Digital effects firm's IPO plan fails to excite

DreamWorks Animation SKG Inc. also scored a hit with its IPO in 2004. Riding on the success of its "Shrek" films, the studio saw its shares soar 38% on their first day of trading, raising $812 million for the Glendale-based company. Its shares later tumbled as the company missed its DVD sales targets. The stock has recently been trading between $23 and $26 a share.

Unlike DreamWorks or Pixar, however, Digital Domain has no track record of producing animated movies or video games. In its SEC filing, the company said it had an agreement with Warner Bros. to produce an animated movie and game based on the 1980s television series "Thundercats," but it also said there was no guarantee the project would happen.

The filing also said that Bay, who is developing a video game for the company, had no contractual obligation to use Digital Domain for the visual effects for his films.

Co-founded 15 years ago by "Titanic" director James Cameron, Digital Domain was acquired in May 2006 for $35 million by a group of investors led by Bay, the company's co-chairman. A new management team has invested heavily in hiring employees, upgrading equipment and acquiring a software firm. In 2007, the company posted a $20-million loss on revenue of about $79 million, according to its SEC filing.

Digital Domain and other visual effects houses have been squeezed in recent years by competitors in Europe and Asia that are able to produce effects for a fraction of the cost, as well as studios' demands to produce splashier effects for less cost.

"All the visual effects companies are feeling extraordinary pressure to cut prices," said Eric Roth, executive director of the Los-Angeles based Visual Effects Society. "It's a stressful time."

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richard.verrier@latimes.com