New Post master

AT&T, Malone quietly building tech empire

Moving so quietly that hardly anyone has taken notice, telco giant AT&T and John Malone have gone on an unusual acquisitions binge in the past six months.

The result is an instant oligopoly in one of the most arcane, financially risky and competitive sectors of showbiz: post-production. AT&T and Malone’s strategy will have broad impact across the showbiz horizon.

Shrouded behind its acquisition of Malone’s Liberty Media Group last year, AT&T acquired three of the largest post houses in Hollywood: Todd-AO, Four Media Co. and Soundelux. Deals, announced last November and December, are expected to close within weeks.

Liberty has attempted to stay out of the spotlight on its own; it’s allowed the three rivals-cum-partners to take credit for acquisitions of smaller post houses from Los Angeles to London that service the film, TV, commercials — and soon Internet — worlds that will spread its reach into all areas of post-production: sound editing and mixing, film editing, film transfers, telecine, special effects, DVD authoring and theme park attraction design worldwide.

Largely due to the sale of Tele-Communications Inc. to AT&T and related transactions, Liberty has amassed a $5 billion war chest, and it has spent $420 million to climb into the post-production game in a big way.

“If it’s post-production they’re after, Liberty’s got a good hand,” said one director of a major post-prod house competing with Todd-AO and 4MC.

Liberty’s empire

Although not yet a monopoly, the result is a staggering assemblage through consolidation, leaving only the Post Group, Post Logic and Laser Pacific among the remaining multipurpose post stalwarts.

Post-production is not exactly a glamorous field, and the risks are high. But the biz features the most dedicated employees, and rewards do exist.

Liberty is convinced the consolidation will greatly boost the profit margin in the post sector. The buys will feed productions for Liberty’s cable ventures, posi-tion the company as a major player in production for new technologies like DVD and digital TV, and plunge Liberty into Internet production.

Once its acquisitions of Todd-AO, 4MC and Soundelux close, the entire entity will be called Liberty Livewire.

“Having someone with Liberty’s deep pockets on your side is great,” said one Hollywood-based post-production exec. “It will keep a lot of these smaller cash-strapped companies alive in the long run.”

Other parts of the gameplan:

  • Liberty plans to turn around the post biz’s stolid 6% profit margins, which means studios that farm out post work to Todd-AO, 4MC and Soundelux may be saddled with bigger bills.

    The studios may be shut out from going to anyone else and find their negotiating capabilities clipped.

  • Liberty plans to funnel all of its post needs for programming on its stable of cable channels — BET, Discovery Channel, E!, Encore, QVC and USA Net-works — to its own facilities, signaling a growing competitive advantage for Todd-AO, 4MC and Soundelux.

  • The Internet is closing in fast, and new technologies are forcing post houses to upgrade and keep up. With Liberty’s new post powers, the company should turn into a central player for video-based programming that needs to be edited and encoded for distribution over the Web, and wireless hand-held devices such as Palm Pilots and cell phones, as well as interactive TV services such as TiVo (in which Liberty has also invested).

Virtually all of the new Web-casted TV shows and films online could go through Liberty for post work, if it positions itself properly.

Eyeing Internet buys

Liberty has said it plans to make major acquisitions in the coming months that will up its Internet ante. Through its Liberty Digital arm, it already has major stakes in online players that include incubator CMGI, iVillage and MTVi Group.

Company has a broad range of investments in cable, communication, technology and Internet businesses in the U.S., Europe, South America and Asia. Further plans for acquisitions will give Liberty a large piece of the pie in DVD authoring and, soon, interactive, digital television and HDTV production.

Liberty is developing digital distribution and digital projection services as well and plans to boost its holdings by acquiring fiber and wireless TV transmission businesses in coming months.

With more deals as part of its infrastructure-building expansion, Liberty could easily become a powerhouse on which Hollywood is dependent for its post needs.

And that’s what’s turning heads and raising the proverbial eyebrow.

‘Hoops to jump through’

“We have not talked about it a lot publicly because we have a series of acquisitions and it is difficult to do,” said David Beddow, veep of Liberty Media. “We’ve had a bunch of hoops to jump through before explaining what we’re up to.

“We really like the post-production business; these companies have quality reputations in servicing the client business and can make improvements in those areas as well,” Beddow said.

Former rivals working under the same umbrella theoretically means more clients, less competition and higher revenues.

“When you put all of these companies together, you can get a much better utilization of personnel and facilities, enabling you to improve margins in that respect,” Beddow said.

The exec said that the higher margins of the Internet and transmission businesses, added to Liberty Livewire in the coming months, will feed each other and boost profits. “We’re very bullish on raising those numbers,” Beddow said.

Early signs of consolidation have already materialized.

Pop goes

In March, 4MC folded f/x facilities Pop (which helped create the Oscar-winning visual effects for the 1998 “What Dreams May Come”) and Digital Magic under its Riot shingle.

Riot is now described as the “largest boutique in the world” by managing director Richard Cormier, who will supervise animation, commercial and mu-sicvideo post as well as marketing for the new entity.

While industryites wondered why Liberty decided to fold the more recognized Pop moniker under Riot, the Pop name will not go away, Beddow said.

“Part of that reorganization was well under way before we bought the company,” he explained. “The Todd-AO name will not go away. The Soundelux name will not go away. We will ultimately benefit from their brand identity.

“Each of our companies has experienced a series of acquisitions and has the same product offerings under different areas. The goal is to make the collection of companies less confusing. We don’t have an idea who to do that. We still have a lot of work to do.”

In a statement, Liberty prexy-CEO Robert Bennett said, “We believe that these businesses can provide valuable services to our existing businesses and will play an important role in providing a new generation of services focused on the evolving interactive video market.”

Analysts say that if anyone can make it work, it’s Liberty. Congress has mandated shifts to digital TV and HDTV, which is pressuring post houses to upgrade their equipment and that is costly.

Pricey hardware

New telecine machines that can handle the work cost $1 million. The equipment to make those machines work is an additional $1.5 million.

Beddow anticipates another round of financing will be poured into its subsids to update equipment.

“In many cases, these companies haven’t made the investments they should have originally made,” he said. “In putting this company together, we’re going to add to it new elements that are very attractive to our clients.”

Already, a troubled SVC Television has come back from the brink of being shuttered after 4MC acquired the shop, which provides editing, design and visual f/x services to producers of television advertising in the U.K. and other European markets.

Keeping clients happy

Then again, there’s the relationship issue with the clients, which could backfire for Liberty. It’s a business in which relationships mean more than the pact between agents and production companies; if a company becomes too much of a conglom, producers may end up fleeing from Todd-AO and 4MC to smaller boutiques, in the belief that the latter will offer more personal attention.

It’s also a biz where employees are like rock stars: Directors loyally follow colorists, for example, to whatever company they move to or boutique they launch. Liberty will have to keep its creative employees happy or pay later on.

“We really do understand this business and how it operates,” Beddow said. “We have no intention of changing that. This is not a situation where all of this is going to be consolidated into one giant. That boutiquish appeal is something that’s important to us. We’re not buying these companies to get their client base and then ignore them.”

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