Digital Domain Shares Rally On New Licensing Deal

| About: Digital Domain (DDMGQ)

Shares of Digital Domain Group (DDMG) are having their best day since investors swooped into the stock around the Coachella Valley Music Festival in California in April. The Los Angeles-based visual effects company had a hand in making the Tupac hologram that became a viral sensation. Today, shares appear to be on an upswing, thanks to a new licensing partnership. Digital Domain shares are up more than 15% at the time of writing on three times the average volume.

Today, the catalyst is the announcement of a deal with Prime Focus World, another visual effects company. Digital Domain's technology will be licensed to Prime Focus. The deal also ends a pending patent infringement action that Digital Domain had filed against Prime Focus in 2011. The two firms will collaborate on converting 2D to 3D in movies.

Prime Focus CEO Namit Malhotra was happy the two companies were able to put the lawsuit behind them and make a deal. "The technology that we've licensed from Digital Domain Group enhances our own robust proprietary processes and increases our efficiency for our customers," he said in a press release.

Prime Focus has worked on several movies, including "Men in Black 3", "Star Wars: The Phantom Menace", "Transformers", "Harry Potter", and "Avatar". Upcoming movies such as "Total Recall", "Frankenweenie", and "Dredd 3D", are all using Prime Focus technology as well.

The announcement today should be a positive sign that future opportunities are on the horizon for Digital Domain, which holds six United States patents that relate to 2D to 3D conversion. Companies looking to use the technology will have to license or partner with Digital Domain. In 2011, for example, Samsung licensed technology from the company to use in consumer electronics. Look for more deals like that from Digital Domain and its partners in the future. In that light, the announcement can only be interpreted as a good sign for investors, too.

I have been very vocal about Digital Domain in past articles, initially writing about it in April (a link to the article is in the first paragraph above). In that article, I discussed the Tupac hologram and reviewed financial information from the company's recent IPO. I also wrote about Digital Domain's successful movie and television special effects business, which has won awards for its work on "The Curious Case of Benjamin Button", "Terminator 2", and "Pirates of the Caribbean".

Other recent highlights from Digital Domain include:

· Signed a deal with Core Media to create a hologram image of Elvis Presley. Core Media has a huge portfolio of dead celebrities, which could lead to more deals in the future. I discussed the possibility of future tours using dead musicians in a previous article. Rap trio TLC is also using Digital Domain technology to create an image of Lisa "Left Eye" Lopes.

· Created and released a 60-second visual effects piece for the New York Mets. The spot plays before every home game and shorter clips play during key moments in the game. The video can be seen on Digital Domain's website.

For me, Digital Domain Media remains a long term bet. Along with its visual effects business, it is sitting on a billion-dollar hologram imaging opportunity. The company has also been expanding into animated film and university schooling. And in November 2013, Digital Domain will see the release of "Ender's Game", the first film it has an ownership stake in. I have held Digital Domain since the Tupac hologram, and will continue to do so.

Disclosure: I am long DDMG.