Marvel VFX veteran reveals damage caused by attacks in Hollywood

A1 Digital India News: The boss of Framestore, the behind-the-scenes special effects company behind several Marvel films, has revealed it has yet to recover from a six-month strike in Hollywood last year, with revenues dropping to $46.7 million and $665.6 million left over. Framestore has worked on most of the Marvel Cinematic Universe films, including the Guardians of the Galaxy films, Avengers: Infinity War, Avengers: Endgame and last year's Fantastic Four. It's a prime place to get work, as it's the leading SFX agency in the UK, where many of the Marvel films are shot thanks to lucrative government incentives offered to studios. 

The company was founded in London's Soho district in 1986 by then-husband-and-wife William Sargent and Sharon Reed, along with three friends. They began working on the groundbreaking video for a hit song by the pop group Take On Me, which featured hand-drawn characters interacting with real people. Framestore expanded into the lucrative market of corporate advertising as well as creating effects for films, where it made its name by bringing JK Rowling’s work to life in the Harry Potter series. They won three Oscars for Gravity, The Golden Compass and Blade Runner 2049, which put them on investors’ radar.

In 2016, 75% of Framestore was sold to Shanghai-listed entertainment operator Cultural Investment Holdings (CIH) for around $197 million. In true Hollywood style, this deal would spawn a sequel in 2020 when London-based investment firm Aleph Capital and New York-based private equity player Crestview Partners bought Framestore through their Infinity Bidco vessel and combined it with US counterpart Method Studios and added post-production specialists Company 3.

Infinity Bidco, in turn, is owned by UK-based Infinity Topco, the ultimate parent of all three effects firms. Its latest set of financial statements was filed recently and showed a decline in its revenue for the year ending December 31, 2023 “primarily due to the writers and actors strike, which caused most production to be shut down or delayed.” Over time, the pipeline of new projects will be impacted."

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Dark clouds began gathering in May, as writers turned down their means to increase their pay and royalties from streaming shows. Actors followed two months later, and despite a controversial curtain drop in November, by then the studio had pushed back the release dates of several films, including this year's list topper Deadpool and The Wolverine, which Framestore is also working on.

About 71% of Infinity Topco's revenue comes from North America and almost all of it relies on the business it generates. However, the financial statements also said the company's operating loss fell to $16.9 million from $29.8 million due to "tight cost controls in a landscape of rising interest rates and inflationary pressures."

Its loss was offset by a sharp drop in revenue for Industrial Light & Magic (ILM), the in-house agency of Marvel owner, Disney. The opposite was true for profits. As we recently reported, thanks to remote working, ILM could cut office costs and achieve record profits by 2023.

Infinity Topco's costs also fell last year as it cut expenses by $76.6 million, the biggest savings being on headcount. Framestore itself employs 3,053 employees and the rest are employed by Method & Co. 3. The company is only shedding 37 employees, bringing its total headcount to 6,329, although its payroll fell by 8.6% to $468.4 million.

As we recently reported in the London Evening Standard newspaper, despite its toughness, Infinity Topco had to write down the value of its investment in Infinity Bidco by $19.9 million to $177.4 million as trade was affected by strikes.

The financial statements confirmed that "a loss of $19,852,000 was recognised for the year ended 31 December 2023 on an investment by Infinity Bidco Limited due to challenges faced by the Group arising from the writers and actors strike".

The price cuts were made despite an improvement in the position of Framestore's direct operating company, GuideDraw, which retained its value. Its revenue for the year to 2023 rose 8.1% to $376.2 million, with a drop in business from North America offset by an increase in non-Hollywood strike British productions. Combined with careful cost control, this has helped the company turn a $7.9 million operating profit from a $6.3 million loss in 2022.