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Prana Studios Affiliate Seals R&H Deal

El Segundo-based company sold as layoffs loom around vfx biz

Updated 5:56 p.m. PDT

As news swirled of layoffs and retrenchment across the visual effects industry, Rhythm & Hues studios was officially sold to an affiliate of Prana Studios.

Prana is often called an American company but the official announcement identifies Prana as “a U.S. animation and visual effects studio with offices in Los Angeles and Mumbai, India.” The new owner of record for R&H is  34×118 Holdings, a Prana Studios affiliate. The owners of Prana and 34×118 Holdings were not disclosed but the official annoucement of the deal said “(Prana was) founded in 2003 by Arish Fyzee, Kristin Dornig and Pankaj Gunsagar,” and its backers include “Anand Mahindra (Mahindra & Mahindra), Mukesh Ambani (Reliance Industries), Naren Gupta (Nexus Capital), and Ram Shriram (Sherpalo).”

Allan Soong of Deliotte, will serve as chief restructuring officer of 34×118. Lee Berger will be president, Erika Burton co-president, and Gautham Krishnamurthy is CTO.

Jeff Okun, who is also the longtime chair of the Visual Effects Society, is the senior VP of visual effects for Prana. He said in a statement “While remaining a stand-alone company focusing on cutting-edge visual effects and innovative technology, R&H will be complimented by Prana’s world-class long-form animation. … With the additional support of our strong investor group, we are confident R&H will continue to be the innovative quality leader in our field that they’ve been for 30 years.”

R&H may remain a standalone company but unless California enacts tax incentives for vfx work it is likely to be a much smaller one. Its current El Segundo HQ will be sold and it is likely to send as much of 80% of its vfx volume overseas.

Prime Focus World, which had dearly wanted to acquire R&H and is listed as a co-debtor in the bankruptcy proceedings, sent out a congratulatory release this afternoon, saying in part: Prime Focus is disappointed that we did not prevail in the sale process for R&H, we wanted to take a moment to focus on the positive aspects for our industry’s most valuable asset – people. … We look forward to future opportunities with Rhythm & Hues and their team and wish them the greatest of successes in the future.”

The VES, after much consideration, recently came out in favor of a push for California to enact tax incentives and subsidies that would keep vfx and animation jobs in-state and make Canadian and overseas branches — like those of Prana and Rhythm & Hues — less necessary.

Confirmation of the sale came as  Tippett Studios downsized, The Mill confirmed it is shuttering its TV vfx division and Sony Pictures Imageworks confirmed it is reducing its workforce. Waves of layoffs are common now in the vfx business since most facilities have moved from hiring permanent staff to a crew model, where staffers come on for the duration of a project — and big projects are becoming fewer and farther between.

Jules Roman, co-owner of Tippett Studios, told Variety while the company is downsizing, it actually had no layoffs today. It has been letting crew go after the end of the “Twilight” franchise and “Ted,” and expects to go from a peak of around 150 staffers to around 100.

“We’re coming to the end of a project so we’re scaling down as a prudent studio would do. Labor is your largest cost and we don’t have a big project to go onto, we have some smaller things,” said Roman. “I use the metaphor hibernation. Energy-efficient animals hibernate when it’s cold outside and then come out bright-eyed and bushy tailed when the weather warms up.”

But Roman was also clear that the combination of a lag in production and large subsidies in Canada, especially Quebec, threaten the California vfx industry. “There’s a strong desire to keep the visual-effects industry alive in CA but nobody knows quite what to do about the tax subsidies in Canada. This is where the industry grew up and where innovation happened.” Roman said she had decided not to open a Vancouver branch because she didn’t want the extra overhead.

In the U.K., the Mill announced it is shuttering Mill TV, with the possible loss of 25 jobs. “Mill TV…  had weathered losses in 2012 and those losses had accelerated in the first quarter of 2013,” said the company in a statement. What is especially ominous about the announcement is the suggestion that the TV vfx business, which had been a success story compared with feature films, is now suffering some of the same issues. “Going forward, broadcasters are commissioning less high-end, VFX-driven drama series this year, with ‘Merlin’ discontinued and the BBC not commissioning a ‘Doctor Who’ series this year,” said the statement.

Rumors began flying early today of layoffs at Sony Imageworks. Late today a source inside Imageworks told Variety SPI is “restructuring” in response to clients’ needs, and this restructuring affects “less than 2% of our workforce,” none of them vfx artists. The source called the move “a difficult but necessary step at this time,” and added “SPI is committed to our LA based VFX business and we have a great slate of projects through 2014,”

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