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Technicolor dreams of a bright future in digital cinema

While much of Hollywood is scaling back, the film processor has invested more than $200 million in its production facilities. 'We are pushing harder than anybody else in the industry,' the CEO says.

August 24, 2009|Richard Verrier

Technicolor has been a fixture since the early days of Hollywood.

The company brought color to the big screen in such classics as "Gone With the Wind" and "The Wizard of Oz." When its pioneering "three-strip" color process fell out of favor, Technicolor reinvented itself as a successful film processor. The company later became a leading duplicator of VHS tapes and DVDs.

Now, after 94 years of serving Hollywood, Technicolor Inc. has planted itself in the heart of Tinseltown, leaving its nondescript headquarters in an industrial neighborhood near Burbank Airport. Its new digs -- a modern, six-story structure at the corner of Sunset Boulevard and Gower Street -- are a symbol of the company's latest transformation.

Technicolor is now refashioning itself to keep pace with the digital revolution that has reshaped the entertainment industry.

It has invested more than $200 million in digital post production and visual effects facilities, including in Bangalore, India, London and the company's new Hollywood headquarters, as well as in a sound editing facility that is slated to open next year on the Paramount Pictures lot on Melrose Avenue.

"People say Technicolor, it's just fighting to stay in the old business and they will never make it in the digital business," said Frederic Rose, chief executive of Thomson, the French media technology company that owns Technicolor. "In reality, we are pushing harder than anybody else in the industry to go digital."

The global expansion comes at a time when many other companies that service Hollywood are scaling back in the face of a severe production slowdown. Not that Technicolor has much alternative: The bulk of the company's business derives from replicating DVDs and processing film prints for theaters, both challenged segments. DVD sales are slowing and more movies and TV shows are being shot digitally.

Technicolor is the largest manufacturer of DVDs and remains one of the largest processors of film -- it processed 1.8 billion feet of film during the first half of this year.

But the company also has emerged as a market leader in the processing and distribution of digital cinema. Its new headquarters includes nine digital scanners, which cost more than $1 million apiece. They are part of a "digital intermediate" process that Technicolor developed several years ago that allows film to be color-corrected and edited on digital equipment as opposed to in a film laboratory using chemicals. The process is less expensive and faster.

As part of a strategy to expand into creative services, Technicolor in March hired Tim Sarnoff away from Imageworks, Sony Pictures' visual effects and computer animation unit, to lead its new Digital Productions division, which creates visual effects for movies, television shows, commercials and video games.

"They could have put their head in the sand and said, 'This is what we do.' But they didn't," said Randi Altman, editor in chief of trade publication Post Magazine. "They've adapted and evolved with the industry."

Technicolor's outlook brightened recently when its parent company reached a deal with creditors to slash 45% of its $4.1 billion in debt. Thomson, a provider of digital set-top boxes and other telecommunications equipment, amassed the huge debt after a string of costly acquisitions.

As part of a restructuring plan, Thomson is focusing more resources and marketing on Technicolor, which generates $3 billion in yearly revenue and accounts for about 45% of Thomson's revenue.

Rose, who keeps offices in Hollywood and Paris, wants to position Technicolor as the French company's cornerstone brand. That's a departure from his predecessor Frank Dangeard, who struggled to transform Thomson into a "one-stop shop" of digital equipment and services for movie studios, TV channels and cable and telecommunications companies.

Dangeard resigned last year as Thomson's losses mounted. The board tapped Rose, a former top executive with French telecommunications firm Alcatel-Lucent, to turn things around.

To highlight the Technicolor brand, Rose insisted that all references to "Thomson" be removed from Technicolor signs and employee e-mails. He's also marshaling Thomson's researchers, who helped develop the technology for the MP3 player, to create and patent new technologies for Technicolor's customers, such as finding ways to deliver 3-D entertainment in the home.

Technicolor also is shedding businesses that don't directly involve its key customers -- studios and filmmakers. That includes Premier Retail Networks, a company that manages video networks for retailers including Wal-Mart; and Screenvision, a joint venture with British broadcaster Carlton Communications that provides advertising for movie theaters. Thomson also plans to unload its Grass Valley unit, which supplies digital cameras, routers and switchers to the broadcast industry.

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