This glittering track record didn’t stop the curtain coming down on the company. The one-two punch of the pandemic followed by the Hollywood strikes sent it reeling whilst soaring inflation pummelled its profits. However, its demise was ultimately driven by the way the industry works.
Internal documents reveal that "the industry experienced a downturn in production commissions post-pandemic, particularly in the video gaming sector which comprised the majority of the company’s client base. The company was also impacted by the US writer strikes which took place from May to September 2023, and the related actor strike which ran until November 2023. These significantly pushed out production schedules. Allied to this, significant cost price inflation, particularly in respect of employee costs, further eroded margins and overall profitability.
"The company's workflow was such that only a small number of projects were active at one time and, due to their relatively large individual size, this could produce cashflow pressures until large completion payments were received or in the event significant gaps arose between commissions.
"Whilst the directors considered there to be a strong pipeline of work, with a significant project due to commence in early 2025, delays in the commencement of projects began to emerge. This resulted in the company experiencing cashflow difficulties, as initial payments – which would normally be received from customers at the commencement of projects – were consequently deferred." It cast a dark spell on its finances.
Whilst historically profitable and cash generative, financial statements for the studio’s parent company Axis Productions show that it made a consolidated loss of $1.1 million (£839,000) on $32.6 million (£25.7 million) of revenue in the year to November 30, 2023. Crucially, it had cash reserves of just $380,000 (£300,000) showing how little leeway it had if the situation worsened. That is precisely what happened.
The documents state that "the company was unable to meet its payroll obligations in June 2024 and also had to defer payments to freelance contractors." They add that “in light of the Company’s ongoing cashflow difficulties its directors had been taking external professional advice for some months. As matters continued to deteriorate it was subsequently deemed appropriate for an insolvency practitioner to be consulted in late June 2024.”
