JS Communications has finally settled for a reduced break-up fee in the drawn-out Rhythm & Hues bankruptcy saga. It’s been two months since troubled VFX house R&H sold out of bankruptcy to Prana Studios-led Holdings, LLC following a roller-coaster closed-door auction. At issue was the court-approved $425K fee promised to JS Communications as stalking horse bidder if a qualified rival beat them out for the Life Of Pi company, which JS was eyeing to buy. But in a hotly contested development, JS failed to meet a deadline to submit its bid (exec David Shim told me then that his dealings with Fox and Universal left him less than optimistic about buying R&H without future work assurances). Per a court document filed this week (read it here), JS will receive a $300K break-up fee. If approved in court June 4, that should put the R&H saga to bed for the time being; multiple class action lawsuits against R&H filed by former employees have yet to be settled.
Thom Burkhart, who headed digital postproduction at Rhythm & Hues for 14 years, has joined postprod company Steele Studios as Senior Producer. He had been at the VFX house until it closed its …
It’s been a tense month-and-a-half for troubled VFX studio Rhythm & Hues. After filing for Chapter 11 in February, bringing global scrutiny to the tough economics of the US VFX industry, a federal bankruptcy judge today approved the company’s sale to an affiliate of India-based Prana Studios, 34×118 Holdings Inc. The new buyer won a drawn out auction for the Oscar-winning Life Of Pi company late last night with a winning bid valued at about $17 million. Prime Focus and Chinese company Brave Vision, represented by China Lion President and co-founder Jiang Yanmin, were also in the running, with Brave Vision tentatively approved today as backup bidder, pending documents to be provided to the court before final sale. (Other outlets misreported China Lion as a bidding company yesterday, but it was not involved.)
2ND UPDATE, 10:30 PM: The 3D animation and effects studio based in Los Angeles and Mumbai emerged victorious tonight after an auction that stretched across two days. Its past high profile clients include Disney (TRON: Legacy, Planes), Paramount (Transformers: Dark Of The Moon), and The Weinstein Co. (Hoodwinked!), studios not involved in the recent bankruptcy saga of the Oscar-winning Rhythm & Hues. A court hearing is set for 10 AM tomorrow to finalize the sale.
UPDATE, 3:30 PM: The end of the Rhythm & Hues bankruptcy saga just got pushed back a little further. Judge Neil Bason has approved Rhythm & Hues’ request to continue its bankruptcy sale hearing Friday at 10 AM. The auction will resume today at 4 PM. Two bidders are currently battling for the company, but Rhythm & Hues lawyers will allow an unnamed bidder that previously withdrew to submit a new bid, according to statements made today in court. They may also allow Psyops to rejoin the fray bringing the potential number of bidders to four. Meanwhile, the court will decide tomorrow if stalking horse bidder JS Communications will receive its contentious break-up fee.
UPDATED: It’s coming down to the wire for bankrupt VFX house Rhythm & Hues. Today at 5 PM is the deadline Federal Court Judge Neil Bason set for interested buyers to submit qualified bids for the company ahead of a March 27 auction. I’m told at least four bidders will be entering the fray, including Prime Focus, Prana Animation, Psyop, and Rocket Science 3D, and possibly others. Korean company JS Communication this week dropped out as the court-approved stalking horse bidder, which would have guaranteed Rhythm & Hues a minimum bid at auction. That surprise hiccup sprang from recent failed talks between JS and studios Fox and Universal, which last month teamed to bail out Rhythm & Hues with a $17 million DIP loan. JS rep David Shim told Deadline the two studios were uncooperative when he asked for a non-binding handshake agreement to $60 million worth of work per year for three years to ensure Rhythm & Hues had financial lifeblood through a post-sale rebuilding phase. He also says he agreed to pay an additional $3M to cover operational costs for the company. But a source with knowledge of the talks claims Shim was asking for a binding guarantee as well as additional financial commitments, a tall order in an industry where production and release schedules for studio films are always potentially in flux.
UPDATE, 8:28 PM: Rhythm & Hues just confirmed Deadline’s report in a press release. The VFX studio says it expects a “competitive auction” on March 27, which will be decided in court on March 28. But don’t count JS Communications out yet: I’m told they’re still exploring their options and may still throw their hat into the ring. “I looked at the company and due to the nature of this business, one missing component was cooperation from the studios because the work comes from them”, JS Communications’ David Shim told Deadline, adding that he’s “still working to have a dialogue with the studios”.
PREVIOUS EXCLUSIVE, 6:57 PM: JS Communications was approved earlier this month as a stalking horse bidder in the ongoing Rhythm & Hues bankruptcy case, which would have guaranteed a minimum bid in the VFX shop’s upcoming auction. But the South Korean media company confirmed to Deadline that it failed to submit a firm purchase agreement for Rhythm & Hues’ assets by today as mandated by the court.
Ross Lincoln is a Deadline contributor.
Just over two weeks after reports that troubled VFX studio Rhythm & Hues would be establishing operations in Taiwan, the company is courting new employees for its facility in the city of Kaohsiung. The studio is seeking a variety of creative personell, including special effects engineers and 3D animation artists, according to the China Post. The U.S.-based firm was running a booth at a job fair at National Chung Hsing University in Taichung.
Unionization and the creation of a trade association topped the priorities at a visual effects biz town hall meeting Thursday in Los Angeles where hundreds of VFX professionals gathered to discuss the state of their troubled industry. Despite calls for solidarity within the global community and a general sense of accord, a tense volley of boos erupted halfway through the panel when Visual Effects Society rep Mike Chambers took the mic and mentioned the organization’s call for larger California subsidies made in an open letter last month. In the letter the VES had announced plans to hold a VFX Congress, which has yet to materialize. “What are you going to do?” shouted one audience member to Chambers, who had no answer for his group.
The exchange highlighted the most crippling challenge currently facing VFX workers: With no organized body other than the strictly honorary VES, artists have no leverage as the current system continues to squeeze their employers for slim profit margins. Among the industry wide issues identified by keynote speaker Scott Squires: A flawed studio-VFX house business model, too much competition, and job-migrating subsidies. Panelists and audience members also decried the strains on health and home life endured by individual VFX artists at the bottom of the VFX food chain. Unpaid overtime, long work weeks and a lack of healthcare benefits are common for visual artists, who comprise one of the last remaining sectors in Hollywood that is not yet unionized.
UPDATE, 5:25PM: A federal bankruptcy court today approved JS Communications’ stalking horse bid for the financially troubled Rhythm & Hues. With the South Korean media company now firmly in place to bid on the company, the auction process out of Chapter 11 will begin. If no other bidders put their name in the hat, the VFX house will belong to JS Communications by the end of the month. However, court documents show that several other parties have expressed interest in Rhythm & Hues but JS is the only one to have their name made pubic. The court also ordered Friday that JS would receive a $425,000 break-up fee if another bidder buys R&H. That’s $250,000 less than the $675,000 the company wanted. Additionally the court said that the utilities cannot be turned off at R&H’s HQ and the company can pay pre-bankruptcy wages due to execs Prashant Buyyala, Keith Goldfarb and John Hughes if it chooses.
PREVIOUSLY, 10:26 AM: JS Communications Co wants a judge today to give it stalking horse status in bids for the assets of bankrupt VFX house Rhythm & Hues. In a letter of intent dated Thursday and signed by Managing Partner David Shim, the South Korean media company says it wants to acquire the Oscar winning company by the end of the month. “We are prepared to proceed with our due diligence and negotiate a Definitive Agreement as soon as possible,” says JS Communications’ letter. However, the Korean company insists it will only proceed with its bid if it is officially given the stalking horse status in Bankruptcy court Friday. Stalking horse bidders serve to spur other potential buyers to stake out more competitive positions in a court mandated auction process. The El Segundo-based effects studio, which won an Oscar last month for Life Of Pi after laying off 250 workers and seeking bankruptcy protection tapped investment firm Houlihan Lokey Capitol Houlihan Lokey in February to manage a sale. “Several interested parties,” according to a document
Bankrupt VFX house Rhythm & Hues must find a buyer by mid-March if it is going to recover out of Chapter 11, the company said in a court filing this week (read it here). The El Segundo-based effects studio, which won an Oscar last month for Life Of Pi after laying off 250 workers and seeking bankruptcy protection, tapped Houlihan Lokey two weeks ago to help with a sale as it continued to operate in the short term. Out of 80 entities contacted by the firm, at least 16 have signed nondisclosure agreements and commenced due diligence ahead of a sale hearing proposed for March 19. But according to court documents, the $17 million DIP loan from Universal and Fox and additional $4.9 million from Legendary allocated toward projects for each respective studio will run out by mid-month. If a buyer is not found by then, Rhythm & Hues says it will be unable
In an open letter issued Tuesday, the Visual Effects Society (VES) officially joined the growing crisis accelerated in recent weeks by the bankruptcy filing of Oscar-nominated VFX studio Rhythm & Hues. The missive calls for Governor Jerry Brown to expand post-production tax incentives in California and announces a VFX Congress to be held in the coming weeks to give artists a means of focusing their collective messages and goals into a united, focused strategy. “There’s a lot of energy and upset and desire on part of artists to say the industry is going through huge changes, and we all want to get together and get recognition at a much higher level”, Roth explained to Deadline. “But once you get there, what do you do with it?”
The VES is an honorary society of VFX professionals that counts just under 3,000 members in 30 countries. However, the industry lacks a VFX trade organization or union. Roth tells Deadline the VFX Congress is still being organized but will take place within the next few weeks. The VES aims to tap feedback from all stakeholders in the VFX industry including studios and facilities, although it is still to be determined who exactly will be allowed to participate in the Congress meeting. Read Roth’s open letter:
UPDATE, 9:50 PM: After winning the Oscar for Best Director, Ang Lee addressed the financial woes that struck his Life Of Pi VFX collaborators at Rhythm & Hues. “It’s bad news that visual effects are too expensive and I’m aware of Rhythm & Hues’ (situation)”, he said, noting that VFX artists are “more than just technicians”.
PREVIOUSLY, 9:13 PM: The Jaws theme struck less than a minute into VFX supervisor Bill Westenhofer’s Life Of Pi Oscar acceptance speech. The ominous play-off tune played for a full 20 seconds as Westenhofer thanked director Ang Lee and began addressing the crisis plaguing the VFX industry. Poor Westenhofer was just starting to acknowledge the recently bankrupted Rhythm & Hues VFX studio, whose employees staged a protest at Hollywood and Vine earlier in the day that gathered over 400 marchers. “Sadly, Rhythm & Hues is suffering severe financial difficulties right now”, he managed to spit out before becoming the first winner of the 85th Academy Awards interrupted by play-off music. (Meanwhile, Best Documentary Oscar winner Malik Bendjelloul got the Jaws hook, too.)
Ross Lincoln is a Deadline contributor.
UPDATE, 4:26 PM: By Deadline’s count over 400 protesters are gathered at the corner of Hollywood and Vine as celebrities and filmmakers walk the Academy Awards red carpet just blocks away at the Dolby Theatre. The grassroots protest is organized by ex- and current employees of bankrupt Life Of Pi VFX house Rhythm & Hues to bring attention to the company’s recent Chapter 11 financial woes, which trickled down this month as over 250 employees were axed without pay.
Even those that remain at Rhythm & Hues working on upcoming tentpoles like Legendary’s Seventh Son have not received a paycheck in weeks. Today’s protest is also tied to a growing effort to unionize the VFX industry under the banner of the International Alliance of Theatrical Stage Employees (IATSE). But among today’s protesters the unionization issue has mixed support. One marcher who asked to remain anonymous said he fears that unionization might contribute to the industry’s economic problems. Others lamented the difficulty in unionizing, citing mixed interest in the industry and the need for studio cooperation as potential roadblocks. However, the subsidization of VFX houses abroad, particularly in Canada, was a source of seemingly unanimous criticism. Numerous signs bore witness to the sentiment, with slogans like “Foreign Subsidies = No LA VFX Jobs” and “End The Subsidies War” common.
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.)
UPDATE, 1:38 PM: Rhythm & Hues confirms Deadline’s original reporting that it will be filing for Chapter 11 tonight. Here’s the statement just released by President of Film Division Lee Berger:
“Tonight R&H is filing for Chapter 11 reorganization in the U.S. Bankruptcy Court and hope to be in front of a Bankruptcy judge in the next couple days. In the meantime, all of our offices remain open, our clients are aware of the process; we have obtained commitments for financing to complete projects in house at the quality level the studios have come to expect. Following the filing, R+H will be seeking to secure financing for future growth. I believe that we are going to come out of this situation stronger, more efficient, and as prolific as we are now.”
PREVIOUSLY, SUNDAY PM: Oscar-nominated, VES-winning and Annie Award-winning animation studio Rhythm & Hues will be formally filing for bankruptcy Monday morning, Deadline has learned. Within hours of winning the BAFTA for Special Visual Effects for Life Of Pi, the financially troubled company informed employees around 9 PM Sunday of the upcoming Chapter 11 filing, insiders say. Many Rhythm & Hues employees were also told by management not to show up to work Monday. On Friday, the company, headquartered in El Segundo, preceded its bankruptcy filing news by announcing to workers that paychecks would be delayed indefinitely.