United States was approximately $188.9 billion in 2006. This market is expected to grow to approximately $245.2 billion in 2011, a 5.4% annually compounded growth rate. The visual advertising industry is quite broad and fragmented and consists of advertising in a variety of media, including, in 2006, broadcast and pay television advertising ($70.5 billion), online advertising ($15.1 billion), print advertising ($95.8 billion), out-of-home media advertising ($7.1 billion), mobile advertising ($0.5 billion) and advertising via other emerging technologies. Currently, the majority of our revenues derived from advertising-related projects is attributable to our work in the television commercials market.

Video Game Industry. In 2006, video games, including console, handheld, PC, online, mobile and interactive TV games, were a $10.0 billion market in the United States, according to VSS. Video games are also one of the fastest-growing media-related sectors, projected to grow to approximately $20.8 billion in 2011, a 15.6% annually compounded growth rate, according to VSS. Sales in this sector are being spurred by consumer adoption of next-generation game consoles, online games and distribution of wireless games.

Digital Imagery Software Industry. Digital content creation software provides users with the tools that enable visual effects and animation production, 2D and 3D modeling, digital video editing, graphics editing and imaging, and audio editing. According to Jon Peddie Research, the digital content creation software market was approximately $3.0 billion globally in 2006 (up 16% from 2005) and is projected to grow at an annually compounded growth rate of 10% to approximately $5.0 billion in 2012. The digital imagery software industry is a sub-sector of the digital content creation software market and caters to a wide range of end users, from consumers who use the software recreationally to high-end users such as professional animators and digital effects artists.

Discussion of the future plans and strategy of the company

Key elements of our growth strategy include:

• Continue the Growth of Our Existing Digital Imagery Business. Visual effects and animated content are becoming more widely used in filmed entertainment and advertising media (including television commercials) and is replacing live action footage in many of those projects due to the efficiency of state-of-the-art digital imagery production. We plan to continue to build our existing digital imagery business to take advantage of this trend.

• Expand the Development and Commercialization of Our Technology. Through The Foundry Visionmongers Ltd., or The Foundry, which we acquired in March 2007, we have the opportunity to expand the market share of our currently licensed technology packages, to productize and commercialize other proprietary technologies we have already developed, and to accelerate the speed to market of our future technological innovations. We intend to continue to develop the capabilities of our compositing software product Nuke and our plug-in suites and to engage in a marketing and sales campaign in an effort to establish Nuke as the leading compositing software used by the visual effects and animation industry.

• Expand Our Involvement in Feature Film Production. We intend to leverage our Digital Studio and entertainment industry relationships into a content ownership business which will focus opportunistically on animated and visual effects-driven films. We intend to evaluate, and may invest capital and/or development and production work on terms deemed by us to be favorable in, major studio feature film projects that meet our budgetary, development and distribution criteria in alignment with our growth strategy.

• Exploit Our Visual Effects and Animation Technology and Expertise in the Development of Video Games. We intend to leverage the assets of our Digital Studio to establish early technology leadership in the convergence of films and video games, primarily as it relates to video games developed in association with feature films. It is our goal to focus on developing video games for which we own the intellectual property associated with the games and, to a lesser extent, to develop video games for other publishers for which we own limited or no intellectual property rights.

• Continue Our Development of Common Technology Architecture for Feature Films and Video Games. We believe we are in position to generate new revenue opportunities through the development and production of full length animated feature films and associated video games within the common technology architecture of a video game engine.

• Pursue Strategic Acquisitions. We evaluate acquisitions on an ongoing basis and intend to pursue acquisitions of businesses in our industry and related industries that will assist us in achieving our growth strategy. We approach acquisitions in a disciplined manner and intend to focus on acquisitions that strengthen our competitive position.