In light of Adobe's 600 staff layoffs, and with the current global financial crisis, we survey the landscape, and look forward to what may happen in 2009.

Who will make it ?

Digital Vision, maker of digital intermediate and restoration products, has already gone into company reorganization, which can be likened to Chapter 11 bankruptcy protection. Dalsa sold to Arri. Avid has sold SoftImage, but it is still running a quarterly loss. Autodesk, while cashed up - has always relied on being highly diversified. But in the current market is there any sector that is not expected to be hurting from the global financial downturn? In the current gloom other companies must be resenting the cloud cast over them such as Assimilate who is locked in a patent/intellectual property fight with Autodesk.


Layoffs have happened at many of the equipment companies, right now the industry seems extremely nervous. Adobe has just reduced its global workforce by 8% laying off 600 employees and restructuring its business. Apparently Adobe cited demand for its Creative Suite 4 series of products as being weaker than expected after being shipped out during the fourth quarter, according to radio station KLIV. This is on the heals of AVID technology who axed 500 or 20% of their staff in October.

The rumor mill has also been been running wild with stories, we were told by two sources that British equipment maker Quantel was considering a merger with ProBell and Snell & Wilcox. This rumor was very strong at IBC but is in fact not true. Quantel is not merging. If it is not Quantel then we will most certainly see consolidation before stand space is paid for at next years NAB show in Vegas. NAB 2009 must be expected to be one of the quietest over all in recent times, with travel budgets and marketing budgets both likely to be hit. Already reports from Interbee in Japan and other global tradeshows all point to reduced activity globally.

Some of the big post houses are doing very well. MPC is understood to be very financially successful, as well as DNeg, Sony Pictures Imageworks, Framestore CFC, Weta and ILM who are all thought to be going well profitable, stable and successful. But some of the smaller to mid-sized post houses are failing around the world, being caught between reduced spending and large fixed obligations.

Film : Will features be 'bullet proof"?

It has been suggested that the film industry tends to be bullet proof. To a certain extent this is true at the high end. The major Hollywood studios are busy and in good shape compared to most other industry sectors.
But the downturn is affecting an already over stocked indy film market. At Cannes this year there were over 1000 independent feature films in the Marche du film (film market). To give that some perspective, it is twice the number of just 1994. The sheer volume of films makes standing out near impossible. For a film buyer - assuming every film averages a couple of hours to see and move on to the next one - if you attended films day and night - without stopping for sleep nor food - 24 hours a day - it would take you 83 days straight to see all of the films on offer. And that is just Cannes, add to that Berlinale, Sundance etc. and you can see why so few films are purchased. In the simplest terms, it is just really easy to make a feature today compared to pre-digital days when you had to buy film stock and no film would be seen dead exhibited on a digital projector. While major studios continue to fund their slate of films, the investment funds for independent films is drying up faster than a film festival open bar. Antidotal reports are starting to be heard of independent films in the $3- $5 million and below range simply not being completed with investors walking away rather than putting in additional funding to complete the pictures.

Advertising : TVC - Commercials

The situation is even more bleak for the TVC market. Some production companies have seen the number of scripts drop 80% and 90% in the months of October/November compared to 12 months ago. Even if the level of TV advertising has not dropped off yet as sharply as the 50% drop in the sharemarket of the advertisers themselves, it is very easy to reduce marketing costs by first reducing TVC production costs. Spots can be bought in from overseas, old campaigns re-used or campaigns simply delayed.

Of serious concern is the US auto industry. Car advertising is a huge segment of the market for high end quality advertising. The automotive industry spends more on advertising than any other business sector, and General Motors is by far the biggest spender in the category, yet the car maker has warned of running out of cash next year and is in crisis talks for billions of dollars of government assistance and loans guarantees. According to the Canadian National Post newspaper, the embattled car company said earlier this month that it would slash advertising spending worldwide by 20% and promotional spending by 25%. Between January and July, 2008, the Big Three car manufacturers showed advertising spending declines compared with the same seven-month period in 2007. According to Nielsen Monitor-Plus in the U.S., Ford and Chrysler each spent 22% less on advertising, and General Motors Corp. (GM) cut its spending by 6%. But more ad spending reductions may be likely as the situation worsens, especially if post- thanksgiving there is no Federal support. Even worse for the post production community is the shift in the ad spending that remains after the cuts. Automakers are moving funds from ads on TV and press to less expensive newer media opportunities. This was confirmed by Rick Wagoner, chief executive officer of GM, when he spoke on Capitol Hill in Washington this month. "We're not going to do SuperBowl ads this year, frankly, because we're cutting back," he said. "We're actually shifting a huge amount of our remaining ad budget to digital marketing, which is less expensive and more efficient."

If Automotive prestige ads are the high end - then the bread and butter of the post business are retail and dealer spots. Sure these are typically uncreative but there are a lot of them and they are very post and graphics heavy. Here the news is just as bleak. Dealerships that used to make money hand over foot are now reporting up to 30% losses in sales during the last month, reports Omniautomotiveadvertising.com. Almost 600 of the about 20,000 U.S. new car dealers have shut their doors this year, and an additional 2,000 will close within 18 months, predicts Mark Johnson, president of a Seattle consulting firm that helps auto dealers buy, sell or merge operations.

Online New Media

Allyinsider.com declared that Wired magazine editor Chris Anderson was wrong, free is no longer "in" and in the current crisis there is a move to premium accounts with their story "Here come the Pro Accounts". The story points to Sequoia Capital, which terrified its portfolio of startup companies with a "RIP Good Times" earlier this month. Startups "need to become cash flow positive," Sequoia declared. They must recognize the "need for profitability. Cash is king." Sequoia isn't the only VC firm preaching the precepts of profit. Startups are beginning to return to a business concept many thought had faded into the past -- asking customers to pay for things, namely: pro accounts, plus accounts, premium features, enterprise editions, and white label versions.

The list of companies offering or about to offer Pro accounts grows daily: Tube Mogul, Ustream.Tv, Vimeo, Veoh, and even Twitter.

The reality is that many companies will be formed in this next downturn but not as many as there perhaps would have been as access to cheap funds has all but dried up. Long gone are the excessive business models built on getting eyeballs and worrying about actually inventing a way to pay for it down the track, if ever. Many a startup was formed with the sole business plan of selling out to Yahoo, Google or Microsoft before their burn rates ate up all their seed capital. Those existing companies with heavy burn rates have already lightened staff. Look at companies such as Technorati(), Wired.com (25%), or Revision3 who in July last year they raised $8 million from VC funding, while this year are laying off 30% of their staff, cutting shows and reducing their burn rate. Digital content development studios such as Revision3 and 60 Frames have had to cut staff in the face of dwindling online budgets and the lack of future easy VC funding. Meanwhile Google's own stock is under 300, from a high of over 700, and Yahoo is down from nearly thirty dollars a share to closer to $10. Even Microsoft is about $20, compared to over $30 a year ago. All of which means these companies are much less likely buyers of startups than they were a year ago.

The good news is the economic situation cuts both ways - if you do have a profitable internet business there is likely to be less VC money floating around to fund someone into a new startup to compete with you.

2010

Can it get worse?

Yes - if there is a major actor's strike.



Can it get better?

As this is a problem started in the USA, it will take a large shift in American thinking to turn around the global doom. It is our prediction that nothing much will change until the new administration takes office next year. Regardless of one's political opinions, a new President signals a much needed mental break, and any out-going President is linked to the 'lame duck' status in their final weeks in office.

After that, the vast stimulus packages will all take time to kick in so 2009 will be tough no matter what, and even once the huge spending alters behavior, the cure will need to be paid for and the repayments may greatly lengthen the climb back to full strength.