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MillimeterYour Move
Jun 8, 2009 12:00 PM, By Michael Goldman
Post-recession strategies.
Designed by Amanda Fletcher
Contrary to reports, Hollywood remains a busy place in this economic downturn—just a different kind of busy. Instead of deep production work, many companies are spending time jockeying for position in response to the recession and smaller waves of difficulty that are unique to the entertainment business—waves that have helped the recession roil Hollywood.
Although box-office numbers remain solid, production overall has slowed dramatically, thanks to the toxic combination of the threat of an actors’ strike combined with the credit crunch, which has made financing major projects more complicated. Many facilities have been laying people off, and a few have gone under—among the most prominent, San Francisco’s acclaimed visual-effects company The Orphanage and, just breaking at press time, a venerable Hollywood facility born before the Great Depression, Pacific Title, which failed to secure fresh financing to continue operations for the second half of this year. Illustrative of just how unstable the situation is and how quickly financial fortunes are changing across the industry, officials from Pacific Title originally spoke to millimeter for this story eager to discuss their strategies for navigating the economic turmoil. Then, just after the print edition of this story went to press, the company instead announced it would be have to be liquidated. Sadly, it’s likely more such announcements will be forthcoming across the industry before things stabilize. Manufacturers, of course, are also hurting, with many reporting that infrastructure upgrades have been put on hold and projects across the industry are scaling back.
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Industry veterans have strong views about the industry’s current difficulties. Millimeter recently talked with a few of them to get their theories, solutions, and predictions about where it is all going. The following is not a comprehensive survey of their views, but rather it illustrates the kind of creative thinking going on in the industry as the ultimate response to the financial crisis. After all, if any good has come out of the financial squeeze, it’s the fact that old ways of thinking are finally being challenged and creative management is becoming increasingly valuable.
As Marc Petit, SVP of the media entertainment business for Autodesk, puts it, “Because of the recession, resistance to change is virtually nil now within our industry. People have more open minds than ever before.”
What’s going on?
Industry veterans point to two main causes of the current hurt: the global recession and the recent threat of a possible actors’ strike. Some suggest the strike threat was the primary reason studio production slowed dramatically, hinting that factors unique to Hollywood’s needs are a bigger game-changer for an industry once known as “recession-proof” than an actual recession. Others argue that some industry sectors, such as visual effects, are not particularly safe arenas to play in, even in good times.
“It’s a rough industry,” says Payam Shohadai, president/CEO of Luma Pictures in Venice, Calif. “Almost every year since I’ve been doing this, we’ve seen multiple U.S.-based visual-effects facilities going out of business. So in that sense, I would suggest the industry downturn is less about the current recession, and more about the nature of the beast. The real truth is that the nature of the product makes the visual-effects industry extremely susceptible to macroeconomic trends. The digital product we create, in conjunction with the globalized economy, means that U.S. facilities have to compete against overseas companies with artist rates and overhead far below the U.S. equivalent, and which often receive tax subsidies from their governments. On top of that, wildly fluctuating currency markets add another twist to the drama.”
And it’s not just the visual-effects business. Ebbs and flows in projects, personnel, technology, and spending are hardly unusual for most industry sectors. Staffing up and down for projects is something of a way of life. However, some industry veterans say there is something different, and more unsettling, about this particular cycle.
Veteran movie producer Marshall Herskovitz (Legends of the Fall, The Last Samurai, Blood Diamond) is among those seeing things this way. He says he sees the breakdown of the credit industry as a major hit to the movie business.
“My feeling is that [the recession] has definitely impacted the movie business [longterm] for the first time,” he says. “In many ways, we were recession-proof in the past. But there has been a complete shift in how investments and loans are made [globally] now. Those big companies [that make loans] have their own problems, and that never happened before. That affects TV and movies, and so [studios] have cut back their staffs and development and producer deals and budgets. The potential of an actor’s strike had an intermittent effect, but what I think is more germane is the simple difficulty in raising money, along with the lowered valuation of some of these [media] companies and seeing ad dollars on TV diminish.”
Herskovitz adds that studios didn’t have much leeway to take the hit of a major credit crisis when you consider that, in his opinion, their business models were built on a shaky foundation anyway.
“The other aspect to this is that DVD [sales and rentals] have leveled off,” he says. “DVDs propped up our industry for the last 10 years, and the movie business without DVDs is not really a profitable business. It used to be, but now the business model doesn’t work without DVDs. There is also the problem of huge actor fees and other things, so in many ways, it’s a shaky business anyway.”
Up until press time, Adrian Newby was serving as senior vice president at Pacific Title, just before the company’s collapse. Even before Newby knew Pacific Title’s fate, he said he felt strongly that the credit crisis was having a deep and lasting impact on Hollywood.
“Just like any other sector, the scrutiny on credit quality certainly impacts major studios and their ability to secure financing for major productions, and that, in turn, impacts [all the facilities they normally do business with],” Newby says. “Access to credit is governed by the amount of risk the lender perceives, and in Hollywood, where the threat of an actors’ strike could potentially terminate a production in the middle of a shoot, there is an added degree of risk, which I’m sure leads to even more difficulty securing financing for projects.”
The current state of affairs indicates how clearly the fates of production companies and postproduction facilities are tied to the major Hollywood studios. Many boutique operations are feeling a severe pinch.
“Clearly, we’ve been too closely tied to the fate of the studios and the networks,” says Darrell Van Citters, head of the creative team at Renegade Animation in Glendale, Calif. “When they sneeze, we catch a cold. We are definitely seeking alternate sources for distribution and financing, as well as other markets for our products and services.”
These markets include videogames; mobile content; increased involvement with smaller, independent projects; content creation for overseas productions; and working on projects in other industries, such as architectural design. How companies are managed during the crisis will end up being every bit as crucial as the kind of work they pursue.
Continue the discussion on “Crosstalk” the Millimeter Forum.
