US digital screens passed the 50% point this month, crossing a major milestone in the conversion to digital projection. Not the best of news for Technicolor and Deluxe, who are losing business for their film services divisions more rapidly than expected. Sadly commemorating the milestone, the two companies pushed the “execute” button on a long contemplated deal. In the US market, Technicolor is subcontracting to Deluxe its film duplication business, and Deluxe is subcontracting to Technicolor its film fulfillment business. Technicolor, which closed its North Hollywood film duplication facility end of 2010, this month also closed its 10-year-old Montreal film duplication facility. In turn, Deluxe is closing its Burbank-based ETS division, which handled film fulfillment.
The trading of operations doesn’t end there. Deluxe is subcontracting its Asian film duplication business to Technicolor’s facility in Thailand, indicative of the strength of the transition in that region of the world. In the UK, Deluxe is subcontracting its 35mm and 16mm film negative processing business to Technicolor’s Pinewood facility, indicative of the strength of digital capture over film in Europe. Deluxe, however, is optimistic for the near term in the US and Europe, where it says film duplication will decline, but flatten out over the next five years. That belief is fueled by the fact that US and European deployment rollouts will expire by the end of 2012, which is expected to dramatically slow the conversion of US and European cinemas.
Such changes lead not only to layoffs, but to restructuring and new opportunities. Deluxe moved aside its not-well-loved former head of digital cinema operations, Rick O’Hare, and hired Joe Hart as its new SVP of Digital Cinema, North America. Hart, formerly Technicolor’s VP of Distribution Services, built Technicolor’s satellite distribution network, used for delivery of Screenvision cinema advertising as well as digital cinema DCPs. There’s no doubt that he’ll now be doing the same for Deluxe. Deluxe reportedly is bidding on the Digital Cinema Distribution Coalition (DCDC) request for proposal, whose goal is to be the exclusive satellite distribution network for US cinema chain giants Regal, AMC, and Cinemark.
Technicolor, who no doubt is also bidding on the DCDC deal, upped their satellite distribution footprint this month by acquiring the assets of Cinedigm’s satellite network, including roof rights and mastering business. It was a strategic move for both companies. Technicolor scored by bringing their site count up to around 1100, and gaining Cinedigm’s mastering business. For Cinedigm, it meant ridding itself of the capital-intense satellite distribution business, which doesn’t fit in their new core strategy of content and software.