The audiovisual industry and the fallout of the ongoing pandemic

Steve Katz  0:10
Hello again and welcome to the Hilco Global Smarter Perspective podcast series. I’m your host Steve Katz. Today we’re speaking with Nelson Thorpe, senior appraiser at Hilco Valuation Services about the audiovisual industry and the fallout of the ongoing pandemic on the TV film broadcasts and concert theater trade shows segments of that business. Just as a little quick background, Nelson and the Hilco Valuation Services team are experts in delivering reliable and actionable evaluations for ABLs manufacturers and specialized equipment rental companies, including those in the audiovisual industry. They accomplish this in great part via a disciplined process industry-leading bench strength, and a systematic and highly collaborative approach that leverages the unique resources of Hilco Global’s own proprietary real-time market data. With that said, welcome to the podcast, Nelson.

Nelson Thorpe  1:01
Hi Steve, thanks for having me today.

Steve Katz  1:04
Yeah, well, we’re glad you’re able to be here. So Nelson, we’ve heard a lot of news and many of us most likely in our business dealings as well, about restaurants and bars and the struggles that they and their employees have been facing during COVID. And we’ve heard a bit certainly about the misfortunes of the big movie chains. But beyond that, and relevant to the discussion today, can you give us a general feel for how hard this period is really affecting those inside and across the AV industry?

Nelson Thorpe  1:32
Well, this has been as devastating to the industry to the people who work in it, as it has been to the restaurants and bars you were just talking about. On the concert tradeshow side, that’s disappeared entirely. Basically, think about it, any event where the larger number of people you have, the smaller the chances are, you’re going to be doing it. And you know, concerts are out, movie theaters are out. So a lot of that’s gone. They’re still for smaller productions, like TV commercials, that sort of thing is still going on. They’re having to take a lot more precautions, of course, but anything with a small group of people, they can still do something. When you’re talking about large productions, like movie productions, it becomes much more problematic.

Steve Katz  2:19
Yeah, I can imagine. It’s interesting. I was watching a show the other day and then, you know, a commercial came on and the commercial itself featured actors who were masked, right, wearing the masks. So obviously, they’re trying to, you know, work in a feel for what’s happening in the current environment into the actual productions themselves. And I’ve seen recently also some television shows that are doing the same thing. So the challenges must be significant, for sure.

Nelson Thorpe  2:45
Well, watching television is one of the few things we can still do.

Steve Katz  2:49
Yeah, that’s for sure. Well, taking a look then, at TV, film and broadcasts, what is your team at Hilco observing in regard to the current state of assets in that segment of the industry? And what key factors do you view as drivers of those developments in the valuations you’re seeing?

Nelson Thorpe  3:09
Well, I think we have to look at this equipment from a sort of a non-COVID perspective first, and then look at what COVID has done to it. The equipment on both for television and even more so for film production, movie production, has a very durable value long term. We’ve seen that for years. And especially if it has nothing to do with the computer, lenses, cameras, lighting, staging, equipment, anything that doesn’t get near a computer is probably going to have value for decades. The movie Hateful Eight was shot with 70 millimeter lenses that were made in the 1960s. So this kind of equipment, and that’s especially true on the movie side, has very long term value. And anything to do with a computer like say video editing post production system tends to degrade much more quickly. Because that’s, you know, basically, it’s a big computer. And I think we all know what happens to that. So for the most part, because COVID is what’s looking like a one year experience, or 18 months, we’ll see how things go. Most of the industry realizes this equipment is still going to be valued at the end of it. And it’s still going to have a place and it’s still going to be used and so we’re seeing the value. Now, we haven’t seen very many sales taking place. Everybody’s just kind of hunkering down. But the few we have anything along those lines, like I say lenses and tripods has had continued to have a durable value even through COVID because the timeline of this equipment is longer than COVID it’s, you know, by a great deal. So, and we’re seeing that borne out. We’ve monitored some auctions recently and the results bear this out.

Steve Katz  4:58
Yeah, and it makes sense. I know I’ve certainly seen, I’m sure many of our listeners have seen movies where the stylistic approach was to use equipment that aided in sort of creating the feel of the historical period in which something was meant to take place. So it certainly makes sense. But yeah, to your point, anything computer related seems to be disposable. And, you know, very short shelf life, right?

Nelson Thorpe  5:23
Well, exactly. And to your point, that was that movie that came out a few years ago, that was on Steve Jobs. And it was sort of filmed in three different places of his lifespan. And the first section they shot 16 millimeter movie film, the second section, they shot 35 millimeter film and the third section they shot digitally. So that visually, it would help break it up and also show the time span. So you’re exactly right, when they’re talking about using the older equipment to portray a kind of subliminal effect almost.

Steve Katz  5:58
Yeah, okay. Well, let’s move along. Let’s talk now a little bit more about concert, theater, trade show, and to the business pretty much the same question, I guess, for that side of the industry. What’s your team seeing comparatively there? And are there any real-world examples, perhaps observations from some of the recent auctions that you mentioned, and how certain assets have performed on concert theater, and trade show side of the business that you could share with the listeners?

Nelson Thorpe  6:28
Well, that side has been completely shut down. I actually have a friend here locally, who’s an electrician who puts up lighting for theater productions and trade shows, and whatever, that’s his whole life, and he hasn’t worked since March. So there’s just been nothing going on over there. And, again, looking at the equipment itself from a non- COVID perspective first, that industry in a liquidation scenario faces certain challenges anyway, for instance, there’s a lot of repetition in that side. In other words, it’s a lot easier to sell one thing than 1000 of those things as a general rule, and they have a tremendous amount of duplication in most of those big supply houses. They’ll have, you know, 500 of this moving light, and they’ll have 1000 of this truss and that’s always difficult from a liquidation scenario anyway. In addition, to which, a lot of their more expensive assets, the lighting control panels, the sound mixing boards, they’re starting to creep up on that kind of computer-related side. So although they do tend to last a while, they do tend to suffer from technological obsolescence a little quicker than say, just the lights themselves. Some of the equipment that’s much more durable is like the power cables, which last forever, the power distribution side of it, truss, fixed lighting, a lot of that stuff has pretty durable value. So but because of the COVID, none of that stuff is in use. But we have seen two auctions very recently where some of this equipment was up for sale, and did surprisingly well in most cases. There were some areas where there just wasn’t anybody there for that particular day. But overall, these were smaller auctions, these weren’t giant supply houses or something but they still did pretty well.

Steve Katz  8:18
So things like the lighting that you’re talking about that we all see, when we go to a play or we go to a concert, it’s not that the items themselves have that sort of accelerated obsolescence. It’s more that there’s just such a large quantity of those types of items sitting there unused right now, is that what you’re saying?

Nelson Thorpe  8:39
Correct. And if you’re dealing with multiples, in any kind of a liquidation scenario, you could run into troubles, whether it’s 1000 moving lights, or 1000 bakery delivery trucks, which is a problem we actually had a couple years ago. The diversity duplication tends to work against you in a lot of cases.

Steve Katz  9:00
Yeah. Okay. Well, that certainly makes sense. So if I’m interpreting it correctly, it seems that even though revenue and employment within those segments have really been hit pretty hard by the pandemic, there may be a silver lining in how well the equipment values are actually holding up here. So to kind of wrap it up, first of all, do I have that right, is that an accurate statement?

Nelson Thorpe  9:25
I would think so and especially since both of those auctions that we monitored recently, were before the what I think most of it is considered good news about the recent vaccines. And you know, all the news we’ve been hearing in the last week about, you know, it looks like something’s going to be happening fairly soon with that. We don’t know how long it’ll take to roll it out to everybody, but at least that’s kind of the light at the end of the tunnel. So and these auctions were before that. So I think a lot of people are thinking, okay, we can hang on for another three, four, five months, and we’ll be back to something approaching normality.

Steve Katz  10:05
Yeah, so that’s the second part of the question. Right. So once the vaccine gets distributed, and you’ve got this, you know, social distancing restriction dissipating, and people are finally you know, maybe hopefully, by third quarter you know, making their way back into some of these venues. How do we view the recovery then? What do we think, will it just sort of parallel that course or is there going to be a lag in there for the industry?

Nelson Thorpe  10:30
Well, in talking to some of the rental houses that supply the movie and television side, a lot of their equipment was out on rent, when this shut down, and all of that equipment just stayed where it was. And so those folks, as soon as they get the clearance to go ahead, they can go back in and turn the lights on and go back to work almost immediately. So that equipment is already there at stage, it’s in place, it’s ready to go. On the concert side, there will probably be a lag, because, you know, takes a long to put those things together. But, it will come.

Steve Katz  11:05
Yeah, well, thank God, some of that stuff is left in place, at least for that side of the business should pay off. I have to say, selfishly I admit I’m just looking forward personally to going out to a movie for a change one of these days getting to a concert too. But certainly beyond that, this discussion today really does put things in perspective in terms of how much actually continues to be at stake across the AV industry overall. So thanks for providing that information. And for those of you listening today who may have portfolio exposure in these markets, whether you’re simply looking for some added perspective or a more in-depth consultation, I think Nelson has clearly demonstrated today that he and his team are the people that you want to be speaking with. So with that in mind, Nelson’s email is nthorpe@hilcoglobal.com that’s nthorpe@hilcoglobal.com. Nelson, thanks again for joining us.

Nelson Thorpe  12:07
Thanks for having me.

Steve Katz  12:08
Absolutely. And listeners we hope that today’s Hilco Global Smarter Perspective podcast provided you with at least one key takeaway that you can put to good use in your business, or share with a colleague or client to help make them that much more successful moving forward. Until next time, for Hilco Global, I’m Steve Katz.