Digital Domain Bankruptcy Puts "Ender's Game" Schedule at Risk

Special effects company Digital Domain Media Group (DDMG) filed for Chapter 11 bankruptcy last Tuesday and presented a buyer, Searchlight Capital, for its core operations, Digital Domain Productions, on the same day. However, regulations require that a bankruptcy auction is held, and it is far from certain that Searchlight's $15 million will be the winning bid when this auction concludes on September 21st.

We reported last weekend that a Lionsgate spokesman confirmed that "post-production work on Ender's Game remains on schedule," but several new developments, including new court documents filed by Lionsgate production partner OddLot Entertainmain (OLE) on Wednesday show that this schedule is now at risk.

An auction date just ten days after the initial bankruptcy filing is, according to DDMG's bankruptcy judge Brendan Linehan Shannon, "unprecedented," and he said he approved the timeline "only because Digital Domain claimed it would be forced to liquidate and fire all its employees." That, of course, would prevent DDMG to complete the visual and animation effects for Ender's Game on time.

On Thursday night, Digital Domain announced that it has secured "close to $12 million in financing" to help keep the company running, meet its expenses, and make payments including employee wages. That is good news for Ender's Game as post-production work on the film should continue even if the bankruptcy auction -- judge Shannon called his approval "interim" - should be delayed for a while.

But we won't know for sure if the November 1, 2013 schedule for Ender's Game can be met until we know the outcome of this auction. A court motion filed by OLE (PDF) details the concerns of the producers:

"It is of paramount importance to OLE that the visual, digital and animation effects for Ender's Game be completed according to schedule. Without knowing the identity of the proposed buyer, the ability of the proposed buyer to perform the obligations under the Agreements or whether the proposed buyer is even assuming the Agreements, OLE will not be able to determine whether the proposed sale will enable the visual, digital and animation effects for Ender's Game to be completed according to schedule."

Digital Domain has several "Agreements" with Summit Entertainment and OddLot, most importantly they agreed "to provide visual, digital and animation effects for Ender's Game at cost plus a deferred fee of approximately $10 million to be paid out of the net proceeds of Ender's Game." But there is also an "Investment Agreement" which gives DDMG a 37.5% interest in the project, and a "Completion Guaranty Agreement" with certain banks. All these agreements come with certain rights and obligations, and we don't know how the eventual buyer of Digital Domain intends to handle those agreements.

Searchlight Capital is a private equity firm that intends to make a profit off its investments, and one of the shiniest assets they would acquire with DDMG is the 37.5% equity interest in Ender's Game. OLE filed with the court that the consent of both OLE and Summit would be required prior to a sale of those Ender's Game interests, and neither party has provided such consent to date. OLE addresses further concerns in the court motion:

Given the importance of the assumption of all of the Agreements to the success of Ender's Game, OLE is particularly concerned that a buyer may agree to assume all of the Agreements at the Auction and the hearing on the Sale Motion, only to turn around and assume only certain of the Agreements after this Court has approved the sale.

We hope - and expect - that Summit and OddLot will be successful in protecting the Ender's Game film in this mess of a bankruptcy, but we'll have to wait for the auction's results which are expected to be announced on September 24th. A delay of the film's release date seems unlikely at this point, but court documents show that there is clearly a risk.