Two rough years mean Wētā FX books losses of $190m

Wētā FX won plaudits and earned hundreds of millions of dollars in revenues from providing special effects for films like The Hobbit trilogy, but recent financial statements show huge losses have been incurred in recent years.

The curtain has finally been pulled aside to reveal the innards of Wellington’s tentpole film business, with accounts showing special effects house Wētā FX posted $190 million in losses over the past two years and only expects to return to profitability in the medium term.

Wētā, which is understood to employ around 2000 people, is the single largest business in Sir Peter Jackson’s sprawling Wellywood film empire.

The company provided visual effects for recent high-profile screen productions Deadpool & Wolverine, Kingdom of the Planet of the Apes and House of the Dragon.

Foreign shareholders, anchored by Napster founder Sean Parker who started buying into the company in late 2020, now control more than 25% of Wētā shares. This threshold triggered requirements to file accounts to the Companies Office, and these statements represent the first time detailed financial information about the company has been made public.

For the year to March 31, 2024, Wētā reported an $83m loss. This followed a loss the prior year of $107m.

Revenues declined in 2024 – coinciding with a period where Hollywood writers went on strike and disrupted many screen productions – to $430m, from $437m in 2023.

Much of Wētā's screen business is supported by government incentives that allow film producers to claim back 20% of a contract’s value for work undertaken in New Zealand. While this sum does not go directly to Wētā, and is not broken down in the accounts, Official Information Act requests in 2018 showed subsidies for Wētā Digital screen work amounted to $40m annually.

Three-quarters of the company’s revenue is reported to have been for New Zealand clients, but notes to the accounts state many are local subsidiaries of foreign parents. Film productions typically see special-purpose vehicles established locally to both ring-fence liabilities and qualify for film subsidies.

Requests to Wētā and Jackson to further discuss the financial reports today went unanswered.

The $2.2b sale of Wētā Digital to Unity catapulted Sir Peter Jackson back into the realm of billionaires. Photo / Mark Mitchell

Choppy business conditions saw the company’s accountants raise questions as to whether tax losses could be booked as a deferred asset, given a forecasted return to profitability was at least two years away.

“While the group continues to forecast steady taxable profits from 2026-27, recent industry pressures have meant that projected profits are lower than those forecast in the prior year. While there is still a clear path to utilising previously recognised tax losses in the medium term, the tax losses of [$24.3m] incurred in 2023-24 have not been recognised as deferred tax assets on the balance sheet,” notes to the accounts said.

One immediate improvement to the company’s financial performance has already kicked in.

The company sold its software and research and development division, Wētā Digital, to software giant Unity for $2.2 billion in late 2021 in a blockbuster deal that rated as New Zealand’s largest business sale that year.

That deal required Wētā FX – spun off by Jackson and other Digital shareholders to continue VFX work – to pay an annual fee to Unity for use of the recently-sold software.

That fee amounted to $55m in the 2023 financial year, and $39m in 2024 during which the agreement was terminated.

In December 2023 Unity shuttered Wētā Digital in a global cost-cutting exercise. Ending the agreement saw Wētā FX pay Unity $170m for a perpetual licence – although this charge is not broken out in the company’s accounts.

Following the termination of the deal, Wētā FX announced it would seek to rehire 265 engineers ported over to Unity as part of the initial deal, and notes to the accounts said it was restarting its research and development activity.

Wētā is one of the world’s largest providers of screen special effects work, and largely grew out of Sir Peter’s then cutting-edge work with the Lord of the Rings trilogy, and later with James Cameron’s Avatar film series.

The company is 60% owned by Jackson and his partner, Dame Frances Walsh. An entity associated with Parker owns 25%. Long-time Wētā effects supervisor Joe Letteri owns 8%, and the remaining 6% is held by an entity connected to former Wētā chief executive Prem Akkaraju.

All shareholders, except for Akkaraju, also sit on the company’s board.

Matt Nippert is an Auckland-based investigations reporter covering white-collar and transnational crimes and the intersection of politics and business. He has won more than a dozen awards for his journalism - including twice being named Reporter of the Year – and joined the Herald in 2014 after having spent the decade prior reporting from business newspapers and national magazines.