How has the filmed entertainment industry had to pivot in response to the pandemic? With film production impacted by the surging virus, studios and post-production companies continue to be presented with various challenges.

GHJ’s Colin Nierenberg talks with Peter Wright, CEO of Eikon Group (a Los Angeles and UK-based post-production company) and a senior executive at a major studio (who wishes to remain anonymous) to discuss their respective responses to the pandemic and thoughts on the industry during these unprecedented times.

CHALLENGES FACED DURING THE PANDEMIC CRISIS

COLIN NIERENBERG: How have strategic plans, vision and goals changed in response to the pandemic?

PETER WRIGHT: The pandemic has caused the industry and the company to lose the year, possibly longer, all while revenues have been reduced significantly in response to lockdowns. This resulted in movies getting delayed from the studios and a halt on filming, which reduced workflow and led to a reduction in capacity on operations to 30 percent in a good month.

As we emerge from the pandemic, clients will have changing needs over the next few years, and Eikon will be in a position to maximize these opportunities. During this time, we are focused on attracting, recruiting and retaining the best talent in addition to working directly with clients to collaborate and test new technologies and products.

STUDIO EXECUTIVE: The entire theatrical distribution ecosystem has been upended by the pandemic. The traditional roll out to theatres, followed by various flavors of in-home consumption – EST (Electronic Sell-Through), PVOD (Premium Video-on-Demand), TVOD (Transactional Video-on-Demand), SVOD (Subscription Video-on-Demand) and television networks, has been made all but impossible due to the long-term closure of most theatres, including in key New York and Los Angeles markets.

Major studios have taken different approaches to bring their products to market during this disruption. Universal struck deals with a few major exhibitors to allow PVOD showings 17-31 days after theatrical release, which is drastically shorter than in the past. Warner Brothers announced that all of its theatrical releases would be available simultaneously on its HBO Max SVOD service. The other major studios have yet to announce specific plans, but all have either pushed back release dates and/or sent movies originally earmarked for theatrical showing directly to streaming platforms.

INDUSTRY INNOVATES AT RAPID SPEED

CN: What are some areas of innovation that may have been planned for future years but was accelerated due to the pandemic?

PW: There were four main areas where Eikon shifted its focus that were originally planned for several years down the line.

The first is in relation to dubbing, which is historically an expensive venture as it requires substantial capital investment to buy/lease a building for production. We worked with the studios to buildout a specific technology to allow studios to be able to translate scripts to multiple languages for different territories and tracks the changes, notes and iterations in a live document. This creates efficiency with the dubbing studio as they are working with the most up-to-date script and makes it easier for the studios to bid the work and assess the voice talent.

The second major innovation is related to the creation of a special video player, which replaces a previous video player that is no longer supported. Eikon built out a video player with several software products that functions as an in-house tool for clients to play videos on both small (phones and laptops) and large (ability-to-cast) screens. This is particularly popular during award season.

The third accelerated innovation was an in-house project management tool. It allows management to review a dashboard that highlights how many projects are live and project status, as well as track billing.

Finally, there is substantial enhancement of workflows to accommodate simultaneous creation and delivery of a theatrical version as well as all downstream versions for SVOD, Disc, Broadcast, etc. This was enacted flawlessly on Wonder Woman 1984 for Warner Bros theatrical release and its streaming platform HBO Max resulting in no delays or bottleneck in capacity.

STUDIO: Anti-piracy concerns are obviously exacerbated by direct-to-home distribution. Nothing new has been developed, but I would not be surprised by advances in this space. Another issue is creating home entertainment masters concurrently with theatrical versions. The aspect ratio, color space, resolution and HDR specs are all different, which presents challenges that have historically been done downstream after the theatrical window. Optimally, a home-entertainment specific audio mix should also be done. Getting these things all done in a short time frame is a challenge. We are seeing mastering vendors move to cloud-based solutions to alleviate the mastering bottleneck.

THE (VIRTUAL) MANAGER-EMPLOYEE RELATIONSHIP

CN: How have you adapted your management style in response to the lockdowns and remote working?

PW: The biggest challenge is not having direct access to my team. I have learned that in order to be an effective manager, you need to be highly visible to every staff member in order to display the ethos and goals of the company. Before the pandemic, I would frequently travel between the UK and Los Angeles offices and I had to find new ways to connect and communicate with my team. Immediately, I ramped up communication both with the management team to discuss daily operations in addition to hosting town halls with the entire company every few weeks to discuss the state of the business, developments in the market and any potential wins and setbacks.

As the pandemic progressed and the lockdowns continued, it actually presented an opportunity to get to know the management team on a much deeper level and better understand and promote their strengths and nurture their growth points. This was particularly important when there were some tough decisions that had to be made in relation to layoffs and reduced pay. Ultimately, transparency with my management team and their respective staff was key with respect to the continued operations of the business.

Transitioning out of a remote work environment has also given me pause. When it is safe, we will want our employees to return to the office for two reasons. The first is a lack of “water cooler” discussions that leads to great innovation and increased speed of execution. The second piece is in relation to security, as the studios allow the company to work on unreleased content, which will become increasingly restricted as times return to normal.

STUDIO: The biggest challenge so far has been trying to replicate the free flow of information and ideas between team members who are not in the same physical space. This is a continuing issue.

NEW RULES: COVID-19 EDITION

CN: How do you think the business model of filmed entertainment is going change, if at all, as a result of the pandemic?

PW: For the time being there will be new rules in place around filming and post production.

In relation to filming, everyone on set will be subject to COVID tests, isolation/social distancing and be required to wear face masks unless in front of a camera. This was particularly apparent with lead talent, such as Tom Cruise, stressing the importance of these rules.

With respect to post production, there are new protocols with dubbing studios that use voice talent in a sound booth. Currently many dubbing studios are set up as one corridor in and out, which presents challenges for social distancing and limited use/capacity as the talent is speaking without a mask. It is critical that everyone on and off the set abide by these rules as it can hold up the production and cause costly delays if lead talent or post-production companies catch the virus. As such, Eikon will be instituting a staggered schedule for staff to return to work. For the first few months, we will limit attendance with one-third of staff coming into the office and the remaining staff working remote. Staff will rotate in and out of the office to ensure we can maintain social distancing and still achieve 100 percent output capacity. This will likely stay in place for the first couple of months then we will commence a staggered return to 100 percent attendance in the workplace.

STUDIO: Traditional release windows are dead. That is not to say there will be no exclusive theatrical window, but at a minimum, it will be substantially shortened. Virtually all movies have been subject to standard release windows dictated by major exhibitors (If you do not respect the window, they will not play your movie). It will be interesting to see if some sort of (shorter) standard window is re-established post pandemic or if each distributor sets its own schedule.

PREDICTIONS FOR 2021 AND BEYOND

CN: What are your predictions for an industry game changer in 2021/2022?

PW: There may be two potential game changers in the near future. The first being that studios will continue to invest in their streaming platforms so that they can continue to compete on the small screen with Netflix, Amazon and Apple while protecting the theatrical distribution. It is important to note that all but one studio have streaming platforms as the market is large enough, and consumers want options.

The second game changer is in relation to the repeal of the Paramount Consent Decrees of 1948, which was approved by the Department of Justice in August 2020. These decrees were originally put in place as antitrust laws to prevent studios from owning and investing in movie theaters and giving their own product preferential treatment. However, these decrees would not apply to the new streaming giants, which have the opportunity and the cash to invest in these chains. There is the possibility of further acquisitions and consolidations between the streaming platforms and traditional movie studios, which can enable a streaming platform like Netflix access to a backlog of content, a production lot and then invest in a theater chain – and ultimate consideration for the Academy Awards.

STUDIO: There is so much turmoil now it is hard to predict how things will settle. There has been a major power shift from exhibition to distribution and that will play out in ways not yet envisioned. Game changer? Perhaps a major exhibitor enters bankruptcy and a distributor acquires it. That would make things interesting.

If you have any question about the above content, please reach out to your business advisor or a member of GHJ’s Media and Advertising team.

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Colin Nierenberg

Colin Nierenberg, CPA, has over four years of public accounting experience providing external and internal audit services to clients primarily in manufacturing and distribution for the for-profit sector and private foundations in the nonprofit sector. Colin splits his time between providing…Learn More