Dominic Patten contributed to this report
4TH UPDATE, THURSDAY 11:00 AM The court has given Legendary the go-ahead to infuse Rhythm & Hues with another $4.9M to finish Seventh Son. Law firm Venable LLP repped the studio, which sought the court’s approval to pump additional payments into the ailing effects house after receiving only 25% of their commissioned 225 VFX shots last December.
3RD UPDATE, WEDNESDAY AM: Legendary Pictures has officially filed a motion to be allowed to give Rhythm & Hues an additional $4,961,751 to complete VFX work on their October release Seventh Son, according to a change order filed yesterday (read it here).
2ND UPDATE, FRIDAY PM: In a preliminary ruling, Judge Neil Bason has approved $11 million of the loan. A first disbursement of $6 million is expected immediately, with $5 million to follow on February 19. On March 12, Bason will offer final judgement on the loan and, pending no legal hurdles or objections, allow the remaining $5.5 million to be given to Rhythm & Hues.
UPDATE, 12:40 PM: Legendary Pictures has asked the court if it can write a check to Rhythm & Hues outside the DIP loan being offered by Universal and Fox. The production company said if the “change order” is not approved it could mean a $9 million hit, and that even though it’s already paid for the work it’s willing to “pay twice” to get its movie finished. That could be a reference to Guillermo del Toro’s Pacific Rim, which already has set a July 12 release date via Warner Bros. (UPDATE: Nope. Legendary lawyers say it’s the Jeff Bridges-starrer Seventh Son, which has an October 18 release date via Warner Bros. A hearing date has been set for February 21.)
Additionally today, two former employees of the VFX company filed similar class action suits against Rhythm & Hues over letting people go without proper notification. Former compositing technical director Anthony Barcelo says in his complaint (read it here) that under the Worker Adjustment and Retraining Act, he and others should have given 60 days’ written notice for being terminated without cause. The other suit (read it here) is from Thomas Capizzi, who also alleges he and others were fired from the company without the required written notice or cause. On Monday, Rhythm & Hues let go 254 of the company’s approximate 700 employees at its El Segundo offices.
PREVIOUS, 9:37 AM: The Oscar-nominated Life Of Pi VFX house is desperately seeking approval of a $17 million emergency loan from Universal and 20th Century Fox at a preliminary hearing in LA this morning in federal bankruptcy court. The studios are two of Rhythm & Hues’ biggest clients; another, Warner Bros, has withdrawn its projects and financial support. The troubled effects company filed for Chapter 11 bankruptcy protection Wednesday. If approved, the loan (read the motion here) will allow the company to complete contracted work on the studios’ projects and continue operations through the end of April. The financially unstable company could also seek new work and possible buyers during this period.
Rhythm & Hues claimed it had $33.8 million in liabilities by the end of 2012 according to a filing submitted this week. If the DIP loan is not approved, the company will be unable to operate and must liquidate immediately, according to the documents. The Rhythm & Hues filing also reveals that Universal and Fox had already floated the company two loans in the amount of $750,000 and $5.25 million to clear its payroll through January 15, the last date many employees reportedly received payment for completed work. At least 200 employees were laid off last week without any promise of a paycheck, multiple sources tell Deadline. CEO and founder John Hughes will appear this morning in front of Judge Neil Bason.
Related: Lifeline: Ex-Rhythm & Hues Artists Recruited By VFX House


So what happened here? Was it mis-management…or did the company contract to produce effects they couldn’t actually do without a lot of in-house r&d that they had to finance themselves?
Hey Pete,
Were it so simple that a single issue might be the cause of the R&H problems, but unfortunately, mis management is just a fraction of the reasons. Without detailing all the woes of the current visual effects industry, it can only be saved if it follows Nietzsche theory, “Out of chaos comes organization”.
As it currently stands, this business is completely out of control as it death spirals overseas. There is no person and no entity whether it is unionization or a trade organization which can probably stop the bleeding before more and more patients (effects houses) especially in the states become terminal.
It’s like watching what is happening in Syria. It’s horrible. People are dying and lives are being destroyed…but, no one seems to be able to do a damn thing to fix it.
I’ve been in VFX on features for 10 years. Most of the features I’ve worked on are mid budget 30-50mil. NONE of them have ever done their primary VFX work in the US. Here is my typical breakdown of vendors – Big shots to Canada, mid-range shots to India/Thailand/European VFX houses, low end work to people in LA who will work on a weekly rate. Every time I had a big shot that I would bid out to the big companies in the US – R&H, ILM, Digital Domain, etc – the price would be so crazy that it wasn’t even up for discussion. We had to go out of town because they could not play ball on budget. I’m shocked these companies have survived as long as they have. Too much overhead, too many execs, too expensive. Lower your costs or die.
and thus, your shots look like shit….
Professor Falken
R&H had a market lock on cartoony cg/live action hybrids for years and was able to remain profitable, even with a topheavy, antiquated production infrastructure. When studios stopped making those movies they were forced tp compete with everybody else. And they weren’t quite efficient enough to make it work.
The employee who filed the lawsuit claiming that R&H violated the WARN act is not subject to the WARN act.
He was an “at-will” employee (as most freelancers are), which pursuant to California law, means that he could be terminated at any time, for any reason, without notice. It also means that he had the right to quit at any time, for any reason, without notice.
“VFX Editor” – you DO realize that what the VFX artists do is not just tech, and it’s not computers that do the work, but skilled artists and engineers, right? It’s easy to say “Lower your costs or die” – but what VFX is about is R&D, new tech, new everything – all the time. Studios STILL think it’s just “push a few buttons” – and it’s not like that at all. They keep hiring reckless inexperienced directors, and the sets are a mess, and things get shot that should never get shot, and they say “Fix it in post” – and THEN wonder why costs spiral out of control? Sorry, but there aren’t enough skilled and trained people in foreign countries(India/China) that can do this work (yet).
I agree with “art it’s not just tech”—vfx editor, there is no substitute for quality, unless of course, you have your highest standards set at mediocrity. I have seen the most atrocious shots come through a studio, things that in the days of fritz Lang or Alfred Hitchcock, or Jean Cocteau, would have been meticulously thought out and required only enhancement, not frankensteinish recreation, which is the expensive part of post—artists cleaning up mistakes that productions on location have overlooked, while huge percentages of the budget have already been spent making those mistakes. In any case, the attitude of “vfx editor” seems to be the prevalent one–there is a quote in Skyfall in which the Prime Minister addresses Mum–”you behave as though human intelligence is the only resource available to us!” And we artists may be, idealistically, assuming the same regarding talent and experience, while clearly, those who are NOT artists in this business these as negligible if not problematic traits–because they are expensive.
“It’s like watching what is happening in Syria.”
No. No it really isn’t.