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OUT ON WEST 39TH STREET, JUST OFF NINTH AVENUE IN Manhattan, the daily parade of seedy-looking weirdos, crack smokers and grim-faced pedestrians is already in progress. Inside, behind the iron gate and the Bauhaus-inspired facade, behind a wall of glass and surrounded by his frightening collection of art brute-art of the insane, it looks particularly at home in this neighborhood-Bob Greenberg, chairman of what's now known as RGA Digital Studios, is talking about the problems facing creative people working in the communications media today.

"It ties into the whole concept of the digital studio and the ability to do everything, the whole process of creating images and sound on a desktop, and that being a sort of democratized version of what we have here-democratized in terms that everyone can do it, be it on a Power PC or an SGI, maybe even a Macintosh," Greenberg says. "Ultimately what we're struggling with is the resolution-independent, open-architecture programmable system for creating print, broadcast, interactive multimedia or feature films in any delivery system that's required and whatever resolution, whatever standard, whatever format."

This discussion leads, of course, to another of Greenberg's favorite concepts, that of the transparent studio-a term he's thoughtfully had trademarked-in which stuff generated on multipurpose workstations is sent whizzing over networks between ad agencies, production houses and other outposts of the creative community, leaving them "ready for the online systems of the future, which will be interactive advertising and programming on the full-service network," Greenberg says. Summing up, he puts it this way: "Instead of the superhighway, which is what everyone is talking about at these large conglomerates, what we're trying to be is a customized car."

While it's hard to picture the bookish Greenberg behind the wheel (think Woody Allen in "Annie Hall"), he won't be alone. Judging by the looks of it, the fast lane of Route 2001 promises to be clogged with vehicles coming from all directions. One discipline that holds particular promise for the digital production environment of the future is visual effects, and there are no more visible players in this realm right now than Greenberg's New York- and Los Angeles-based studios and the much talked about, heavily hyped, already written up in Wired new kid on the block, Digital Domain.

In a sense, this is a story about visual effects that has little do with effects themselves. There's little new to say about the wonders effects houses are capable of these days, from the dazzling (the romping dinos of "Jurassic Park" and Diet Coke's dead-celebrity extravaganzas) to the mundane (removing rigs in shots, electronically compositing mattes, etc.). Rather, it's about redefining the role of visual effects in light of the mad rush toward digital media. What will the new companies for interactive advertising and multimedia production look like? And how will production houses have to structure themselves to participate in this promised orgy of product?

Everyone seems to have answers, not the least of whom are Greenberg and his easygoing Digital Domain counterpart, Scott Ross, the former general manager of ILM who made news when he, director Jim Cameron and effects wizard Stan Winston signed a partnership deal with IBM early last year to open the studio. While animation and effects-oriented companies like Colossal Pictures, Rhythm & Hues and Pacific Data Images, not to mention a host of top live-action commercials production houses, have been actively positioning themselves for this uncertain future, Digital Domain and RGA have drawn attention to themselves as much for what their corporate chieftains have been saying as for the work they've done.

For example, both Greenberg and Ross have openly discussed their belief that the very structure of advertising agencies is going to have to radically change in the not too distant future. They talk of an outdated model that doesn't work anymore and the inevitable need for forming "strategic alliances"; of partnering with clients and producers; of developing new revenue streams; and of taking an increasing ownership stake in the ideas they generate on behalf of clients, which, they note, is rapidly becoming the only thing they still have dominion over, and even that's starting to erode.

At the same time, they're trying to position their companies in an entirely new manner, moving them away from the bedrock of work for hire, vendor-based assignments and into the more glorified realm of content production, a move everyone in the effects field seems to be taking. Greenberg, for example, says that in the past six months, the collected flotilla of RGA companies (more on this in a moment) has seen a fifth of its work shift from work for hire to content production, while also starting to move its client mix away from being 90 percent advertising.

Digital Domain, on the other hand, while sharing somewhat similar goals, has some very different elements to its strategy. First off there's the idea that in some fundamental way Digital Domain is not like other visual effects companies (in particular, comparisons are drawn between it and that well-known dream factory outside San Francisco), and in a real sense that's true. The IBM connection, along with the marquee value of the founding partners, has generated considerably more press than the work itself so far seems to warrant. (That should change once Cameron's "True Lies" appears this summer, as well as Neil Jordan's "Interview With the Vampire," both of which Digital Domain is contributing to.) More importantly, the studio represents Big Blue's multimillion dollar vested interest in the future development of multimedia and hi-res graphics applications; conversely, it provides the studio, which is chockablock with SGI supercomputers and is busy programming its heart out, with a potential manufacturing and distribution outlet for whatever software and hardware products its tinkerers can develop.

Then there's the ambitious Digital Domain manifesto that, among other things, charges the company with becoming potent content producers, with a special nod to the illustrious backgrounds of its partners in creating characters (Winston won an Oscar for his "Jurassic" dinosaurs). Ross maintains that technologists can be just as creative as anyone else, and need not be looked at by writers, directors, producers, art directors and designers as mere wireheads. It follows, then, that companies like Digital Domain can be credible creative collaborators, particularly in the advertising arena, since agencies seem to be on the conceptual ropes anyhow and are increasingly giving top directors like David Fincher-who's let it be known that Digital Domain is now his effects house of choice-almost free reign.

Given how the agency business is unbundling before everyone's eyes, Ross and his lieutenants have been meeting with several shops in an effort to persuade them that the studio can augment their creative capabilities, not only through its own impressive talent roster (one of the advantages of being an extremely well-funded, iconoclastic newcomer is that you can do rather well raiding other studios) but through its growing associations with top directors.

The origin of Digital Domain dates back to Ross' days as general manager of ILM, when he worked with Cameron on "The Abyss." He says he was thinking back then of forming a digital production company that could create characters, even before the wild success of the morphing minions in "Terminator 2" drove home their value. When he left in the spring of '92 to start his own company, executives from IBM's multimedia division, Lucie Fjeldstad and Kathleen Earley, were already eyeing Hollywood studios and production companies, looking for strategic opportunities. Fjeldstad, who's now a consultant, had convinced Big Blue that hi-res graphics applications would be to computing in the '90s what spreadsheets and word processing was to the '80s. They needed to be in on this in order to be positioned as a leader in the next great explosion of computer software developments.

The common goals of Ross, Cameron and Winston dovetailed with what IBM was looking for in a digital studio: "We all believed there would be a new communication medium in the next five to 10 years," says Ross, "that it would be digital, that it would combine the phone, the television and the PC in a consumer format that would let you share some form of hi-res product through a cable or fiber optic system, and that the need for content producers would be urgent." The most logical place they thought they could find the talent and resources needed to do this-what Ross calls the cross between Hollywood storytellers and Silicon Valley cyber dweebs-was in the visual effects arena.

While the need for content may still be urgent, Digital Domain has yet to make its mark in this area. Still, they've done pretty well for themselves in under a year. On a recent visit they had two features and eight spots in production (their work for Jeep and Nike has drawn praise from competitors), with a staff of over 200 romping through the transformed space of Chiat/Day. Yet in areas like interactive production they appear to be lagging behind other studios, such as RGA, which already has a number of projects under its collective belts.

If the startup energy bubbling at Digital Domain suggests controlled chaos, over in its recently opened Hollywood offices and back in Manhattan, the 17-year-old RGA goes about its business with typical precision and attention to detail. Greenberg has invested considerable time and money in pursuit of his concept of the transparent studio and the astounding potential of the all-purpose workstation driven by sophisticated software; so much so that it seems he's banked the future of the company on this.

He's been on a public speaking tear, addressing conferences and seminars around the country and presenting his view of the digital imaging studio of the future to just about anyone who'll listen, and he's been quietly meeting with investment bankers in search of a limited partner willing to help finance his plans.

Meanwhile, RGA is busy working in just about all areas of the new media pie, including interactive advertising, video games, CD-ROM products and theme park rides-they're even trying to produce their own motion pictures-all of which fall under one of seven different divisions of the overall company. Indeed, Greenberg has signed the studio up with William Morris (while CAA gets all the ink, he says Morris has stronger pull in television, which is where the future of interactive will play) to further its role as new media specialists ready to take advantage of the rampant confusion and uncertainty in the field.

Looking at things from a big-picture perspective-which, incidentally, is what both friends and critics of Greenberg alike say is one of his strengths-Greenberg sees the future as a commercially applicable datacloud, a concept familiar to computer freaks but a new one in the land of GRPs and cost-plus bids. Defined for his purposes as a jumble of images and sound produced independently but somehow interrelated, it consists of everything from TV spots and infomercials to print, special purpose films and graphics.

Cutting and pasting electronically, Greenberg says you'll be able to pull items out of your datacloud, move them around digitally in the transparent studio and turn them into everything from kiosks and CD-ROMs to interactive advertising. The key is that all this material, regardless of who shot it and in what format, are reusable assets for pinpoint advertising. In this approach the focus in creative and production won't be on producing one TV spot, Greenberg says, "it's about producing hundreds of spots, where they're part of an overall design" for multiple delivery systems.

He even goes so far as to urge agencies and advertisers to look to their film vaults for pre-existing material that can be digitized and added to the cloud-vaporized, if you will-for future reuse in certain applications. While this advice tends to get him in hot water with stock photo houses and his friends at Eastman Kodak, he stresses the fact that it again represents reusable assets: "And they could be cataloged so that, if you're a catalog producer, there's no need to send people out to St. Barts or Bimini-you just shoot your people in front of a blue screen. You can even change the colors of the clothes the models are wearing. It's just a whole different way of working."

Obviously, there's no consensus that visual effects companies are better positioned to lead advertising into the promised land. Charlie Gibson, executive VP at Los Angeles-based Rhythm & Hues, notes that companies like his know how to offer agencies the level of production values that are going to be sorely needed in the new media, which promises to be awash with a new form of clutter.

Jean-Claude Kaufmann, director of broadcast production at Bozell and a member of the agency's new media SWAT team, agrees, to a point. "Yes, our expectations in advertising are higher than in the video game and multimedia fields," he says. On the other hand, as things get more sophisticated and these media get closer to full-motion video and need better executions, "it's not necessarily the effects companies that will do it-unless they can get the top directors and designers."

RGA recently produced a large interactive project for Bozell client Chrysler, and while Kaufmann says the studio's computer expertise helped, creating and producing for new media is not just about computers. "It's going to be content and talent that decides it. It was true for theater, movies and television, and that formula hasn't changed."

As the future bears down on the visual effects field, certain issues are rising to the fore. Glenn Entis, PDI's COO, sees the future as a cornucopia of opportunity regardless of the pitfalls, proclaiming what effects companies do as one of the fastest growing areas of visual communication. "The real challenge will be in managing this," he says, "in mobilizing the talent we have and addressing the issue of growth."

Given the sometimes disappointing profit margins of effects companies-a burden many live-action producers are dealing with as well-it's no wonder that others seem envious of Digital Domain's IBM bankroll. Staffing up for new media is an expensive proposition, as Greenberg has pointed out. Says Gibson, "Most of these companies will need some financing to do this right, and you need to look to unique funding sources, not necessarily Wall Street." In his talks with potential investors, Greenberg says he's looking for a partner that can provide expertise in areas of technology, programming or distribution.

The most telling questions here are yet to be answered: how realistic is the goal of these studios to become content providers? How easily will they be able to shift from a vendor culture to that of idea factories, generating their own scripts, stories and characters? Rhythm & Hues, which created the Coca-Cola polar bears for CAA, typifies many studios in its potential for character creation, but can they hatch new age of toons capable of dethroning the Warner Bros. crowd?

"That's everyone's dream," says Gibson. "We want to do character-based material, but also interactive stuff that's more a hybrid of art and storytelling." In a world that runs on returns on investments and reusable assets, Gibson points out, "we're filmmakers. We feel that making films and using animation to tell stories is more gratifying than having our characters appear on towels and

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