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Another One Bites The Dust
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[Patrick Ortman] “It’s maddening, as clients begin to think we’re all commodities.”
Although it may be more complex than simple commodification. Some clients really only need the “kid with the camcorder” for some simple jobs. This is assuming the kid can competently run the camcorder and understand some basic aesthetic principles.
The problem happens when that kid has zero business understanding. Kid doesn’t take into account the cost of maintaining and replacing the gear and meeting all their monthly personal and business expenses. The client moves from kid to kid from year to year replacing last year’s kid with this year’s kid.
It’s not even simply “bottom feeder” mentality as the client truly has simple needs. It’s the kids who have no business sense and the steady supply of replacement kids.
BTW these is made even worse when sometimes the kid is truly talented, having spend years doing creative projects in school and on their own. Then such kid, with no business sense or confidence, undercharges, works 24 hour days, produces excellent work, maybe even goes deep in debt buying expensive gear that they do know how to use. Even these kids are replaced every year. The client can gamble on such kid because kid will work 24 hour days and do endless revisions without charge eventually meeting the client’s expectations.
So it’s not simply that clients view video as a commodity, it’s that kid business views itself as a commodity.
We are sales people (and business people) even ahead of being content creators. We must explain the value added with experience and skills.
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[grinner hester] “Often the bigger and older the company, the harder it becomes for them to evolve with the times.”
I suspect many facilities invested in expensive equipment based on what they thought would be the demand to use such gear. Demand fell as less expensive hardware and software alternatives hit the market. Unfortunately such business may have been carrying heavy debt loads which, even if they sold the gear for less expensive replacements, couldn’t alleviate the debt load. The result was that those facilities such as HSR continued to charge rates for sessions in which the gear really wasn’t needed, in the hopes they could meet their debt obligation.
I suspect at one time debt based business model was attractive since one could write off the equipment over an extended time while bringing in regular high dollar fees. The monthly obligation was meet, the tax deductions where heavy, profit margins were high.
It no longer makes sense to run a video business with heavy debt. ROI must be shorter, equipment can be rented or purchased for specific jobs.
Now you only need to fight for business against kids who charge rates so low that they’ll go under within the year, to be replaced with another kid using the same poor business model.
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Getting back to the original post: I haven’t used a separate audio recording facility for VO in maybe 5 or 6 years. It seems either the editor has a “good enough” room or the talent have built something in their home. Some have used the master bedroom closet in their McMansion, the deadest room in their house. One has a full isolation booth WhisperRoom on a floated floor and lots of geeky professional gear including a Rode mic. I am often contacted by VO talent and the first thing I ask is can they record at their place, perhaps I will be on a phone patch. If yes, I query as to the model and quality of the mic, what software they will use, do they know how to cut out breathes, etc.
So…what was HSR doing in a specific niche in our industry as the entire business model changed? Debates about debt load are irrelevant, history is full of examples of businesses not adapting: they were delivering ice when the refrigerator started to be sold. Someone moved their cheese:
https://www.whomovedmycheese.com/?gclid=CLixxtmZi6kCFUa8Kgode109sw
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[Ned Miller] “So…what was HSR doing in a specific niche in our industry as the entire business model changed? Debates about debt load are irrelevant, history is full of examples of businesses not adapting: they were delivering ice when the refrigerator started to be sold.”
Sorry but debt load is relevant.
Sometimes adapting can’t alleviate the current debt load. When this happens a business will go bankrupt and you may even see the same people reform a new business with a new business model.Business didn’t expect to see the accelerated price drop in new equipment. In some cases they were blind to the changes but in other cases they “got in” before the change occurred and they followed an industry history in which quality equipment maintained its value for years. Change happened after they already had large equipment bills to pay off along with long term commitments on large spaces, whereas the newer gear costs significantly less required much less space.
The above businesses often have no place to go but under. There may have been no room to adapt and continue to pay off the gear that they had. Deep debt is a business killer now but may have been standard practice when they purchased their gear and leased their space.
Some businesses are in a position to adapt and others have no way out.
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As the poster of the original piece of news I offer
some comments on this discussion.
1. HSR had a 37 year run of great success.
Nobody here should comment about how to survive until they reach
Half That Age. They lasted so long because they were able to
Adapt.2. I find it somewhat ironic that everyone has latched onto
Debt load as the killer in our industry.
I find that to be an oversimplification if not dead wrong.
For sure, a low or non-existent debt load makes it easier
to withstand slow periods but debt load is not the big killer.
In addition paying for equipment in cash, up-front, might not be
the best allocation of capital3. So what is the killer? Operating Expenses, Operating Expenses
One noted member here says that by keeping cost in line they
have not raised rates in ten years. Well then they are
actually working for a lot less because everything costs
more now Gas, Electricity, Medical Insurance,
Liability Insurance,
Food, College Tuition, in short EVERYTHING so treading water
to make the same rate is well, Treading Water.
In the end There will be some huge companies
most likely formed by roll-ups and some very small shops
run by owner operators, But the vast middle is going away.As a side note I have a good friend who is an attorney
(managing partner) of a 35 lawyer firm Who tells me that
if they could only bill at 250.00 per hour They would close
tomorrow, No expensive equipment, No build Out, No nothing
except personnel, But how do you pay the Rent,
Electricity, Phones, Medical Insurance, Sick Days,
Vacation Time, Payroll Taxes, and so on if you can
only bill 250.00 an Hour.So in conclusion, I would like to hear about how you all
moderate your Operating Expenses and not about debt loadAs seen above accounts desk
Accountant: Don’t spend money you don’t have
Client: Always a simple answer to a complicated question -
[Neil Hurwitz] “1. HSR had a 37 year run of great success.
Nobody here should comment about how to survive until they reach
Half That Age.”They began during a period where costs were relatively stable. That is no longer the case. Dinosaurs “ruled” the earth far longer than humans but one doesn’t look to that as a modern form of survival. They used a business model that suited them well for decades but not for the most recent one. Hence the probable reason for the demise.
[Neil Hurwitz] “So what is the killer? Operating Expenses, Operating Expenses”
[Neil Hurwitz] ” I find it somewhat ironic that everyone has latched onto
Debt load as the killer in our industry.”There are many ways to cut other operating expenses. It is often difficult to cut debt once accumulated. If one purchases expensive gear that takes 10 years to pay off it’s difficult to cut short of renegotiation of the loan. When one cuts the operating expenses radically one is still left with debt. Debt payment is a monthly expense and it is the one thing that generally can’t be trimmed. That’s why it’s the killer.
When one buys $100,000 piece of gear and two years later an equally talented competitor can do the same with $5000 worth of gear . . . they will likely have much lower monthly expenses at least relative to that gear. If you choose to sell the $100,000 piece of gear it is likely that, with its depreciated value in the market, it will NOT cover the loan.
In the last few years equipment costs have dropped radically. Also given the “miniaturization” of equipment and the movement of much equipment from hardware to software, reduces one’s facility space needs or one can have more “rooms” per the same space. All these have driven down expenses. Facilities with large and expensive gear that was not yet payed off were saddled with expenses that were difficult to cut.
Debt load itself may impact whether a company files bankruptcy to reorganize and restructure the debt, vs bankruptcy to close down. Sometimes there’s no viability in restructuring the debt. Certainly there are other reasons companies go under but this would seem to be the case with large expensive facilities. Examine the age and cost of the equipment and outstanding loans and I suspect it’ll expose the pattern.
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[Neil Hurwitz] “So in conclusion, I would like to hear about how you all
moderate your Operating Expenses and not about debt load”Volume of work + Low Overhead. That’s our formula simplified.
Walter Biscardi, Jr.
Editor, Colorist, Director, Writer, Consultant, Author, Chef.
HD Post and Production
Biscardi Creative Media -
Plus you’re one of the best guys in the southeast, plus you’re located close to, and have connections with, things going on in Atlanta- which is a regional production hub. Plus you’ve been really good at getting the word out when you do cool stuff, and you’re very active in posting and helping people on the Cow. And finally, there’s a little bit of luck (we all need luck, too).
Not kissing your butt, Walter. Just saying, it’s not JUST low overhead and volume. If that were the case, you’d be in Beijing using local talent.
Operating Expenses:
Neil’s got a great point. There’s a tv commercial company in Santa Monica that’s known (spots you’ve seen on national tv), who are trying to deal with reducing operating expenses by having unpaid post-film school interns do ALL the creative jobs on set and in post (besides direct, they still do that with a paid director).I personally made a huge error last year, related to operating expenses- we did a project for a client and made a little bit of money. Then the client insisted that we cut the budget for the next two. Wanting the work, I said yes. Turns out, we lost money on those two projects. Like Neil’s lawyer example, who couldn’t even stay in business if they had to “only” charge $250/hr, the fee for these two projects sounded like a lot of money on first glance, but realistically after operating expenses were calculated, it wasn’t enough. As painful as that lesson was, to me, I’ve put in some controls that hopefully will ensure we don’t end up doing that again.
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PatrickOrtman, Inc.
Los Angeles Digital Agency and Video Production Company -
[Patrick Ortman] “Operating Expenses:
Neil’s got a great point. There’s a tv commercial company in Santa Monica that’s known (spots you’ve seen on national tv), who are trying to deal with reducing operating expenses by having unpaid post-film school interns do ALL the creative jobs on set and in post (besides direct, they still do that with a paid director). “I would not post that too widely (too late) since it may be violating state labor laws. Many states have legal definitions as to what an “intern” is and whether a company can benefit financially from using them.
[Patrick Ortman] “I personally made a huge error last year, related to operating expenses- we did a project for a client and made a little bit of money. Then the client insisted that we cut the budget for the next two. Wanting the work, I said yes. Turns out, we lost money on those two projects.”
One of the most important things you need to do at the outset of starting a business is work on your financial model. You shouldn’t be making this mistake. This is the “other” thing that tanks a business beyond debt load. You MUST know what you must make to meet your monthly expenses. If you must cut costs for a client it should be commensurate with costs you can cut for the job. That might mean lower equipment rentals, fewer hours, smaller crew, cheaper talent. You can’t simply cut the price unless you have huge profit margins . . . in which case you’re cutting your margin.
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If they get outed, it’s their fault for being jerks to these kids they “hire” for free to do all the work. Interns are fine, but they should not be running your shoots and so forth. It’s abysmal that this prodco has stooped to this.
I agree with you on my mistake on the budgets for those two follow up projects. The only thing I have to say in my defense is at that time we were transitioning our business model. We’re now doing many more higher-end film/video projects (we started as a web shop that did an occasional video).
We (and by we, I mean in the end despite any advisors and advice received, it’s my fault) hadn’t fully developed an idea of what these operating expenses would be. For instance, it was a bit painful to realize we really needed a second edit bay (and another editor) to get things done in time for the client’s deadline.
That mistake won’t be made again. I plan on making a whole slew of other mistakes in the future, instead 🙂
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PatrickOrtman, Inc.
Los Angeles Digital Agency and Video Production Company
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