Commentary: Digital Domain May Be On The Brink Of Disaster

Remember the CGI 2Pac “hologram” that Digital Domain created for Coachella earlier this year. The gimmick was well received, but Digital Domain CEO John Textor (above, right), who we’ve already established isn’t the sharpest tool in the shed, somehow convinced himself that animating CG versions of dead celebrities was an actual business model.

A couple weeks ago, Textor boasted to investors that he was trying to “tie up the real estate” of virtual humans. How could anyone miss with such an obviously sure-fire business, Textor claimed, “as long as we’re the only people in the world that can do this work.” It was just a matter of “getting the contracts, securing the rights, negotiating with the families, making sure that the likeness rights line up with the music rights and the venue rights and that’s what we should be doing.”

What Textor didn’t tell investors is that there are literally hundreds of other high-end VFX/CG companies that can create computer-animated human characters nowadays. Textor’s scam unfolded when rumors began floating around of a Ronald Reagan hologram that would appear at the Republican National Convention. Textor quickly told the Wall Street Journal “that rumor isn’t true.” Except it is true. Today, businessman Tony Reynolds, confirmed to Yahoo! News that he is indeed working on a Ronald Reagan hologram, and he’s not using Digital Domain to make it.

Holograms of dead people are the least of Textor’s worries though. Since DD’s stock peaked on May 1st, the company has been in freefall. Today, Digital Domain’s stock plunged 21% to a 52-week low of $2.31. In the past four months, the company has lost $300 million in value.

It gets worse. Textor owns 24 percent of Digital Domain. He took out a $12.5 milion loan to buy the shares in the company, and now he can’t pay back the loan. But here’s where it gets Lehman Brothers-style sketchy–and downright insane, if you ask me: Textor got the loan from Digital Domain’s largest shareholder, Palm Beach Capital. The Palm Beach Post has the sordid story:

Corporate governance experts said it’s rare for a shareholder to lend money to a CEO to buy shares. “It’s just not a smart idea,” said Charles Elson, a finance professor at the University of Delaware. “If you can’t pay it back, what happens?” If Textor were to default on the loan from Palm Beach Capital, his annual interest rate would go from 12 percent to 19 percent, Digital Domain said this week. Collateral for the loan includes 8.5 million shares of Digital Domain stock owned by Textor and mansions in Stuart and Mountain Village, Colo.

Executive compensation expert Paul Hodgson of GMI Research said such arrangements are “not very usual. It’s kind of generally been frowned upon because it tends to complicate relationships and undermine situations from a governance point of view. That would raise a red flag with us.”

There are already many victims in this situation. I feel awful for the artists who are working on Digital Domain’s first (and potentially last) feature The Legend of Tembo, as well as for all the other Digital Domain employees. I feel bad for Florida citizens who handed $132 million of their taxpayer dollars to a reckless and clueless businessman. I feel outraged for the incoming students of Digital Domain Institute who may have to perform slave labor because Digital Domain doesn’t believe in federal labor laws.

But you know who I don’t feel sorry for?

John Textor.


  • Luke

    The sooner this ends the better.

  • I’m no businessman, but…

    Isn’t this what happened in Holland in the 1600s, when tulip bulbs were selling for a year’s wages (of a common laborer)? People borrowed money to buy into tulip futures, then the market crashed. I would think lenders would’ve learned their lesson by now.

    At any rate, I hope that they pull out of this. There are a lot of talented people working on these projects, and it would be a dreadful shame to see them out of work because of the risky greed of a few who live on the top of the food chain.

  • Maya A.

    Oof, you must really hate this guy.

    But in all serious I do feel bad for all the animation interns and employees who are going to be worked to death, most likely for no additional pay. Given DD’s track record with fairness to its workers, who knows how bad it’s going to get with the company going down the drain. This CEO really doesn’t seem to have a handle on things.

  • jordan reichek

    lord.

  • Amused

    Max Howard 2.0

    • Jennifer

      Max Howard? You don’t know what you’re talking about. Max was the best.

  • Aaron B.

    It’s funny you say, “Lehman Brothers-style sketchy,” because Textor was employed by Shearson Lehman Hutton in the past…

    You know who I feel sorry for? Wesleyan University, where Textor earned his degree in economics.

  • Spencer

    Florida’s the land of crooks and scam artists. Textor fits right in!

    • Ted Baxter

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    • http://weirdurl.com Zekey

      As a long LONG time citizen then let me be the first to angrily retort: you are absolutely correct. :)
      If it werent for the pleasant weather and lack of dosh me and my friends would have moved away from here.

  • http://animationanomaly.com Charles Kenny

    While I don’t agree with some of the hyperbole in the post, I certainly agree that this can’t end well.

    Personally, he’s a dumbass for taking a loan with a 12% rate. That means his share price has to grow by at least that much each year. Even Bernie Madoff only managed a steady 10%.

    This is why everyone needs to take a basic business class; so they can spot nonsense like this a mile away.

  • http://www.thinkmorestudios.com Rawls

    Well said my friend. Sad story indeed.

  • http://www.frankpanucci.com Frank Panucci

    To the casual, non-expert observer (me), this stinks and oozes around the edges. Could it be one of those elaborate side-letter backdoor Wall Street-style quasi-legal (or completely illegal) scams that have been in the news so often these past few years?

  • Murray Bain

    ya know how to make a tupac holgam?
    mocap a decent 3d model of tupac, and project it onto a reflective 2 way mirrored mylar in low light conditions. It’s not really a hologram, or even fully 3D, its a just a “pepper’s ghost.” a turn of the 19th century magic trick, the same way the ghosts at the haunted mansion work. the CGI doesn’t need to be that great, as long as the lighting is low key spot lighting from above, like you would have on stage.
    I wouldn’t be suprised if more of this illusion is used in concerts, but it’s not really something you can patent.

    • ShouldBeWorkin’

      Didn’t know that. Thanks. All this time I just accepted it was hologram in the true sense.

  • Mike

    He’s not the sharpest tool in the shed, but he’s definitely a tool alright.

  • TStevens

    When people are hired as executives, they need to have a vested interest in the product. Apple has been a classic example. When Steve Jobs was kicked out the board looked for a “tried and true” executive and they ended up with someone who couldn’t really understand the company, its goals, or what it produced. Textor seems to fit in to this mold.

    I suspect that the business model that he is putting forth is a result of needing fast money. If the situation is as bad as the articles portrays it, he can’t rely on long term productions to make money quick enough. This would account for the student labor as well as the idea of bringing the dead back to life in 3D holograms. Both ideas sound like they were hatched in the heat of the moment without concern for the long term.

    It a takes a special person to be a CEO and be good. They have to possess the ability to manage as well as having the vision. Textor seems to be neither.

    My prognostication… He will be removed by the board of directors in the next year if none of these schemes pan out.

  • Steve M.

    What a colossal screw-up.

  • Glen

    Two Words: mittens romney.

  • scared animator

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  • http://www.animatorisland.com/ J.K. Riki

    John Textor is exactly the person who I feel sorry for. Whatever his reasoning (which we don’t know and probably shouldn’t act all high-and-mighty like we do) he’s the one who needs a lot of prayers to hopefully turn things around and get it together. It’s a real shame, given the opportunity he has. But in life often the failures are the best lessons, so we’ll see.

    But I’ll be keeping you in my thoughts too, Amid. The way you write these sounds like you have a lot of anger and hostility built up towards this guy (and similar situations). That sort of stuff poisons a person. I hope you can let it go and feel better soon. Peace.