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Thomson’s Financial Woes


Burdened by debt and strapped for cash, French media company Thomson S.A. recently announced plans to restructure around its Technicolor division, “to refocus on services to content providers, leveraging our technological expertise,” according to company CEO Frédéric Rose.

To raise funds, the financially beleaguered company said it intends to sell its Grass Valley unit, which produces broadcast equipment as well as the popular Thomson Viper digital camera. Also on the block is Premier Retail Networks, which provides digital in-store media signs for advertisers.

Rose cited “the strength of the Technicolor brand with film and television studios, and its technological assets,” as a rationale for making it the centerpiece of a reconfigured company. Technicolor is No. 1 in the DVD replication business, and has positioned itself as a leading provider of high-tech services from postproduction digital intermediates to satellite transmission of movies to cineplexes for digital projection. The company provided services to 16 Golden Globe Award motion pictures, and it did work on a large percentage of the films that have been nominated for Oscars this year.

The French company will also retain its Thomson Connected division, a maker of set-top boxes, which it views as a complementary business. The objective is to make Thomson a key player in the delivery of on-demand digital entertainment content to household televisions. “Thomson will support and assist its customers in their transition toward a digital and electronic environment, through production, postproduction, and physical and digital content distribution,” said Thomson’s Rose. “The Group’s presence in the set-top box and gateway market represents a significant edge to support film and television studios who aim to develop channels for electronic content distribution to the end-consumer.”

However, a precondition for going ahead with the corporate reconfiguration and perhaps a major stumbling block is the state of the company’s finances. Thomson is currently in discussions with its banks because it may be in breach of its loan covenants as of the end of last year when Thomson’s debt stood at over $2.7 billion. Official results for 2008 won’t be announced until March 10.

Thomson hopes to convince its lenders that its new business plan is viable, but concedes that the banks may not agree. That could put the future of Thomson, once one of the crown jewels of French technology companies, in jeopardy. The company hopes it may get financial help from the French government which recently created a fund for French enterprises in financial straits.

Even if the reorganization does go forward, the distressed economy may create obstacles. Finding buyers and getting top dollar for selling Grass Valley and PRN will be tough. Technicolor is also facing some softening in its key business. Last year DVD sales at retail dropped by a hefty 9 percent, which will surely put a dent into what has been a key source of profits for Technicolor. Also, a potential growth area, the conversion of theaters to digital projection has hit a snag. After years of negotiations, an agreement was hammered out between the studios and the three top exhibitor chains last fall, but so far financing to the tune of $1 billion has not been forthcoming.

Technicolor is one of the most storied companies in Hollywood history, building its reputation on its vivid three-strip color process. The company was purchased by Ron Perelman through his MacAndrews & Forbes Group in 1982 and sold to Britain’s Carlton Communications six years later. In 2001 Thomson acquired the company.

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