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FRONTLINE How producers adapt to a changing marketplace

A mature DVD market, wafer-thin margins and professional tools now accessible to all would-be authors are putting the squeeze on established production houses. ROB PINNINGER, an experienced studio manager, talks to heads of top facilities houses on how they cope successfully with change.

There are currently serious issues facing the DVD production industry. Some facilities have closed down. In fact, it is not difficult to find owners and managers of DVD facilities who will claim that the whole industry is dying. That is surely an exaggeration, but should content owners, who are often blamed as the source of these problems, be worried? It clearly wouldn’t be good for their own businesses if DVD production facilities across the world were driven out of existence, leaving only a handful still operating.

Thankfully, there are facilities out there whose owners and senior management are making a deliberate choice to view the current business landscape as one of opportunities, not pitfalls. They are exploring new options, both within and without the traditional ‘compression and authoring’ (C&A) operation, they are developing new business models and they are showing that it is still possible to have a successful business with DVD production at its core.

What are the issues that some find so insurmountable? The first is undeniably the downward pressure on prices. Every DVD facility is used to clients wanting work done more cheaply than the previous year. That has always been the case. But in the last two or three years the pressure to reduce prices has increased hugely.

This is due to several factors, not least the well-known rule of business that as soon as a product becomes commoditised, prices begin to fall. The DVD replicators felt the squeeze first because their business model made commoditisation inevitable – it is difficult to differentiate between physical discs made by two different companies. Now, it is the DVD producers who are under this particular cosh.

In addition, content owners themselves are experiencing tough times – increasing pressure for customers’ viewing time (from gaming, internet use, Video-on-Demand and so on), combined with the fact that most customers have now finished replacing all their favourite catalogue titles has meant a levelling off of DVD sales. But you can rest assured that sales targets have not levelled off in the same way, so content owners are coming under huge pressure to maintain sales figures in the face of fewer sales. Margins are unlikely to increase, so costs have to fall.

Other factors that have contributed to this pressure on prices include the increasing numbers of smaller DVD producers. At the start of the DVD industry these smaller companies would not have been competing for the same work as the larger facilities that grew out of the post-production industry. Today the situation is different – it has been possible for some years to create professional-quality discs on what was once consumer-level equipment. It requires a skilled operator and perhaps a little more time, but it can be done. This means that the smaller, ‘one-man band’ facilities can be considered as genuine competitors of the larger, better known companies, and more competition always means lower prices.

Furthermore, just as these smaller operators have begun to crowd the local markets, companies from other territories, where labour costs are cheaper, have also begun to muscle in. The fear of losing work to Eastern Europe, India or China is rife throughout the Western European facilities. Yet more competition, from companies who can undercut your ratecard by huge amounts, is a worrying prospect.

A more recent issue has been the ongoing weakness of the US dollar versus both the British pound and the Euro. This has made it more difficult for European facilities, especially those in Western Europe, to compete on price with their US counterparts. This is crucial when so much content originates in the US.

But all of these issues, serious as they are, are not insurmountable. Large, well-known facilities and smaller, up and coming companies are still making a success out of DVD. Julian Day, Managing Director of Soho-based facility DGP has managed to turn the cheaper production costs available in Eastern Europe to his advantage by doing deals with the best producers in the region to get some of his work created there.

“You have to try to look at every single option,” he says, “and see which ones you can treat as an opportunity. You cannot afford to rest on your laurels.” The Eastern European deal has been success, but Day has had to structure things carefully. “You need to know what you want to achieve – you can do a lot of your R&D more cheaply out there, but you need to be careful when actually producing discs – a client may well be happy for you to send out their work, but they will still want to emulate locally. You need to ensure that this can happen seamlessly.”

In common with many of the bigger facilities, Day sees the new next-generation HD discs as an important opportunity and he has invested accordingly. Able to create both HD DVD and Blu-ray discs, DGP benefits from a long history of working closely with the major US film and TV studios, who are releasing the first wave of HD titles. But Day sees a need to develop an HD offering for other clients. “We need to be able to deliver HD titles for the UK independents at their prices. Of course, this can be done, but it needs a strong relationship, based on more than just money.”

The final weapon in DGP’s armoury is its diversity of services. Not content with augmenting its original video post and DVD skillsets with the addition of HD disc creation, the facilities house has expanded its video encoding skills into other areas – Video-on-Demand, electronic sell-through, mobile devices and so on. “This tends to be a high volume, low margin business,” says Day, “so we have had to create extremely efficient workflows in order to ensure profitability. We have then been able to apply the lessons learned here to our other businesses.”

One of the companies that has dealt with DGP is Bulgaria and UK-based International Digital Management (IDM). Co-founder, ex-Warner Home Video executive Jonathan Finnerty, saw where the DVD market was heading early on. “We just caught the end of the high margin authoring business,” he explains, “but it was obvious even then that we needed to be in a low-cost environment.”

Teaming up with well-known European distributor Stefan Minchev he founded IDM as a high-end, full-service DVD production facility. To maintain that reputation he has invested heavily in HD formats. “Prospects for SD [standard definition] are less good, but if you’re well positioned with HD content owners then I think you have a strong future. We are using professional kit from Sonic Solutions and Toshiba and we are expecting a more serious launch of the HD formats this summer, in time to get a lot of titles on the shelves for the fourth quarter of this year. A lot of the independents are playing a waiting game, but the major studios will be making a big noise this year.”

Finnerty too has seen pressure on pricing, but believes that the quality of their work and the nature of their clients have softened the impact as far as IDM are concerned. “The big studios require a certain standard and to an extent, they are willing to pay accordingly,” he suggests. “We reach their standard and as a result, although there is always pressure on prices, we can maintain pricing fairly well as long as we continue to work at that level.”

Richmond Studios’ founder Toby Alington has dealt with the issues arising from attempting to compete with foreign territories in a different way. Rather than doing a deal with a foreign company, he his setting up his own offices. “We found that a lot of clients in the US loved our work and the way that we do things, but really wanted us to have a presence over there,” says Alington. “So our US offices, in both New York and Los Angeles, opens in June. It’s all about our belief in offering the client a choice.”

The idea of choice is something that Alington is passionate about. “It’s no good if everyone goes chasing after the cheap work – there won’t be any high-quality places left. There are enough clients out there who believe in paying an appropriate price for a high-quality product. As an industry we must offer our clients a choice – it happens in audio recording, in post-production, in many other industries.”

Alington continues “if I want to mix a concert I can go to Abbey Road or Air Lyndhurst and pay accordingly. But I can also go to any number of facilities that will charge me much less. The results might not be the same, but I can still do it. The same situation must apply to DVD facilities. Clients aren’t stupid – they know that if they pay less, they will get less. But they need that choice.”

Andy Evans of UK DVD studio The Pavement, has found a different method to bring continued success to his business. “We have always been a creative facility and we felt that we could differentiate ourselves on that basis, focussing on our strengths in design and authoring. Although we have a very strong record in encoding, when we talked about it we weren’t excited by expanding into VoD or similar areas. We have instead tried to use our core skills to come up with new business ideas that we can grow out of our DVD experience.”

The first project to arise out of that endeavour is The Pavement’s new ‘SUSS!T’ DVD game technology. Their offering in this area is a hardware solution. They have designed and built a multiplayer remote control that allows up to four people to simultaneously play DVD games. “We felt that current DVD games were much too slow and didn’t hold your attention. You spend most of your time waiting for the other players and passing round the DVD remote,” Evans says. “SUSS!T allows several players to play at once, with much faster gameplay than has been seen before.”

“We are also looking at what we can do with HD DVD and Blu-ray,” he continues, “and we have identified a number of interesting angles that we take, beyond simply authoring and encoding. HD pricing for authoring will decline over time, just as SD pricing did – we are looking for business opportunities that, while based around HD, can take us away from that curve. So watch out for some interesting news in the coming months!”

DGP, IDM, Richmond Studios and The Pavement are all large facilities. But some companies are showing that you don’t have to be big to be successful. One of Soho’s most creative DVD companies is Pink Pigeon, led by Will Timbers. Despite their small size (the company has only five full-time staff) Pink Pigeon is also making a success out of DVD. Timbers believes that their small size allows them to be more flexible and also more efficient. They have put in place a number of systems to ensure that they get the most out of their working day. The most interesting, perhaps, is the installation of an intranet wiki.

“We set up the wiki to avoid all those occasions when a new team member or a new freelancer has to ask a lot of fairly basic questions about how we like to work,” explains Timbers. “Rather than having to show them the ‘house style’ for all of our clients, or explain just how we like to achieve a particular authoring task in a DVD project, we can point them to the wiki, where all these things are explained. This means that new staff are effectively learning these things themselves, which is always better than just being told something, whereas our production staff can spend less time bringing others up to speed and more time on their own work.”

The company also made a huge effort to acquire clients from a variety of industries. As a result they have carved themselves an interesting niche in the art world. Coming from an art school background meant that Timbers already had some useful contacts and he has been able to convert that into work for some of Britain’s most famous galleries and most prominent artists. “It was obvious that we needed a broad client base,” says Timbers, “We couldn’t afford to work solely in film, TV or the corporate world so we have striven to find clients from everywhere we can. Usually, that has meant that when one client is quiet another is having a busy spell. Also, the work we have done in the art world has forced us to develop some interesting authoring techniques that have had an impact on the work we do for our commercial clients.”

Clearly, these are tough times in the DVD industry. There undoubtedly is a lot of pressure on pricing. HD has not picked up the slack as quickly as people hoped. And when you have spent upwards of £500,000 on your HD infrastructure that is a problem. But a longer term view is needed. Big equipment installations in the film, TV and video industries are depreciated over at least five years, often more. The idea that HD was going to save the day in the first six months was never a good one. Expecting HD to be a cash cow is just expecting clients to subsidise the industry and, as mentioned previously, clients are not stupid.

But there is still money to be made in DVD. Standard definition DVD is a harsh marketplace, but even there companies with wide client bases, who produce work of a high-quality for the prices they charge, can still find work. HD DVD and Blu-ray will surely begin to take over, but it will be a slow process.

Customers are not well educated about HD equipment – too many believe that just buying an ‘HD-Ready’ screen means that everything they watch is automatically HD. This situation will improve over time and HD will become the default standard. But the ‘one-man band’ operation will still be there – there are already companies offering User Interfaces that remove the need to hire a programmer to write an interactive code for you. HD authoring will follow the same path as SD authoring, and facilities will need to continue to explore every possible option to make money from a market where prices will fall. Some facilities may well fail. But the examples given above show that other facilities will continue to prosper and will still be around for the next media format. Holographic discs are on their way…

After leaving Oxford University, Rob Pinniger worked for several of the biggest post-production companies in London, culminating in seven years as Technical Manager at Abbey Road Interactive. Simultaneously he was New Technologies Manager for EMI Music. He now runs his own Media Technology consultancy, Hive Mind Media Technologies. He can be contacted at

Story filed 27.05.07

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