The Rescue of Astro Boy

Forbes Magazine has a new article about Imagi and the upcoming cg Astro Boy movie, focusing on the difficulties the studio has had thanks to the current state of the global economy. Imagi's chief executive Douglas Glen is interviewed in this eye-opening look at the company and the movie buisiness in general.

According to the article, some of the studio's funding fell through and things where looking dim for awhile, but the good news is that they now have the funding they need and Astro Boy will be finished.

The article also has an interesting look at the inner workings of Imagi, both the financial aspect and the office environment. They've got a face-recognition security system! There's a brief history of the company and a little bit about some of their upcoming planned projects too. All in all it's a mostly optimistic look at a company that has faced, and may continue to face, a few bumps in the road.

You can read "The Rescue of Astro Boy" on Forbes.com or read an archived copy right here by clicking the link below.

The Rescue Of Astro Boy
Robyn Meredith, 01.14.09, 06:00 PM EST
Forbes Magazine dated February 02, 2009

Amid the financial crisis a Hong Kong animation house with superheroic ambitions gets a reprieve for its exciting project.

Not far from a Hong Kong dock where Chinese cargo exports were feeling the pinch of a world financial crash, another kind of factory was humming. To get there, you must take a skyscraper's elevator to the 23rd floor and get past a locked door guarded by a face-recognition security system. Only then can you enter the darkened room where hundreds of young adults lean close to computer screens, bringing fictional characters to life. They are the 400-strong movie animation staff of Imagi, which aspires to be the DreamWorks of Asia.

One animator used his mouse to wiggle the onscreen nose of a character he's been programming, while next to him someone was tweaking the facial expressions of a robot dog in a movie called Astro Boy.

The staff, dressed mostly in jeans and untucked shirts, their workdays spent creating the imaginary world of Japanese comic book hero Astro, had no clue in mid-November that they were at risk of losing their jobs or that the promising movie they were working on might not make it to the big screen.

Their boss, Douglas Glen, Imagi's chief executive, had just come back from the American Film Market in Los Angeles, which was devastated by the gloom and doom spanning the globe. "If markets don't return to some semblance of normalcy, it is going to be difficult to keep operations going," an ashen-faced Glen told a visitor. Only two months before he had triumphantly secured $30 million in financing for his movie animation company. Then $20 million of it fell through.

Imagi wasn't the only moviemaker in trouble--the whole industry was crippled by the credit crunch. In November at the Film Market "it was absolutely bleak," says D. Jeffrey Andrick, managing director of Continental Entertainment Capital, a Beverly Hills company that serves as a merchant banker specializing in the movie industry. Continental brought to Citigroup The Spirit, the $50 million-plus Frank Miller film that opened on Christmas Day. "It may have been the worst environment I've seen at the American Film Market."

Indeed, Continental had a capital partnership with Citi, and after the subprime crisis Citi pulled out. Other banks, along with hedge funds and institutional investors, have dramatically dialed back their recent freewheeling backing for moviemaking, Andrick says.

But just like the animated hero of Astro Boy, Imagi has proved a survivor. In December it was promised $20 million in replacement financing, allowing the movie to go forward and the Hong Kong animators to keep their jobs. "At the last second we got untied from the railroad tracks," Glen says. "It's a little cinematic."

The substitute funding was arranged by Chicago private equity firm Prescient Advisors.

Imagi's first big hit came in 2007 with a Teenage Mutant Ninja Turtles movie animation that grossed $100 million. Astro Boy, with a $65 million budget, is supposed to be released later this year in the U.S. on Oct. 23 and in Japan over the Christmas holidays. It is a classic Japanese comic book story of a robot designer in a world of the future who, heartbroken after the death of his son, builds an android to replace him. After Astro Boy's "father" rejects him, he sets off on a journey of adventure and redemption. "It's got a lot of promise," says Andrick, who's not an investor but saw clips of Astro Boy at the Film Market. It has a built-in fan base of those who remember the comic book--not just in Japan but also around the world. In the U.S. Astro Boy was the top children's syndicated TV show for three years during the 1970s.

People used to say the film industry was recession-proof. In the Great Depression even out-of-work people would scare up a quarter to see a matinee starring a tuxedo-clad Cary Grant or Fred Astaire acting out some fantasy. In this recession the demand is still there--but not the financing. "There was a great outpouring of funds available, and there's now a great shortage," says Jonathan Dolgen, former head of the Viacom Entertainment Group and its Paramount Pictures unit. He is now a principal of Wood River Ventures, a new firm that focuses primarily on media investments. "That's going to result in fewer films being made."

DreamWorks itself has run into trouble. After it assembled a $1.2 billion debt and equity deal in late September to split from Paramount, the equity piece, from India's Reliance Group, came through. The debt portion, which was to be syndicated by jpmorgan Chase, has run into delays.

While DreamWorks has Steven Spielberg, Imagi got into the movie animation business only after it got out of the business of making artificial Christmas trees in Chinese factories. Francis Kao, 32, urged his father, Michael Kao, to sell the manufacturing business and seek higher service-industry margins. The founder sold the tree business to the Carlyle Group and later retired, handing the company reins to his son, who is now Imagi's chairman and chief creative officer. The Kao family retains more than a third of the company, while another large backer is Hong Kong's Winnington Capital, with more than 20% of the company.

Imagi gradually built up a stable of computer graphics specialists and expanded into TV production work; it moved on to animate DreamWorks' Father of the Pride TV series on NBC in 2003. After the Teenage Mutant Ninja Turtles hit, with a big-screen gross more than twice the production cost, Imagi hired two executives from DreamWorks, Kenneth Tsumura and Timothy Cheung (the animator who brought Shrek to life), and brought them to Hong Kong to train a generation of animators in computer graphics. Imagi now has three films in production: Astro Boy, then the sci-fi ninja story of Gatchaman, planned for the fall of 2010, followed by Tusker, which will be reminiscent of Disney's Lion King, scheduled for the summer of 2011. "They are all heroes' journeys," says Glen, a former Mattel and Sega executive. They teach lessons gently, "like Flintstones vitamins--you make sure you package it in a way that's attractive to kids, but they're good for you."

What's attractive to investors--at least in normal times--is that Hong Kong is much cheaper than Hollywood for creating computer animation. Of course there are cheaper places: China, Malaysia, the Philippines and India. But lower costs are just part of the story, Glen says: "What makes Imagi magical is the combination of the story development in Los Angeles" with 120 employees there, "combined with the skills in turning those designs into pixels on the screen that you've got here in Hong Kong." That kind of globalization may enable this outfit to survive what is shaping up to be a nasty economic storm.