Technicolor Focuses on Digitizing

It’s hard to fault Thomson Multimedia’s timing in buying Technicolor in early 2001 to spearhead its push out of the TV-manufacturing business and into digital technology. By the end of that year, the French company’s consumer electronics business had started to crater, partially

because of the lousy economic environment, especially in Europe, but largely because of the razor-thin profit margins it earned selling home electronics at retail.

Since then, the consumer audio-video business has gotten worse, and Technicolor’s importance to Thomson’s bottom line has ripened. Digital Media Solutions, the unit Thomson has built around the Camarillo-based film lab, accounted for 26% of the parent’s revenue last year. The company hopes that by 2006 the figure could be 50%, as I was told this week by Thomas M. Bracken, the digital unit’s vice president for worldwide marketing.

This is another sign of the digitizing of Hollywood, a phenomenon that has been unfolding for the better part of a decade but now seems to be picking up steam. The expectation is that the industry eventually will move from a celluloid-based technology toward the full-scale manipulation of digital bits in every aspect of filmmaking, from principal photography -- er, “image capture” -- through to projection in the neighborhood movie house.

Although the “death of film” has engendered more premature speculation than the demise of Saddam Hussein or the end of Gray Davis’ political career, what has been clear for a long time is that any company with a business model dependent on traditional film chemistry had best find a new gig. Eastman Kodak Co., Deluxe, and Panavision Inc. are among the companies that have heard the beating of the angels’ wings and established digital labs -- Cinesite in the former case and the joint venture Efilm in the latter two -- to hedge against the waning of their stock in trade.

Thomson, one of a raft of formerly French-government owned companies that have lately tried to make a mark in the international arena (with varying success -- think Vivendi Universal), has bought into the new world with a vengeance. In the last few years, Thomson has spent some $3.5 billion to acquire Hollywood companies with industry-leading shares in digital technology. More than $2 billion of that went into the acquisition of Technicolor.

Technicolor already was moving aggressively to establish its presence in digital services, with good reason. “It’s obvious that if they don’t have a role in the new world they’re not going to have a business,” says Mike Katz, a consultant at Booz Allen Hamilton Inc. who co-wrote a recent report on digital cinema.

The company then became the vehicle for Thomson’s further digital expansion. For example, after Thomson acquired Still in Motion, a privately held Camarillo DVD design and production shop, in March 2002, it merged the operation into Technicolor’s digital services offices in Burbank and sharply ramped up the workforce from 32 before the purchase to 140 today. The DVD lab, which can already produce 100 new titles a month, will probably be up to 180 employees by the end of the year, says Steve Wyskocil, who was a principal of Still in Motion and is now senior vice president, DVD, of Technicolor Creative Services.

The Burbank building, which Technicolor recently has thrown open to media tours, is at the hub of the new business plan. This is a place where the phrase most commonly heard around the corridors is: “In the old days, about three years ago ....”

In addition to DVD production, Technicolor Creative Services is preparing to double its capacity to produce digital “intermediates” for Hollywood studios -- master versions of feature films that can be used to fine-tune lighting, color and special effects as well as generate exhibition prints, DVDs and home videocassettes. Right now the major studios require digital intermediates for only about 20% of their hundreds of features a year, particularly those heavy on digitally produced special effects; Technicolor, Cinesite and Efilm share the bulk of the business. But the expectation is that the figure will rise sharply in coming years.

One downside to navigating in such a swiftly evolving environment is that it’s easy to be lured into a mistaken picture of the future, unaware that reality lurks around the next corner holding a sock filled with wet sand.

By shooting “Star Wars

Episode 2” entirely with digital cameras, George Lucas tried to proclaim the end of film photography. But he didn’t factor in the resistance of hundreds of

experienced cinematographers, who find that trading film for bits doesn’t represent unalloyed progress. In their eyes, the digital wave simply amounts to supplanting traditional photography’s unique virtues and challenges with another, if more novel, set of each. The transition to digital cameras on the shooting set is still, to be charitable, a work in progress.

The biggest miscalculation -- one that got Technicolor in the neck -- came in so-called digital cinema, which involves replacing film with digital projection in your local movie theater.

The push for this transition has come from some of the major studios (chiefly Walt Disney Co.), which hope to save some portion of the $1 billion a year they currently spend on the manufacture and shipping of celluloid film prints.

The studios promoted digital cinema by arguing the superiority of digital projection’s sharp, jiggle-free screen images, which don’t degrade with every showing and aren’t subject to film breaks, scratches, out-of-order reels and all other such events that can make moviegoing an adventure. (The promoters don’t claim to solve the squalling infant and chattering nitwit problems, which would really amount to an advance in the theatrical experience.)

Two years ago, Technicolor tried to get out in front of what it judged to be a bandwagon by partnering with telecommunications firm Qualcomm Inc. in a digital cinema venture. Their plan was to jump-start the technological transition by installing digital projectors in 1,000 movie theaters around the world at their own expense.

Technicolor’s motive was to secure the franchise of producing digital prints for the studios and transmitting them to theaters, aided by Qualcomm’s encryption and compression technology. The partnership even offered a price break on the first digital prints to any studio that signed up.

But the rollout has fallen short of even the most pessimistic forecasts. That’s mainly because while the bulk of the savings would be enjoyed by the studios, the financially strapped theater chains are afraid of being stuck with the $200,000-per-screen bill for conversion. Within months of announcing the offer at a Hollywood trade show in 2001 to resounding yawns, Technicolor brass realized that “we were ahead of our time,” in the words of Dave Elliott, chief executive of Technicolor Digital Cinema, the joint venture.

Instead of installing 1,000 digital projectors, the venture made it to 39 and gave up, placing the pilot program on indefinite hold earlier this year. Technicolor still is maintaining the pilot installations, and digital prints of “Finding Nemo” and “Terminator 3” were screened in about 30 U.S. theaters this summer.

But the fate of the Technicolor-Qualcomm partnership is unclear, as is the likelihood that the technological shift itself will happen anytime soon. For one thing, there’s no consensus that digital projection is so superior to the traditional format that audiences will clamor for the new thing. (Under some circumstances, in fact, it can be inferior.) All the players are waiting for a studio-sponsored study group to issue technical standards for digital projection; that’s not expected to happen until the end of this year, at best.

Once it does, there’s no assurance that the financial disagreement between the studios and theater owners can be easily solved. Some experts have suggested that middlemen such as Technicolor might end up actually putting up the capital to push the transition along, since they count both sides as, in a sense, their clients. Elliott acknowledged that something of the sort was behind the company’s 1,000-theater initiative, but he didn’t say what financial role Technicolor might play in the future, beyond providing the necessary technology.

“Our real push was to support our studio customers in the paradigm shift like we’ve done time and time again,” he says. “We did it with color film, we did it with digital sound, with VHS, with DVD, and we will do it with the next generation of content distribution.”

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Golden State appears every Monday and Thursday. Michael Hiltzik can be reached at golden.state@latimes.com.