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Digital Domain Gets Yet Another New Owner; CEO Steps Down

Longtime DD staple Ulbrich to move to creative consultant role

Updated Saturday, 12:45 a.m. PDT:

Digital Domain 3.0, the post-bankruptcy incarnation of the Venice, Calif.-based visual effects company founded by James Cameron, Stan Winston and Scott Ross, has yet another new owner.

Sun Innovation, a publicly traded Hong Kong company, has acquired the parent company of Galloping Horse U.S., which bought 70% of Digital Domain in the bankruptcy auction last September. Reliance MediaWorks will retain the remaining 30%.

Sun has not acquired Beijing Galloping Horse, which has apparently shed its majority stake in its former partner, DD, only 10 months after acquiring it. However, Galloping Horse appears to have turned a tidy profit on the investment. DD sold for a total of $30.2 million out of the bankruptcy auction. Sun paid $50.5 million for Galloping Horse U.S., whose main asset was its stake in Digital Domain.

The press release, which was posted just after 9:00 p.m. Pacific Time Friday night, said, “Sun Innovation is a Hong Kong-based and listed company that recently formed a strategic partnership with Beijing Galloping Horse, a leading film and television company in China. With its acquisition of Digital Domain 3.0, Sun Innovation intends to expand its reach, playing a significant role in the growing international feature film markets and developing new digital media experiences for consumers in entertainment, advertising, cultural and media environments worldwide.”

With the move, Digital Domain CEO Ed Ulbrich, who has been with the company since its inception, is stepping down and moving to a creative consultant role. Sun Innovation executive Daniel Seah assumes the CEO role.

Ulbrich has been with DD since its founding and led the commercials division, probably the only consistently profitable division the company has had since Ross, Cameron and Winston exited the company. The news regarding Ulbrich was also announced late Friday evening.

He remains a producer on Summit Entertainment’s “Ender’s Game,” in which DD has an equity stake.

Sun seems like an odd match for a visual effects business. It describes its property investment arm as owning “two shops and ten car parks in the Citicorp Centre,” and it also has a business trading copper and plastic scraps in and around China. Hoping to diversify, it sought a license from the Chinese government to make this acquisition, which marks its first move into media. Beijing Galloping Horse has a contract to use Digital Domain for all its visual effects for five years, and that contract remains in force.

The company’s justification for the move relies heavily the popularity of 3D films. “The demand for 3D films has attracted more film studios and producers to engage in 3D films,” said a Sun Innovations filing from June, “which involves large production budgets for VFX products, and in turn drives the rapid and constant growth of the VFX market.”

Ulbrich and others liked to refer to “Digital Domain 3.0,” with version 1 being the Cameron-Winston-Ross company and version 2 being the ill-fated company led by financier John Textor, which went bankrupt last fall and was broken up. The company’s current website says it is Digital Domain 3.0 Inc.

The Galloping Horse-Reliance ownership, in the words of the Sun filing, “implemented a series of stringent cost control measures” at Digital Domain, “including among others, (i) reducing the number of unutilized production employees without jeopardizing the fluency of workflow; (ii) dismissing employees who have unsatisfactory performance,” and “implementing stricter cost control on other expenditures such as equipment purchases and office supplies.” The phrase “stringent cost controls” appears 10 times in the filing.

Salaries, benefits and staffing levels at DD were slashed following the bankruptcy.

According to the filing, DD’s plans to improve margins and profitability include “having around 30% of its work with relatively low technological requirement gradually outsourced to China and India in the coming years.” (Read the entire filing here.)

Reliance MediaWorks, meanwhile, is having problems of its own. Its ongoing losses have forced it to raise funds even as its stock price has tumbled. In the first quarter of this year it lost $26.1 million. In the second quarter, through June, RMW’s losses climbed to $37.1 million.

DD’s recent feature film work includes “Iron Man 3,” “Ender’s Game,” “Maleficent” and “Oblivion.”

Patrick Frater in Hong Kong contributed to this report.

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