Four Questions

1. The economic environment in 2001 was difficult for mostbusinesses. In 2002, did your business grow? What were yourdifficulties?

Cutting Room, Venice, Calif.; Greg Everage, Exec.Producer

Yes, we grew in 2002. We grew gradually by adding an additionaloffline bay and expanding our client service amenities. We also openedour creative concept, production, and design company room. All of theabove were thought out in advance by following our business plan thatis designed to build our future goals step by step.

Digital Bucket, Minneapolis; Kent Hodder, CEO

First, annual contract work has all but disappeared as clients havechosen to award work on a project-by-project basis.

Second, as usual, we find ourselves being approached to formulateconcept strategies and pricing projects, but now with a huge percentagenever actually happening in any form. It seems even the mostwell-meaning clients are ultimately having their ideas and goals foiledby unanticipated budget cuts or a constant shift in priorities. Theincrease in “window shopping” by clients is definitely adifficult and costly trend.

South Coast Film & Video, Houston; Everett Gorel,Director/Cinematographer/President

We grew. It's hard to take a huge economic indicator and map it ontoa company of our size. We're not necessarily indicative of the rest ofthe economy. Most of our growth was in the corporate arena, where ourclients are doing more branding, both externally to their customers andinternally in order to spread their corporate culture throughout thecompany or to newly acquired companies.

Match Frame, Austin; Don White, CEO

We saw a 15% drop in sales. It appears that the overall marketplaceis shrinking. As a result of the substantial amount of mergers andacquisitions, I believe we have fewer customers.

Crawford Communications, Atlanta; Bill Thompson, Vice President,Postproduction

In 2002, our business grew in some areas and was flat or declined inothers. Our high-definition business continued to increase with morecommercials, documentaries, cinema spots, and live music-performanceprojects being edited in hi def. Our 5.1 surround-sound revenues alsocontinued to grow, as did our DVD business. Our advertising agencybusiness expanded in total volume of work from local, regional, andnational agency and commercial production company clients.

Corporate and broadcast post business was relatively flat or downslightly, as clients' budgets were impacted by the economy. We have cutfewer broadcast promos this year. Additionally, pricing in 2002 becamemuch more competitive with deeper discounting and package pricing beingmore common. Aggressive, value-added sales, in conjunction withsuperior talent, technology, and client services is now more importantthan ever.

Radium, San Francisco; Jonathan Keeton, President

This year we experienced a significant drop-off in advertisingrevenue, beginning around July 2001 and lasting well into this year.For us, diversification has been key. We actively pursue projects in amyriad of areas — long and short format, television, commercial,etc. We also experienced a large change in staff in our L.A.office,which, although painful, has proven to be a boon.

Post Logic, Los Angeles; Barry Snyder, President

Yes, our business grew significantly in 2002. When I started at PostLogic Studios in August 2000, we had 50 employees and a waning clientbase. By summer 2002, we had doubled our work force and increasedrevenue substantially. The challenge has been to keep and grow ourmargins. Because of the difficult economic environment, rates have beenon the decline, adversely effecting profitability. We've had to maketough choices about how and when we expand our resources and staff. Wehave also had to streamline our processes and overall operation, doingmore with less and finding new and creative approaches to meeting theneeds of our increasingly discriminating clientele.

2. In 2002, did you make any changes to your business model orthe services you offer? How did you make your business morecompetitive?

Cutting Room, Greg Everage: We have streamlined our editorsand production staff to be more effective in our day-to-day operationsby keeping an eye on our overhead and by adjusting our rates. We alsowill be adding seasoned and highly talented artists and staying aheadof the technology curve.

Digital Bucket, Kent Hodder: For the better part of 15 years,our storefront was Met/Hodder, and we were selling our promotion andentertainment creation skills. During those years our creative servicesgroup, now known as Digital Bucket, built up a significant portfolio ofwork in it's own right, handling our editorial and audio needs, ofcourse, but also excelling in the new media areas of DVD, CD-ROM, andWeb authoring, as well as primetime animation and design.

So, in light of the changing marketplace, we decided to build newfacilities and physically create two entities. Digital Bucket is nowfielding it's own work. The same strategic and client servicedisciplines that Met/Hodder instituted are in play at Digital Bucket aswell, and, for the clients who want, the two companies flow work backand forth seamlessly.

Match Frame, Don White: We tightened up staff and overheadsubstantially. We renegotiated our debt and got real serious about whatwe needed for equipment and support. All this resulted in reducedoperating overhead.

We also decided to go after new types of business like electronicdisplays, feature work, and corporate. We have also begun producing ourown consumer products.

South Coast Film & Video, Everett Gorel: We made acommitment to be able to offer HD start to finish, and we're a smallenough company that we can't afford to be wrong. We can't just getflavor of the month. Fortunately this decision has paid off already.Even just from a standpoint of experience, it's put us a couple ofyears ahead of the curve. For our clients who need to archive and useelements across multiple media, it's ideal. And whether or not theworld will be HD tomorrow, it will definitely be 16:9. I predict thatyou'll see 4:3 disappear over the next couple of years.

Post Logic, Barry Snyder: In the last two years, we havecommitted over $11 million in capital resources to our facilities. Themain area of investment has been in the digital intermediate andmastering process. Digital intermediate is a natural progression of ourexisting mastering. The ability to provide a new way to digitallycreate a universal master for both domestic and ancillary uses is alogical, natural step for our business.

Film scanning and recording, data storage and manipulation, and thenew digital intermediate theater are among the large expansion projectscompleted this year. We are also making a strong commitment to thedevelopment of the post process, utilizing our data capabilities andintegrating all aspects of postproduction: dailies, editorial, visualeffects, mastering, audio. We have made other investments that allow usto handle restoration, archival, and foreign language work for featurefilms and television. Lastly, we have bolstered our existing visualeffects, editorial, and audio resources for our commercial, television,trailer, and feature film clientele.

Radium, Jonathan Keeton: We have completely restructured ourbusiness. A number of employees left the company, and we have sinceadded new hires so that we have a much stronger and more effectiveteam. We brought in an experienced general manager to free the partnersup to focus on creative direction and to organize the company morethoroughly on a business footing. Here, while we strive to create afamily atmosphere, employees are at the top of their game or they don'tlast very long. That's the competitive nature of the business.

Northern Lights Post, New York; Mark Littman,Editor/Partner

We've used the poor economy and attractive interest rates to ouradvantage by investing in new equipment that allows us to accomplishmuch more inhouse. For example, all of our Avid Media Composers havenow been upgraded to the most current hardware and software, allowingus to work much faster. We've also launched a graphics/design divisionto supplement our core editorial business. We invested in a DiscreetFlint system and hired a top-notch designer to be able to control morecreative aspects of projects inhouse.

3. What are your concerns for the entertainment and postindustries? How does the current economy and political situation affectyour business and your work?

Digital Bucket, Kent Hodder: The future seems even moreuncertain and even less secure than normal. We are doing our best tocombine smart business moves with a simple faith in our staff andclients and that, if challenged, we will find a way to adapt, respond,and endure.

Cutting Room, Greg Everage: The client wants more and morebut wants to pay less and less. We are feeling the trickle-down effect,which I feel will adjust itself in time. Any success will be based ontalent and technology.

The economy favors no one. It is an equal playing field out there.All networks, ad agencies, and production and post companies are facedwith the same problems that a bear market poses.

Northern Lights Post, Mark Littman: If the industry does notbecome flexible it will die. There will always be a need for goodcreative ability. Just as computer word processing did not makeeveryone an author, desktop editing does not make everyone an editor.However, it does give them capabilities they did not have before. As anindustry, we need to identify the core of what we are really sellingand focus on that and be flexible with it.

Radium, Jonathan Keeton: Our concerns involve the large costinvolved in upgrading machines to accommodate HD and 2K work, thecontinuing slow demise of television advertising, and the incrediblecompetitiveness of the industry. Competitive pricing is very tough, andit's difficult to make much of a profit after the budget has beenwhittled down in order to land the job.

Post Logic, Barry Snyder: Everything concerns me about theentertainment and post industries. The first two years of the newmillennium have been a very volatile time in the entertainmentindustry, and the uncertainty looks as if it will continue for sometime. [But] you can't let the climate put you off your game. We havehad to move forward in an intelligent, informed manner and have foundgrowing opportunities and optimism poking through the rubble of some ofour recent national tragedies and the weakening entertainmentmarketplace. Identifying and taking advantage of these sparse butcompelling opportunities is the challenge.

Match Frame, Don White: Since the SAG strike, advertisingagencies and production companies have found going outside of the U.S.is most of the time cheaper than working in the States.

Again, I think, whether anyone wants to admit it or not, there arefewer customers than there were even three years ago. I know in mymarketplace, which is Texas, there are over 100 companies that we usedto do business with that have flat disappeared. Ad agencies goingbankrupt, agencies being acquired and relocated, retail companies thathave failed after 50 years, companies that have been swallowed andrelocated through mergers, acquisitions, and consolidations. We are allfighting after an increasingly smaller pie.

Crawford Communications, Bill Thompson: My concern is thateverything will continue to become more fragmented with content beingjust another commodity. Budgets and margins may continue to decline. Noone will be able to survive solely on hourly post business anymore.Some form of content owner-ship and project participation will benecessary in order to leverage existing overhead. Crawford has aco-production model that we offer producers of long-form content thatallows us to defer payment or, essentially, invest a portion of ourpost services in their project. Contract post business is also anessential part of the overall revenue mix.

The current economic climate is difficult for everybody. In manycases, clients have less money to spend and have been forgoing orpostponing projects. Ad dollars and overall production budgets havedecreased. This pattern is likely near its end, and the economy shouldrebound by the second quarter of 2003.

4. What do you think is the best way to adapt and evolve in thepostproduction industry?

Hornet Inc., Los Angeles; Alisen Nihill, Marketing Director,Broadcast Division

Don't overextend your services. You cannot be all things to allpeople. Identify your core strengths and grow, when appropriate, inthose areas. Have a solid, organized infrastructure that allowscontraction and expansion.

Digital Bucket, Kent Hodder: I believe in supporting ego.Where there is ego, I often find great talent and great creativity.But, having said that, we have no time for anyone who can't see thatultimately it is all about the clients and their needs.

Match Frame, Don White: To adopt an offensive mentalitytowards all competition. To have the best talent. To be flexible and beable to implement changes in days, hours, or minutes when necessary. Toadopt software tools and hardware that are cost-effective andcompetitive. The go-go days of the post industry are over. Theonce-million-dollar rooms are now the $25 to $80K rooms. To offer moreof a variety of services like DVD and broadband.

Crawford Communications, Bill Thompson: To survive in thepost business today, a company needs to be agile, lean, and veryresponsive. A dynamic sales team, coupled with effective marketingefforts is essential. Creative artists must all be able to operatemultiple platforms and systems, and there must be flexible sessionscheduling. There has been a paradigm shift to where now all creativetalent must be entrepreneurial and incented to contribute to theoverall success of the business. Artists without business developmentskills and a client following are no longer desirable.

South Coast Film & Video, Everett Gorel: Be informedabout what's coming down the pike technologically and be flexibleenough to do multiple media, whether it's HD, Web, DVD. It's rare thatmedia has only one application any more; everything we do ends upstreaming, on laptop presentations or, even in the case of HD, ourclients are pulling stills for use in print. Make your clientele awareof the range of ways to deliver its messages, technologically, but alsocreatively. To that end, we're developing some generic spots andcampaigns that could be adapted for a variety of regional clients suchas local goverment agencies and merchants. We need to develop morecontrol over creative and intellectual properties, so it's good for us,and it also allows people who don't typically advertise to get into itat a cost point they can afford.

Post Logic, Barry Snyder: A three-fold approach: First,listen to your clients. You must always be aware of what your customerswant and need and help them find efficient, cost-effective solutions totheir fast-developing, ever-changing postproduction needs. Second,there is no substitute for a creative and technically savvy staff. Youcan have the best equipment around and still have a stagnant,unprofitable facility without the right mix of creative, technical, andadministrative personnel. It's a terrible reflection on a facility tohave the cutting-edge gear and still not be able to get a projectthrough the pipeline. You also must know your limits, know what you aregood at, and focus on your strengths. Try to limit your exposure byworking to improve areas of weakness in the facility, but don't diluteyour business to the point of mediocrity. You can't be everything toeverybody. Don't try. And third, stay on top of the technology. If youget too far behind or your equipment gets too outdated and cannotservice your needs, it is virtually impossible to catch up.