posted 02-04-2014 05:00 PM                       

• The big multinationals have more or less completed the process of transitioning to digital.
• Mainstream movies and high-end TV shows originated on film are now in a minority.
• Independent, small labs that process negative only and/or specialize in the archival market are just about still with us, but struggling (Alpha Cine closed last year - didn't know that)
• Demand for film stock fell 70% between 2007-11.
• Mainstream 35mm release printing likely to be totally finished by the end of this year.
• Informed speculation by an economics prof and bankruptcy expert that Kodak isn't really out of the woods, despite emerging from chapter 7.
• Speculation flowing from above that the end of (color - the article names EK as the only film manufacturer still in existence, though the last I knew OrWo was still making b/w stock) film manufacturing may happen before the end of labs.

posted 02-04-2014 06:46 PM                    

quote: Debra Kaufman
Santa Monica California USA

©2014 CreativeCOW.net. All rights reserved.

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Sure, some of the biggest movies are still being shot on film, but in a world where film cameras haven't been in production for years, where only one company still makes motion picture film, and by the end of the year, there may be no more film prints for theatrical distribution, it's no wonder that the number of businesses who can sustain themselves by processing film has plummeted. In this latest dispatch from the film BUSINESS, Creative COW Contributing Editor Debra Kaufman finds industry leaders asking themselves, will 2014 be the year we see the last film lab?

On February 15, 2014, the Academy will award its Oscar Statuette, for the Academy Award of Merit, to "To all those who built and operated film laboratories, for over a century of service to the motion picture industry." "Lab employees have contributed extraordinary efforts to achieve filmmakers' artistic expectations for special film processing and the production of billions of feet of release prints per year," continues the citation. "This work has allowed an expanded motion picture audience and unequaled worldwide cinema experience."

In a paragraph, the Academy has written an eloquent obituary for film labs, which are on the verge of extinction. Creative COW spoke to numerous film lab executives to create a picture of an industry on the edge. Even during the research for this article, another lab closed. Opened in 2011, the Glendale-based Technicolor film lab replaced a larger lab at Universal Studios that closed; approximately 100 of the 360 workers laid off as a result of that closure moved to the Glendale lab. Earlier in 2013, Technicolor closed its Pinewood film lab in the U.K. and, prior to that, in 2011, it shuttered its Montreal-based film lab.

See also:
Film Fading to Black
Film Fading to Black
"The release print business is essentially over as we know it," said a Technicolor executive. "When will the profits [in film labs] no longer be there? That's something that has to be looked at, not on a weekly basis but certainly on a monthly or quarterly basis."

In Film Fading to Black, I chronicled the end of film as an acquisition medium. With a huge install base of film cameras, Kodak film stock and film labs, however, the actual end of film as an acquisition and distribution medium was hard to predict.
Since then, however, Digital Cinema has made film distribution nearly an anachronism. The numbers of theatres worldwide that have transitioned to Digital Cinema vary, but they all point to an end game. According to NATO (National Association of Theatre Owners), "as of July 2013, 35,712 screens in the United States have been converted to digital, 2,951 screens in Canada have been converted, and 64,862 screens internationally have been converted." With regard to the worldwide installation of Digital Cinema screens, researcher Screen Digest reported that it "expects the digital format to be in use at 90 percent of screens worldwide" by the end of 2013.

What about film as an acquisition medium? Plenty of cinematographers still prefer film – and shoot it when they can. Although Kodak will not release the amount of film stock it still sells, the company does list the number of high profile films that shoot in film each year. Shot in film this year were an impressive number of big box office films: The Hunger Games: Catching Fire; Blue Jasmine; 12 Years a Slave; The Lone Ranger and even indies such as Fruitvale Station and Mud; and TV shows Walking Dead, Boardwalk Empire; and the recently concluded Breaking Bad.

Kodak Film Lab and Studio Relationship Manager Christian Richter
Kodak's
Christian Richter
"It's not as much many as there has been," said Kodak Film Lab and Studio Relationship Manager Christian Richter. "I'd rather focus on the fact that there are a lot of films still being originated on Kodak film."
There is something poignant about a list of movies shot in film. Not long ago, it was the manufacturers of digital cameras who listed the movies shot with their nascent technology. Clearly, the ratio has flipped.

But how much longer will directors dedicated to film have that choice? Kodak's Richter reiterates the company's loyalty to its tradition of film stock. At the same time, even he cannot ignore how dramatically the business of processing film has changed. "Sixteen years ago you had big labs, huge facilities dealing with billions of feet of film, because that was pretty much the only medium used for theatrical distribution when you shot feature films," he said. "Those huge numbers are not there any more and they had to adjust to smaller volumes. The labs have had to change their way of working."



THE FILM LAB NUMBERS
Just how many film labs are left? The numbers vary, depending on who's quoting them. According to Kodak's Richter, there are a total of 50 labs across Europe, Africa and the Middle East that handle 35mm negative; 30 labs in Asia; 15 in Latin America; and close to 20 in the U.S./Canada, for a total of 65 labs worldwide. Panavision Product Management Technical Liaison David Kenig noted, however, that some of the labs on the Kodak site "specialize in B&W, 16mm and Super 8 and do not offer full 35mm processing and printing."

The Association of Cinema and Video Laboratories has shrunk to a tiny membership: nine in North America (of which one has closed, said ACVL President Peter Bulcke) and four internationally (three in Asia and one in South America).

"By the end of this year, film will most certainly be dead for release printing," Bulcke said, noting that a mere 200 to 250 prints is struck for a "big release," down from thousands in the heyday of film.

Kenig quoted other statistics. "The Film Yearbook of 1924 lists 10 labs in Hollywood and 45 in the NY and NJ area," he said. "The Film Yearbook of 1930 lists twenty-two labs in Hollywood and fifty-one in the NY and NJ area. There are also more labs listed in almost every state." A listing of British labs from the beginning to today contains 146 entries. "Of these, seven labs are still in operation," he added.

At what point does it become economically impossible to keep a lab open? Bulcke estimates it as "fewer than 100 prints." "If you only make 100 prints, that's nothing anymore," he said. "It's not a viable model for any of the laboratories, especially for Technicolor and Deluxe."



LAB BY LAB
On November 10, 2013, Sydney, Australia-based Neglab, a motion picture film laboratory founded in 1997 for processing 35mm and 16mm color negative, reopened its doors. According to founder/owner Werner Winkelmann, Neglab closed two years ago, due to lack of work. But when Deluxe closed its major Sydney film lab, those in Australia still shooting celluloid had no place to develop film and petitioned Winkelmann to reopen. "The response has been fantastic," says Winkelmann. "Everyone, especially the film schools and universities, have been keen that a local lab is available. They encouraged us to do it and we thought, why not."

Neglab founder/owner Werner Winkelmann
Neglab founder/owner Werner Winkelmann

"We are very pleased by the response of the film community to Neglab," said Winkelmann on the website. "But also know that we need your support to keep the choice alive."

The opening of a film lab is a rare event in today's market. The news for several years has been about labs closing or shrinking their services. The two biggest players servicing the motion picture and TV industries – Deluxe and Technicolor – inked a deal in July 2011 that sub-contracted the work that remained, an acknowledgement of just how much the market had diminished.

In the deal, Technicolor subcontracted its 35mm bulk release printing for major studios in North America to Deluxe, and took over 35mm print distribution in the U.S.; the result is that all U.S. film prints are now struck at a Deluxe lab but distributed by Technicolor. As a result, Technicolor closed its Montreal-based film and North Hollywood labs.

Technicolor's Hollywood Facility
Technicolor's Hollywood Facility

Deluxe also subcontracted its 35mm/16mm color negative processing business in London to Technicolor, and shuttered its two London-based facilities. In another agreement later in 2011, Technicolor agreed to subcontract all its 35mm bulk release printing in Europe – as well as front-end services in Italy and Spain – to Deluxe Europe.

At the time, in 2011, Deluxe Entertainment Services Group CEO Cyril Drabinsky predicted to The Hollywood Reporter that the release print business in North America had "at least another five years" to go, and even longer in the European market.

He updated those opinions for the 2014 market. "The release print business is a fraction of what it was four or five years ago," said Drabinsky. "It's not a huge part of our business anymore. We obviously work on a monthly P&L and we do look at it. It continues to be a positive cash flow business and we'll continue to operate in locales where it is."

But, said Drabinsky, "over the next couple of years, we'll reach a point where there aren't many pictures shot or released on film." When will that happen? "No one knows the date,' he said. "But it's not ten years out and it's probably less than five. It's a question of how long we can keep it going. There are a lot of people who want to continue to shoot on film. The question for us is to keep the infrastructure as efficient as possible."

The Technicolor executive interviewed noted that "the figure you have to look at is not the number of screens that remain celluloid, but the great preponderance of revenue from digital screens. "Before it was 75 to 80 percent digital penetration," he said. "But those screens generated more than 90 percent of the box office. End of discussion."

"At the end of the day, if the studios aren't concerning themselves with the small percentage of the revenues, then why maintain the costs of film and digital with regard to exhibition and printing?" he added. "The labs that have the ability to do release prints will continue as long as the studios will make a commitment to it."

Both Deluxe and Technicolor have expanded deeply into digital services portfolios, replacing revenues that once flowed from film processing and film prints.

FotoKem Chief Strategy Officer Mike Brodersen
FotoKem Chief Strategy Officer Mike Brodersen
In Los Angeles, few labs have thrived as robustly as the privately-held FotoKem. Chief Strategy Officer Mike Brodersen's grandfather founded the small 16mm lab with some filmmaker friends in 1963 and – predicting that the media business would move to Burbank – moved it to the building it's still located in.

Today, FotoKem handles large format film as well as 35mm and 16mm and full-service post. "Obviously, the percentage of TV and feature work is tipping towards the digital side," said Brodersen. "Several years ago, file-based cameras started to rival the film image." FotoKem focused on digital processes and systems early on. "We created our NextLAB system," said Brodersen. "Getting into software development was the next thing to address the film-to-file transition, with tools modeled after telecine functions."

Brodersen reported that 90 percent of TV work is now digital, and, depending on the month, between 15 and 25 percent of the feature work is film. FotoKem VP of Sales & Operations Andrew Oran noted that the company sees 65mm work as well as "a lot of 2-perf and 3-perf" 35mm. "As digital cameras have gotten better, people have migrated away from 16mm and wanted the higher resolution of a 35mm gauge," Oran said.

But, both Brodersen and Oran agree that, "film is a gradually diminishing arena." "The people still shooting film are those for whom it's the right artistic objective," said Oran. "Our objective as a company is to still support those people. We've maintained a steady flow of film work, so we can give the turn-around for people shooting on film that we did 20 years ago." Brodersen reported that FotoKem also gets film from overseas and out of state. "There's been an uptick in courier work as a result of local labs going away," he said. "FedEx and other couriers are awfully busy getting us unprocessed negative."

Brodersen pointed out that major Hollywood studios are also clients, as are others who want to preserve films. "Part of our commitment to film-based services is to studios and film owners who need preservation and/or archiving," he said. "And we have a steady flow of that business."

The FotoKem building
The FotoKem building in Burbank, California



PRESERVATION/ARCHIVE OF FILM
The move to Digital Intermediate finishes started a debate – as-of-yet unresolved – about how to properly archive finished films. Even today, each studio has its own process for choosing which elements to store, and the independents may not all be archiving any elements.

Historic films are archived at the Library of Congress, the Academy of Motion Picture Arts & Sciences as well as dozens of other archives, many of them housed at universities with film studies programs. As I detailed in a recent story on the restoration of a Mary Pickford film, film labs are crucial for preserving and restoring these historic films.

But nearly all of these specialist labs are hanging by a thread. Most recently, Alpha Cine in Seattle, a stalwart in film processing, ceased operations on October 31, 2013. ColorLab President Russ Suniewick, whose company worked on the Mary Pickford film, knows just how difficult it is to keep the doors open.

ColorLab President Russ Suniewick and wife, Nancy McLean, Colorlab's Comptroller

"We started out as a motion picture lab in 1972," he said. "Sands shifted when video chips camera long and, about 12 years ago, we repurposed our skillsets and applied it strictly to film preservation." He lamented that, "there are very few preservation facilities remaining because of all the labs going out of business."

When he made the switch from full-on film processing to the preservation niche, Los Angeles and New York were still teeming with film-based TV and features. ColorLab's switch to acting as a preservation/restoration lab saved 25 jobs. But, as anyone in the preservation business knows, the money to work on films isn't easy to find. "Especially 12 years ago, these weren't films that could get preserved without a sure-fire revenue model," said Suniewick. Located near Washington, D.C., Suniewick ended up focusing on films that had historic or cultural value, with funds from the Library of Congress being disseminated through the National Film Foundation in San Francisco.

Suniewick said that, although there are hundreds – if not thousands – of films that need restoration and preservation, the funds to do so are far from a given. "There is not that much money flowing," he said. "It's doled out, or at least that's the way it seems. We don't get [much] money in any given year, but we do have projects that can go on for more than one year."

The lab technicians at ColorLab haven't had a raise in years, said Suniewick, and he can barely pay for healthcare. "If we were true business people, we would have closed in 1986," he said. "But the people here are extraordinarily dedicated. That's why we're so anxious about the future."



OUTSIDE THE U.S.
What about the other labs and other territories? In June 2013, David Hancock, Director, Head of Film and Cinema for Screen Digest came out with a report on the global cinema exhibition sector, which "is now approaching the endgame as far as the conversion of projection equipment in cinemas is concerned." The report stated that, as of January 2012, 35mm became the minority cinema format and that, by the end of the year, 89,341 screens were digitized globally, a growth rate of 40 per cent over the previous year.

Although I was unable to interview lab owners in destinations that might still be strongholds of film distribution, I did speak to some labs outside of the U.S. Nigel Horn, co-founder of i-dailies Ltd., has spent much of his career in the lab business, and opened this lab in March 2012. "I was aware that Technicolor was going to close," he said. "We took a leap of faith into the unknown, to increase capacity to meet the demand," he said.


i-dailies provides a full film deliverables service.

The film lab focuses only on producing negatives and doesn't aim to offer bulk release printing. "This is a boutique and specialist lab," said Horn, who said they have the capacity to handle 100,000 feet of negative a night. "We're passionate about keeping film. In a way there's never been a better time to shoot film and process it in the U.K.: the people, machines and chemistry are all here."

In Montreal, Vision Globale's Director of Operations Paul Dion spoke of his company's unique status. "The film lab is self-supporting, mainly because we're the last man standing now in Canada," he said. "There's a small lab near Toronto that does mainly 16mm and not on a regular basis, so they can't support the demand of a full feature with a large amount of film to process."

Vision Globale also offers restoration services, with its proprietary GeneSys software; the lab is currently doing work for the Biblioteca de Mexico. Dion estimates that 15 percent of the company's work is for restoration, and it's increasing. The company also relies on doing Digital Intermediates for between 30 and 50 features a year.
See also: Film Labs: What History Tells Us
Film Labs: What History Tells Us
"I think we need everything to stay open," said Dion. "It used to be that what was driving all the labs was 35mm prints. Now it's gone to only processing for the front-end lab and doing some Digital Intermediates. We have contracts to keep the lab alive for 2014, but after that, I don't know."
To stay alive, said Dion, the lab has been stripped down to its "bare minimum." "We have to be able to accept the clients who come up with up to 1 million feet a year, and deal with the DIs also," he said. "The only reason we're still up is because we're a boutique lab, a small footprint, and we don't have the overhead of all the others."



WHAT ABOUT FILM STOCK?
In projecting the end of film, we've been looking at labs and how close they are to the tipping point of unprofitability. The answer is, very close. But what if film stock disappears first? It's not out of the realm of possibility. The three biggest film stock manufacturers globally were Kodak with a 55 percent share, Fuji with 35 percent and Agfa with 10 percent. Fuji and Agfa have exited the film stock manufacturing business, leaving Kodak the sole provider, 100 percent of a dramatically shrinking market; between 2007 and 2011, worldwide demand for film stock dropped a precipitous 70 percent.

What if Kodak ceases producing film stock before the labs all close?

Although that might seem anathema to even mention (and Kodak would publicly deny any such possibility), it's a subject that was brought up by some of the experts I interviewed. "Kodak has to look at the same factors we're looking at," said Deluxe's Drabinsky. "Do they continue providing stock in a declining marketplace? At what point is it no longer profitable for them to do so?"

The good news is that Kodak recently exited Chapter 11 bankruptcy. But that's just the beginning of the march to profitability and stability. Companies successfully exit Chapter 11 all the time. But up to 32 percent of them go back into bankruptcy, often called Chapter 22.

Edward I. Altman, Professor of Finance at the Stern School of Business, New York University, developed the Z-Score for predicting bankruptcy. He noted that "studies of post-bankruptcy performance find that while many companies restructure without the need of further remedial action, a striking number require that the reorganized business needs to restructure again through a private workout or a second – or even a third – bankruptcy."

The day that Kodak either goes out of business permanently or ceases to produce film stock will be a tragic day for film lovers everywhere and a somber one for U.S. industry. I certainly hope that neither scenario takes place.

But let's look at the facts. CEO Antonio Perez, who came from a background focusing on printers at HP, has been pushing an inket technology-centric recovery plan. Kodak has created Alaris, its film-centric division but it's not aimed at the professional film/TV industry.

Kodak has branded itself as a "global technology company offering breakthrough solutions and professional services in the packaging, graphic communications and functional printing markets."

Having just relisted on the New York Stock Exchange in November, the company has publicly branded itself as a "global technology company offering breakthrough solutions and professional services in the packaging, graphic communications and functional printing markets." No mention of the professional film/TV market. Furthermore, shareholders who don't have a shred of nostalgia or personal interest in the film industry will be scrutinizing Kodak's bottom line. The upper management will make whatever decisions they deem necessary to keep Kodak from falling into a second Chapter 11, or worse.

Will film survive this perfect storm of digital replacing analog? Yes, it will, in archives everywhere. Will it survive as a current medium of acquisition and distribution? The Magic 8 Ball says, "Outlook not so good."

If and when that day happens, we must, as an industry, put our voices and efforts behind preserving our film history, ensuring funding for every bit of valuable celluloid. Losing the future of film doesn't have to mean losing film altogether.

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