Technicolor, the groundbreaking visual effects company, is on the brink of a breakdown after exhausting options to keep its operations alive—impacting major hubs in the US and UK, with potential ripple effects further afield.
Leaked emails claim that Paris-based Technicolor has been unable to secure a path forward for the company, despite exploring restructuring initiatives and acquisition opportunities.
In other words, the restructuring process triggered almost exactly two years ago, which saw the company spin-off the Technicolor Creative Studios division, has been a disaster—saddling the VFX unit with crippling debt.
How did it get to this point?
The separation of the VFX division was in reaction to burgeoning demand for visual effects, hitting fast-growing and evolving markets for streaming companies, filmmakers, brands, and the gaming industry. Even the metaverse was mentioned as a future target market for VFX from the newly spun-off Technicolor Creative Studios.
Regrettably, Technicolor never accounted for the rapid rise of generative AI, and the devastating impact it would have on creative industries. For those seated on the Technicolor board who did not heed these genAI warnings, they are the ones culpable for the ensuing job losses—not AI.
As of writing, some 440 employees (the vast majority) have been laid off from Technicolor’s UK branch. The full extent of Technicolor lay-offs, including the US, has not been confirmed, but the combined business—including The Mill, MPC Advertising, and Mikros Animation—employees some 10,000 people worldwide across VFX and animation.
When we covered the 2022 spin-off, Technicolor was making hay with its plans to generate $360 million in cost savings by the end of 2022. At the time, in Q1 2022, it had already generated $318 million in cost savings.
Things quickly soured, with Technicolor pulling its estimated financial outlook only a year later, and delisting from the Paris stock exchange.
By October 2023, Technicolor Creative Studios reported a 33.6% decline in 9-month revenues to €414.4 million ($434 million), as Q3 2023 revenues sank by an alarming 48.1%. This included a 56.8% decline in revenues from MPC Mikros, a 46.6% decline in Animation, and a 35.1% decline at The Mill.
During this brief period where financial figures for individual brands were reported separately, the only bright spot was Technicolor’s Games segment, which increased by 20% in Q3 2023. But at only €4.2 million ($4.4 million), this fledgling unit was (and is) a needle in the haystack.
Though the company was being dragged through the wringer, executives continued to sugarcoat results with jargon like a pipeline for “strong creative performance and commercial success” which was supposedly fueling renewed confidence from shareholders.
Technicolor blamed a slew of factors, including a hangover from the initial boom of the post-Covid recovery year which saw significant demand for original content.
It is true that these effects were felt market-wide, as was the delay of order intake due to the industry-crippling Hollywood strikes of 2023, couple with a general unfavorable macroeconomic environment with decelerating VFX advertising spending and increasing competition.
The spin-off effort was also supposed to be aided by a fresh injection of €100 million ($111 million) cash from the sale of Technicolor’s Trademark Licensing operations. Evidently, that cash was burned through at a rapid clip.
Technicolor has made a number of botched business decisions over the years to reach this unfortunate position.
A series of costly VFX acquisitions during the 2010s (MPC and The Mill) failed to generate desired profitability, while the technology side of Technicolor’s business has seen a number of loss-making acquisitions and subsequent divestments, namely Grass Valley (broadcast services) and PRN (in-store advertising).
Like a serial divorcee, Technicolor is a connoisseur of financial collapses and emergency refinancing rounds, with a 2010 bankruptcy followed by another debt disaster in 2020.
Is there any hope for Technicolor Creative Studios?
Technicolor Games is one studio division where there is optimism. However, even here Technicolor lags behind competitors in the VFX gaming space, like DNEG and ILM, which have invested in real-time 3D rendering technologies like Unreal Engine.
With Technicolor’s legacy reputation and reports of poor working conditions, decades of financial and technical mismanagement have culminated in a sorry state of affairs.