Firm Tries to Draw Back From Trouble : Animation: American Film Technologies starts to switch from its primary field-- colorizing black-and-white movies.

Over the past year, American Film Technologies, the leader in the film colorization business, has moved to Southern California, hired--and subsequently pushed out--a new president and started to switch its primary business to animation.

The changes had better work.

The company, now in North Hollywood, expects a loss of $700,000 to $1.2 million for the quarter that ended Dec. 31. Much of that is because its primary business, colorizing old black-and-white movies for companies such as Turner Broadcasting System, is slowing down.

And AFT’s plans for a new computerized system for animation, while hailed as pioneering, may need a few years to take root.

“The whole idea is to make a transition from . . . the film coloring end to a company whose revenues are predominantly in the animation end,” said Arthur Hartel, the company’s president and one of its founders.

Eventually, Hartel said, the company wants animation studios to hire it to draw and color cartoons in San Diego and Tijuana, instead of having to send that work to Asia. The goal, he said, is to be a pioneer in what’s known as paperless animation, in which animators using electronic styluses draw directly into a computer.

American Film is currently working on three major projects: providing the color for “We’re Back,” an animated feature film by Steven Spielberg’s Amblin Entertainment; animating “The Magic Paintbrush,” a TV special produced by McDonald’s and Marvel Productions for CBS, and working on the animation for a video game by TSR, a board game company.

American Film Technologies was started near Philadelphia in 1985 as a collaboration between George Jensen--an entrepreneur who has since left the company--and his attorney, Hartel.

Initially, the plan was to enter the film colorization business, which had just begun to take off. Hartel and Jensen invested in the development of a computer program that puts color in black-and-white films, and the company was hired by cable TV mogul Ted Turner to colorize classic films such as “Casablanca.”

Because Turner wanted to push down prices for colorization, he turned to American Film for work on dozens of films despite an earlier relationship with the company’s main competitor, Color Systems Technology, according to Roger Mayer, president of Turner Entertainment Co.

To meet the demand, American Film opened a plant in San Diego and another in Tijuana, one of the growing number of factories that use cheaper Mexican labor to perform work foS. companies. In San Diego, artists chose colors for each scene of black-and-white films, and in Tijuana, employees did production and data entry work to make the final versions suitable for airing on television as color movies.

But the universe of films to colorize is limited, and it proved difficult for American Film to remain profitable. Even though it eventually took hold of about 75% of the market--Turner now uses AFT exclusively--the company lost $1.9 million in 1987, the first year it was public, $3.8 million the next year and $6.5 million in 1991. In fiscal 1992, which ended June 30, it earned $902,031. Its stock closed Monday at 66 cents a share, down from a high of about $14 in 1990.

Business is likely to take another dip next year because the company’s contract with Turner is expiring and, Mayer said, it is not likely to be renewed. “We are probably coming to the end of the number of pictures we will want to colorize,” said Mayer, whose company bought MGM’s film library and colorized many black-and-white prints as a way to gain new audiences for them on television.

Turner is moving away from colorization, Mayer said, partly because it has already brought color to most of the classics it planned to in its library. Also, he said, audiences in the United States and what he called “film buff” countries in Europe have not responded positively to colored versions of classic films.

He said that although the first television airing of a colorized film might gain substantial viewership, audiences prefer future airings to be in the original black-and-white.

To be sure, there is still likely to be some business in colorization. The owners of old black-and-white TV series, for example, have begun to hire American Film and Color Systems--recently renamed CST--to colorize the old prints. AFT recently recently colorized the 1950s “Zorro” series.

But both American Film and competitor CST are feeling the pinch. CST lost about $2 million last year and $2.9 million the year before. So in the long run, Hartel and others at American Film decided the company’s best chance for survival was a change of focus.

“There are a lot of things we can do with our technology other than just colorization,” Hartel said. But the main thrust, it was decided, would be animation.

So in late 1991 the company hired Joseph Taritero, a longtime animation executive who at the time was head of Marvel Productions, to serve as president of American Film. Under his regime, the company animated a five-minute short by cartoonist Gahan Wilson called “Diner,” which was shown in some theaters with the movie “Buffy the Vampire Slayer.”

But in November, 1992, Taritero was pressured to resign, and a company source said he did not attract as much animation business as the board of directors wanted.

Taritero is now suing American Film for breach of contract, saying the company reneged on its promise to pay him for the remainder of his contract, which he says is worth $686,000.

Now, with Hartel in charge, the company is again trying to persuade animation studios to use its paperless process.

The way the animation business works now, generally, is that studio artists draw models of the characters in a cartoon, but artists in Asia actually produce the thousands of frames of drawings needed to make animation. But part of Hartel’s pitch is that if studios give work to American Film, it will be easier to watch over projects because the work will be done in San Diego and Tijuana instead of the Far East.

Rick Ungar, president of Marvel, said he thinks that AFT is uniquely positioned to be a leader in paperless animation. But he and other animation producers said the industry was not yet ready to switch completely from drawing cartoons on paper.

“Computer animation is an excellent thing to use for background design and coloring,” Ungar said. “I am not yet convinced computers can deliver the quality of animation.” The reason, he said, is that top-notch animators are not currently working on computers--they’re still drawing with pen and ink. For example, Ungar said, several scenes in “The Magic Paintbrush” had to be redrawn by hand.

An earlier project--”The Attack of the Killer Tomatoes,” which was produced for the Fox Children’s Network--was so difficult to produce that the company lost more than $3 million on the job.

Ungar thinks that for now, American Film’s computer system is best suited for drawing backgrounds and the transitions between a character’s movements.

Still, according to Buzz Potamkin, executive producer and head of TV production at Hanna Barbera, American Film’s approach has strong appeal.

But, Potamkin said, it could be years before the best animators begin working on computers, partly because the pay is lower in computerized work.

Hartel says American Film is strong enough to stay afloat until the industry changes. As of Sept. 30, the company had $788,237 in cash and cash equivalents, up from $430,049 a year earlier. But its current liabilities as of Sept. 30 were $2.7 million, down slightly from 1991.

“We can make money on the parts that they’re willing to let us do at this stage of the game, which is putting the color in and putting in the backgrounds,” Hartel said.

The key, he said, is to attract enough clients for its other businesses to keep going until animators are more comfortable drawing on computers.

American Film Technologies, Inc. at a Glance American Film Technologies (AFT) is primarily in the business of colorizing black-and-white films and television programs. The company uses a computerized process to make the films appear in color. In part because the colorization business is slowing down. AFT is moving into the computer animation field. Founded in 1985 in Wayne, Pennsylvania, AFT recently moved its headquarters to North Hollywood. The company posted a profit in fiscal 1992, which ended last June, but it anticipates a loss for the quarter that ended Dec. 31.