In his new role as traveling spokesman, Vari-Lite chairman and CEO Rusty Brutsche visited the offices of Lighting Dimensions and Entertainment Design magazines in late August. He brought with him a groundbreaking announcement: Next year, the company will expand on its traditional rental business with a new sales model, allowing customers to own its luminaires and consoles for the first time.
While surprising, this news is perhaps not entirely unexpected. In a candid conversation, Brutsche acknowledged that the Dallas-based firm, while enjoying "huge cash flows," has far from lived up to stockholder expectations since going public a couple of years back. "No one in this business who has gone public has done well. By measures like earnings before income tax, depreciation, and amortization [EBITDA], we're doing fine. But this year has been a particularly rough ride for us and throughout the professional lighting industry. It's clear that our rental-only policy, which is very expensive, won't take us to where we need to be for future growth."
Brutsche pegs professional lighting as a $1 billion-a-year industry, with Vari-Lite having 10% of that market. Sales of two new luminaires, to be introduced at LDI (with a control console to follow early next year), are hoped to amount to 10% of company business by the end of 2000. The new lights (which Brutsche declined to detail, but would seem to be a spot and a wash luminaire) are intended for permanent lighting installations for venues like theme parks, cruise ships, casinos, theatres, community performance centers, restaurants, and corporate events--some of those the former province of its Irideon line, which it sold to Electronic Theatre Controls last year.
All of these are key areas for the firm's market expansion. "Every 5% of market share we get amounts to an increase of $50 million a year for us," he says. Sales will also focus on geographic areas not readily served by Vari-Lite Production Services (VLPS) offices worldwide, inSouth America, the Pacific Rim, and the Middle East.
Brutsche says offering products for sale "will not displace rentals for VLPS offices," as both the rental and sales divisions have distinct target audiences: rentals for concert, theatre, and film/TV LDs, and sales for architectural projects that previously took out long-term leases with the company. Brutsche says VLPS offices are looking for additional distributors for the new products (and more internal staff for the new operation) and that they will also be sold over the Internet.
The new sales product line marks a "fundamental shift in our business model--they're more accessible, and less exclusive, than our current proprietary products," Brutsche says. "We have decided to keep those products inside the rental-only business because they configure in a certain way, and are intended to be installed and used by our own trained personnel. The new products are being developed from our technology but will operate on non-proprietary industry standards, and meet specific cost targets to allow for competitive pricing."
In a switch from the traditional Vari-Lite product line, these new luminaires will not use ground-based power; they will feature resident lamp power supplies and associated electronics within the fixtures. And they will support industry standards, like DMX512. "We opened our business with proprietary standards, but we now support the idea of these non-proprietary ones. We've always had a passion for pushing the technology, though we developed it in a different way. I see us like the PC industry: As costs came down and the machines became less exclusive, it just exploded. I think that will happen with automated lighting."
The last two years, however, have been slow to catch fire. "Concert touring, which was the first market that was not skeptical about the potential of moving lights when we started out in the early 80s, is flat, and has been for a while. The shows are smaller, and more localized; you don't see the big world tours much anymore, and the next generation of big touring acts just isn't there. And, while our units have been used on more TV shows, particularly awards programs, this was not a good year for us in the theatre, either. I'd be shocked if next year, which begins with large-scale millennial celebrations, isn't a better one."
The best news for the company is that more concert and theatrical designers are turning toward themed entertainment and corporate events. "We have to be in these markets, and it's fortunate that the touring people, who were always considered outsiders in their approach to lighting, understood what we were trying to do with automation. Now the theme parks and big retail stores see it too, and some of the same people we knew then are working there now. Our new products are tailored for use in these markets."
In the beginning, Brutsche says Vari-Lite developed a "siege mentality, to force automation into this industry." To its detractors, its hauling of competitors like High End Systems and Martin Professional (see page 28) into court for patent infringement smacks of further bludgeoning. Not so, he insists.
"Martin has cast this as a case of trade protectionism against a non-US competitor, but that is simply not the case. Moving lights patents have been around since the 1920s, but we were the first company to make a practical product. We have spent 20 years and $150 million developing our technology, and we offered Martin a licensing arrangement before we initiated our lawsuit, which they refused. Patents are now an essential part of the entertainment industry, and we have to learn to respect each other's intellectual property, or else come up with design solutions that do not constitute infringement."
Regarding the change in course at Vari-Lite, Brutsche says, "It's a different world from the one we started in," with the development of VLPS, plus the growth and consolidation at Production Resource Group, Matthews Studio Group, and Westsun. "The old ways of thinking have gone out the window. I've wrestled with the idea of sales for a long time, but in 1990, when I first considered it, I couldn't pull us away from the ground-based format. Then I couldn't figure out how to integrate sales and keep rentals going at the same time. It is a challenging time for all of us here. But now we have a way to grow the business."