Subscribe Online  

Reports&
surveys

Facilities 50 2012 Back to Reports & survey Listing

The post production sector has enjoyed plenty of work this year. Why then are so many businesses struggling? Tim Dams reports on the latest findings of Televisual's annual Facilities 50 survey

The post production industry is having a tricky time. That, at least, is the consensus of opinion from companies taking part in Televisual’s 2012 Facilities 50 survey.

In general, there has been plenty of work about in the past year, although the economic and creative mood still feels a little cautious. The Olympics has meant that the summer months have been quieter than usual for many companies, and activity in the commercials market is notably down this year.

But, thanks to increased commissioning from UK and international broadcasters and the continuing strength of the UK film industry, many post houses say that the past 12 months have at least been busier than the year before. The figures confirm this: the combined turnover of Facilities 50 companies this year stands at £539m, up from last year’s £460m. 67% of companies taking part in the survey said turnover had risen, while 72% said their profits had improved. Much of this turnover growth has come from the top companies, with three outfits – The Mill, MPC and Framestore – accounting for an additional £28m between them.

Blue Bolt managing director Lucy Ainsworth-Taylor seems to speak for many when she says: “It’s been a good year, but the Olympics has certainly put a hold on productions shooting and coming to London. It has been a quiet summer, but is now picking up again.” Others say London was a ‘ghost town’ during the Olympics.

However, budgets have continued to fall, and the post sector has been heavily affected as producers try to find savings thanks to a continuing decline in broadcaster budgets.

 “The past year has remained buoyant, but with increasing pressure on production to work with restricted budgets it’s been tough to maintain the high level of expectations,” says Films@59’s George Panayiotou.

The market, adds The Mill managing director Darren O’Kelly, has become “much more procurement led and cost-conscious.”
And given that the post market has long been oversupplied with facilities, producers have had plenty of opportunities to shop around – if they are not already taking their post production inhouse.

“There are still a lot of studios chasing not enough work,” says Hackenbacker facility director Chris Sturmer, who acknowledges that there does at least seem to be more work around now.

As a result, many weaker companies have struggled, unable to compete with the keen (and often unrealistic) rates offered by some of their rivals. Some have been bought up by new entrants to the market, or by production or communications businesses looking to bring post inhouse.

Other companies have gone into administration and then re-emerged with new or, more typically, the same, owners.
It’s a state of affairs much commented on by rivals, who complain bitterly about companies that make a loss (often by keeping prices artificially low to attract work), go bankrupt and then resurface without an obligation to pay their debts. “It’s distorting the market,” says Outpost Facilities managing director Nigel Gourley.

Meanwhile, facilities houses are grappling with huge changes in technology. The digital age has finally arrived with a vengeance, with tapeless workflows becoming the norm thanks to the phenomenal growth of file-based camera acquisition this year. It’s the latest in a string of changes that has seen the industry move from SD to HD, flirt with 3D and keep a close eye on the emergence of 4K.

Post houses have had to spend heavily to keep up, investing in a resilient and fast digital infrastructure.

The price of kit has, of course, continued to fall. But this has proved to be a double-edged sword for post houses – as it has made it easier for production companies themselves to invest in their own kit and to take post production inhouse.

“With editing equipment as cheap as it is, taking post inhouse is becoming a much more viable option for indies,” says Azule Finance managing director Peter Savage. Indeed, some production companies now have bigger post operations than many facilities houses. Production companies with significant inhouse post operations include Twofour, DCD Media, Princess, True North, Reef Television, Zig Zag, Monkey, Somethin’ Else, Tinopolis, Maverick, Fremantle, North one and True Vision.

Polarised industry
These varying pressures have conspired to create a highly polarised post production market.

It’s a market that is dominated by a handful of super-sized post houses, such as The Mill, MPC, Framestore, Envy and The Farm. They seem to be thriving for a number of reasons: they have become leading post ‘brands’ able to attract business thanks to their reputation; their size means they benefit from economies of scale, in particular their ability to negotiate hard with manufacturers when bulk buying kit; they are perceived to have the infrastructure and talent to work on complex TV shows, films and commercials; they can attract talent; and they are increasingly international in their reach and ambition.

Meanwhile, outside the top five companies, the picture is more mixed. Many of the larger to mid-sized companies have been squeezed over the past year. One of the industry’s most famous names, Molinare, fell into administration in the Spring. It was bought by a consortium led by Steve Milne, who had sold the business to India’s Century Communications in 2008.
The Mews was bought out of pre-pack administration in July by managing director Gareth Mullaney.

Prime Focus boss Simon Briggs recently left the business ahead of a major restructure of the post production facility which is expected to lead to redundancies. Its commercial division has had a particularly tough time, with Prime Focus blaming a slump in TV advertising, which it linked to the London 2012 Olympics, together with downward pressure on production budgets.

Other deals this year have seen many other medium sized outfits seek shelter within larger organisations: Premier PR acquired Dubbs Eyeframe, which it describes as part of a plan to become “a full service creative communications agency”; post house Sequence was saved from administration by a quick sale to production group DCD Media in February; and the creative team from Editworks is now housed within Evolutions’ Berners Street headquarters.

By comparison, boutique facilities say they are doing ok. Carrying less overhead than their medium sized rivals, they are able to mine specific niches in the business.

Running such a business, of course, comes with risk. “The art of boutique is to be boutique but spread across a number of clients, rather than beholden to one,” says Azule’s Peter Savage.

But many post houses comment on the emergence of small start-ups. “The market is more fragmented with more smaller players and one man bands…and some of the larger ones are downsizing,” says Golden Square’s managing director Phil Gillies.

New launches this year include vfx house Hoxton Redsox in Shoreditch; The Attic, which formed out of the ashes of Exposure Post after the latter closed this year; and Leeds based The Other Planet.

Mine Films’ managing director Rory Hinds says: “Larger companies are struggling with smaller budgets and high overheads so we have adapted to be self-contained and do more for less – keeping our overheads low and creativity high.”

Sequence managing director Ben Foakes understands the pressures inherent in the business only too well. Reflecting on the changes in fortune in his business over the past year, he says: “Increased budget pressures and a dying, outdated business model have contributed to us seeing yet more closures and mergers of the larger and medium sized post companies. Sadly this is destroying some very worthy small business and adding fuel to the fire of some less-worthy leviathans by sheer scale and added market share.”

“It’s very hard for any business to exist that is not a tiny boutique or very big,” acknowledges Evolutions managing director Simon Kanjee, who predicts more consolidation to come within the industry.

Money troubles
Others complain that some facilities which offer low quality, low priced and high volume work are bringing the market down with them, while plenty are prepared to hit out at “super-facilities offering loss leading post production to secure high profile work.”

Many businesses are now actively seeking to bring down their overheads in a bid to remain profitable amid tight competition and reduced budgets. This, of course, is difficult for many post houses who say that property prices and rents are continuing to increase in post’s homeland in Soho.

It means that wages and staffing levels are under pressure. The days of a top editor earning £150k are long gone, acknowledges one industry observer. “Post is a commodities business now. There are very few earning what they did in the 1980s and 1990s. Computer literacy is much more advanced and accessible now too, meaning that the industry is full of very capable 20-somethings earning £25k.”

Molinare is a good example of a business that is busy reducing its overheads, following an investment splurge by its former owners. New boss Steve Milne says he is now in the process of taking 30% of costs out of the business. He describes it as a “fix and repair stage” that is all about stabilising the business. “It’s all about making the place run really efficiently,” he explains, saying that everything is being restructured.

On the plus side
Many companies are, of course, enthusiastic about the opportunities that lie ahead in 2013. Some see opportunities in picking up new clients from competitors who fold, while others think that poorly run and underinvested facilities should become available to purchase in the next 12 months. One post house boss, for example, predicts “the meltdown of some of the heavily geared post leviathans” next year.

Others predict a surge in work on dramas with budgets over £1m if, as planned, the government introduces tax breaks to encourage more shoots and to halt runaway productions. Many post houses say it will be ‘essential’ to their prosperity next year. “The promise of 2013 UK creative industries tax breaks seems to have stalled many television projects this year, so there are likely to be more evolving in 2013,” says Glowfrog.

A number of companies plan to diversify their offering next year. Golden Square, for example will expand its new animation division, Squarecrow. Hackenbacker has just started a bespoke music composition service. Halo Post chief executive John Rogerson says: “We are growing the financial element of our business especially with regard to TV and film investment and partnership, and we are also looking at further strategic acquisitions in 2013.”

A significant number are planning to expand here and abroad. Envy’s relentless expansion continues, and it is about to open a fifth building in Soho. Boutique outfit Nice Biscuits says it will open a second facility this year “to meet the demands of our busy clients.”  Clear Cut has recently opened an office in the West End, in addition to its Shepherds Bush offering. The Farm has expanded into Salford, providing post services for the BBC MediaCityUK operation. Post house Finish has launched a new colour grading wing.

Meanwhile, many of the UK’s top players now pitch themselves as global post production outfits, and see real opportunity coming from worldwide markets.

MPC, for example, now operates in London, Los Angeles, New York, Bangalore and Vancouver. Chief executive Mark Benson now describes the business as a global creative studio. “We are becoming more global in our approach and capacity – it’s been a fundamental building block for us over the last two or three years.”

Framestore, The Mill, Prime Focus and Hogarth now position themselves as global facilities. Hogarth, for example, now has offices in Singapore, Hong Kong, New York, Mexico City, Buenos Aires and Bucharest.

That’s not to say the global market is an easy place to compete, though. Pioneering Hollywood visual effects outfit Digital Domain recently filed for bankruptcy protection, underlining the pressure that the vfx industry is under. Leading Australian visual effects outfit Fuel VFX also went into administration last month, despite working on high profile films such as Prometheus. However, the UK vfx market appears to be more resilient than most, particularly compared to Europe.

Markets

It’s been a tough year for companies working in post in the commercials market, with budgets continuing to shrink.

Framestore, for example, reports that its revenues from advertising have reduced (while film has remained steady and digital has grown).  Rushes’ managing director Joce Capper comments: “It’s been quieter than 2011 – many small projects, not so many large projects. Every project is competitively bid for and commercials are more last minute than ever before. Flexibility is key in terms of bidding and rostering of work and staff.”

The Mill’s Darren O’Kelly says the commercials market is challenging, and that there are fewer large scale vfx projects in the UK market than in the US. “The work has generally been more cautious,” he argues, adding that the top 5-10% of ads are as good as ever, but not so the rest.

Meanwhile ad agency inhouse post operations such as Hogarth (WPP) and Wam London (Publicis) are growing. And they are increasingly taking on the work (and revenues) for jobs such as global versioning and adaptation of ads that have traditionally been handled by external facilities.

The corporate market is also difficult, with work being taken inhouse by corporate producers. Clients’ procurement practices are also driving down budgets.

The television market, by contrast, has been more buoyant. Televisual’s Production 100 survey last month revealed that UK independent producers turned over £2.1bn from the UK market in 2011-12, up from £1.9bn the year before. To some extent, facilities are benefitting from the continuing success of the UK indie sector – even though budgets are falling and producers choosing to take post inhouse.  Goldcrest, for example, reports that it has seen more documentary and drama work coming through its doors, while Halo Post says there seems to be a lot of heavyweight, quality documentary and factual work around and Prime Focus says there has been the “usual seasonal surge” in broadcast work this autumn.

Some Soho post houses say, however, that the decision by broadcasters like the BBC and Channel 4 to spend more in the nations and regions has adversely affected them. Outpost Facilities’ Nigel Gourley says that 2012 has been difficult as a result. “We have been adversely affected by regional programming moving to Manchester and Glasgow.”

The sustained growth of the film industry is also proving beneficial to the post production sector, despite the Harry    Potter franchise having run its course and widely reported delays to high profile UK based films like World War Z and 47 Ronin. Post houses say film work has remained steady, with some reporting a dip in the first half of the year but a pick up in the second half and into 2013. The big budget film post market is dominated by the likes of Cinesite, Double Negative, Framestore and MPC, but the prospect of winning film vfx work means that the likes of Rushes and Jellyfish are mulling expansion into the market place.

Yet, given all the challenges facing the post market, it’s something of a surprise to find investors and buyers looking to enter the industry.

Steve Milne, for example, left Molinare after selling it to Century Communications in 2008 and exiting the business in 2010. He then launched a successful film finance business, The British Film Company, choosing to re-enter the industry and buy back Molinare earlier this year.  Asked why, he has a very simple answer. “I loved my time at Molinare and love what our creatives do on a daily basis. Post production is a magical part of the life of film or drama. It’s nice to make a difference.” And, he concludes, “If you have good leadership and happy talented people, anything can work.”


More Chapters

 
Televisual Media UK Ltd 23 Golden Square, London, W1F 9JP
©2009 - 2017 Televisual. All rights reserved
Use of this website signifies your agreement to the Terms of Use | Disclaimer