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The blend of previously recorded live footage and CGI was created by Digital Domain — James Cameron’s visual effects company that was also responsible for the ersatz Brad Pitt in The Curious Case of Benjamin Button — under the supervision of Dr. Dre.
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AV Concepts, the company that handled the projection, has done similar things in the past, most notably Madonna’s performance with Gorillaz at the 2005 Grammy Awards. As New Scientist points out, the technology is based on a concept that’s been around since the 1800s. It’s called Pepper’s Ghost and it works by partially reflecting light off a piece of glass from a hidden room.
You might have recognized it from the Haunted Mansion ride at Disneyland; at Coachella, they achieved the effect by rigging up a custom, 30-foot by 13-foot screen that could be lowered in seconds for a hologram that’s slightly more advanced than Disney’s dancing ghosts.