Depreciation in Production Companies

Launch 48 Faculty Blog, Metalworks News

Have you ever bought an expensive item, something considered to be top-of-the-line? Whether it was a computer, a stereo or a cell phone, were you upset when your item was replaced six months later by something better? It has happened to me, and I am sure to most of you (especially with phones). Now imagine it wasn’t one cell phone, but one hundred you purchased. Now you have one hundred items that six months ago were the hottest things going, and now less than a year later are yesterday’s news. Let’s apply that now to a production company in the entertainment business. As a company in a competitive market, you are obligated to compete. The only way to compete (without giving your product away) is to have in your inventory the product that the masses are requesting. This sounds easy does it not?  Supply and demand sounds simple.

Let us look at this using a fictional company that supplies lighting equipment. When you decide as a business to enter this market, you start by going out and purchasing the latest, greatest moving lights with all the bells and whistles. This is a new and exciting product that everyone in the industry is raving about, and you purchase forty-eight of them complete with road cases. Your company just went up in stature in the entertainment business, and your small sales staff is excited because people are actually calling them now that you have this wonderful fixture. Your experienced in-house technicians are excited because they are using and showcasing a great product. In fact A-list techs actually want to work with your company. And your clients are happy because they see these fixtures used in their events. At times you even have empty shelves in your shop, due to an increased demand.

Now let us move forward just one year. That wonderful fixture you purchased that everyone was excited about is no longer considered great, just standard.  Many new and improved fixtures have appeared in the market. These can be from other manufacturers or even from the same one that produces your lamp. Your competition purchases these new fixtures and their phones are now ringing. Quite a dilemma we have now. You now have fixtures that you have to offer at a discounted rate just to work them. You have to offer such a deal on these so that clients will not consider the better fixture your competition carries. Not everyone will consider taking an inferior product no matter what the cost saved. Your sales staff, in order to maintain their clientele, will cross rent the “hot” fixture from their competition. This will add costs to the rental that you cannot ask the client to cover, and in turn produces less revenue into your company. This can have devastating consequences for you. Less revenue means you can’t even begin to think about upgrading your inventory. Your experienced techs that turned your business into a respected company, because they adapted to show situations professionally, are now going over to the company with the better gear and of course better pay. You can no longer afford them anyway, so you have to replace them with eager but very green techs. You begin to see the domino effect here.

The point I am trying to show here is that production houses have to stay competitive, or you end up with shelves of gear that no one wants. Some of you might say that you could sell off the out-dated gear. At what price? You will not even come close to what you think they are worth, and the reality of what people will pay. So before you head out into the job market and look at production companies for employment, look at the gear that company has. Full shelves in a warehouse may look impressive, but ask what is in those cases and do your homework on those fixtures. Finding out that what they have in the cases have been discontinued by the manufacturer and basically unwanted by the masses, could save you from job searching again in six months.

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