As the only publicly held commercial production company and one of the nation’s biggest, Harmony Holdings serves as something of a barometer for how the industry is doing. And the forecast calls for bad weather.
In mid-February it was de-listed from the Nasdaq SmallCap Market because it didn’t meet Nasdaq’s minimum asset threshold, and now it trades on the OTC Bulletin Board with the other penny stocks.
A week later, it reported a net loss of $4.3 million (58 cents a share) for the second quarter ended Dec. 31, compared with a net loss of $681,913 (11 cents) for the year-earlier period.
Harmony is just one victim of a prolonged funk that started hitting commercial producers several years ago but which accelerated last year.
The problem is twofold. Ad agencies, whose own profit margins are being badly squeezed, have been doing everything they can to cut production costs. At the same time, the increasing prestige of commercial work has attracted unprecedented numbers of young directors to the business directors willing to work for little or no money in order to beef up their “reels,” or production resumes.
In the late ’80s, production companies typically charged a “markup” of 35 percent for commercials meaning 35 percent above and beyond the cost of production as profit.
“I haven’t submitted a bid with a 35 percent markup in five years. Now we’re trying to get 30, but usually they come in around 29, 28, even 25. And if it’s a really great creative spot, it might go as low as 10 or 15,” said Ben Dossett, executive producer with Santa Monica-based Windmill Lane Productions.
Harmony’s problems, however, go beyond the squeeze from ad agencies. It suffered a $3.5 million loss that was connected to the closure of L.A.-based Harmony Pictures, one of its four operating units, which it opted to shutter in November. Harmony Pictures had been bleeding red ink for years, but the killing blow was the loss of director Rob Lieberman, a major revenue-generator for the company and one of its co-founders, who recently set out on his own.
With Harmony Pictures closed, the remaining operating units are L.A.-based The End, The End (London) Ltd., and Curious Pictures Corp., which has offices in San Francisco and New York.
Harmony Holdings came into being when Harmony Pictures, then based in Burbank, went public in 1991 and began acquiring other production companies with the proceeds.
Bigger has proven to be better in some industries, but that hasn’t been the case in the production business. Some of Harmony’s acquisitions, like Velocity Film and Serious Music, had to be closed, and top management has frequently shifted in and out of place.
“When an organization goes public, they’re also stating to the public that they care about profits. The tradition in the commercial production business is, you talk about creativity, you don’t talk about profits,” said Rochelle Winters, a former Harmony employee who helped take the company public before leaving to start her own P.R. agency, Smoke & Mirrors.
Harmony is now run by Christopher Dahl, chief executive of Minneapolis-based Children’s Broadcasting Corp., which bought a 26 percent stake in Harmony Holdings in 1997 and has since increased its portion to 49 percent. Dahl believes that with the unprofitable Harmony Pictures shut down, the remaining units can return to the black soon. “Nobody else is doing what we’re doing, and I hope that’s a good thing,” he said.
CBC, which is now out of the children’s radio business, is looking to increase its stake in Harmony and continue to grow through acquisitions. Dahl is targeting not only other commercial producers, but support services like post-production houses.
“What we’re looking to do is brand an industry with our moniker,” Dahl said.
Will it work? Dossett of Windmill Lane has his doubts.
“I don’t think it’s a great business for that kind of (consolidation) model,” Dossett said. “There isn’t a lot of cost savings by being bigger. Every job is like making a prototype you can’t sell it again, this isn’t assembly-line production.”
Warhol on Wilshire
The Westwood Medical Center at 10921 Wilshire Blvd. in West L.A. is like a giant blank canvas that people can’t seem to resist painting on.
Two years ago, there was a tempest when Walt Disney Co. commissioned the painting of a giant billboard advertising its film “The Rock” on the side of the building, which has high visibility from both high-traffic Wilshire Boulevard and the San Diego (405) Freeway. More recently, a clever group of marketers plastered another movie ad on the side of the building with a high-tech projection system.
The latest attempt was either an effort at artistic expression or a blatant ploy to subvert city laws with a subtle commercial, depending on whom you ask.
On Feb. 20, artist Mike McNeilly was confronted by police officers and a city building inspector and told to stop painting his mural or face arrest. McNeilly says he was simply trying to paint a representation of the Statue of Liberty, as a patriotic statement in the weeks before Memorial Day.
Daniel Hinerfeld, deputy to City Councilman Mike Feuer, says McNeilly was painting an illegal sign without a permit. Further, Hinerfeld suspects it wasn’t intended as artwork at all, but an ad for the upcoming New Line Cinemas release “The Corrupter,” which uses the Statue of Liberty in its marketing materials.
“I’ve never even heard of that movie,” responds McNeilly, who said he had permission to paint on the building from its owner but admits he didn’t have a permit from the city’s Cultural Affairs Commission. “Are we in America? This is freedom of expression, this is a tribute to America.”
The unfinished mural was being painted over last week, so the wall will remain blank until somebody else with a paintbrush and a very tall ladder gets busy.
News Editor Dan Turner writes a weekly column on marketing for the Los Angeles Business Journal.
