New Business Models

This industry used to be so easy to figure out. Employment was either in broadcasting, in a large corporate video department or at a large, full-service, state-of-the-art post-production facility. Industry pundits often blame the events of September 11 or the success of Apple’s Final Cut Pro for the demise of video facilities, but these are simply events, which coincided with the inevitable. Before – when most production and post was done on film – the tools were relatively cheap and the investment was in talent. Then – starting in the early 1970’s – we went on a 30-year-long tangent of technology – much like a junkie on a binge. Facilities purchased gear and promoted themselves based on having the biggest, best, newest and costliest gear. Now we are on the other slope of that same bell curve and the tools are once again cheap and the cost is in the talent.


When I started editing in 1976, my facility employer in Jacksonville was able to charge $260/hour for two-inch linear editing, which was a tad cheaper than the prevailing South Florida, “big city” rate of $275. Most facility owners would love to get that rate today, even if the dollars were even! Today’s equipment is cheaper to own and operate and hourly rates reflect that fact. It is easier to make a profit if you opened shop today, than if you had opened five years ago and were still paying leases for that older, more expenses equipment investment. Those are simply the business facts of today’s video economy, so how do people continue to make this their livelihood? As I see it, these are the four business models for the next decade.


1. Facilities


What I would consider the traditional facility is one with a large investment in advanced technology. For the moment this would include high-definition post-production, film-to-tape transfer and electronic film finishing (digital intermediates). As HD gear gets cheaper, though, that portion of the model is also quickly going to disappear. These sorts of facilities will only exist in major markets and will only make money with investments that cannot be easily or inexpensively duplicated on the desktop. Film transfer and high-data-throughput DI work will continue to require large capital investments and these facilities will be able to hang on to a small niche at the uppermost part of the industry. On the other hand, this same level of capital investment in standard post – the proverbial million-dollar edit suites – can no longer be maintained for standard commercial, corporate or even entertainment post.


2. Boutiques


The small post house has become the current “facility” model. Typically boutiques are small post houses set up in offices or even homes. They are characterized by a few nonlinear edit suites, a small audio suite and maybe a graphics/animation suite. This model is much like that of a graphic design studio, but in the past, video facilities like this were small “project studios” built around a single project or person. Now the boutique tends to be the norm outside of most major markets – running lean and trying to be a survivor. Most boutiques keep their core staff low and rely on freelance editors and designers or contract workers to get the work done in peak times. Since many boutiques are founded and operated by the principal partners who are still active participants in the daily operations, quality service is usually a goal that is more important than owning state-of-the-art technology. Equipment upgrades are made when a project can pay for it, rather than by the cycle of obsolescence promoted by any specific manufacturer.


3. Corporate / Broadcast


I really see these as the same thing. Both corporate video departments and broadcast outlets (networks, stations, cable, satellite) are institutions that are owned by large corporations, usually have a fixed staff and make equipment purchases based on a schedule of approved capital expenditures. If you can get a job here, the environment tends to be stable (though downsizing is always a threat), but the video gear is generally not as current as the state-of-the-art within the industry. It simply takes longer to get such budgets approved, so in the corporate or broadcast world, it is impossible to respond to the needs of a specific production, by just going out and purchasing gear to get the job done. On the other hand, when money is approved, it can frequently have a sizeable budget with enough money to get the installation done right.


Broadcasters are a growth opportunity for many video manufacturers. Worldwide, TV stations are only at the beginning of the conversion from tape to digital technology and tapeless infrastructures. Even if most TV stations stay in standard definition rather than HD, their outlay for new equipment will be in the hundreds of millions of dollars. It is to this market sector that companies like Avid will turn for sales of their most expensive gear. Stations are used to paying higher capital costs, because they would rather pay up front and get ongoing corporate support than to be nickel-and-dimed with annual incremental upgrades.


4. Independent / Entrepreneur


This last category is one in which many editors have landed in this new millennium. It is also one that is the likeliest future for new people entering the world of post. Being an independent contractor can take several forms. The obvious is the “gun for hire”. The freelancer who is called in by a facility to handle the overflow or get a specific job out the door on time. Often freelancers settle into one place as if they were staff. To keep costs lower (especially because of the cost of benefits, like paid insurance), many employers choose to leave such employees in an independent status, even though their hourly rate might seem higher than true fulltime employees. These are the so-called “permalancers”.


Another independent’s operating model is the “preditor” – producer/editor. The preditor is more than just the jockey behind the controls. He/she books and supervises editing and other sessions, like voice-over recordings, and helps the client with the logistics of getting all the production done (other than any actual shooting). Although this is viewed by many as a new phenomenon, it is actually how most respected commercial film editors worked years before. They not only edited, but controlled every aspect of post, finishing and delivery.


Many independents choose the entrepreneurial route. They purchase some gear, like an edit system, and work out of their house or place it inside another facility. In the latter case, arrangements are made to split revenues so both sides profit. This often gives facilities a chance to expand without any capital outlay beyond the necessary space, power and amenities.


The post production business model has come full circle. This is a service business and not a technology business. Companies and individuals who learn to adapt to this will survive and even prosper in these interesting times.


© 2004 Oliver Peters