Is Bigger Better?

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Richard Cormier, managing director at Riot/Santa Monica, has a vision. As digital formats multiply and technology advances, the postproduction industry will center around "service bureaus" - major facilities with the scale and technical expertise to handle emerging technologies for producing and distributing content of all kinds. "I envision a few Riots around the world or a few Riots around some cities," he says. "And I would hope all the boutiques would have a reason to stay around, but they should and they will become clients of those large-scale organizations." In other words, bigger is better. As the post business faces a sagging market and advances in digital technology, consolidation has reached full swing within the industry, led by companies like Riot and its parent company, Liberty Livewire. "There are some challenges ahead of us," Cormier says. "I think the successful future will be with organizations like the Riots of the world. At the high-end level, it's not going to be any cheaper. If you're going to be involved in the high-definition world, which offers no options, really, because it's moving forward, you'll have to have an infrastructure that's robust enough to handle this - and a small boutique will never be able to support those activities."

Developing this infrastructure has been the major impetus behind the rapid consolidation of the industry on both coasts by Liberty Livewire. The march began in 1993, when Four Media Company began buying up properties, including Encore, Riot's predecessor. Liberty now comprises some 40 companies involved in the production, management and distribution of content, including New York post house Manhattan Transfer, which - as in Cormier's vision - was rechristened Riot/Manhattan in April. Livewire president and CEO Robert Walston calls his outfit "the largest digital media services company in the world."

"I think we've seen, certainly in the advertising industry, a major consolidation among our client base," Walston adds, explaining the motive behind the mergers. "With the major studios, we've seen a major consolidation of our clients that produce long-form programming. So, reacting to the global footprints of our clients, we saw an opportunity to provide a company that could offer a broad range of services on a global basis, with scale and capabilities that mirror the requirements of our global clients. It really is a reflection of the market that we serve."

Talk of integration and diversification is not confined to publicly traded giants like Liberty Media, however. Rather, vertical integration, as in other industries, has increasingly become a prevalent model as the lines between production, effects, finishing and other post services blur. "The post business has changed," says Steve Hendricks of the New York Media Group. It's no longer something that's done at the very end of the line. If you're talking visual effects, the visual effects artist meets with the DP and the director and the producer upstream - that's in front of the food chain, not behind it. Postproduction was always after the fact - hence the meaning of `post' - so the business that we direct ourselves in now is a creative business that's in the forefront, not on the back end." Multiple services, meanwhile, have become more urgent in the face of a crumbling advertising economy. Even smaller shops are finding that they need to make acquisitions, or at least take advantage of synergy relationships, to stay competitive.

"That's the difference between the last five years and now," says Michael Porte, managing director at Click 3x/New York and a co-founder of Mad River Post. "Where people used to be creating these consolidations because they wanted to go public, what people are talking about now is finding synergistic companies to work with, whether they're ad agencies or production companies or other effects companies. Right now there's a slowness going on in the business and a lot of companies, I believe, are going to bite the dust in the next three months. So if you can survive partially because of your synergies business-wise, that makes sense."

Tom Duff, president at Chicago finishing house Optimus, for example, says his company recently acquired Edit Sweet, an offline editorial house and frequent client, in part to ensure that Optimus' finishing capacity was filled. "In the market of merging companies, we had to be stronger than we were," he says.

Harley's House in Santa Monica, meanwhile, recently purchased the Los Angeles office of Click 3x, substantially expanding the shop's finishing capabilities. According to founder Harley Rinzler, companies that survive will be those with strong client relationships and the foresight to diversify. "I believe very much in the strength of diversity," says Rinzler, whose business flow is split between commercials work and work on theatrical trailers. "I didn't want to be subject to the cycles of one particular business, and right now the commercials business, for the most part, is down. The theatrical trailer business is growing. So to me it makes sense to deploy my assets over different business lines. I think the companies that will survive and thrive are those that have solid relationships with their clients; are fortunate enough to have clients who are actually producing; and possibly the companies that are not entirely dependent on the commercials business."

Steve Hendricks - who took over Post Perfect and the rest of the New York Media Group when the latter was acquired by holding company Burning Suits this summer - says the business has to get back to basics. "It's time for people to start thinking in the box instead of outside the box," he says. "The dot-com days are gone. The days of postproduction being the end of the line, those are gone too. It's time to focus on the business that we do, and what we do is: sound creation and mixing; visual effects, 2-D and 3-D; creative editorial; and DVD authoring."

All agree that consolidation or no, the buck stops with the work. "From a business perspective there are reasons to have synergistic relationships, but from the perspective of the client, they don't care," says Click 3x's Porte. "It's fine to consolidate, but you have to be very careful about how you use that consolidation. You can't, in our business, force it. If there's a good business reason, by all means, but that has nothing to do with the creative process." Hendricks concurs: "Changing the name of a company, and branding and vertical integration, those are great statements that work in some industries," he says. "In ours, the core competency of our business is creativity."

The challenge, then, according to Rinzler of Harley's House is managing growth without losing a culture of creativity. "If you look at it from an historical perspective, it has run in cycles," he says. "You've gone through cycles of consolidation where bigger is better, multiservice companies are better, then through cycles where it breaks apart into boutiques, specialized services, and that's what's desirable. I think that the trick is to have a healthy combination of both; to have a place that has the attributes of a boutique but offers the services of a larger company. The great challenge is maintaining your culture through growth." As Porte says: "I think it's harder for the big companies to keep talented people, because talented people, in our business, like independence."

The irony of consolidation may be that it can sometimes spur the rise of boutiques, as it did in August, when creative director Micha Riss and producer Doron Tadmor left Liberty-owned Riot/Manhattan - along with director of communications Greg Grusby - to form broadcast design firm Meccanica. "We thought we would have more of an opportunity to do the creative work we love so much if we started our own company," Grusby explains.

"Look at the movie business," says Porte. "In California, there's a million teeny shops doing a lot of different things, and then there are big conglomerates. It's always existed like that. And I think we will have some big ones out there like Liberty, then we'll have a bunch of little ones. Just like always."

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