The global financial crisis and worldwide tightening of spending has affected almost every business, with post-production companies being no exception. As a result, post houses are changing their business strategies and coming up with new ways to create and keep business. One of these ways is to increase direct investment in productions as a way to secure work.
Though direct investment is a risky strategy, it is something that is becoming more necessary for post houses. Many companies are competing heavily for work, and with the shrinking budgets of productions, money is tight. Many houses are working far below capacity and are trying to drum up business with this approach.
Sometimes a deal can be struck with producers: a direct investment in the production can result in post-production work being given to that post house. For films they believe in, this can be a profitable, though risky, endeavor. This approach is becoming increasingly popular in Australia, where about 90% of producers now expect some kind of contribution from the post houses. With the dollar remaining strong, fewer big Hollywood productions are coming to Australia, and that means far less money is going to Australian post houses. Consequently, they need to think of new ideas to keep their businesses alive.
While post houses are obviously hoping for return on investment, they are also investing to provide a stimulus to keep alive the industry they play such a big part in. If no movies are being made, there is no post-production work. Post houses obviously realize this, and are trying to do something to rectify the situation. In this economy, some houses will unfortunately meet an untimely end (and it may just be the smaller houses which have far less overheads). Every house is doing its best to keep abreast, and this is one of the best ways they can come up with.
Large direct investment by post houses is still a bit unconventional and is truly a sign of the bad financial times. The investment is essentially a huge financial bet about the success of the film. This is something that not even the film distributors are willing to do (distributers typically invest less than 6% of the budget). Of course, the houses do their best to only invest in those projects that make commercial sense, but it’s a huge risk nonetheless. No one can truly predict the success of a film before it is released. But until the economy changes, we’ll most likely continue to see this type of investment by post houses.