Rhythm & Hues Gets $20M Studio Infusion

Rhythm & Hues Studios [1], the Oscar-nominated visual-effects company behind Life of Pi, is in dire financial straits and will take an emergency $20 million capital infusion from three major Hollywood studios in order to keep its doors open through April, according to a report by The Wrap [2].

After April, the company is expected to be sold to Indian company Prime Focus. The company, which employs roughly 1,400 people, hit an unexpected cash crunch when movies it expected to work on were delayed.

Universal, Twentieth Century Fox and Warner Bros. have stepped in to float cash to the company so it can finish up work on a half-dozen major projects, including the Warner disaster film Category 6, Fox's Percy Jackson sequel and Universal's R.I.P.D. 

“Rhythm & Hues is not going out of business in April, and we are continuing to bid for new work,” Lee Berger, president of the company's feature film division, said. “We are a sustainable entity. In terms of financial difficulties, we are in the visual effects business, and we are always seeking outside investment. Much of the rest of the stuff being reported is inaccurate and incorrect.”

The company's cash crunch comes as it received two Academy Award nominations for Achievement in Visual Effects for Life of Pi and Snow White and the Huntsman. It is widely expected to earn the statue for its effects on Pi. The company has previously won Oscars for 2007's The Golden Compass and 1995's Babe.

The Los Angeles-based company has been acclaimed for the quality of its effects but has had trouble competing with generous tax subsidies that have sent much visual-effects work in cities like London and Montreal.

Rhythm & Hues has tried to keep up with this change, opening a branch in Vancouver [3], which offers subsidies, in an effort to lure filmmakers looking to economize. But it has been unable to compete with other players in the space who are able to underbid the company.

Rhythm & Hues also has branches in Mumbai and Hyderabad, India; Kuala Lumpur, Malaysia, and Kaohsiung, Taiwan. 

Another issue for Rhythm & Hues is that the visual-effects business is an increasingly low margin one. One canceled or delayed project can make it nearly impossible for an effects house to meet its payroll.

Should Rhythm & Hues falter, it will join a list of more than a half-dozen effects houses that have been forced to shut their doors because of increased global competition, including Asylum Visual Effects, CafeFX and Illusion Effects.

Others have bowed to financial pressures and put themselves up for sale, such as Digital Domain, which filed for bankruptcy and was acquired [4] by Galloping Horse America and Reliance Mediaworks for $30.2 million last September.

In October, Rhythm & Hues said [5] it was looking for new capital and was willing to sell a minority stake to attract about $20 million in new investment.