Video Game Developer Unity Acquires 'The Lord Of The Rings' And 'Avatar' Visual Effects Company

A leading software company in the video game and special effects market announced quarterly results Tuesday after market close. The company also announced the acquisition of a visual effects company that has worked on some of the most well-known movies of the last two decades.

What Happened: Unity Software Inc U announced it will acquire Weta Digital, a leading visual effects company, for $1.625 billion. The purchase will be paid using $1 billion in cash and $625 million in Unity shares. The acquisition will bring many tools from Weta into the Unity ecosystem.

Weta Digital is the largest single-site VFX studio in the world. The company offers facial capture and manipulation, anatomical modeling and hair and fur modeling as some of its features.

WetaFX will be a stand-alone company after the buyout and will be under majority ownership by founder Sir Peter Jackson. WetaFX will be Unity’s largest customer in the media and entertainment segment after the deal.

Jackson, the director of the “Lord of the Rings” franchise, founded Weta Digital in 1993 to help with work on his movie “Heavenly Creatures.”

Weta Digital has built scenes for the “The Lord of the Rings” movies, “Avatar,” “Planet of the Apes,” “Black Widow,” “Suicide Squad,” “Game of Thrones” and “Wonder Woman.”

“Weta Digital is the premier creator and innovator of visual effects and animation, pursuing what is possible in pursuit of artistic vision and delivering high-quality, ultra-realistic characters, objects and worlds,” according to the press release.

Related Link: Unity Software IPO: What Investors Need To Know 

Why It’s Important: Unity said in the future, world-class artist tools from Weta Digital will be available to its existing and new customers.

“Together, Unity and Weta Digital can create a pathway for any artist, from any industry, to be able to leverage these incredibly creative and powerful tools,” Jackson said.

Tools from Weta will be moved to the cloud and sold under a software-as-a-service business model through Unity.

“Now the tools the company’s VFX artisans use will become available to creators outside of Hollywood’s confines — which, according to Unity, will ultimately enable the next generation of real-time 3D content for the metaverse,” Variety reports.

Jackson told Variety offering Weta Digital’s tools “is game-changing” for artists.

Weta is well-known for its work on blockbuster movies and has earned six visual effects Academy Awards and other industry-wide accolades along the way. Weta helped develop the characters Gollum ("Lord of the Rings") and Caesar ("Planet of the Apes") and helped create Pandora, the world of “Avatar.”

Unity hinted at acquisitions and entering areas outside of gaming in its IPO filing last year.

“Looking to the future, we believe there are large opportunities within and beyond the industries and use cases we currently serve that represent a market potential multiple times larger than our opportunity today,” the filing read.

Unity reported third-quarter revenue of $286.3 million, up 43% year-over-year. The revenue figure came in ahead of a Street estimate of $264.6 million.

The company ended the third quarter with 973 customers that generated annual revenue of $100,000 or more each. This compares to 739 customers in the prior-year period.

Unity sees full-year revenue hitting a range of $1.08 billion to $1.085 billion, versus a Street estimate of $1.06 billion.

U Price Action: Unity shares are up 5.72% to $181.14 Wednesday at publication.