Eyebrows were raised when Matthews Studio Equipment Inc., a grip manufacturer since 1970 for the movie and TV industry, went public in 1989 and launched itself into the rental business. Merging with company after company--starting with Hollywood Rental Company Inc. (HRC) and its subsidiary, Expendable Supply Store Inc. (ESS)--and spreading to locations from Miami to Seattle, and Nashville to Phoenix, has steadily increased the buzz about Matthews' intentions. Now that its latest acquisitions, of Olesen in Los Angeles and Four Star Lighting in New York, have brought the corporation firmly into the theatrical arena, one can only wonder who Matthews Studio Group's next target might be: General Motors?
Only, it seems, if GM decides to go into show business. According to Carlos D. DeMattos, a cofounder of Matthews Studio Equipment, and CEO and chairman of the board of the public entity Matthews Studio Group, the company's plan has been simple enough in concept: to provide a "one-stop shop" for the entertainment industry. Such a shop may not quite supply the entire "soup to nuts" DeMattos envisioned: Matthews doesn't build sets, and you won't find film stock or many film cameras on the shelves at HRC. But it does put HMIs and Kino Flos, C-stands, silks, camera mounts, power generators, video equipment, gaffer tape, and production trucks within fairly easy reach of one another. And, through its acquisition of Duke City Video in September 1997, it offers mobile post-production services besides.
"After Matthews as a group decided to get into the rental business," recounts DeMattos, "we assembled the best equipment we could provide by acquiring Hollywood Rental. From that point, we just started putting the puzzle together by getting a company that had trucks, one that had generators, another that had dollies, another that had lighting, all to create one 800 number that producers could call. That took a lot of capital, and we used the public vehicle to raise a couple million dollars, bought a few more companies, and with that raised another couple million dollars, and bought a few more companies, and so on. It took a few years, because the rental business is very capital-intensive. The more successful you are, the more capital you need to keep that growth going. And we had to develop a computer system to keep track of our infrastructure. It was not until the last one and a half to two years that we finally have been closing the loop."
That period has seen an acceleration of acquisitions (or mergers, as the company prefers to call them) and market expansions on the company's part, and a consolidation of Matthews' corporate headquarters, Duke City Video's corporate headquarters, the main HRC rental outlet, and ESS store into one 72,000-sq.-ft. (6,480 sq. m) Burbank facility. >From this location (plus one in Baja California), James Cameron's Titanic was only the most prominent production serviced. Just down the block is Duke City's 25,000-sq.-ft. (2,250 sq. m) operating facility, one of whose major clients is ESPN's X Games, which is also supplied by HRC. Half a mile away lie the offices and factory of Matthews Studio Equipment, until July the only manufacturing division of the company. At that point, Matthews Studio Group announced the sale of its core grip business to cofounder Edward Phillips. This too was a product of the company's growth and consequent diverging interests. Now Matthews Studio Group is purely in the rental and production service business, which is big business. Says DeMattos, "We are growing in such a way that now we can provide 14 Matthews Studio Group locations in the US from that standard one-stop shop."
To understand DeMattos' use of the term "standard," a bit of historical accounting is in order. Matthews Studio Equipment was formed at a major crossroads for Hollywood. In 1968 Roy Isaia, a Paramount Pictures textile worker, started operating an off-lot sewing business in his North Hollywood garage. He supplied productions with diffusion materials at a savings, at the convenient moment when studios were cutting loose their financially draining in-house departments. Isaia named his burgeoning company after his firstborn, Matthew.
The pathbreaking little freelance business attracted the attention of Phillips, an electrician who, with I Spy cinematographer Fouad Said, had developed CineMobile Systems, designer of transport equipment vehicles for location filming. "When my contract with CineMobile expired," says Phillips, "I suggested to Roy that since he was in the textiles business, maybe my ability to design and manufacture hardware would make a good blend." Matthews Studio Equipment, Inc. was officially incorporated in January 1970.
Phillips took over the company's manufacturing effort, designing stands and tripods to hold the diffusion materials the company had been producing. "A couple of years later," he says, "I think wehad two or three telephone lines and a checkbook, so we needed somebody who could reconcile everything, and in walked Carlos." DeMattos, a native of Portugal who had gone to California State University at Northridge on a scholarship, handily took care of the books. Then, when Isaia decided to move on, DeMattos worked out the financing for himself and Phillips to purchase Isaia's interest in the organization. DeMattos purchased 20% of the company, and "Roy had already gifted me 10% of the company," says Phillips. "Carlos had the accounting ability, and I was running the day-to-day operations--it seemed fair that we be equal partners."
Around the same time, the company's major breakthrough occurred. "In the early 70s, production was going away from the studio lots and onto location," DeMattos recalls. "But a lot of the equipment had been manufactured by each major studio, and they didn't have a standard; each one had different receivers and pins. The male pins that would go on the stands would be different sizes, and would not accept Ianiro lights or Mole lights. It was a mess. Through the efforts of my partner, the Society of Motion Picture and Television Engineers [SMPTE] created a standard." Phillips drafted the American National Standards Institute (ANSI) guidelines in 1978, which established a 5/8" pin standard for Babies, and 11/8" standard for Juniors. All lighting and grip equipment developed in this country since then follows the standard. "It all came out of a need for those of us with entrepreneurial feelings to support the studio network, when the studios began to realize that their main purpose in life was to make movies, not equipment," says Phillips.
Matthews Studio Equipment, Inc. grew over the years to more than 100 employees, and from a few pieces of diffusion to a 2,000-product line. In 1974, the company developed the Century or C-stand, a three-leg, highly adjustable, spring-loaded stand. In the 1980s the company received a Technical Achievement Award (shared with Egripment, Holland) from the Academy of Motion Picture Arts and Sciences for the Tulip crane, the first folding, transportable camera crane. It won another, in addition to an Emmy, for the Nettman Cam-Remote system, a pan/tilt/positioning remote camera head. Further important developments included Crank-O-Vators and Cinevators, portable lifting devices for heavy lighting equipment.
But as Matthews products went out for rental to movie, TV, commercial, music video, and special event productions across the country and even internationally, DeMattos and Phillips saw another problem, and another opportunity. "As successful as we were in standardizing the grip equipment," says DeMattos, "we saw the same thing was needed with electrical codes and licenses for generators as more and more rental companies opened. We saw the opportunity to develop a standard through power distribution boxes, and to create standardized trucks and equipment, so that producers and crews could have the same standard in Nashville or Seattle or Miami that they're accustomed to in California and New York."
But to do that, Matthews had to go into the rental business. Thus the public declaration as Matthews Studio Equipment Group in 1989, and the purchase of Hollywood Rental and ESS. This was quickly followed by several acquisitions that built up the company's supply of grip and lighting equipment, and trucks and generators. In 1991, Matthews acquired the holdings of a North Carolina supplier that was then folded into HRC's Charlotte branch; several more mergers followed, expanding the company's operations into Phoenix, Seattle, Nashville, Miami, Albuquerque, Dallas, and Cincinnati, as names like Keylight Holdings, Jonas Jensen Studios, Media Lighting Supply, Duke City Video, and HDI were incorporated into the Matthews family. Next came Olesen, and then Four Star, which services roughly 80% of all Broadway shows.
Rumors, of course, fly through the industry about all of this activity. Some say that Matthews Studio Group is buying up companies only to sell them off for a profit, though there is little evidence of such an intention. "We don't merge and we don't grow with companies whose growth we don't want to further," asserts DeMattos. "It's a two-way street; we're gaining additional partners. We have not ever done a hostile acquisition--most of our mergers were made without somebody else trying to buy the same company, and a lot are with people who approached us, who would like to have the support of the depth of inventory we can offer."
In most cases, the management teams and much of the staff of the acquired companies remain in place. "I've been in the business 27 years," he continues, "and I know a lot of people. We know who's good, and who we would like to joint venture with. Carly Barber, the president of Hollywood Rental, has many years of experience in the business, as does Darren DeVerna, the president and soul of Four Star Lighting. Original guys in places like Nashville, Albuquerque, Dallas, Miami, or Orlando have the clientele, and when they partner with us they usually get incentive plans, stock, and cash. We want them to stay in place, because we know they are good." Some, like Matthews director of marketing Bret Weeks, have moved into corporate from a subsidiary--in his case, Jonas Jensen Studios of Seattle.
And in some cases, the acquired employees are vital links in the learning curve that inevitably comes with moving into new markets, like Las Vegas, where Matthews recently opened a new sales and service warehouse, managed by Tim Brennan. Or at the newly designated Four Star/Olesen/ESS, operating out of Olesen's 50-year-old headquarters in Hollywood. As Weeks puts it, "Cross-marketing is easy; cross-training is harder." Yet the very reason Matthews has gone into the business of supplying theatrical equipment, for example, is that crossover is increasingly the name of the game. Especially if that game is Super Bowl XXXII in San Diego, a Matthews project. "The Super Bowl took a combination of three divisions," explains DeMattos. "Duke City supplied the video equipment, and through that contact we got the generators and lighting from Hollywood Rental, which usually covers commercials or features. And then during halftime, it took moving lights for the Motown show, which was Four Star's and Olesen's type of lighting. So, one event took theatrical, video, and film equipment."
"We're finding that people are identifying with the one-stop shop idea," says Bob Johnston, executive vice president of Matthews Studio Group. "A lot of Broadway theatres are now using HMIs, whereas five or 10 years ago that wasn't the way they were doing it. And movies are using a lot more moving lights. The boundaries are breaking down. That bodes well for a company that can put a generator at a local fair, and put the same generator on Titanic or the Super Bowl."
Johnston, an industry veteran who came to Matthews from William F. White Ltd. in Toronto, is providing a guided tour of the Burbank facility. The lighting supply department, stretching off the back of the main building, is filled with something Johnston says makes him happy--lots of empty shelves, which nevertheless have their earthquake straps securely fastened. HRC's fleet of vehicles--trailers, one-tons, three-tons, five-tons--are passed on the way to the repair, maintenance, and manufacturing wing of the facility. What's manufactured here are generators and power distribution, with miles of cable coils bursting the seams of the generous space; what's repaired and maintained is just about everything. From the trucks, HMIs and incandescents go directly here rather than the shelves if there's a hint of a problem. The face to the outside of this area is ESS, with both a showroom and warehouse for expendables ranging from Post-its to rolls of gel.
Just down the hall is a room devoted to weekly sessions of IATSE Local 728's Training and Safety Program, taught by Earl Williman. "Every Saturday, electricians fill this room and talk about different types of distribution, different types of globes," says Johnston. "Manufacturers and vendorscome in with their equipment, answer questions, let them touch it and turn it on. They come out back when it's time to look at generators. That's something we want to be part of, providing them with the knowledge they need to do their job, and promoting safety."
So much for servicing the industry; what about the claims that Matthews and HRC undercut bids to drive competitors out of business? "Why would anybody cut bids lower when they're so low already?" responds Weeks, who seems baffled by the notion. "We need our day rate to be as high as possible." As for claims of any shady business practices, he retorts, "The fact that we're a publicly held company doesn't allow us to do the things people accuse us of."
Job bidding is a refined process at Matthews. "Quite often, we bid a show through one company," explains Johnston. "We bring the other companies into it, but just negotiate it through one with the end user." The X Games, for example, was a Duke City project that then spread to the other divisions. Once a bid is accepted, a team of supervisors from each applicable department is then assigned to a project, and is put on "24-7" call to service production needs. Titanic actually had two teams.
"There's no other company at this point that has the diversified base we have, the different components," asserts Johnston. "There are certainly other companies that are trying to package their rental equipment and services, but I think Matthews is unique in that it goes into a couple of areas that the others don't. There are great companies in Hollywood that bid against Hollywood Rental. Traditionally, though, motion picture companies don't own a lot of dimmers. On a particular big movie that was just released, they had north of 400 or 500 dimmers. So, whether you want 500 dimmers or you want 25 12ks, it can all come from one place."
End users mandate what equipment Matthews will stock, and determine how the items on the shelves in Burbank will differ from those in Hollywood, Las Vegas, Nashville, or Miami (which, incidentally, does a brisk used equipment business to customers in South America). The end user benefits from complex bar coding, computer, and phone systems that can quickly locate an item he or she might need in one of Matthews' 14 nationwide outlets. And, says Johnston, the end user appears to be happy. "Whether it's a major studio, commercial customer, theatrical producer, or ESPN, they make one call to one contact base."
Unfortunately, one unhappy group of people was the rental business competition, and the target of their anger became the grip manufacturing division, which saw its business slide until Ed Phillips resumed his post as president in 1994 (see sidebar, page 77). Why, these competitors figured, should they carry Matthews equipment when the company's corporate parent was bidding against them? The decision to sever ties between the two was, in DeMattos' words, "bittersweet," but sensible. Losing the founding division seemed an evolutionary necessity.
The answer to what's next for Matthews Studio Group is something on the order of "Tomorrow the world." "We would like to expand our concept, not only in the North American market, but also into South America, Asia, Europe, and so on," says DeMattos. "And why not? It's no different from what McDonald's did, trying to make the hamburger the same anywhere you go. We would like to make the standard the same everywhere we go. It's a small world. I think it has Wall Street appeal, because if you look at the film industry, the type of equipment, it's very limited. If you look at theatrical it's bigger, if you look at video, it's even bigger, if you look at special events it's even bigger, and if you start to look at industrials and corporate, commercials and advertising, it's fantastic. I think it's good for everybody--not just the industry, but the shareholders, investors, bankers, buyers, vendors, employees. When we started there were four of us; now we have more than 500 people. That's more than 500 families that depend on the growth and expansion of this company."
While serving as president and co-chairman of the board of Matthews Studio Group from 1989 to 1994, Ed Phillips (right) had a gradual revelation. "As we were growing, I was out representing the company to the various investors," he says. "While I was out, I would also call on our customer base. And I found myself in a real conflict, because in the rental business, it's a bidding situation. There can be only one winner, and consequently, there are many losers. That's when I began to realize that the losers had a perfect company on which to vent their resentment, and that was the manufacturing company--Matthews Studio Equipment Inc.--who was there trying to sell them more stuff."
By 1994, Phillips recognized that the management of the manufacturing division was fighting a losing battle against its clients' perceptions. "Many people in the industry with whom I had enjoyed a business relationship told me, 'I just can't get over this, and I know you well enough to share the fact that you're not getting my business,' " he recalls. "So while we were getting it on one hand, in Group, we were losing it on the other."
Therefore, Phillips resigned from his posts at Matthews Studio Group, and reinstated himself as president of Matthews Studio Equipment, the company he had cofounded. "With my full-time effort, reengineering the products, and beginning to reestablish certain relationships, the manufacturing company began to see a future," he says. Sales increased, and the division started showing a healthy profit. Still, "we were fighting these perceptual battles every day. Had Group been willing to rest on its status quo, we probably could have overcome that."
But such was not the case. "The business plan for Matthews Group was to continue to expand, to open new facilities in other markets, to get into other arenas," Phillips says. "Carlos and I in a meeting concluded that this would probably be a good time to sell the manufacturing division--it was nose up, we had built a value that probably would not have been there three years earlier, but it could not overcome these resentments. At that point, I did not consider myself a buyer."
It was only when other bids for Matthews Studio Equipment started rolling in that Phillips realized what he wanted. "I decided that with a new owner there would be no guarantees to anyone in this company what their destiny might be," he says. "I felt that they had given of themselves for so many years, and if that was the direction the company was going to take, why didn't I buy it?" Phillips became a bidder, competing with several parties, remaining intentionally in the dark as to their identities. "The board met on July 30 at 10am to assess the various offers, and I walked the floor here feeling like an expectant father." By noon, Phillips' bid had been accepted.
What he had offered were his nearly two million shares in Matthews Studio Group stock, cash in the form of assumption of debt, and termination of his employment agreement--a deal totaling more than $14 million. "They figured it was win-win," he says. "They get two million shares of stock back, which benefits the shareholders, and they're divesting themselves of the manufacturing company, which creates conflict." Says Matthews Studio Group marketing director Bret Weeks, "We can focus on our rental expansions and not worry about the manufacturing overhead, and Ed can focus on manufacturing, and not deal with the headaches of being part of his customers' competition."
What Phillips gets is a now-privately-owned company consisting of more than 100 employees and 68,000 sq. ft. (6,120 sq. m) of manufacturing and administrative space in Burbank. Guiding a tour of the site, sales manager Robert E. Kulesh shows off the diffusion department, where seamstresses create everything from 2"x12" to 18'x20' scrims; the machine shop, where stands and other hardware are tooled at computer-controlled machines and 16 welding stations; and the shipping department, which delivers up to 5,000 C-stands every year. Recent additions to the Matthews product line include the Matthellini clamp, a revised version of Steve Cardellini's patented design, and lightweight telescoping hangers for fluorescent fixtures.
The manufacturing company is also moving into its own new arenas. "We've found another market in visual display," says Phillips. "That is, merchandising and point-of-purchase displays in the retail business. If you go into the men's shop or swim or juniors department of a particular department store, you'll see pieces of fixturing used to both display and hold the swimsuit, jacket, or coat." For this application, the company's Mafer Clamps now come in 50 different colors. "What we manufacture are things to hold things," says Phillips. "The way to keep it fresh is by watching, observing, and listening to those who use this equipment."
Who, everyone hopes, will not be confused by the reality of two separate companies named Matthews. "We are being allowed to use the name for so long as I own the company," says Phillips. "What I hope to do is, by using the initials MSE for Matthews Studio Equipment, begin to develop a secondary recognition, so that eventually Matthews will be thought of as the rental company, and MSE the manufacturing company." Otherwise, it is business as usual. "We were operating as a subsidiary prior to this deal, which means we were pretty much standalone as it was. Things will just continue on, but we hope--if the phone calls and letters I've been receiving are any indication--to be able to do more business."