WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 1
Rough cut: Industry demand will rise, but increasing in-house services will threaten growth
IBISWorld Industry Report 51219 Video Postproduction Services in the US November 2014 Nick Petrillo
2 About this Industry 17 International Trade 30 Regulation & Policy 2 Industry Definition 18 Business Locations 30 Industry Assistance 2 Main Activities 2 Similar Industries 20 Competitive Landscape 31 Key Statistics 3 Additional Resources 20 Market Share Concentration 31 Industry Data 20 Key Success Factors 31 Annual Change 4 Industry at a Glance 21 Cost Structure Benchmarks 31 Key Ratios 22 Basis of Competition 5 Industry Performance 23 Barriers to Entry 32 Jargon & Glossary 5 Executive Summary 23 Industry Globalization 5 Key External Drivers 7 Current Performance 24 Major Companies 9 Industry Outlook 24 Technicolor SA 11 Industry Life Cycle 25 Deluxe Entertainment Services Group Inc. 13 Products & Markets 13 Supply Chain 27 Operating Conditions 27 Capital Intensity 13 Products & Services 28 Technology & Systems 16 Demand Determinants 29 Revenue Volatility 16 Major Markets www.ibisworld.com | 1-800-330-3772 | [email protected] WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 2 About this Industry
Industry Definition The Video Postproduction Services animation and other special effects industry includes businesses that services. Companies that are involved prepare motion pictures for public in movie or television production and distribution through editing, perform postproduction in-house are subtitling, closed captioning, excluded from this industry.
Main Activities The primary activities of this industry are Postprocessing video content Audio editing (adding looping and sound effects) Adding closed captioning, subtitles or dubbing Creating and inserting graphics, animation or special effects Creating credits Formatting content for various media Receiving and incorporating feedback from test audiences Promotional activities Operating film libraries (preserving and storing finished videos and stock footage)
The major products and services in this industry are Color correction and digital restoration Duplication Film laboratory services Linear and non-linear editing Screen ratio conversion Sound editing and design Visual effects and animation Other services
Similar Industries 33461 Recordable Media Manufacturing in the US This industry manufactures optical and magnetic media such as blank audio tapes, video tapes, diskettes and other media.
51211a Movie & Video Production in the US This industry produces motion pictures and other videos for distribution.
51211b Television Production in the US This industry produces television programs and other videos for distribution.
51224 Audio Production Studios in the US This industry provides studio and sound engineering equipment for recording audio and producing film recordings.
53249 Industrial Equipment Rental & Leasing in the US This industry rents or leases major postproduction equipment that may otherwise be too costly for industry operators to purchase and amortize. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 3
About this Industry
Additional Resources For additional information on this industry www.hpaonline.com Hollywood Post Alliance www.mpaa.org Motion Picture Association of America www.postmagazine.com Post Magazine
IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 4 Industry at a Glance Video Postproduction Services in 2014
Key Statistics Revenue Annual Growth 09-14 Annual Growth 14-19 Snapshot $5.6bn 1.3% 1.3% Profit Wages Businesses $411.9m $2.0bn 2,211
Revenue vs. employment growth Demand from movie and video production Market Share Technicolor SA 16 8 19.9% 8 4 Deluxe
Entertainment 0 0 Services Group Inc. % change % change 9.0% −8 −4
−16 −8 Year 06 08 10 12 14 16 18 20 Year 08 10 12 14 16 18 20 Revenue Employment SOURCE: WWW.IBISWORLD.COM p. 24 Products and services segmentation (2014) 3.5% Key External Drivers Screen ratio conversion Demand from movie 7.3% and video production 7.5% Duplication Demand from Sound editing and design television production 24.1% Linear and non-linear editing Total advertising 8.7% Color correction and expenditure digital restoration Technological change for the Audiovisual Production and Post 10.2% Production sector Visual effects and animation 22.1% Other services
p. 5 16.6% Film laboratory services SOURCE:SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM
Industry Structure Life Cycle Stage Mature Regulation Level Light Revenue Volatility Medium Technology Change High Capital Intensity Medium Barriers to Entry Low Industry Assistance Low Industry Globalization Medium Concentration Level Low Competition Level High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31 WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 5 Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
Executive The Video Postproduction Services revenue will increase at an annualized Summary industry provides production support rate of 1.3% to $5.6 billion in the five services ranging from animation to years to 2014, although most of this display conversion. The industry relies growth represents the industry’s recovery on three markets for nearly all of its since 2009. demand: television, advertising and Evolving technology has significantly film. Following revenue declines during affected how this industry operates. the recession, the popularity of three- Although advancements have increased dimensional (3D) movies led to an the range of services provided, accessible increase in demand for industry postproduction software has enabled services in 2010, as many studios production companies to internalize sought to cash in on the trend. many tasks and hire in-house specialists. However, demand has since waned, As a result, industry employment is giving way to an expected 1.8% revenue expected to decrease at an annualized decline in 2014, as production studios rate of 1.1% to 23,322 workers in the five years to 2014. Technological developments have also created new The internalization of postproduction services opportunities; due to the introduction of digital workflows, industry operators are has reduced demand from studios now working alongside production companies during video creation to expand in-house postproduction expedite release times and better capabilities to cut costs. collaborate with producers. The dip in consumer spending during Over the next five years, revenue the recession reduced advertisers’ growth will be threatened by budgets and resulted in fewer produced postproduction services that will commercials. In addition, the credit continue to be fulfilled in-house. crunch made it harder to finance new However, downstream industries in movies and shows, leading producers to advertising, film and TV production are internalize many segments of the forecast to grow, thereby bolstering postproduction process, further weighing industry demand. In addition, growing on demand for industry services. demand from video game producers and However, the 3D boom that peaked in more 3D films will aid industry growth. 2010, coupled with higher demand for Consequently, IBISWorld expects special effects, were enough to offset revenue to increase at an annualized rate some of the industry’s challenges. As a of 1.3% to reach $5.9 billion in the five result, IBISWorld estimates that industry years to 2019.
Key External Drivers Demand from movie and provided by the postproduction industry. video production The Movie and Video Production The number of films released by the industry is expected to decline in 2015, Movie and Video Production industry posing a potential threat to the industry. (IBISWorld Report 51211a) and their overall budgets have a significant effect Demand from television production on demand for video postproduction TV producers contract out services to services. As the number of films produced the Video Postproduction Services increases, so does demand for services industry to add effects and enhance TV WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 6
Industry Performance
Key External Drivers shows before they air. When more TV various media (particularly for TV continued shows are produced, the need for commercials). Total advertising postproduction services increases. expenditure is expected to increase in Innovations in digital distribution 2015, representing a potential enable more channels and higher- opportunity for the industry. quality content to be sent to TV subscribers, which has also bolstered Technological change for the Audiovisual demand for postproduction. In Production and Post Production sector particular, as TV quality continues to Development of the latest technology improve, more postproduction work will improves labor efficiency and offers be demanded. The Television Production better services to downstream industries. industry is expected to expand in 2015. New and advanced technologies are now becoming more widely available at a Total advertising expenditure lower cost, which enables production Advertising agencies’ demand for studios to do their own postproduction commercial productions relies on the work. As a result, demand for industry overall advertising budgets and services has decreased, hindering expenditures of their clients, as well as revenue growth. Technological changes the allocation of this spending across are expected to increase in 2015.
Demand from movie and video production Total advertising expenditure
8 12
6 4
0 0 −6 % change % change −4 −12
−8 −18 Year 08 10 12 14 16 18 20 Year 08 10 12 14 16 18 20
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Industry Performance
The Video Postproduction Services the five years to 2014, as production Current industry experienced strong growth in companies turn to in-house solutions Performance the years leading up to the recession. rather than video postproduction However, industry revenue rapidly operators. Consequently, video declined as postrecessionary losses began postproduction companies have exited the to weigh on downstream markets, which industry in response to weaker demand; include the Movie and Video Production in the five years to 2014, the number of (IBISWorld report 51211a) and Television operators fell an annualized 0.5% to 2,211. Production (IBISWorld report 51211b) However, positive developments over the industries. Industry revenue has been past five years, such as a slight increase in relatively volatile in the past five years. box office sales in 2012, have served to While three-dimensional (3D) movies overcome underlying industry losses. As a bolstered demand for postproduction result of these conflicting trends, services in 2010, declines in both 3D and IBISWorld anticipates that industry overall box office sales caused demand to revenue will increase at an average annual fall in 2011. rate of 1.3% to $5.6 billion over the five Operators have suffered as a result of years to 2014. However, most of this spending cuts by downstream industries, growth represents the industry’s recovery which have worked to reconfigure from its 2009 low. Rising external operations to be able to perform competition in the form of increasing postproduction services in-house. This in-house postproduction for downstream trend led to falling demand for industry movie and TV studios is expected to drive services, which is expected to continue in down industry revenue 1.8% in 2014.
Technological shifts The Video Postproduction Services industry is involved in a myriad of Technological activities, including linear and nonlinear editing, film laboratory services, visual developments have led effects, animation, color correction, studios to internalize many digital restoration and sound editing and postproduction activities design. The services provided by the industry are changing in line with advances in technology. For example, sequence, and is the traditional method duplication of physical copies of film and of editing footage. Nonlinear editing, on film processing are both declining the other hand, allows for digital editing segments, due to the increasing in any sequence, creates back-up copies digitization of media production. Linear of the source clip and provides greater editing is another industry segment that flexibility in the addition of effects. The has weakened during the past five years. benefits of nonlinear editing have led to This involves permanently altering a film, a decline in linear editing over the past frame by frame in a predetermined five years. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 8
Industry Performance
Postrecessionary The recession dampened demand for harder to secure financing for new projects. declines industry services from key downstream However, the impact on the Video markets. Businesses that require Postproduction Services industry was postproduction services, including delayed because of the lag time between a producers of TV shows, commercials and film’s financing and its postproduction. films, were forced to deal with cutbacks, Economic recovery has since led to which translated into lower demand for improving demand from film and video postproduction services. Movie and video producers, and aggregate advertising production, advertising expenditure and expenditure is on the rise. Still, technological television production all fell in 2009, as developments have led client industries to exemplified by a 14.6% drop in total ad internalize many postproduction activities spending. As a result, industry revenue fell over the past five years, bypassing industry 6.4% in 2009. The credit crunch also operators. The advent of increasingly negatively impacted media and sophisticated software programs and cloud entertainment operators, as it became computing have helped bolster this trend.
3D, special effects, High demand for 3D services, special animation and aspect effects, animation and aspect ratio Revenue jumped due to ratios conversion have enabled some postproduction operators to set strong demand for 3D themselves apart from their competitors, services and related special and have shielded the industry from effects more pronounced revenue losses over the past five years. Industry revenue jumped 9.9% in 2010 due to strong Nickelodeon network. Some operators demand for 3D services and related have also begun to move into video game special effects and animation. About 30 animation over the past five years. 3D films were released that year, many A growing field for this industry of which were animated productions, over the past five years has been the such as installments in the Shrek and creation of content that can be readily Toy Story series. viewed on different displays. This In addition, postproduction companies segment, known as aspect ratio that mostly work in special effects and conversion, has been aided by the animation have been able to withstand introduction and growth of the slowdown in demand for industry smartphones and tablets, along with services. For example, Technicolor, the the evolution of video streaming. Since industry’s biggest operator, provided monitors on these devices, in addition some of the 3D services and animation to televisions and computers, are for the movie Hugo, a multiple Oscar measured diagonally, devices with the winner in 2012. In addition, the company same measurements may have has begun to provide services for differing height-to-width ratios. These animated television series and is variations require videos to be currently working on Kung Fu Panda: formatted for each ratio to provide the Legends of Awesomeness for the user with the best experience. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 9
Industry Performance
Profit sustained Despite high levels of competition and margins capture the operations of larger tightening demand, average industry postproduction houses, which have profit margins have recovered, reaching established relationships with prominent 7.4% in 2014, up from the industry’s studios and contracts for major films and historic low of 1.0% in 2009. Competition television programs. In the past five years, in this industry is rampant because many wages’ share of revenue has fallen from people are drawn to the industry’s relaxed 39.2% in 2009 to 35.8% in 2014; business hours, low barriers to entry, reflecting the decline, the number of creative outlet and potential for high pay. industry employees has fallen at average In addition, external competition annual rate of 1.1% to 23,322 in 2014. pressures have grown as industry clients Some of the industry’s larger and more have increasingly supplied their own well-known operators are able to protect in-house postproduction solutions. themselves through long-term contracts Nevertheless, operators have been able to with movie or television production offset many of these pressures through a companies, but even companies like reduction in staff and by implementing Technicolor often accept projects on more efficient operations. Moreover, profit short-term bases.
Demand for operators in the Video Industry Postproduction Services industry will rise Industry revenue slightly in the five years to 2019, as Outlook 12 downstream markets strengthen and operators adjust services based on 8 technological developments. Growth will be partially inhibited by the trend of 4 some movie and TV studios establishing 0
in-house postproduction units. However, % change this movement is expected to slacken −4 over the next five years after accelerating during the recent economic downturn. −8 Improving outsourcing budgets will Year 06 08 10 12 14 16 18 20 enable studios to resume outsourcing postproduction services during the next SOURCE: WWW.IBISWORLD.COM five years. IBISWorld expects demand from studios will require postproduction work movie and video production to to export to these audiences in the next strengthen as theater attendance five years. Additionally, the broader improves and studios are able to once economy is anticipated to show signs of again outsource postproduction services. continued recovery, boosting demand Improving 3D technologies will increase from advertising agencies and TV demand for this format, while 2D-to-3D production during the same five-year conversions will require postproduction period. These factors are forecast to work. According to the Motion Picture stabilize revenue increases over the five Association of America (MPAA), 3D films years to 2019, resulting in annualized are even more popular abroad, meaning growth of 1.3% to $5.9 billion. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 10
Industry Performance
Digital demand IBISWorld also expects a boost in revenue in 2014 to 8.7% in 2019; demand for digital services, particularly however, some companies will likely exit delivery. Direct delivery of digital the industry as demand for services such products via satellite or fiber-optic as linear editing declines and established technology to clients in the TV, movie operators solidify contracts with major and advertising sectors is expected to studios. Operators that specialize in gain popularity. Movie theaters across high-demand services, such as visual the nation are already investing in such effects, will continue to succeed and new technologies to cut their movie delivery competitors are anticipated to help fill in time and costs. In addition, revenue for niche markets. In addition, major the Television Production industry operators will continue to look for (IBISWorld report 51211b) is forecast to merger and acquisition opportunities grow at an average annual rate of 3.7% during the five years to 2019. in the five years to 2019, raising demand Historically, the industry has exhibited a for industry services as the importance high degree of acquisition activity; of postproduction quality increases with major operators, such as Technicolor the success of premium TV and cable and Deluxe, have stated their intent to shows, such as Homeland and The seek suitable acquisition targets to Walking Dead. expand their portfolios. Such As demand from production acquisitions are anticipated to lead to a companies slowly increases over the next slight increase in the larger operators’ five years, the industry is expected to market share. Consequently, industry attain higher profit margins in the enterprises are expected to modestly coming years. The average industry profit increase an annualized 0.4% to 2,258 in margin is forecast to rise from 7.4% of the five years 2019.
Technology’s impact Technological improvements have made on labor digital services increasingly sought after. Operators that specialize This factor has positively influenced the products offered by this industry, from in high-demand services, animation and graphics to duplication such as visual effects, will and editing. A negative side effect has continue to succeed been that some services that required specialized equipment and expertise can now be done using relatively inexpensive average wage is projected to slightly software on any computer. As a result, increase. Persistent integration of studios have been able to integrate down low-end services and increased the supply chain and conduct basic automation of other services through services in-house, leading to a drop in improved software programs are demand for industry operators and expected to lead to stagnating industry placing downward pressure on industry employment, which is will anticipated to employment. However, because studios increase at a slow annualized rate of are now demanding more complicated 0.5% to 23,953 workers in the five years services from industry operators, the to 2019. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 11
Industry Performance Life Cycle Stage Demand for services is increasing as movie and television studios expand budgets There has been some merger and acquisition activity The industry has experienced a relatively high level of technological change
20 Maturity Quality Growth Key Features of a Mature Industry Company High growth in economic consolidation; importance; weaker companies Revenue grows at same pace as economy level of economic close down; developed Company numbers stabilize; M&A stage importance stable technology and markets Established technology & processes Total market acceptance of product & brand 15 Rationalization of low margin products & brands % Growth in share of economy in share % Growth
10
Quantity Growth Many new companies; minor growth in economic importance; substantial 5 technology change
0 Television Broadcasting Video Postproduction Services Cable Networks
-5 Movie & Video Production Decline Shrinking economic importance
-10 Computer Manufacturing -10 -5 0 5 10 15 20 % Growth in number of establishments
SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 12
Industry Performance
Industry Life Cycle IBISWorld analysis reveals that the decline during the 10-year period, the Video Postproduction Services industry change is largely reflective of evolving is in the mature phase of its life cycle. In technology. For example, employment is This industry the 10 years to 2019, industry value expected to fall at an average annual rate is Mature added (IVA), which measures the of 0.3% over the 10 years to 2019, as industry’s contribution to GDP, is studios develop basic in-house forecast to rise at an average annual rate postproduction capabilities as a result of of 2.1%. During the same time, US GDP new postproduction software. is forecast to rise at an annualized rate Technological advances have directly of 2.5%, slightly above the industry IVA. affected industry performance, Although industries are considered to be particularly the widespread adoption of in the decline stage of their life cycle digital media and the development of when IVA falls below economic growth, more sophisticated postproduction the low IVA growth rate is more software. This has led to shifts in the indicative of the post-recessionary entire range of industry services, from economic landscape that severely editing and animation to archiving and dampened the industry’s key markets, format transfer. While the use of such including film and television studios. In technology has enhanced industry addition, while the number of services, it also threatens to undercut establishments, enterprises, demand, as it allows production employment and total wages in the companies to easily perform industry are expected to stagnate or postproduction work in-house. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 13 Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
Supply Chain KEY BUYING INDUSTRIES 51211a Movie & Video Production in the US Film producers frequently require industry postproduction services to refine various audio and visual aspects of their project. 51211b Television Production in the US Television producers require captioning, subtitling and DVD production services for their shows. 51512 Television Broadcasting in the US Television broadcasters use video postproduction services to edit their shows prior to screening. 51521 Cable Networks in the US Cable networks often purchase the rights to or produce their own film and television content that requires postproduction services. 54181 Advertising Agencies in the US Advertising agencies generate work for this industry through the commissioning of commercials.
KEY SELLING INDUSTRIES 33411a Computer Manufacturing in the US Industry producers require digital equipment, computer hardware, audio production software and video editing software. 33411b Computer Peripheral Manufacturing in the US Industry producers purchase large quantities of surround-sound speakers, high-definition monitors and other computer peripherals to perform digital editing activities.
Products & Services The Video Postproduction Services industry development of digital film. Non-linear is involved in a myriad of activities. Services editing is considered a “non-destructive” are often evolving with changes in form of editing as the original source files technology and the effort to add more are never lost or modified during the value-added features as studios continue to process. The non-linear process also move postproduction services in-house. provides additional flexibility as it is easier to change cuts and undo previous editorial Linear and non-linear editing decisions. Together, these two services Linear (8.3%) and non-linear (15.8%) have maintained a steady share of revenue editing are estimated to account for a during the five years to 2014, with non- combined 24.1% of industry revenue. This linear editing accounting for a greater work includes piecing together prefilmed proportion as linear services decline. This content to create the storyline and omitting segment’s share of revenue is anticipated to superfluous footage, such as erroneous remain relatively constant over the five takes. Linear, or tape-to-tape, editing is a years to 2019, although linear editing will more traditional style of film editing that is probably decline as non-linear methods slowly being phased out of the industry. take precedence. This form of editing involves permanently altering a film frame by frame in a Film laboratory services predetermined, ordered sequence. While Film laboratory services have declined as linear editing has declined, non-linear a share of revenue during the five years to editing has risen in popularity with the 2014 and are estimated to account for WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 14
Products & Markets
Products & Services Products and services segmentation (2014) continued 3.5% Screen ratio conversion 7.3% 7.5% Duplication Sound editing and design 8.7% 24.1% Color correction and digital restoration Linear and non-linear editing
10.2% Visual effects and animation 22.1% Other services
16.6% Film laboratory services Total $5.6bn SOURCE: WWW.IBISWORLD.COM
16.6% of total revenue. These services are creation of visual effects and animations mainly for motion pictures studios and from specialized firms. The increased include film processing and release demand for visual effects reflects the printing. Exposed motion picture film growth in genres that are traditionally must be processed according to exact heavy in computer animation, such as chemical prescriptions and temperatures; action and adventure, which draw a demand for this service has declined as greater number of consumers to the digital film grows in popularity. This movie theaters. segment has suffered in light of many The growth of three-dimensional (3D) major studios choosing to expand their animation has also provided a boost to in-house postproduction capabilities to this segment. Not only has 3D been boost profit margins. By ending popular with younger moviegoers, but postproduction contracts with industry studios are willing to pay for these companies, many film studios have services because of the premium prices streamlined their processes and improved 3D movie tickets command. Various their bottom lines through purchases of conversion services are also increasing as new editing hardware and software. Film more films are released in formats that laboratory services are anticipated to are retrofitted for both 2D and 3D decline as a share of revenue as television sets. The market for 3D films technological advances make this segment has been sluggish, however, with ticket more automated, increasingly digital and sales and purchases of 3D-capable far more competitive. television sets tapering off steadily over the five years to 2014. The visual effects Visual effects and animation and animation segment is expected to Visual effects and animation services increase in the five years to 2019 as a have increased as a proportion of revenue result of more films requiring specialized over the past five years, accounting for visual effects, but 3D visual effects may about 10.2% of industry revenue in 2014. be a fleeting trend for the industry. While movie studios have internalized an increasing amount of this work, the Color correction and digital restoration increased popularity of animated content Color correction and digital restoration has stimulated the demand for the generate about 8.7% of revenue. Color WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 15
Products & Markets
Products & Services correction services make up about 4.6% of Duplication continued revenue alone, and include enhancing the Duplication services are estimated to color of both new and old footage. Digital account for only 7.3% of industry revenue restoration, which account for 4.1% of in 2014. This segment has declined as a revenue, consists of taking previously share of revenue because demand for released films and improving their quality physical copies of videos has fallen. in an electronic format. Restoration can Digital files have facilitated sharing films include adding details to overexposed with theaters and editors, decreasing the sections, “patching” sections where film need for duplication. In addition, after may have been ripped, covering up dust theatrical release, the success of spots and smoothing audio quality. The streaming services such as Netflix and color correction and digital restoration cable and satellite providers’ “on segment of the industry has performed demand” programs have aided the well as consumers invested in higher decline in demand for physical copies. quality televisions and computer screens. This segment will continue to decline As a result of a high demand for restored through 2019. classic films and vibrant colors, this segment is anticipated to perform strongly Screen ratio conversion over the five years to 2019, increasing as a Screen ratio conversion is a growing share of revenue during this time. segment in the industry, estimated to account for 3.5% of industry revenue in Sound editing and design 2014. Monitors (e.g. TVs and computers) Sound editing and design is a declining are advertised by their diagonal measure; industry segment, generating about 7.5% as a result, screens that have different of industry revenue in 2014. It includes height to width ratios may have the same producing original music for films, measurement, but different display areas. orchestration, foley, additional dialogue In response, the images projected by recording, foreign language dubbing, and videos must be converted to appropriately sound integration and synchronization. fit displays. This service became more Foley includes producing sounds to popular with the introduction of complement or replace those made widescreen monitors, and has only grown during filming, which is particularly with the development of smartphones and important when films are translated to tablets. The increasing popularity and foreign languages, as those soundtracks variety of such devices is anticipated to do not include the background noise push this segment’s share of revenue made during the film when they are first higher during the next five years. produced. Although parts of this service are becoming automated, the machinery Other is expensive and specialists are needed to Other services are estimated to account properly match the sound to images in for 22.1% of industry revenue. This the film. As a result, firms may look to segment has fluctuated as postproduction specialize in the Audio Production companies search for additional revenue Studios industry (IBISWorld report streams and because many of the 51224) instead of the broader Video industry’s services can be accomplished by Postproduction Services industry. This clients’ in-house operations. The segment segment has also been declining as major includes several miscellaneous services studios hire audio specialists in-house. such as captioning, titling and subtitling. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 16
Products & Markets
Demand Demand for video postproduction services was far lower when reality TV Determinants services is derived from the content in was most popular. Since reality TV movies, television, commercials and programs can often be shot quickly, other audiovisual products such as video affordably and with very few touch-ups games and music videos. As many forms after filming, the surging popularity of of media become increasingly reality TV across cable and broadcast interconnected with computer-generated channels in the mid-2000s greatly special effects, enhanced audio quality, reduced the need for many networks to improved picture quality and various outsource postproduction activities to on-screen textual enhancements, the industry. operators in the Video Postproduction An important trend in the Video Services industry are often inseparable Postproduction Services industry is the from the creation of major motion swift transition toward digital film pictures and media. distribution and digital projection Demand for industry services depends technology in movie theaters. This trend on the level of expenditure on these has drastically undercut demand for products, which is often affected by industry activities sucha s film financiers, government incentives and duplication and processing. Even the economic conditions. As economic delivery of films through modern conditions have proven difficult for major distribution technologies including film studios during the past five years, Blu-ray and DVD formats have waned demand from movie and video (see IBISWorld report 33461, Recordable production has fallen at an annualized Media Manufacturing). The move toward rate of 3.1%. Overall demand for video digital postproduction services and postproduction is also heavily influenced software has also meant that professional by aggregate expenditures on advertising, editing techniques that once were particularly on TV and online video extremely costly can now be obtained commercials. Increased advertising through downloadable software. This has revenue provides major networks and spurred many movie and television studios with the ability to spend more on production companies, such as The Walt television series that require a higher Disney Company and NBC Universal, to degree of postproduction services. hire postproduction employees full-time. General trends in the types of television Even some advertising agencies employ shows consumers prefer can also affect video postproduction specialists in order industry demand. For example, the to streamline their production demand for video postproduction process in-house.
Major Markets Motion picture studios studios segment is often more volatile The largest share of revenue, 44.9%, than others, as it offers a smaller number stems from motion picture studios. This of projects for firms in the industry. share is gradually declining as many Nevertheless, these projects typically studios switch to digital content and hire generate larger amounts of revenue due to postproduction staff in-house. However, the larger production scale associated with the segment has been supported by the films. Demand from this segment has growth in three-dimensional production fallen slightly during the past five years, and animated films. The motion picture including a decline of 11.2% in 2009. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 17
Products & Markets
Major Markets Major market segmentation (2014) continued 7.0% Other 14.9% Advertising agencies 44.9% Motion picture studios
33.2% TV programmers
Total $5.6bn SOURCE: WWW.IBISWORLD.COM
TV programmers all-time high this past year; the Super As more TV production becomes tapeless, Bowl is generally considered to be the TV studios and programmers have been most popular advertising event of the able to hire in-house specialists. year. Thirty-second spots for the 2013 However, this segment’s demand for event sold for a record $3.7 million to work from the Video Postproduction $3.8 million. Services industry has proved resilient and is estimated to account for 33.2% of total Other revenue. This segment provides a more Companies in other industries are also consistent stream of demand when expected to demand more postproduction compared with motion picture clients; services. In particular, video game makers however, the projects required typically are becoming a more prominent market in generate less revenue. this segment. The development of video games is more detailed and intricate than Advertising agencies ever, demanding a higher amount of As visual effects increase in popularity postproduction work. The Video Game and become cheaper to produce, (IBISWorld report NN003) industry is advertising agencies are demanding more currently estimated to be worth more than from video postproduction companies. $38.0 billion, providing a potentially With Americans watching more TV, the lucrative opportunity for firms in the production of TV commercials has Video Postproduction Services industry. become more important than ever in an However, like all markets in this industry, effort to reach consumers. For example, the risk of clients’ fulfilling demand CBS sold its ad slots for the National through in-house solutions, and curbing Football League’s Super Bowl at an segment growth, looms.
International Trade Due to the service-based nature of video postproduction, the industry does not engage in international imports or exports. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 18
Products & Markets
Business Locations 2014
West AK 0.1 New England
ME Great Mid- 0.4 Lakes Atlantic 1 2 NY 3 WA ND 14.6 4 MT 0.0 5 1.7 0.3 MN 1.8 WI Rocky 0.4 MI PA 6 SDPlains 2.0 1.5 OR 0.2 7 1.0 Mountains ID IA OH 9 8 0.2 WY 0.3 1.4 0.0 IN VA NE IL 0.5 WV 0.2 3.6 0.0 1.5 KY West NV 0.4 0.9 NC UT MO 1.0 0.7 CO KS 1.0 1.0 0.3 TN 0.8 SC CA 0.2 42.4 OK AR Southeast 0.3 0.1 GA AL 2.2 AZ MS 0.2 0.8 NM 0.1 0.1 Southwest LA TX 0.7 FL 3.1 5.8
West HI 0.2 Additional States (as marked on map) Establishments (%) 1 VT 2 NH 3 MA 4 RI Less than 3% 0.1 0.0 1.6 0.2 3% to less than 10% 10% to less than 20% 5 CT 6 NJ 7 DE 8 MD 9 DC 0.7 1.2 0.3 1.1 0.5 20% or more
SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 19
Products & Markets
The concentration distribution of most Business Locations Distribution of establishments vs. population film and TV studios heavily influences the areas in which video postproduction 50 companies establish their business locations. Historically, industry operators 40 have needed to locate their facilities near major studios in order to quickly 30
transport completed reels and receive % immediate feedback. Digital distribution 20 technology has greatly reduced the need 10 for postproduction companies to be so closely located to their clients, although 0 many of the industry’s oldest companies West continue to do so out of convenience. Plains Southeast Southwest Great Lakes Mid-Atlantic West New England
The West is home to about 46.3% of Rocky Mountains establishments in this industry, with a Establishments 42.4% of companies conducting business Population in California. Due to its concentration of SOURCE: WWW.IBISWORLD.COM major Hollywood film and TV studios, California generates about two-thirds of establishments in the United States, the industry’s total revenue. Major player estimated at 19.2%. New York Technicolor acquired the assets of Los dominates the region and holds 14.6% Angeles-based Laser Pacific in 2011 to of the industry’s postproduction increase its TV operations in the area and establishments. New York has grown opened a sound postproduction facility on significantly as a market for film and the Paramount Pictures studio lot in television during the past 10 years, Hollywood. California also tops the United which has greatly increased the amount States in number of moviegoers: according of postproduction services needed in to a 2013 report by the Motion Picture the area over the past five years. Association of America (MPAA), the state According to the New York State is home to 29.6 million moviegoers, Governor’s office for Motion Picture including 15.6 million 3D moviegoers. and Television Development, over 250 feature films are shot in New York Mid-Atlantic every year. According to the MPAA, The Mid-Atlantic region has the New York places third in number of second-highest concentration of moviegoers, with about 12.6 million. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 20 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Market Share The Video Postproduction Services Concentration industry is characterized by a high Enterprises by employment size (2010)* number of small specialist or niche No. of employees Share (%) service providers. The industry displays a Level 1 to 4 75.6 low concentration of ownership, with the 5 to 9 10.2 Concentration in three largest companies estimated to 10 to 19 5.5 this industry is Low contribute less than 30.0% of industry 20 to 99 6.6 revenue in 2014. The industry is small- 100 to 499 1.2 business oriented, and many firms are 500+ 0.9
comprised of a small group of specialists; *Latest data available of the industry firms that maintain a SOURCE: US CENSUS BUREAU COUNTY BUSINESS PATTERNS taxable payroll, more than 85.0% have nine or fewer employees, while those typically smaller and did not require the with more than 500 employees account services of major companies, such as for just 0.9%. Over the past five years, Technicolor or Deluxe Entertainment. market share concentration has remained The industry’s low barriers to entry, relatively stable because of competing underlined by easy access to software and forces. In particular, movie and television equipment, also encouraged the entrance companies dealt with tighter budgets by of independent operators. Conversely, hiring in-house postproduction the industry has gone through some specialists. As a result, the in-house hires consolidation as operators were forced weighed on industry concentration as out due to difficult business conditions or jobs that were contracted out were purchased by larger operators.
Key Success Factors Development of a symbiotic help obtain repeat assignments and relationship with another industry will establish a particular company as Close working relationships with filmmakers a highly desirable partner for IBISWorld identifies and other postproduction operators who continual use. 250 Key Success offer similar services allows firms to provide Factors for a comprehensive solutions to clients. Access to highly skilled workforce business. The most Industry operators need to have access important for this Ability to manage external to skilled labor, which includes those (outsourcing) contracts with expertise in video, audio and industry are: Effectively managing contracts for text editing. postproduction services that are within the time and budget provided will keep Ability to quickly adopt new technology capital expenses low. Both hardware and software are becoming increasingly powerful and Attractive product presentation affordable, and firms will benefit from Ensuring the final product meets the occasional investments in new client’s desires and expectations will editing tools. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 21
Competitive Landscape
Cost Structure Profit Wages Benchmarks Industry profit is projected to total 7.4% Film editing of the past was a labor- of revenue in 2014, a significant intensive process, but the movement to increase from 2009, when the digital film and computerized recessionary environment caused profit enhancements has helped automate some margins to plummet to 1.0%. Since processes. Nevertheless, employees in the 2009, industry operators have cut costs industry must have a high level of skill, by cutting staff and working to operate knowledge and creativity when using the more efficiently with digital media. latest digital hardware and software These margins can easily evaporate processes and applications. These from project to project; when demand complex skill sets are responsible for the for video postproduction services historical increases in the average declines, high short-term fixed costs can industry wage. However, wages as a share quickly cut into profit. In addition, costs of revenue have been declining during can rise due to unexpected expenses or the past five years as a result of increased time over-runs on a client’s allocated automation, a trend that is expected to postproduction budget and schedule. continue. In 2014, wages are estimated to Nevertheless, profit is anticipated to account for 35.8% of total revenue, down increase over the next five years to 8.7% from 39.2% in 2009. of revenue in 2019. This increase is forecast as a result of rising film and TV Purchases production budgets and increased Purchases include all direct materials automation in the industry. used in the postproduction process,
Sector vs. Industry Costs
Average Costs of all Industries in Industry Costs sector (2014) (2014) 100 7.4 ■ P r o fi t 10.6 ■ Wages ■ Purchases ■ 80 20.6 Depreciation 35.8 ■ Marketing ■ Rent & Utilities ■ Other 60 26.0 18.0 40 7.2 4.5 Percentage of revenue Percentage 1.0 6.7 8.0 5.4 20 23.4 25.3
0 SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 22
Competitive Landscape
Cost Structure including DVD stock and supplies for upgrading their software. Rent and Benchmarks duplication. Purchase costs also include utilities have gradually grown throughout continued the requisite equipment and tools for a the industry, making up about 8.0% of slew of postproduction services, revenue in 2014. Marketing is expected to including sound editing, color correction account for 1.0% of revenue; such costs and titling. As these products have should remain relatively flat during the increased in ability and capacity, the cost next five years. While increased of purchases has slowly risen over the competition may push rents higher, firms past five years and is estimated to should require less space to provide account for 18.0% of revenue in 2014. services as technology continues to develop. In addition, some firms will Other subcontract work to specialists if they can Depreciation is expected to amount to do a job more efficiently than a company 4.5% of revenue in 2014. Operators must employee. These costs vary largely invest in computer and computer between firms and projects. Other costs periphery equipment as well as a variety include accounting, legal fees, of software tools necessary for administrative costs and research and postproduction. Such costs can be development; together with significant if a company is constantly subcontracting fees, these other costs are investing in cutting edge technologies or estimated at 25.3% of revenue.
Basis of Competition Internal competition relationship a company has with the The primary bases of competition in the studio, but also threatens the potential industry are quality and price. Specific profitability of the film studio’s upcoming Level & Trend expertise or a focus in certain industry project. With such little money spent on Competition in services can be an advantage to some marketing efforts, much of industry’s this industry is firms, especially for attracting major business depends on maintaining a High and the trend studios that require highly nuanced strong reputation. is Increasing services, such as special effects and animation editing. In addition, the External competition industry competes on the basis of External competition comes mainly from specialized equipment and editing companies that have their own in-house software. Possessing the newest editing postproduction equipment, facilities and software and programs will enable staff. This form of competition has postproduction companies to refine their intensified over the past five years as services, offer additional services and cost-cutting measures led many major perform their operations more efficiently. studios to bring a larger portion of video Establishing a reputation for delivering postproduction in-house, which not only the desired results on time and within cut production costs but helped budget will vastly improve a streamline the process for many studios. postproduction company’s likelihood of The inability of many firms in the continued success and repeat contracts industry to maintain long-term contracts with major film studios. This is with these studios has aggravated their particularly evident when film and economic position and has made it television productions exceed their time increasingly challenging for many to keep and budget allowances, since cost production levels steady, as more overages jeopardize not only the contracts emerge on a per-project basis. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 23
Competitive Landscape
Barriers to Entry The barriers to entry in the Video Postproduction Services industry have Barriers to Entry checklist Level Level & Trend declined in recent years due to the Competition High increasingly powerful and affordable editing Barriers to Entry Concentration Low hardware and software. This has enabled in this industry are Life Cycle Stage Mature movie and TV producers to purchase their Capital Intensity Medium Low and Decreasing own editing systems and perform much of Technology Change High their postproduction activities internally. Regulation & Policy Light Many barriers still remain, however, as the Industry Assistance Low industry’s technical expertise continues to expand. Many studios possess entrenched SOURCE: WWW.IBISWORLD.COM relationships with production studios that have earned a reputation for premium studios to simply attempt to perform editing capabilities. For example, major themselves. However, there is always room operator Technicolor opened a facility on for operators who have creativity and who the property of Paramount Pictures in operate in a niche market, especially Hollywood to maintain its close working because audiences are constantly relationship with its major client. In demanding new kinds of entertainment, addition, some industry services, such as including intense visual effects, increasingly three-dimensional effects and animation, realistic animation, and art house and may be far too complex for new firms or film independent production.
Industry Globalization in the Video postproduction activities to be Globalization Postproduction Services industry is performed by domestic companies for moderate and steady. Companies foreign film studios. perform service-based activities that do Industry globalization has gradually Level & Trend not produce any material trade, although intensified in recent years as a result of Globalization in many global entertainment companies do increased digitization within the this industry is frequently request that industry industry, which has enabled firms to Medium and the operators perform postproduction conduct business operations remotely. trend is Steady services on foreign media. For example, Even the industry’s smallest firms have Technicolor, the industry’s largest acquired international clients, a feat operator, is based in France and conducts that would have been nearly impossible about half of its video postproduction prior to the era of digital services outside of the United States. communication and distribution. While Technicolor has also increased its Digital this development has greatly increased Creative Services operations in the potential pool of clients for US Bangalore, India. Similarly, other operators in recent years, the industry companies have established business will also become increasingly globalized locations or relationships abroad in order in terms of potential competitors over to provide industry services to foreign the next five years. However, clients, such as in emerging markets, IBISWorld does not expect this to occur where the demand for high quality visual at a significant level, since industry effects and other services is steadily services provided require highly skilled increasing. Many 3D films have employees and familiarity with evolving experienced greater popularity outside technology that emerging markets may the United States, calling for more simply not possess. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 24 Major Companies Technicolor SA | Deluxe Entertainment Services Group Inc. | Other Companies
Major players Deluxe Entertainment (Market share) Services Group Inc. 9.0% 71.1% Other
Technicolor SA 19.9% SOURCE: WWW.IBISWORLD.COM
Player Performance Technicolor SA, formerly known as the America. In 2013, Technicolor generated Thomson Group and subsequently $4.4 billion in total revenue. Technicolor SA Thompson, has contributed to the Technicolor maintains three business development of video technologies and segments: entertainment services, Market share: 19.9% services for more than 95 years. connected home (formerly digital Industry Brand Names Technicolor is a French corporation, but delivery) and technology. The company MPC has a main office located in Hollywood, operates in the Video Postproduction Thomson CA. The company provides a wide variety Services industry through its of services to the world of video, entertainment services segment, which including digital production, is estimated to account for about half of postproduction and distribution services. company revenue. In addition, about In the past 10 years, the company’s 45.0% of Technicolor’s business is activities have shifted toward servicing conducted in the United States. The the media and entertainment industry. In company’s key clients include all major 2010, Technicolor sold off the majority of film and television production studios, its media networks under Screenvision such as Warner Bros., Paramount, Sony, US and broadcast businesses with Grass Fox, NBC Universal and The Walt Valley. The company has nearly 15,000 Disney Company, as well as many employees across 25 countries, with advertising agencies that produce about 6,000 employees in North commercials. Customer agreements are
Technicolor SA (US entertainment services segment) – fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2009 1,014.2 N/C 27.8 N/C 2010 939.4 -7.4 10.0 -64.0 2011 1,085.4 15.5 76.0 660.0 2012 964.3 -11.2 71.1 -6.4 2013 1,068.9 10.8 74.3 4.5 2014 1,107.0 3.6 77.3 4.0
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 25
Major Companies
Player Performance generally project specific, although Financial performance continued Technicolor does push for longer-term In the five years to 2014, Technicolor’s contracts, especially as many production industry-specific revenue is expected to studios have moved video increase at an average annual rate of 1.8% postproduction in-house. to $1.1 billion. Additionally, industry- Technicolor offers services relating to relevant revenue is forecast to grow 3.6% in the visual effect and animation elements 2014 as a result of solid growth from its of many major motion pictures. The Digital Creative Services subsegment, company’s 2012 profile includes Life of Pi, which includes visual effects and Skyfall, Wrath of the Titans and animations, digital dailies, editorial sounds, Prometheus; in animation, Technicolor sound mixing and digital intermediate offers expertise in computer-generated postproduction. Rapid technological imagery (CGI) for clients such as advancement in the media sector has DreamWorks Animation and increased the digitization of content Nickelodeon. In 2012, Technicolor, in a creation and postproduction, as well as partnership with major studios and demand for visual effects. Technicolor’s broadcast customers, launched an end-to- profit margins are also expected to rebound end digital studio platform that integrates as a result of these trends. Operating Technicolor, customer and third-party income has improved dramatically since service providers on an open platform 2009, and is forecast to increase at an with key tools for content creators. annualized 22.7% in the five years to 2014.
Player Performance Deluxe Entertainment Services Group production, postproduction, distribution, Inc. is a private company and wholly asset management and marketing and owned subsidiary of MacAndrews & fulfillment. Deluxe has multiple business Deluxe Forbes Holdings. Deluxe provides units and participates in this industry Entertainment services for theatrical, TV, commercials through its postproduction and media Services Group Inc. and home entertainment. The company services segment. The company is Market share: 9.0% was founded in 1915 and provides a wide headquartered in Hollywood, CA, and range of technologies in all areas of maintains operations in Australia,
Deluxe Entertainment Services Group (US postproduction services) – fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2009 312.5 N/C 12.0 N/C 2010 441.8 41.4 37.0 208.3 2011 483.4 9.4 41.0 10.8 2012 479.7 -0.8 39.0 -4.9 2013 490.0 2.1 42.5 9.0 2014 499.8 2.0 43.5 2.4
*Estimates SOURCE: IBISWORLD WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 26
Major Companies
Player Performance Canada, Spain, the United Arab work in TV and commercials. Deluxe continued Emirates and the United Kingdom. It is purchased Ascent for $68.0 million, estimated that Deluxe has about 800 strongly boosting industry-relevant employees in the United States. Deluxe revenue. The company’s postproduction serves all the major motion picture services revenue is forecast to rise at an studios, television networks, cable average annual rate of 9.8% in the five companies, advertising agencies, years to 2014, although much of this production companies, independent growth represents the company’s distributors and content owners. recovery from 2009. Despite impressive growth over the past five years, Financial performance IBISWorld estimates that Deluxe has not Deluxe catered its postproduction yet reached prerecessionary levels. In services to the feature film industry until 2014, industry-relevant revenue is 2011, when the company bought the expected to increase 2.0% to reach postproduction business of Ascent Media $499.8 million. Operating income has Group; Ascent was better known for its also markedly improved since 2009.
Other Companies Point.360 In addition to its Los Angeles location, the Estimated market share: Less than 1.0% company has facilities in New York, Los Angeles-headquartered Point.360 has Chicago, Dallas and San Francisco and been serving studios and independent employs nearly 250 people. Its largest video producers for more than 30 years, client is Twentieth Century Fox, which is and has over 1,500 clients. The company estimated to account for one-quarter of provides film, video and audio yearly company revenue. The company’s postproduction, archival, duplication, five largest studio customers are estimated computer graphics and data distribution to account for nearly two-thirds of services. Point.360 was formerly known as revenue. Point.360 is expected to earn VDI Multimedia and is listed on NASDAQ. $35.4 million in revenue in 2014. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 27 Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Capital Intensity The industry exhibits low to moderate capital intensity. In 2014, IBISWorld Capital intensity estimates that firms in the industry Capital units per labor unit Level will spend $0.13 on capital investment 0.5 The level of capital for every $1.00 spent on wages and intensity is Medium labor. Changes in computer technology 0.4 and software mean that some 0.3 equipment has to be replaced or updated at relatively regular intervals. 0.2 In addition, compression technology 0.1 has also allowed for easier storage and 0.0 distribution of content; the finished Economy Information Video product is increasingly being delivered Postproduction Services electronically through digital formats Dotted line shows a high level of capital intensity via the internet or satellite. In many SOURCE: WWW.IBISWORLD.COM ways, the digitization of the industry has led to the editing process being the industry services, such as linear final step in video production. This editing, transfers, processing and trend has diminished demand for some printing. As a result, demand for
Tools of the Trade: Growth Strategies for Success
New Age Economy Investment Economy Recreation, Personal Services, Information, Communications, Health and Education. Firms Mining, Finance and Real benefi t from personal wealth so Estate. To increase revenue stable macroeconomic conditions fi rms need superior debt are imperative. Brand awareness management, a stable and niche labor skills are key to macroeconomic environment product differentiation. and a sound investment plan. Capital Intensive
Labor Intensive Cable Networks Television Broadcasting Traditional Service Economy Video Postproduction Services Old Economy Wholesale and Retail. Reliant Movie & Video Production Agriculture and Manufacturing. on labor rather than capital to Traded goods can be produced sell goods. Functions cannot Computer using cheap labor abroad. be outsourced therefore fi rms Recordable Media Manufacturing To expand fi rms must merge must use new technology Manufacturing or acquire others to exploit or improve staff training to economies of scale, or specialize increase revenue growth. in niche, high-value products.
Change in Share of the Economy SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 28
Operating Conditions
Capital Intensity physical film has fallen, which had and three-dimensional computer continued been a significant capital investment in graphics, has decreased the use and the past. fabrication of models and miniatures in While this industry uses a high degree video production. The process now of digital equipment and support involves having greater skills in areas software, it still requires a significant such as scanning and digital audio and level of creative skills, knowledge, and video composition. Consequently, labor expertise to obtain the client’s desired intensity has increased while capital end results. The increased power of intensity has diminished somewhat computers, assisted by high definition during the past five years.
Technology Digital editing technology has continually two-and three-dimensional animation & Systems improved the industry’s productivity over and superior organization controls in the past several decades. The most one product. Apple’s Final Cut Studio is Level significant change has been in the widely considered to be the most development of high powered computers popular software, and its latest edition, The level of supported by specialty software, many of Final Cut Pro X, includes integrated Technology which can now be operated through audio editing, split-screen effects, and a Change is High professional desktop computers. The range of enhanced organizational and move to digital production has made the processing tools. workflow process much quicker, as the The industry’s software improvements industry continues to move away from have been vast. However, producers tape-to-tape linear video editing. The wishing to enjoy the full benefits of these move to digital processes has also meant programs must often purchase the end of the development of miniatures professional-grade desktop computers and models for movies. Special effects that are equipped with internal hardware can now be incorporated, enhanced and powerful enough to handle such data- even re-run at a lower cost and at high- intensive graphics and video editing definition resolutions. tasks. Computer microprocessor advancements have helped the industry Software development in this regard, with graphics cards and Video editing software is the backbone to processors becoming increasingly much of the work done in the Video powerful, energy efficient and affordable Postproduction Services industry. While over the past five years. In addition, it has made services in the industry more widescreen 4K monitors have fallen in dynamic, it is also threatening the future price over the past five years, enabling of the industry as it greatly enables industry editors to adjust a project’s studios and independent producers to visual effects with unprecedented levels hire in-house solutions using identical of precision. software. There are many different products that compete in the market, Streaming video and including Apple’s Final Cut, Adobe display development Production, Sony Vegas, Avid Media The move toward streaming video has cut Composer and MAGIX Video. These into the demand for DVDs and Blu-ray software applications allow for color discs, which has meant that master grading, audio enhancements, multi- copies of movies have become easier to camera editing, transitions, titling, produce and distribute. As a result, WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 29
Operating Conditions
Technology industry services such as release printing advertised by their diagonal measure; as & Systems and transfers have been in decline. a result, screens that have different continued However, the development of widescreen height to width ratios may have the same monitors, tablets and mobile devices are measurement, but different display areas. creating a demand for new services as In response, the images projected by movies and TV shows must be converted videos must be converted to into a variety of aspect ratios. This service appropriately fit these different displays. is being provided by firms in the Video While much of this new technology is Postproduction Services industry. generated outside of the industry, these Monitors of all types (e.g. TVs, trends directly impact the services computers, tablets and smartphones) are industry operators perform.
Revenue Volatility During the past five years, revenue has increased by as much 9.9% in 2010 volatility has been moderate in the Video and has fallen by as much as 6.4% in Postproduction Services industry. Large 2009 during the past five years. Level fluctuations have been driven by However, during the next five years, The level of technological changes and the financial the industry should exhibit low volatility. Volatility is Medium crisis. The industry experienced This factor stems from the fact that the significant revenue declines during the industry’s main client segments, recession, when independent advertising agencies and movie and TV investments and advertising support studios, are growing and their demand dried up for all of the industry’s changes little year-on-year. In addition, downstream markets. Adjustments by volatility is lowered by the presence of video producers to do postprocessing multiple, distinct market segments that work in-house has permanently cut demand the industry’s services; this demand for industry services and is buffers against shocks that may result anticipated to lead to further industry from fluctuations in demand from any depreciation relative to GDP. Revenue single market.
A higher level of revenue Volatility vs Growth volatility implies greater industry risk. Volatility can 1000 Hazardous Rollercoaster negatively affect long-term strategic decisions, such as 100 the time frame for capital investment. 10 When a fi rm makes poor Video Postproduction investment decisions it Services may face underutilized 1
capacity if demand (%) volatility* Revenue suddenly falls, or capacity 0.1 Stagnant Blue Chip constraints if it rises –30 –10 10 30 50 70 quickly. Five year annualized revenue growth (%)
* Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 30
Operating Conditions
Regulation & Policy The Video Postproduction Services Companies are also subject to various industry is most heavily affected by environmental protection and health frequent changes to US patent laws, regulations pertaining to the creation, Level & Trend which have made it increasingly storage, handling and disposal of The level of cumbersome for industry companies to materials. Although most companies Regulation is obtain certain copyrighted music, images perform the majority of their services Light and the and other content. In accordance with US through digital editing software, some trend is Steady law, permission must be obtained from continue to use physical materials, the copyright holder prior to the addition, chemicals and components that require use or modification of any published proper training on how to handle and music or similar material during the dispose of certain materials. Additional postproduction process. Often the use of environmental regulations include the this material may require payment in the Department of Energy’s efficiency form of royalties; similar provisions standards for networking equipment and apply for the duplication of content. various consumer safety regulations.
Industry Assistance The Video Postproduction Services productions. Qualified taxpayers are industry does not receive any direct allowed a 20.0% or 25.0% credit against assistance from local, state or federal income and/or sales and use taxes based Level & Trend governments. However, there are several on certain expenditures, for taxable years The level of industry associations at the local level beginning on or after 2011. New York Industry Assistance from which the industry may benefit. The incentives include a 30.0% fully is Low and the Hollywood Post Alliance works to refundable tax credit on qualified trend is Steady promote industry causes in Southern expenses while filming in the state; New California. Additionally, the industry’s York also offers an extra 5.0% tax credit downstream clients (e.g. movie and TV on investment in construction and producers) often receive assistance at the upgrades to qualified production state level. Additional assistance facilities. California and New York are the provided to downstream producers can top two states in terms of video indirectly stimulate demand for postproduction establishments, and postproduction services in certain states. among the top three in number of For example, in 2009, California moviegoers; California alone generates created tax credits for film and TV nearly two-thirds of industry revenue. WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 31 Key Statistics
Industry Data Industry Demand from movie Revenue Value Added Establish- Wages Domestic and video production ($m) ($m) ments Enterprises Employment Exports Imports ($m) Demand ($m) 2005 5,403.4 2,794.0 2,126 2,004 22,252 -- -- 1,853.7 N/A 40,515.4 2006 5,710.0 2,640.5 2,159 2,031 24,250 -- -- 2,023.8 N/A 40,193.0 2007 5,825.0 2,640.2 2,467 2,342 27,509 -- -- 2,185.9 N/A 39,695.0 2008 5,581.4 2,802.4 2,453 2,353 27,472 -- -- 2,143.8 N/A 38,972.4 2009 5,224.9 2,329.1 2,410 2,268 24,625 -- -- 2,047.0 N/A 38,711.2 2010 5,740.3 3,039.4 2,382 2,237 22,929 -- -- 2,115.2 N/A 37,892.8 2011 5,668.4 2,823.2 2,403 2,245 23,522 -- -- 2,052.3 N/A 36,862.9 2012 5,727.1 2,824.7 2,415 2,255 23,576 -- -- 2,063.0 N/A 34,540.6 2013 5,668.6 2,784.8 2,365 2,206 23,354 -- -- 2,047.8 N/A 32,930.0 2014 5,566.6 2,657.5 2,371 2,211 23,322 -- -- 1,995.1 N/A 33,765.6 2015 5,640.3 2,720.7 2,340 2,189 23,363 -- -- 2,004.4 N/A 33,478.5 2016 5,679.8 2,751.1 2,356 2,205 23,422 -- -- 2,012.7 N/A 34,162.0 2017 5,821.8 2,820.6 2,380 2,227 23,776 -- -- 2,052.1 N/A 34,890.0 2018 5,874.2 2,851.2 2,393 2,238 23,868 -- -- 2,064.1 N/A 34,546.0 2019 5,938.8 2,860.6 2,417 2,258 23,953 -- -- 2,076.7 N/A 35,141.0 Sector Rank 47/95 41/95 28/95 24/95 35/95 N/A N/A 35/95 N/A N/A Economy Rank 783/1319 641/1319 669/1318 607/1318 756/1319 N/A N/A 565/1319 N/A N/A
Annual Change Industry Establish- Domestic Demand from movie Revenue Value Added ments Enterprises Employment Exports Imports Wages Demand and video production (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2006 5.7 -5.5 1.6 1.3 9.0 N/A N/A 9.2 N/A -0.8 2007 2.0 0.0 14.3 15.3 13.4 N/A N/A 8.0 N/A -1.2 2008 -4.2 6.1 -0.6 0.5 -0.1 N/A N/A -1.9 N/A -1.8 2009 -6.4 -16.9 -1.8 -3.6 -10.4 N/A N/A -4.5 N/A -0.7 2010 9.9 30.5 -1.2 -1.4 -6.9 N/A N/A 3.3 N/A -2.1 2011 -1.3 -7.1 0.9 0.4 2.6 N/A N/A -3.0 N/A -2.7 2012 1.0 0.1 0.5 0.4 0.2 N/A N/A 0.5 N/A -6.3 2013 -1.0 -1.4 -2.1 -2.2 -0.9 N/A N/A -0.7 N/A -4.7 2014 -1.8 -4.6 0.3 0.2 -0.1 N/A N/A -2.6 N/A 2.5 2015 1.3 2.4 -1.3 -1.0 0.2 N/A N/A 0.5 N/A -0.9 2016 0.7 1.1 0.7 0.7 0.3 N/A N/A 0.4 N/A 2.0 2017 2.5 2.5 1.0 1.0 1.5 N/A N/A 2.0 N/A 2.1 2018 0.9 1.1 0.5 0.5 0.4 N/A N/A 0.6 N/A -1.0 2019 1.1 0.3 1.0 0.9 0.4 N/A N/A 0.6 N/A 1.7 Sector Rank 87/95 89/95 65/95 60/95 77/95 N/A N/A 85/95 N/A N/A Economy Rank 1209/1319 1239/1319 873/1318 790/1318 1022/1319 N/A N/A 1210/1319 N/A N/A
Key Ratios Imports/ Exports/ Revenue per Share of the IVA/Revenue Demand Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%) 2005 51.71 N/A N/A 242.83 34.31 10.47 83,304.87 0.02 2006 46.24 N/A N/A 235.46 35.44 11.23 83,455.67 0.02 2007 45.33 N/A N/A 211.75 37.53 11.15 79,461.27 0.02 2008 50.21 N/A N/A 203.17 38.41 11.20 78,035.82 0.02 2009 44.58 N/A N/A 212.18 39.18 10.22 83,126.90 0.02 2010 52.95 N/A N/A 250.35 36.85 9.63 92,249.99 0.02 2011 49.81 N/A N/A 240.98 36.21 9.79 87,250.23 0.02 2012 49.32 N/A N/A 242.92 36.02 9.76 87,504.24 0.02 2013 49.13 N/A N/A 242.73 36.13 9.87 87,685.19 0.02 2014 47.74 N/A N/A 238.68 35.84 9.84 85,545.84 0.02 2015 48.24 N/A N/A 241.42 35.54 9.98 85,793.78 0.02 2016 48.44 N/A N/A 242.50 35.44 9.94 85,932.03 0.02 2017 48.45 N/A N/A 244.86 35.25 9.99 86,309.72 0.02 2018 48.54 N/A N/A 246.11 35.14 9.97 86,479.81 0.02 2019 48.17 N/A N/A 247.94 34.97 9.91 86,698.95 0.02 Sector Rank 34/95 N/A N/A 64/95 26/95 64/95 33/95 41/95 Economy Rank 312/1319 N/A N/A 690/1319 249/1319 768/1318 140/1319 641/1319
Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data. SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Video Postproduction Services in the US November 2014 32
Jargon & Glossary
Industry Jargon ASPECT RATIO CONVERSION A process that converts FOLEY Reproduction of everyday sounds for use in one film ratio to fit within the constraints of another. filmmaking to create a sense of reality within scenes. DUBBING Adding voice-over to characters in a different SUBTITLING Adding text in a language suitable for the language than that in which the film was made. country in which the film is to be exported.
IBISWorld Glossary BARRIERS TO ENTRY High barriers to entry mean that INDUSTRY REVENUE The total sales of industry goods new companies struggle to enter an industry, while low and services (exclusive of excise and sales tax); subsidies barriers mean it is easy for new companies to enter an on production; all other operating income from outside industry. the firm (such as commission income, repair and service CAPITAL INTENSITY Compares the amount of money income, and rent, leasing and hiring income); and spent on capital (plant, machinery and equipment) with capital work done by rental or lease. Receipts from that spent on labor. IBISWorld uses the ratio of interest royalties, dividends and the sale of fixed depreciation to wages as a proxy for capital intensity. tangible assets are excluded. High capital intensity is more than $0.333 of capital to INDUSTRY VALUE ADDED (IVA) The market value of $1 of labor; medium is $0.125 to $0.333 of capital to $1 goods and services produced by the industry minus the of labor; low is less than $0.125 of capital for every $1 of cost of goods and services used in production. IVA is labor. also described as the industry’s contribution to GDP, or CONSTANT PRICES The dollar figures in the Key profit plus wages and depreciation. Statistics table, including forecasts, are adjusted for INTERNATIONAL TRADE The level of international inflation using the current year (i.e. year published) as trade is determined by ratios of exports to revenue and the base year. This removes the impact of changes in imports to domestic demand. For exports/revenue: low is the purchasing power of the dollar, leaving only the less than 5%, medium is 5% to 20%, and high is more “real” growth or decline in industry metrics. The inflation than 20%. Imports/domestic demand: low is less than adjustments in IBISWorld’s reports are made using the 5%, medium is 5% to 35%, and high is more than US Bureau of Economic Analysis’ implicit GDP price 35%. deflator. LIFE CYCLE All industries go through periods of growth, DOMESTIC DEMAND Spending on industry goods and maturity and decline. IBISWorld determines an services within the United States, regardless of their industry’s life cycle by considering its growth rate country of origin. It is derived by adding imports to (measured by IVA) compared with GDP; the growth rate industry revenue, and then subtracting exports. of the number of establishments; the amount of change EMPLOYMENT The number of permanent, part-time, the industry’s products are undergoing; the rate of temporary and seasonal employees, working proprietors, technological change; and the level of customer partners, managers and executives within the industry. acceptance of industry products and services. ENTERPRISE A division that is separately managed and NONEMPLOYING ESTABLISHMENT Businesses with keeps management accounts. Each enterprise consists no paid employment or payroll, also known as of one or more establishments that are under common nonemployers. These are mostly set up by self-employed ownership or control. individuals. ESTABLISHMENT The smallest type of accounting unit PROFIT IBISWorld uses earnings before interest and tax within an enterprise, an establishment is a single (EBIT) as an indicator of a company’s profitability. It is physical location where business is conducted or where calculated as revenue minus expenses, excluding services or industrial operations are performed. Multiple interest and tax. establishments under common control make up an VOLATILITY The level of volatility is determined by enterprise. averaging the absolute change in revenue in each of the EXPORTS Total value of industry goods and services sold past five years. Volatility levels: very high is more than by US companies to customers abroad. ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than IMPORTS Total value of industry goods and services ±3%. brought in from foreign countries to be sold in the United States. WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also INDUSTRY CONCENTRATION An indicator of the included in this figure. dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. www.ibisworld.com | 1-800-330-3772 | [email protected]
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