Economic pressures are forcing even some of the largest studios in Hollywood to change the way they operate, and studio workers have the pink slips to prove it.
Outsourcing long has been a Hollywood tradition, but as the recent closures of various departments at Warner Bros. and Universal Studios Inc. indicate, it’s becoming even more important at many big studios.
Although layoffs have been relatively small only about 400 workers have been cut from three studios in the past two months they point to an ongoing transition in how studio production is handled.
On July 31, about 150 Warner Bros. employees will be let go following the closure of the studio’s 18-month-old digital effects house, Warner Digital Studios. Earlier this month, Warner also announced plans to close its tax department, which employs 18 people.
Meanwhile, Universal laid off 115 full-time production services workers on July 16, and in June some 40 positions were eliminated from the studio’s information technical support division. Some 85 employees were cut at Metromedia International Group’s film and TV units on July 10, and another 111 positions will be eliminated over the next nine months.
Studio sources cite a number of reasons for the cuts, including annual budget reviews and overall corporate restructurings.
But industry analysts say studios are being forced to change the way they do business at the behest of Wall Street and to pay down debt from big acquisitions. There is a new imperative in Hollywood to trim fiscal fat and run as efficiently as possible in order to keep shareholders happy.
Art Rockwell, research director with Yaeger Capital Markets, said much of the pressure on studios is coming from institutional investors, who now control large blocks of shares in Hollywood companies.
“In the old days, (studios) had a fat-and-happy kind of attitude as long as they were making money,” said Rockwell. “Nowadays, with the pressure from the institutional investors demanding better performance … clearly it’s affecting the whole operation. It’s the old cry from the last decade, ‘Shareholder value’ or, to paraphrase, ‘Show me the money.’ ”
Both Warner Bros. and Universal are under pressure to reduce expenses in the face of massive acquisitions by their parent companies. Since Seagram Co. Ltd. purchased 80 percent of Universal in April 1995 for $5.7 billion, more than 200 people have been let go at the studio.
Universal management is under a mandate to cut $100 million from annual expenses through a “re-engineering” process. Few details have been revealed, but the recent cuts involve departments across the board, including painting, construction, sound, clerical, administration and accounting.
The studio employs about 15,000 people worldwide, about half of them in Southern California.
The closure of Warner Bros.’ digital division follows on the heels of Time Warner Inc.’s $7.5 billion acquisition of Turner Broadcasting System Inc. Time Warner is laboring under a $17.5 billion debt load, and all its divisions are under a company-wide mandate to cut operating expenses from 3 percent to 5 percent over the next three years.
The result is that many tasks now done in-house at Warner Bros. are likely to be outsourced in the near future. A studio insider said the company has undertaken a study on which in-house divisions could be most efficiently farmed out to contractors.
“It’s the way to go in the ’90s,” the source said.
Most of Warner Digital’s 150 workers, including computer animators, compositors, and clerical and administrative personnel, are currently looking for work.
“It is devastating,” said Mark Farqhuar, a former computer animator at Warner Digital. “It was a big facility and it’s always bad for animators when there’s not another studio to work at.”
Farqhuar is in negotiations with a digital-effects house for a new job.
“It’s really the support staff people who are going to have a hard time finding work,” said one Warner Digital employee who asked not to be named.
Warner Bros. staffs about 5,000 full-time employees and several thousand additional freelance contractors are hired on an as-needed basis.
“Our film production schedule is so varied, it’s difficult to anticipate any long-term staffing while maintaining a highly technical facility,” said Warner spokeswoman Barbara Brogliatti.
Besides the digital division, Warner Bros. is making plans to outsource its accounting functions. Time Warner’s accounting firm, Ernst & Young, has offered over half of Warner’s accountants new jobs to do essentially the same work they did for the studio.
At Metromedia, where 85 employees were laid off and another 111 are expected to be fired in the next nine months, the job losses came on the same day Metro-Goldwyn-Mayer Inc. formally purchased the operation. MGM is also evaluating another 35 positions at Metromedia’s Samuel Goldwyn Co. including the one held by company head Samuel Goldwyn Jr.
“Any time you have a major acquisition, you’ll have a major job loss, because of duplication of function,” said Rockwell.
Laid-off workers will receive six months severance pay and health benefits, said MGM spokesman Craig Parsons.
Of the 111 people expected to be laid off at Metromedia, about a quarter will be absorbed by other departments at MGM, Parsons said.