IBC
What does the decision by
Technicolor, arguably the motion picture industry’s best-known brand, to let go
of its dailies, grading, sound and picture editing services tell us
about the health of the post-production industry?
The pending sale by Technicolor of its
post-production assets to Streamland Media may be an unavoidable result of
Covid-19 and the drastic shutdown of film and TV production in 2020. Arguably,
its predicament signifies a more fundamental problem with the business model of
post-production, namely that scale no longer equates to efficiency.
Taken together with the Deluxe bankruptcy of
October 2019, Devoncroft Partners is in no doubt. The inescapable
conclusion, wrote analyst Josh Stinehour ““is that the business model of post-production writ-large –
is broken.”
While both Technicolor and Deluxe have a
hundred-year history servicing motion pictures, in the last two decades they
have targeted growth by acquisition. They accumulated post-production
businesses principally in the global production hubs of LA and London to
enhance existing dailies expertise with grading, sound, picture editing and
VFX.
Corporate behemoth
Offering a full raft of facilities spanning
geographies and staffed by thousands of artists, producers and technicians
(Technicolor employed over 14,000 last September), combined with the
gold-plated service guarantees of a Hollywood insider, was meant to entice
studios to place their biggest productions onboard.
And Hollywood complied. Dozens of blockbusters
passed through the Deluxe and Technicolor machine. Only last year Technicolor
had a hand in posting projects like Bridgerton (Netflix), The Good
Lord Bird (Showtime), Perry Mason (HBO), and Borat Subsequent
Moviefilm (Amazon) winning two Emmies for its Sound Mixing of HBO’s Watchmen.
Yet neither company could rid itself of long-term
debt. Deluxe was forced to restructure after its debt burden went above $1
billion. Technicolor began 2020 with a debt of nearly $1.6 billion – ironically
some $250 million more than French group Thomson Multimedia paid Carlton
Communications for the original Technicolor business (which included then, as
now, a DVD distribution arm) in 2000. It completed Chapter 15 proceeding in a
US bankruptcy court by September.
To the outsider, it seems that Deluxe and
Technicolor were too slow to adapt their business to digital after a century of
monopolising film processing. Did the attempt to iron out efficiencies detract
from local facility culture too?
Pandemic exposed weakness
Certainly, Technicolor’s production services
activities were seriously affected by the halting of live action shooting. Some
50 sets of dailies stopped overnight in March. In this it was far from alone
and in truth its problems predate the pandemic which only served to exacerbate
weaknesses in its existing business.
As Stinehour emphasises, “All the current
disruption has done is accelerate Technicolor restructuring and amplify its
magnitude. Covid is exposing structural issues.”
Toward the end of last year, Christian Roberton,
who joined MPC in 2003, was promoted to president of the Production
Services division and tasked with streamlining the operation.
As head of Technicolor’s Film & Episodic VFX
department, Roberton had “built organically one of the largest and most
effective VFX agencies in the world.” During his tenure not only did the
division win several Oscars (including for MPC’s work on Disney’s The
Jungle Book) but grew sales from $60 million to $1bn.
His new mission, in Technicolor jargon, was “to
drive growth and margin enhancement by cross fertilizing all current Production
Services creative knowledge and by adapting our client servicing to the
post-Covid era, marked by an increased need for technological solutions and
digital production expertise.”
That has resulted quickly in the division’s sale
netting Technicolor $36.5 million and allowing the firm to concentrate on VFX
and animation which are less dependent on live production shoots. It retains
well regarded brands The Mill, Mikros and MPC.
Streaming content demands scale
The sale comes at a time of unprecedented demand
for post-production services, particularly in episodic TV. In its strategic
plan 2020-2022 Technicolor claimed its Production Services, were “well placed
to benefit from the burgeoning growth of streaming platforms and the
unprecedented demand for original content”. It was also “well positioned to
capture outsized market share in Film & Episodic, Advertising, and
Animation.”
Netflix spent $17.3 billion on content last year –
two and a half times more than Amazon Prime Video. Netflix is even confident it
will launch more originals in each quarter of 2021 than in 2020. By 2028,
analyst BMO Capital Markets predicts the streamer will be spending $26 billion
a year on content. And with 73% of total subscribers from North America,
Netflix has to pursue growth overseas with local content commissioned to
attract customers in territories like India, Brazil and Spain.
What’s more, Disney and Warner Brothers are among
studios poised to invest heavily in content, recently unveiling huge episodic
slates building on franchises from Marvel, Star Wars, and DC for Disney+ and HBO
Max.
Sohonet CEO Chuck Parker thinks the recent industry
average of 1400 large annual TV and film productions will soar beyond 2000 a
year as competition intensifies.
“Even at such stratospheric multi-billion content
budgets, each provider is aiming to strip costs out of production and yet
retain Tier 1 value on screen,” he says. “They are all figuring out how to do
that.”
At this volume, Netflix and the studios don’t
necessarily want to be placing piecemeal work with smaller facilities but large
orders with groups that can deliver the high and consistent quality to
deadline.
As Sherri Potter, Technicolor’s explained to IBC,
the rationale for the macro-post-production businesses is far from broken. In
fact, it needs doubling down.
Fundamental flaw
“Schedules across TV and features are becoming more
compressed as demand for content ramps up,” Potter said.
“What’s more the creative process now continues
throughout the whole post process so that where creatives request changes to
their vision we can respond and deliver at any point. The reason why Studios
come to us is that they entrust we won’t fail and that we will throw whatever
resources we need at the problem to ensure that even the most complicated
production delivers.”
Yet Technicolor couldn’t find the efficiencies in
marketing, R&D, round-the-clock workflows, technology investment or
management to insulate it from the ravages of the pandemic.
Devoncroft suggest that those efficiencies may not
exist. “Covid is no so much causing issues in the media technology sector, as
it is revealing long-present structural issues,” it states. “The fundamental
flaw with the post-production business model is every incremental $1 of revenue
is matched by an equal and opposite $1 (at least) of cost.”
The move to cloud infrastructure and remote
distributed (more flexible, less capital intensive) collaboration offers a technological
solution. The pandemic has highlighted some of the existing strengths of cloud
hosted workflows, not least putting to bed many executive fears over content
protection, but it has also shown that it is not not yet financially viable for
the industry to make a wholesale jump.
“Cloud economics will be solved sooner rather than
later but it is still more expensive to launch your favourite tool into the
cloud and use it for six months than to rent it (in more traditional fashion),”
says Parker.
“Major studio facilities providers with banks of
Avid hardware, Baselight or Resolve seats will continue to deploy those in
their own machine room or downtown data centres and sweat the investment in a
hybrid architecture until cloud economics justify the switch.”
VFX face squeeze
There are similar pressures in the VFX sector.
Here, the use of Virtual Production technologies to reduce the cost of location
work has been given serious impetus during the pandemic. While growth will be
gradual as technology costs come down, VFX facilities are in a race to
capitalise on pending high demand.
“VFX houses need to rapidly pivot to marry Virtual
Production techniques and technologies with their expertise in creating CG
creatures, digital humans and other specialist animation,” says Parker.
It is not a given that those VFX companies which
were powerhouses prior to the pandemic will win this work. The sector has
suffered disproportionately during the halting of production; revenue streams
were severed; multiple staff laid off.
“The winners in the race to VP will be the business
that can perform virtual production at scale and with the available capital to
invest in resources,” Parker says.
A management issue
The failure or success of any post-production
business has to be attributed, at least in part, to its management. It is
notable that two of the longest serving and most successful post-production
executive teams of the last two decades, at Framestore and The Farm, are
integral to new super-sized facility groups.
William Sargent co-founded Framestore in 1986 as a
VFX shop for commercials. He recently led the takeover of the post-production
assets of Deluxe (including Company 3 and Encore), employs 6,000 people and
oversees a company with multiple locations including Mumbai, Montreal and
Melbourne. A stated intent is to work on studio projects across all media from
mobile to Imax and theme parks.
“Working with the same assets for a TV spin-off and
a ride is definitely more efficient under one roof,” Fiona Walkinshaw, global
managing director, Film, Framestore told IBC. “Efficiency is what a lot of
clients are looking
for.” https://www.ibc.org/trends/analysis-why-framestore-snapped-up-company-3/method/6994.article
Vikki Dunn and Nicky Sargent (no relation to the
Framestore co-founder) founded broadcast post facility The Farm in Soho in 1998
with the backing of ad agency WPP. Under their stewardship The Farm Group grew
outposts across London, Manchester and LA regularly winning plaudits for its
work in what is a notoriously cut throat and low margin business.
When WPP sold its 75% stake to LA’s Streamland
Media (formerly Picture Head Holdings) in June 2019, Dunn and Sargent
reinvested their 25% stake (worth about £17m) in the venture, which
collectively runs LA-based Picture Shop and Picture Head, West Hollywood audio
post facility Formosa Group, Ghost VFX locations in LA and Copenhagen and
Vancouver’s Finalé Post.
To that portfolio of “exceptional family of
boutique businesses” (in the words of Streamland CEO Bill Romeo) can now be
added Technicolor’s post division. Dunn and Sargent remain directors of The
Farm and involved in decision making as shareholders in Streamland which is
backed by Trive Capital and Five Crowns Capital.
If anyone can knit together a series of ‘boutiques’
into a corporate powerhouse without sacrificing the client-focussed touches and
local market knowledge that built the individual facilities in the first place
it would be the management skills of Dunn and Sargent.
Jeffrey Schaffer, founder and managing partner of
Five Crowns, certainly believes there’s profit to be made in the sector at
scale: “We envision a bright future for the evolution of post-production upon
the completion of this deal.”
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