Passing the Stress Test

March/April 2009

Passing the Stress Test

Passing the Stress Test, the essay for this, the March 2009 newsletter, was initiated when I responded to an article in Studio Daily, one of many electronic newsletters that I receive regularly to stay in touch with matters at many points on the entertainment and entertainment technology food chain.

The article, Staying Afloat in the Stupid Economy, was about the closing of The Orphanage and the resulting strategies companies were taking to deal with the down economy.  Having a professional opinion on the topic, I wrote to its author, Matt Armstrong, who asked me to expand upon my thoughts for the article now entitled Passing the Stress Test.

Read it starting below and form your own opinion on this very important topic in these challenging times.  The test is coming, not might be coming.  Can you pass it?

Passing the Stress Test

We have seen it so many times. So have you.

We have seen a significant number of facilities in production, post, visual effects and the related areas, close over the years, even in good times.  The overarching reason for this — in our opinion — is that these companies fail to support their creative and technology teams with a strong business team.

This is the main reason for failure.  All of the others are secondary.

The recent announcement about the closing of The Orphanage has sent a shiver down the spine of many visual effects companies, movie studios, post houses and others that are watching and even awaiting the fallout.

While the specific reason or reasons The Orphanage orphaned 160 people may never be known publicly, there has been a lot of speculation. This has included mismanagement, counting on a project to come through that was delayed and ultimately did not come through, over leveraging their assets, bidding on work at below cost, etc.  The specific reason may not really matter.  It is over and the place is closed.

The problems that The Orphanage faced are not that dissimilar from those faced all the time by many other visual effects, post production and other organizations.  The challenges at The Orphanage bubbled over while those at other facilities rumble below the surface for long periods before finally going over the edge. Others are just not as high profile.

These problems rumbling below the surface are more relevant today than ever before, especially given the challenging times we are in.  There are other facilities in the marketplace with business and financial problems.  It is important that these problems not arise during a crucial time in the delivery cycle for a major movie or during production on a TV series.  The potential ripple effects are tremendous.

This may ultimately mean that facilities will have their management structure and finances reviewed by the studios before future work is awarded.  These companies will need to be able to pass the stress test, a phrase that is especially prevalent in the news in the current economic climate.

The main problem is that most companies are reluctant to admit they have a problem.  Often that admission comes when it is too late.  Does an alcoholic admit a drinking problem or does it take hitting rock bottom?  You know the answer to that question.

Periodically, companies attempt to meet the challenges themselves.  That is not a bad course of action as a first step.  Sometimes, though, that results in the entire management team — if indeed there is a team approach — following a common path because no one wants to be the voice of dissent.

In our experience, we have seen some companies use short term cost-cutting to stave off problems.  Sometimes that works fine.  Often it is like putting a band-aid on a serious wound.  Sometimes companies take an unrealistic approach to ways that will hopefully transform their business.  The intention is good, but the approach is inadequate. A flawed decision-making process will not self-correct.

This may not enable them to pass the stress test.  Often the “make up exam” is too late.

The following are but five general signs that you may not be able to pass the stress test:

• Lack of communication amongst the team members with important matters falling through the cracks;
• A feeling by the “entrepreneur in residence” that everything must be done by him/her; but never feeling as though there is enough time to do even a fraction of the to do list;
• Reactive vs. proactive management;
• The company is growing but there is not any clear path to profitability;
• Chaos sometimes reigns supreme.

Of course these are very general problems that may or may not signal a stress problem at a particular company.  Often the people running these companies do not know if their problems are at risk of reaching a critical level.  Often they know they have a problem, but find them easier to ignore.

Sometimes they know how to solve them and it is just a matter of making bold changes. But sometimes they do not, especially in this industry where the company heads may be more artist than business person, or perhaps are just too entrenched in the day-to-day minutia to objectively assess the structural damage.  That is when an outside consultant can pay huge dividends.

In the meantime, five important general recommendations to relieve some of the stress include:

• Clearly define the exact roles for key members of management, including the “entrepreneur in residence” and make sure that all important business functions are adequately covered and that there are clear lines of communication within the organization;
• Understand when it is time to bring in outside help;
• Never underestimate the power of marketing and never cut significantly into the marketing budget when times are tough;
• Prepare financial statements and projections on a regular basis, including an analysis of the true cost to complete projects;
• Learn from mistakes – hold a post mortem after each significant project and at regular intervals during the course of the year, soliciting input from throughout the organization.

There is never a guarantee of success, of course.  If this scenario rings true, the time has come to move forward diligently to prepare for the stress test with the help of someone who can objectively evaluate the situation.

The test is coming, not might be coming.  Are you prepared?

This article initially appeared in Studio Daily, and is first mentioned in their newsletter of March 17, 2009. 

Trends in the Marketplace

There are numerous trends that we follow in the market segments in which we are involved in our consulting practice.  Some of the current trends may indeed be indicative of larger, long term changes that are occurring in the marketplace as new products and technologies are deployed.

Others, due in part to the recession, may only be blips on the overall trends chart and others may be profound changes as business models change to meet the ever evolving needs of the marketplace.

We will continue to report on trends we deem relevant in our future newsletters.

Telecommunications – These challenging times have highlighted the continuing trend away from land lines as more people continue to rely solely on their mobile phones.  The New York Times reported on January 28, 2009 that “in the fourth quarter, Verizon lost 911,000 corporate and homeowner landlines. For the year, landlines fell to 36.2 million, from 39.9 million, a 9.3 percent drop. Operating margins on the landline side of the business fell to 25.4 percent, down from 28.4 percent in the period a year ago.”

AT&T has had its downturn in landlines, too, but recognizes the need to continue to expand its other businesses.  On March 11, 2009, The Associated Press reported that AT&T would invest between $17 and $18 billion to drive growth.

AP continued, “AT&T said it will add jobs in 2009 to meet continued demand for broadband services, but will still cut jobs in other areas, as previously announced, because of a tough economy and a shift toward wireless and broadband.”

Another trend due to the current economic climate that may not be reversed is consumers giving up their cable, satellite or telco TV services in favor of online viewing of programming, thus making AT&T’s increased broadband investment appear smart.

As more TVs and/or boxes such as the LG (and other brand) Blu Ray players offer internet access, the world of IPTV will expand, perhaps more rapidly than thought even as recently as a year or two ago.  Various cable companies, led by Comcast, are actively seeking ways to offer online access to programs for their subscribers.  I suspect the definition of subscriber will see some variations over the next few years, especially as networks and cable channels increasingly offer their content online for free.

Korea broadband – Korea often seems to be a step ahead of many countries in mobile devices and in broadband deployment and penetration.  The Online Reporter in its 6-12 FEBRUARY 2009 issue, reported “South Korea’s Korea Communications Commission (KCC) is developing plans to upgrade the country’s 100 Mbps network by 2012 to 1 Gbps, 10 times faster than what North America and Europe are hoping to achieve.  With 1 Gbps users can download a 120-minute film in 12 seconds.”

While I have not yet seen the details of the increased US broadband planned as a part of the recent stimulus bill, I would hope that the speeds under consideration would come close to, if not exceed, the 1 Gbps into the future.  Many of us would settle for 100 Mbps in the near term.

Warner Bros. DVD On Demand – Hot off the proverbial presses, so to speak, is the announcement that Warner Bros. is making select library product available as a download or on a made to order DVD.  Amazon and others have been doing this on select product for years, select typically defined as independent movies.

One of my speaking engagements at the Storage Visions Conference in conjunction with CES in 2007 was Digital Content in the Age of Global Archives.  Since presumably the product from the WB library will be available in “perpetuity,” this recent announcement represents yet another example of the long tail, releasing content from the archives.

Newspapers and e-readers – The continuing demise of newspapers and the rise of the e-reader, namely Kindle 2 and the Sony Reader, have been prevalent in the news lately.  It is not a foregone conclusion as to which of the two e-readers, or competing products we have seen, will win the race to the consumer, notwithstanding the current lead of Amazon’s Kindle franchise.

In our January 2009 consulting newsletter, we mentioned that we had gone to CES with the express intent of learning more about e-readers, their ongoing deployment into the marketplace and other related factors.  We will continue to monitor this most interesting topic.

Also in our prior newsletter, we mentioned the decision by the Detroit Free Press to only deliver 3 days per week.  In very recent days, the Seattle Post Intelligencer has gone online exclusively.  In the next few months, look for more publications to take a step of one sort or another in this direction.  It seems inevitable.

When those steps begin to snowball, and perhaps coupled with a price decrease in e-readers, the e-readers will take steps toward a sharp increase in penetration.

Interestingly, Joel Ordesky, who hosts a weekly LA discussion group, wrote one of his recent weekly essays recently on the topic of The New York Times and Kindle, derived in part from an article in The Business Insider.  In essence the article said that printing the NY Times for one year costs twice as much as sending a free Kindle to each of its subscribers.

Had to chuckle – Shelly Palmer, noted digital guru, in an advertising email blast with Shelly’s Top Five Digital Work/Life Tips, wrote “when you speak, don’t tell them what you don’t know. If your email address[ is] something like: cutepuppy63@aol.com? [sic] You’re telling everyone you’re in your digital diapers.”

As for The Shindler Perspective

NAB – The NAB Conference is in mid April.  On the day preceding the opening of the conference, April 19, 2009, I will be moderating a panel once again at the Creative Storage Conference.  The panel topic, one close to my heart, is Case Study: Digital Storage in the Visual Effects Society Awards.  Panelists are from Sohonet, 1:1 Ratio, Technicolor and the Visual Effects Society.  Subscribers to this newsletter are eligible for a $100 discount when using 1233709387 as the coupon code.

It seems that many exhibitors are making extra marketing effort this year in order to be sure that attendees visit their booths while at the conference, anticipating that some companies may not only cut back on the number of people attending, but may also be reducing the number of days spent at the show.

3D stereoscopic – Regular readers of this periodic consulting newsletter know that we have been involved in various 3D stereoscopic consulting matters as well as numerous 3D speaking engagements.  So, it should not surprise people that we went to see the Jonas Brothers: The 3D Concert Experience.  Instead of seeing it at the closest theater to our home base, the Sherman Oaks Arclight, we ventured to the very brand new Muvico in Thousand Oaks, CA.

If you have not been there, you should visit the theater.  Besides wanting to see the movie, we chose that particular theater for another reason.

Several years ago, we were involved in a consulting project with Fort Lauderdale based Muvico that enabled me to visit Muvico Theaters in Memphis and Orlando.  We have since been to Muvico theaters in Tampa and Boca Raton.

Knowing the quality of presentation that Muvico provides and the overall experience of being in the theaters, we have followed the company since that time, including noting how often the Muvico Egyptian in Hanover, Maryland lands in the top 10 locations for weekend box office as reported by Variety.

Digital Hollywood – Once again, I am moderating the Digital Hollywood Spring 2009 panel on 3D, entitled, The Arrival of 3D – Digital 3D Platform for Feature Films and Television.  Committed panelists are from 3Ality, Cinedigm, Imax, Kerner New York and Wedbush Securities.  Visit our web site periodically for more information when new panelists are added for the May 5, 2009 Digital Hollywood event.

AFCI – The Association of Film Commissioners International will have its annual Locations Trade Show conference during the week preceding NAB, running April 16 – 18, 2009 at the Santa Monica Civic Center.  Roberta and I will be there to scout out the latest in what the film commissions from around the world are offering and to stay tuned to the latest announcements regarding production incentives that typically surround the conference.

We always appreciate the unsolicited feedback we receive about this newsletter when we are at industry events, conferences and even sometimes in the grocery store, as well as those we receive by email.

In between these newsletters, our web site at iShindler.com includes a sample listing of the types of projects in which we have been involved, the companies with whom we have worked and our credentials. There is also a collection of articles on business and management topics that have been published, speaking engagements and testimonials that we have received from some of our clients.

Roberta and I wish our friends, clients and prospective clients continued success and good health.

For The Shindler Perspective, Inc.

Sincerely,

Marty Shindler

Chief Executive Officer

 

© 2009 The Shindler Perspective, Inc.