Deluxe, Technicolor agree to combine film services

The death knell for 35mm film production has just gotten a lot louder.

Citing collapsing demand for film prints as theaters shift to digital projectors, lab giants Technicolor and Deluxe have struck subcontracting agreements that edge them toward an end to their century-old competition in 35mm release printing.

Under the agreements, Deluxe will take over 35mm release printing for the major studios in the U.S. and Canada beginning this week. Technicolor will exit the 35mm print business in those territories and Monday shuttered its print plant in Mirabel, Quebec, resulting in the loss of 178 jobs. It will retain its print lab in Montreal for small orders. (The new Technicolor plant in Glendale, Calif., will specialize in 65mm and 70mm prints.)

Deluxe will exit the film print distribution business in the U.S., contracting that work out to Technicolor facilities in Ontario, Canada, and Wilmington, Ohio. As a result, Deluxe will close its print distribution depots in the U.S. in September. Once the deals are in full effect, almost all U.S. film prints will be struck at a Deluxe lab but distributed by Technicolor.

Outside North America, Technicolor’s Thailand plant will take over release printing for Deluxe in the territory, ending Deluxe’s existing relationship with a local affiliate; and within a week Technicolor will take over front-end processing of 35mm and 16mm film negatives for Deluxe in the U.K. That processing will be done out of Technicolor’s Pinewood facility.

Deluxe said in a statement that the move comes “as a result of digital image capture overtaking film capture.”

“There is still a very good business on the release print side in North America,” Cyril Drabinsky, prexy-CEO of Deluxe Entertainment Services Group told Variety, adding, “35mm release printing in Europe is still very, very healthy.”

Drabinsky predicted film printing will continue to decline but that the decline will flatten out over the next five years.

Technicolor, which is governed by French securities laws, is under a quiet period in advance of its July 28 earnings report and could not make its executives available for comment.

However, both companies stress that these are subcontracting agreements, and that they are not forming a new joint venture. In effect, each of the long-standing rivals becomes the other’s client in a narrow part of their business.

And those areas are indeed narrow. Technicolor and Deluxe continue to have rival printing operations, at least for now, in London, Rome and Spain. Deluxe has a print plant in Australia serving the Asia-Pacific region; Technicolor serves that region from its Thai facility. Companies will also continue to offer competing front-end services such as color grading and mastering.

The companies cited the rapidly diminishing demand for film prints as the driver behind the deals. They expect more than half the screens in North America to be digital by the end of 2011.

Both companies have been shifting their business away from photochemical processing and printing and diversifying into post-production and digital services. The deals do not affect production or distribution of digital cinema packages.

Both companies’ plants will continue to use both Kodak and Fuji print stock and the companies say they are committed to maintaining the same quality their clients are used to. Deluxe and Technicolor expect their existing studio deals to continue unaffected by these subcontracting arrangements.

The studios were not apprised of the deals in advance, nor were Technicolor’s employees at Mirabel, who got pinkslips Monday.

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