‘90s Edit the Video Boom : Post-Production Services Face Budget-Driven Consolidation

Behind the scenes of movies and TV shows, tucked away in nondescript buildings within striking distance of Hollywood studios, are the companies that turn film into video, edit the tapes, mix in sound and perform a variety of other post-production services.

The industry, which boomed during the borrow-and-spend mania of the ‘80s, is seeing its numbers shrink under the harsh realities of the ‘90s.

Two Burbank companies, AME Inc. and Compact Video Group, tell the story: Both were premier post-production firms that became burdened with debt from ‘80s leveraged buyouts. AME entered bankruptcy while Compact Video teetered on the brink, and both were recently sold to new owners. They are now part of the ongoing consolidation in video post-production that is being driven by tighter studio budgets, intense competition and price cutting.

As these companies try to instill new financial discipline, they are facing big risks. They must cope with the advent of new digital formats, CD-ROM, high-definition television and more. No company can afford to be left behind. At the same time, they must carefully weigh investments in expensive technology that may or may not pan out.

“The most difficult decision I’m going to have to make is where to spend money,” said Robert T. Walston, new chairman and chief executive of the former Compact Video, temporarily renamed ATS Acquisition Corp. “I have to think every day: Do I really want to take a risk on this technology?”

Back in the ‘80s, post-production firms took plenty of risks. Some unwisely rushed to buy the latest technological gadgets that didn’t produce the hoped-for profits.

In the cases of AME and Compact Video, overpriced leveraged buyouts were once justified in part by the belief that studios would continue to spend freely on their services.

Walston now calls the 1989 AME buyout for $109 million as “one of the worst LBOs I’ve ever seen, and I’ve seen a lot of them.” AME filed for bankruptcy protection in July, 1992, with debt totaling $124 million.

Compact Video’s 1988 buyout for $60 million, Walston said, was “a little less wild but equally suspect.”

After a year in Chapter 11, AME was sold a month ago in a Bankruptcy Court auction to All Post Inc., a smaller Burbank post-production firm founded by Larry Kingen, a former AME executive who left four years ago. All Post’s $18.2-million acquisition of AME was backed by Westar Capital, a Costa Mesa investment firm.

Compact Video was sold earlier this month for an undisclosed price to Steinhardt Partners, a New York investment firm that has backed ice cream maker Ben & Jerry’s and USAir Group.

With all the troubles and skin-tight profit margins, what do the new players Westar and Steinhardt Partners see in video post-production?

“There’s more work coming out every day,” said Kingen. “With the advent of 500 channels of television, something has to fill those. Cable systems open every day. The European market has been tremendous for us.”

What’s more, Kingen said, every time a new technology takes hold, studios want their film libraries transferred to the new format. It happened when two-inch tape went to a one-inch, then to a digital, format.

But others think that video post-production will be at best a slow-growth industry. Rather than the mass conversions of film libraries a decade ago, studios will more selectively convert to new formats, warned John Hyde, AME’s former bankruptcy trustee.

What’s more, some studios themselves have begun setting up their own post-production facilities. Many industry insiders believe the business will only get tougher for independent companies such as All Post and ATS.

“I’ve watched companies come and go” in video post-production, said Andrew McIntyre, AME’s founder who left the company after the leveraged buyout. “You don’t really get a lot of chances to make mistakes.”

Many believe the industry consolidation will continue. There are more than two dozen companies in the Los Angeles area today, but that number is likely to shrink as the business becomes dominated by large, well-financed companies.

“Only the big companies are going to be able to exist,” said John Hoffman, president of New York-based Unitel Video Inc., the post-production industry’s largest company, with $80 million in annual revenue. Unitel, which also has Los Angeles operations, has grown rapidly through recent acquisitions.

ATS, with $50 million in revenue, will be on the lookout for more companies to buy, Walston said. Meanwhile, ATS managers and other employees have received pay cuts in keeping with the “realities of the industry,” Walston said,

Kingen of All Post, who expects his company to do $35 million in annual revenue with the AME purchase, predicted more alliances and joint ventures among rivals, or between post-production companies and manufacturers, to finance equipment purchases.

“It’s not the old post-production business,” he said. “We have to be much smarter operators.”