BY CAROLYN GIARDINA | HollywoodReporter.Com

The sale of the ‘Lord of the Rings’ helmer’s tech division to Unity is viewed as a shrewd move for the publicly traded firm to make gains in the rapidly evolving area of virtual production: “The space is exploding.”

On Nov. 9, publicly traded tech firm Unity — maker of the Unity real-time game engine used in production from games to movies — surprised many in Hollywood when it unveiled a deal to acquire the tech assets of Peter Jackson’s Weta Digital for $1.6 billion.

This included roughly 275 engineers, a cloud-based platform and a collection of tools such as the hair and fur system developed at Weta for the simians in the Planet of the Apes trilogy, which received a SciTech Award from the Academy.

It allows Unity to combine the Weta expertise with its own engineering team, which will operate using the name Weta Digital, while Weta’s VFX and animation business — whose Academy Award-winning work includes Jackson’s The Lord of the Rings and James Cameron’s Avatar — was not part of the deal and will remain separate under the moniker WetaFX.

“We are selling the engineering team and the tools as an asset sale to Unity,” explains Prem Akkaraju, who remains CEO of what will now be WetaFX. “We’re also licensing all that back … because we need those tools, and we’re going to be an innovation partner.”

Unity expects demand for digital entertainment — whether games, movies or other forms of immersive content — to continue to grow and, as it does, the company aims to democratize the tools. “We believe that this deal alone increased what we call our total addressable market by $10 billion or more,” says Marc Whitten, senior vp and GM of Unity Create Solutions unit.

In particular, industry observers viewed the buy as a shrewd move by Unity to make gains in the rapidly evolving area of virtual production — a term that describes techniques that enable real-time visual effects production and may include technologies such as LED walls. Most major VFX companies such as Weta, as well as the likes of Netflix and other entities, are exploring or investing in virtual production.

“This whole space is exploding,” says Whitten. As to how the Unity relationship will work within Weta, which regularly develops new tech, Akkaraju says the Weta engineers are effectively “all contracted back to Weta as professional services. And so those are going to be a big part of the research and development. They’re the front-line people, they’re the ones on set. They’re the ones on our mo-cap stage.” He notes that Unity will now be able to take these tools to market.

“A lot of [VFX companies] invest many, many millions of dollars every year in creating those proprietary tools that are used, whether it’s a Dune or a James Bond or a Matrix,” observes Namit Malhotra, CEO of another leading VFX company, DNEG, who says of the Unity deal, “I think it’s a massive validation. This particular transaction really sheds light on that companies like us, we’re all playing at this absolute cutting edge.”

Sums up Whitten of Unity’s direction: “This is the beginning … I hope something you see, is a substantial shift in our position and our kind of level of commitment to Hollywood and the industry.”