Liberty Looks to Grow, Reinvent Post Production

From Hollywood to Santa Monica, from Burbank to Westwood, the folks who run the post-production business in this town want to know one thing: What does Liberty Media plan to do?

The fabulously wealthy holding company in Colorado should soon own a majority share of Todd A-O and the entirety of Four Media Co., Hollywood’s two major post-production operations. A subsidiary of AT&T; Corp., Liberty Media Group comes to the table with tens of billions in assets and at least $3 billion in cash alone; a portfolio of companies poised on the cutting edge of interactive media; and the expertise of its chief, John Malone, the mogul who built TCI Cable.

The post-production industry, by contrast, is dominated by small businesses of fewer than 100 people. The Hollywood veterans in charge call this is a personal industry, heavily dependent on two intangibles: the talent of employees and the strength of client relationships. Any company that gets too big, they warn, runs the risk of looking like a factory rather than a shop dedicated to pampering and customer service.

But the price tag for capital investment--always a hurdle in this business--has risen steeply as technology improves at a dizzying pace. Smaller companies, contemplating the switch to high-definition television, as well as further digitization of the entire filmmaking process, are seeing their hills of capital improvement projects morph into mountains.

So it’s hard for people not to look at the new guy in the neighborhood and get, well, a little edgy.

And maybe that fear is not misplaced. David Beadow, the Liberty senior vice president in charge of this slice of the company, doesn’t give many details of his plans away. But he does allow this: Liberty wants to move into the community--and then reinvent it.

Beadow, in fact, plans to move to Los Angeles this spring to spearhead Liberty’s push into the world of interactive programming. Post production will be the centerpiece of this effort, as Liberty consolidates Los Angeles-based Todd A-O, Burbank-based Four Media, another post-production business it recently acquired called Soundelux, and other unspecified businesses into one public company under the auspices of publicly traded Todd A-O, whose name it also plans to change, he said.

The working title for this new unit is Liberty Livewire, said Robert Walston, chairman and chief executive of Four Media, who plans to stay involved with the new entity. This reorganized, renamed company will try to lead the way into interactive television, bringing the responsiveness of the Internet to TV programming and commercials, he said.

“I really think we have the opportunity now to lead the entertainment industry, from a technical standpoint, in the development of new products,” Walston said.

What does that mean for a guy sitting in his living room, watching the tube? “Let your imagination run wild,” Beadow said.

It could mean pulling up statistics on a quarterback while watching him play a football game--all on the same TV screen. Or with the click of a remote, finding out how much that Ford Explorer costs that’s being advertised during the halftime break.

“We will start offering the capabilities [for providing] those elements next spring,” he said. “Today, the demand is zero, but it’s going to be there [soon]. We’re positioning the company to take advantage of it.”

At least as far as size goes, Liberty will start from a strong position.

On July 30, it agreed to acquire 50% of Todd A-O’s Class A common shares and all of its Class B common in a tax-free stock deal valued at $92.5 million. At the same time, it also made a deal to acquire about 55% of the equity and 92% of the votes of Soundelux Entertainment Group, another Los Angeles-based post-production company, in exchange for about 1.9 million shares of Liberty Media Class A common stock.

Then, in early November, Liberty announced plans to acquire Four Media Co. for 6.35 million shares of Liberty Media Class A common stock.

Analysts who track Liberty say these acquisitions are like the spices a cook would buy to flavor a stew.

“Liberty has a track record of taking lots of small assets, putting them into a kettle, remixing it, then coming out ahead with them,” said Tom Wolzien, a media analyst with Sanford C. Bernstein in New York.

Malone, the company’s tight-lipped chairman, appears to have a master plan to marry cable, delivery and content to provide a variety of new media, said Barry Hyman, an analyst with Ehrenkrantz King Nussbaum in New York. “He’s trying to build up an operating company,” Hyman said.

Beadow estimates that the combined post-production companies employ about 2,600 people, with facilities in Hollywood, Santa Monica and the Burbank area, as well as New York, London and Singapore. Todd A-O and Four Media--or 4MC, as it’s known--got that big largely by acquisition, gobbling up competitors and other businesses whose offerings complimented their own.

While Beadow doesn’t rule out more acquisitions, he said it’s not Liberty’s primary strategy. But that does not stop others in the business from viewing the company with some wariness.

“As I’m sure you would expect, when we heard the news, we discussed it very intensively,” said Emory Cohen, president and chief operating officer of LaserPacific Media Corp. in Los Angeles.

Many post houses already struggle to amass the vast sums necessary to keep pace with the latest technology.

“The post industry is changing dramatically,” said Debra Kaufman, a freelance journalist who has covered post production for a decade. “It’s getting harder to stay afloat, to make a profit.”