Technicolor Is Hitting All The Colors of The Rainbow
By Charlie Fink
In a hip, newly renovated industrial park in Culver City, CA, the 10,000 square foot Technicolor Experience Center nestles unassumingly amongst the concrete and steel offices of maverick agencies, startups and independent producers. Its official opening is June 15. Even though I'm almost a month early, Technicolor Vice President Mark Turner, Corporate Partnerships and Strategy, graciously agreed to give me a preview.
"The purpose of this building is to bring people together to learn, to experiment and to solve hard problems facing producers of VR and AR content," Turner said.
The Center features every commercially available headset: Rift, Vive, Hololens, Playstation VR, and mobile Gear VR, which is powered by the Samsung 7 smart phone. It's open to anyone in the entertainment industry: game producers, studio executives, writers, cinematographers. Turner explained how it is for "anyone who wants to see what's around the corner ahead of them." I'm told the head of Google VR was a recent visitor. The Technicolor Experience Center features a 3,000 square foot motion capture space, which can also be used for large meetings. Unreal, which makes the critical software on which many VR apps are built, recently conducted two days of training there.
"We want to be a gathering place, a salon, for the best thinkers about this new medium," Turner said.
Technicolor touches 70 percent of studio movies, but they don't process film anymore. They create and manage digital assets, from conception to the home. Technicolor is the #2 player in the "connected home" category, making set top boxes and cable modems for partners like DirectTV. Their executives are especially interested in the home of the future and the role the router and set top box will play in that connected home electronic ecosystem, now known as The Internet of Things or IoT.
I demo'd several experiences which are curated by staffers who personally attend to visitors. VR is much more enjoyable when someone else has already done the tiresome downloading and calibration needed to set up each experience, no matter the system. As Turner showed me the work of Technicolor's advertising effects studio, The Mill, I wondered, "Don't you guys develop film anymore?" The answer is “no, everything but that.” So, they thoughtfully set me up with CEO Frederic Rose, who turned a dying film processing business into a digital production dream factory with one eye on the bottom line and the other on the future, and the amazing promise of fully immersive digital entertainment that puts you, literally, inside the movie or video game.
When Fred Rose became CEO of Technicolor in September 2008, it was at the losing end of a business school case study of tech driven disruption. Film processors, even of high-end motion pictures, were about to see their customers migrate en masse to a better, less expensive digital platform. A series of poorly structured acquisitions and other desperate tactics had left the company drained of cash, ideas and a decent credit rating. The private equity investors who owned the company were sitting naked in the middle of the street waiting for the steamroller of history to run over them. To the new guy, it never has to be that way. But first, there was the business of retaining key customers, financial restructuring and a serious recession that made slashing the present and investing in the future even more perilous.
Rose got to know Technicolor's operations well in those desperate first years, managing cash flow, making payroll and deciding which Technicolor's businesses to keep.
"I wanted businesses that could do three things: be one of the top three players in their category, be cash flow positive, or close to it, and they needed to be growth businesses."
Once upon a time, film (created through a machine-age, bio-chemical process invented shortly before Technicolor was founded in 1916) was itself the powerful new medium. Throughout the 20th Century, movies were at the center of western culture. The demand for movies in the 30s, 40s and 50s is hard to imagine today. Studios cranked out movies annually by the thousands, along with cartoons, newsreels, music and sports features. Films had to be developed, duplicated and shipped. The country's preeminent film manufacturer, Kodak, was one of America's largest companies. In Hollywood, Technicolor was a behemoth (the film processing business was basically a duopoly, with Deluxe on the other side).
"I didn't want Technicolor to become the Smith-Corona typewriter, which never made the transition from type to images," Rose said.
In 2008, Technicolor made 500MM in revenue from film processing and duplication, and a small amount of visual effects work. By 2016, the company had completely exited film processing, while increasing total sales for visual effects to 850MM.
"[The studio producers] bring us their visions," Rose said. "We make them come true."
Indeed, Technicolor is responsible for Disney's live action movies the "Jungle Book," "Birdman" and many other recent movies whose visual effects make audiences say, "Wow!"
In addition to digital movie making and set top boxes, Technicolor has paradoxically succeeded in a category everyone said they should write off: DVD duplication. While others exited the business, Technicolor took advantage. DVDs just had its best selling year in history. Rose says they shipped 1.6 BN discs this year.
"People want to own their favorite movies, classics and blockbusters. That's what they put under the tree. We were the only ones who saw the growth left in this business."
Technicolor is now the world's #1 manufacturer of DVDs. Under Rose's leadership in 2010, the parent company formerly known as Thomson (which had origins in early European television manufacture), took on the name of its main subsidiary, Technicolor, which went public on the Paris exchange as Technicolor, SA. The company's new public stock was the currency Rose needed to grow the business. In 2015, Technicolor acquired Scientific Atlanta from Cisco, making it the #2 manufacturer of set top boxes and cable modems.
Through its work in home connectivity and visual effects, Technicolor has registered dozens of patents. The small division set up to administer and monetize them collected over 300MM in high margin royalties last year, which brings us to back to the Technicolor Experience Center. Turner is part of a mixed team drawn from enterprises across the company and is tasked with evangelizing Technicolor's broad portfolio of solutions to their customers.
"They are not a separate business unit," Rose said. "But rather a cross-functional team whose mission is to explore, engage and discover where the medium is going and how best we can serve our customers across divisions, who are all looking to us for expertise in content creation for these emerging platforms. VR is not one thing. Interactivity is not one thing."
Turner explained, "The modes exist on a continuum. On one end, you've got passive, 360 video where you're a ghost, watching but unable to interact. On the other, we have fully immersive multiplayer games and cinematic environments; in between is where most content and devices are right now. Not totally one thing or another. The first big hit in VR may be more like a game than a movie."
Mark Turner is smart, and not just because he has a British accent. He's clearly been thinking about immersive entertainment a lot. According to Turner, "at the end of the day, solving the problems of content creators is not limited to software, but rather hardware like routers and set top boxes. Our leadership in the connected home gives us an advantage."
With Technicolor on stable footing, despite its perilous perch on the edge of the new technology, Rose is feeling acquisition minded. The company has free cash flow, which it is currently using to pay down its debt, improve its credit rating and strengthen its balance sheet.
Rose says he wants to acquire "companies that complement our production services or connected home activities. My criteria has not changed. We want to be the leader in any business we enter. We want companies that can grow the bottom line."
Charlie Fink is an executive, writer and consultant with over three decades of experience in media, technology and the intersection between them. As an avid storyteller, entrepreneur, and award winning producer, Charlie has built a career building businesses across industries. With his tenure as an executive in companies such as Disney, Virtual World, and AOL, Charlie has honed an extensive knowledge and expertise.