In a wide-ranging interview, NEIL GOODALL, CEO of Testronic Laboratories, tells JEAN-LUC RENAUD how he wants anybody with quality problems in any part of the digital industry – packaged media, online, computers, mobile phones, games consoles – to think Testronic as the first port of call.

What are the latest corporate developments?

Over the past three years, Testronic has consolidated its leadership position in the provision of Quality Assurance services to the home entertainment DVD market. We also recognise that this market, with still quite a few competitors around, is maturing. Within the last 24 months we completed two major acquisitions of companies that have been added to the Testronic group.

At the end of 2005 we acquired our largest competitor in the USA, Los Angeles-based International Quality Control. IQC was a small start-up company that had been going for about 3 or 4 years, but because of the contacts and the nature of the service they provided to clients – on-demand, 24 hour turnaround – they created a very big niche for themselves in that market.

We were already the largest independent QA company for home entertainment in the US. With this acquisition, we now have about 80% of the total work outsourced to independent third parties in the US.

Is it mostly DVD Video work?

Yes, primarily DVD. But IQC had developed an expertise on Blu-ray and HD DVD which was another strategic reason why we acquired them. Earlier last year, we opened up a new facility, so we now have two facilities in Burbank, and one of them is specifically dedicated to HD DVD and Blu-ray QA so we have regular visits from the main Hollywood studios to see what we offer because we invested a huge amount of money producing a facility that’s got all of the leading-edge equipment.

We have been ready, hoping like everyone else, that the next-generation format was going to take off last year. It’s only just beginning this year. So, our work on packaged media is still mostly focused on standard definition DVD.

How to you see the DVD market evolving?

We have done a lot of market research to see if the market if falling off. What we’re beginning to see is that the package media market is not actually slumping, as some of the doomsayers predicted. We now see a slow switch from standard definition to hi-res DVD, that is however taking place later than anticipated.

The biggest threat to our current business is on two fronts: Putting catalogues titles on DVD has ensured the format’s tremendous success. We did very well in early 2000, 2001 onwards to 2004. Unfortunately, we are not seeing the same impetus from all the film studios to put their back catalogues on HD discs. So, I believe we will start to see a drop in our core business revenues.

A more worrying sign is that it appears that the days of the massive-budget Hollywood blockbusters are over. The accountants are now running the office and they are not prepared to underwrite $300m spends on blockbusters. If the result for the film industry is to go back to $20-30m budgets, this will impact directly on whether they will want to spend any money on quality assurance when they put it onto DVD, assuming they even want to put it onto DVD! They may decide to just go into digital media content distribution.

Bollywood now wants to enter the European market. Is there something for Testronic?

We’ve never been able to crack Bollywood in India, but there are now interesting new developments. Our Poland office in Warsaw has began to receive approaches by Indian film companies who are targeting Western filmgoers. They have realised that in order to sell Indian movies to these customers, they need to improve considerably the technical quality of their DVDs as the lack of quality of current offerings, tolerated in India, is not acceptable here. They are seeking QA assistance from us. That’s a whole new challenge for us.

Are you actively looking to apply QA to new distribution markets?

We are now looking to get into new services because our main clients, the big studios in Hollywood, are themselves looking for new channels to generate revenue.

Advertisers who are supporting the commercial television channels that offer feature films are increasingly concerned that viewers skip adverts through the use of PVRs and DVD recorders. This potential loss of TV licensing revenue is driving Hollywood studios to open up new internet-based distribution channels to offer films or TV programmes that, through encryption, makes it impossible for viewers who purchase movies or TV episodes to skip adverts.

Testronic is responding to these developments by moving away from just servicing physical media to becoming a multiple platform QA company. It means that we now have the capability to QA not just DVD and next-generation HD discs, but also any digital content across any distribution channel up to any end-device such as mobile phones, TVs , PCs, iPods, etc. We are testing all the components in the “food chain”. Our vision and our catchphrase now is that we will test any content across any medium on any device.

We entered the online testing market via the acquisition at the end of 2005 of Testline, a company servicing the education sector in the UK that is testing standard-definition DVDs, websites that host educational information, and distributed educational content – all of the things that we knew we had to offer across the whole film industry. We are now testing websites for companies that do e-learning and suppliers of digital e-learning to some of the major organisations in the UK.

The games market, especially the growing online gaming communities, is a big market. Are you addressing this industry sector?

We realised that there is a convergence starting to happen between games and the movie industry. Many films now have extensive interactive gameplay elements. Extras on the DVD now include games. So, we realised that if we don’t learn how to test games, we’re going to be missing something.

As well as being our biggest competitor in home entertainment DVD, Belgian company PMTC were also the European accredited test centre for Microsoft Xbox so, could service the games sector, a sector where we want to strengthen our activities. While Testronic is already working with Sony and Nintendo, we had difficulty securing Microsoft accreditation in the UK. PMTC brings the xBox platform under Testronic’s roof. We have also recently appointed industry veteran Seth Hallen as the USA company's senior VP as the company plans to further grow its games testing capabilities.

In your literature you no longer seem to refer to film, but to digital content.

There was another strategic reason why we were interested in PMTC. It was already a four-product line QA company. It was servicing the DVD sector, the games sector, the web/online educational sector and, of considerable long-term interest to us, is the QA activities for the world’s biggest computer companies such as Intel where PMTC is involved in Wifi and USB interoperability standard setting.

If you now think about our strategic plan to get to all devices, you are talking inter-operability. What we’re beginning to see is converged inter-operability with multiple devices. And all these devices carry to the end users digital content – it’s not a film, it’s digital content. Now content can be distributed on DVD (SD, HD DVD, Blu-ray), online, via telephone mobile carriers. So, we now have a capability in-house to test all of those ways of distributing content on inter-operable devices.

As the market is becoming ever more competitive, is QA a task that film studios and games developers may want to start carry out in-house to save money?

No, the trend is in the opposite direction. Artwork, animation, audio and QA are things that the film industry long ago said: it’s not our core business, we make movies, we give these associated activities to somebody else.

I think the games industry will follow in the footsteps of the film industry. It is still at an early stage. With the added functionality and complexity that the new next-generation consoles like PS3s are bringing, games developers are having to concentrate more and more on what their core business is. Like the film industry, they will end up outsourcing to third parties all the non-core functions. The games sector is the big opportunity for Testronic. That’s where we see our growth in the next 18 months.

Also, with the digital convergence and the plethora of devices that are continuing to spawn, we’re trying to drive ourselves into a position where most of the key device manufacturers around the world recognise that there is a need for an independent third-party to check what they build. For us, it’s a growth area as well.

How difficult is it to convince studios to spend money on QA?

It’s always going to be a challenge, but for different reasons: The big studios cannot allow themselves to release a DVD title with the slightest defect. They are not prepared to risk damaging their brand name. It is an imperative. Remember the technical hitch in the Matrix that made the disc unplayable in some machines in the early days of DVD. For the big film studios, QA is ultimately cost-effective.

We are also beginning to see big studios like Warner Bros take stakes in games companies. It may not be long before a film studio own a games company, or the other way around. I think the big film studios will end up acquiring second and third-tier games developers to add to the content mix they can leverage through various distribution channels.

So, I think that QA is always going to be a concern and something that they need to do. Becoming involved in multiple-channel distribution requires QA expertise which we can provide.

YouTube, MySpace are becoming the distribution channels of choice for content. Technical quality does not seem to matter any more. Is it bad news for the future of QA?

I think at the moment it’s instantaneity versus quality. These outlets have made it possible for people to distribute by themselves the content they are producing using a variety of inexpensive devices like mobile phones, digital cameras, PC cameras.

But now these consumer devices – 6-megapixel cameras, 4-megapixel 3G phones – can produce such quality that users will demand distribution channels to do justice to their content and therefore the channel provider will need to impose some form of quality threshold. We may soon see YouTube, MySpace and others requiring quality standards to be met before uploading digital content. Indeed, quality could become the unique selling point of new channels. This can only be good news for our business.

Where do you see Testronic in five years time?

We need to be the quality assurance company of choice for the digital media content industry. What surprised me when I joined was how well Testronic was known in the home entertainment industry, but we’re still not known in as many places as we need to be. We’ve got to build our brand presence across all the sectors where we offer services. So, in five years time, I would want anybody with quality problems in any part of the digital industry, be it computers, mobile phones, games consoles, etc, to think Testronic. Together with our proven expertise in packaged media, we will be quality controlling the entire content distribution chain. If we accomplish this, we will keep being a very successful company.

Story filed 01.05.07