Deluxe and Technicolor, historic rivals in Hollywood's post-production business, have announced a new agreement in which each will concede and subcontract a segment of its business to the other.

The pact is a rapprochement of shocking import in the movie business.

"It's cats and dogs sleeping together," one veteran of the post-production business told TheWrap. "Those companies have a long tradition of rivalry. I'm sure this was a very, very difficult thing for both companies to do."

To hang onto a disappearing business and to consolidate each company's strengths, Technicolor will subcontract its 35mm bulk-release printing business to Deluxe in North America, while Deluxe will subcontract its print distribution business to Technicolor.

Additional subcontracting will take place in Europe and Asia.

A Deluxe spokesperson said the company's president and CEO, Cyril Drabinsky, was not available for comment. Technicolor did not respond to requests for comment.

The deal came as the two titans of post-production cope with the decline of 35mm film processing and printing, the business on which both companies were based, as digital cinema becomes the dominant force in theatrical.

From 2006 to 2009, according to the Motion Picture Assn. of America, U.S. film production dropped by 27 percent, from 928 features to 677. Between 2008 and 2010, the number of films released dropped from 634 to 560.

At the same time, the number of all-digital productions has risen steadily, with as many as 30 percent of all films being shown digitally by the end of last year. According to Von Johnson, a post-production specialist who runs Von Johnson & Associates consulting firm, more than 50 percent of U.S. theaters now have digital screens.

"We've definitely hit a tipping point," Johnson told TheWrap. "The film printing business will be gone altogether in the next five years."

Technicolor and Deluxe have been in the film-processing business since 1914 and 1915, respectively.

In the past, rather than giving each other work, both companies have been fiercely competitive, fighting for exclusive deals with the studios and offering lines of credit and cash advances to secure business. The first sign that they might have to collaborate rather than compete came a year ago, when the companies combined some of their film operations in Vancouver.

"It's a case of looking at each other's strengths and weaknesses," said one longtime post-production executive. "They decided that Technicolor has a better distribution platform, and Deluxe has a better operation and more modern equipment for printing."

In recent years, both companies have invested heavily in digital services, though Technicolor's share of major-studio work has declined since its purchase by the French company Thomson Multimedia a decade ago. Thomson has since adopted the Technicolor name for its entire business.

With Universal's move from Technicolor to Deluxe last fall, Warner Bros. was left as the only major studio firmly in the Technicolor camp.

DreamWorks also used Technicolor, and Relativity signed a long-term pact with the company in January.

Deluxe Entertainment Services president and CEO Cyril Drabinsky said the unprecedented move was necessary to "help maintain a high consistency of service for our customers through the remaining life of film."

Technicolor, meanwhile, drowned in euphemism when it announced the partnership, terming it "phase II of photochemical film activities optimization."

Phase I consisted of last fall's closure of its North Hollywood facility, one of the most historic film processing plants in Southern California. Phase II will shutter the company's plant in Mirabel, Canada, which employed nearly 200 people.

Technicolor also added a line to its press release, as if to reassure Hollywood that these cats and dogs won't always sleep together.

"Technicolor will continue to service its clients," it said, "and Technicolor and Deluxe remain competitors in all markets where they operate."

Hollywood California Canada Hollywood