Video Post-Production Faces Old Problems and New Risks : Recent sales of Burbank’s AME Inc. and Compact Video Group are part of an ongoing consolidation of the post-production business. But with ever-developing new technologies, big challenges lie ahead.

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.

It’s a business that tugs at a technophile’s heartstrings, but it’s also one that endured the borrow-and-spend mania of the ‘80s only to find itself facing the harsher ‘90s realities.

Two Burbank companies, AME Inc. and Compact Video Group, tell the whole story: Both were premier post-production firms but 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.

But as these companies try to instill new financial discipline, big risks lie ahead. 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, the 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, many post-production firms took plenty of risks. Some unwisely rushed to buy the latest technological gadgets that didn’t produce the hoped-for profits. Some shops, unable to withstand spiraling costs and competitive pricing, closed their doors. One small company, Vidcom Post in Burbank, had a debt level four times its annual revenue when it filed for bankruptcy protection a year ago. In April its assets were sold for a mere $65,000.

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 “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 debts 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.

Walston, representing Steinhardt Partners, a big New York investment firm that has backed such companies as ice cream maker Ben & Jerry’s and USAir Group, also bid for AME, but retreated when he felt that the offers had gone too high.

Walston had wanted to combine AME with Compact Video, which Steinhardt Partners acquired earlier this month. Terms of the Compact Video sale were not disclosed, but Walston said it wiped $46 million of debt off the company’s books and saved the firm from a near bankruptcy.

It’s not surprising that the tangled histories of Compact Video and AME are so similar. Video post-production remains a relatively small industry in which executives often jump from company to company. With Kingen now at the helm of All Post/AME, for instance, AME chief executive Jan Yarbrough is departing for ATS, where he will be chief operating officer. John H. Donlon, Compact Video’s president since 1984, is now ATS’ president.

There have been some big names involved in the video post-production industry. Billionaire investor Ronald O. Perelman, chairman of Revlon Group, controlled Compact Video in the mid-1980s, before selling it to Kenmare Capital in the 1988 LBO.

With all the troubles and skintight 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 one-inch, then to digital formats.

But others think that video post-production will be at best a slow-growth industry. Rather than the mass conversions of film libraries that took place 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 that the business will only get tougher for independent firms 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 LBO. “You don’t really get a lot of chances to make mistakes.”

As a result, many believe that the industry consolidation will continue. There are more than two dozen companies in the Los Angeles area today, but that number will probably 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 hunt 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,” Kingen said. “We have to be much smarter operators.”

Companies also hope to survive and prosper by being a little different than the guy down the street.

Leon Silverman, executive vice president of Hollywood-based Laser-Pacific Media Corp., which specializes in post-production for network television, said his company has designed an “electronic lab” involving a supercomputer that sharply reduces the time needed to edit and assemble a television show. Another large Hollywood post-production firm, Post Group, has sister companies that are trying to establish an edge in emerging interactive media technologies.

All Post says the AME purchase gave it the industry’s largest collection of post-production equipment in one facility, so the company is now able to handle large volumes of work.

And ATS prides itself in providing a wider range of services than its rivals. It has its own film lab, and besides doing traditional film-to-tape transfers, editing and sound work, it also makes duplicate tapes from the masters it creates and distributes those tapes to TV and cable stations. ATS is one of only a few companies that provide tape-to-film transfers, which are used, for instance, when music videos are released theatrically overseas.

One of ATS’ clients is the Disney Channel, and ATS does everything from stringing the programming together with commercials and promotions to sending the channel via satellite to cable companies across the country.

Hyde predicted that both ATS and All Post will be well-positioned to be among the survivors and leaders in a fast-changing industry.

Said Walston: “If there’s something I learned at Steinhardt it’s that whenever there’s change, there’s a way to participate in the change and earn a decent return on your investment.”