Los Angeles Business Journal

Visual Effects Firm Sees Future in Diversification

ENTERTAINMENT: 3-D conversion and foreign markets lift Prime Focus. market By Jonathan Polakoff Monday, July 22, 2013

L.A.’s visual effects industry has been characterized lately by financial collapse, given the bankruptcies of Digital Domain and Rhythm & Hues.

But even as hundreds of L.A. special effects workers were handed pink slips from those companies this year, one Hollywood-based effects firm, Prime Focus World, is expanding – by pushing its work out of Los Angeles.

The company, a unit of a Mumbai, India, technical services firm for the film and television industries, raised $63 million in equity financing this year, boosting its valuation to $300 million. Meanwhile, the company is planning its next expansion into the booming movie market in China.

Prime Focus has made visual effects for movies including recent releases “The Great Gatsby” and “White House Down.” But this month, the company landed its biggest effects deal to date. It will do all the visual effects work for the Robert Rodriguez movie “Sin City: A Dame to Kill For,” which will be released next year.

Chief Executive Namit Malhotra said it has been crucial to set his firm apart from others that have failed in order to bring in business and secure investors.

“We have been building ourselves up to be different,” Malhotra said. “There has been a greater open-mindedness that our clients have had towards testing new models and trying out a different approach, because they recognize that somehow the current model doesn’t seem to be working.”

The traditional model works like this: Effects companies bid for work by the shot – such as building a monster using computer graphics. To win jobs, they undercut the competition’s pricing, which usually means thin margins. If the project goes over budget, the loss is absorbed by the effects firm rather than the studio.

That’s still the model Prime Focus employs. But the company enjoys lower costs by sending work to its Indian units. What’s more, it has supplemented the special effects work in recent years by adding a host of services, most notably by building a 2-D to 3-D conversion business. For example, it converted much of the recent Brad Pitt zombie film “World War Z” into 3-D.

Also, Prime Focus has been able to work out deals to mitigate risk and possibly share profits from potential hits by investing in a movie’s production budget. For the “Sin City” sequel, Prime Focus is investing nearly $10 million toward the Weinstein Co. release, Malhotra said.

Finding growth

Ken Williams, executive director of the Entertainment Technology Center at USC and a co-founder of effects firm Sony Pictures Imageworks, said diversification is essential for effects firms. He co-authored a white paper on the state of the effects industry that was released last week.

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