The present and future of post production business and technology | Philip Hodgetts

Jul/12

2

Avid does the opposite to Motley fool analyst’s advice

Just weeks after Motley Fool analyst Anders Bylund wrote:

The company just published preliminary results for the first quarter. $152 million in sales fell far below the $160 million expected by Wall Street analysts. Management sees a GAAP operating loss of $15 million, which would be the weakest result since the spring of 2009.

The culprit of Avid’s disappointing numbers is a 30% year-over-year drop in sales to the enthusiast market. That’s where Avid sells tools for making music and movies to amateurs like you and me, helping us make and manage media with somewhat simplified versions of the professional tools. That’s a price-sensitive market that doesn’t play well with attempts to ratchet up gross margins. I’m surprised that Avid didn’t see that backlash coming.

Avid appears to have found a way to avoid dealing with the “backlash” by dropping out of the consumer space entirely. I’m not sure if this makes sense for Avid or not. Certainly the company believes it does, but to sell a division that contributes $91 million in revenue each year, for just $17 million (a ratio of five times earnings) isn’t exactly bold leadership.

The company’s cash balance on March 31, 2012 was $49.7 million. The proceeds from the sale of these product lines should offset most of the restructuring charges paid in 2012.

Now it should be kept in mind that Avid have had only one (mildly) positive quarter of the last 22 quarters. Fortunately most of the losses have been non-cash accounting losses, meaning that the $67 million Avid will now have “cash on hand” will keep them alive for another couple of years, even without the much-promised turnaround.

“The changes we are announcing today make Avid a more focused and agile company,” said Gary Greenfield, CEO of Avid. “By streamlining and simplifying operations, we expect to deliver improved financial performance and partner more closely with our enterprise and professional customers. Our objective remains to provide these customers with the innovative solutions that allow them to create the most listened to, most watched and most loved media in the world. I’m excited about our future prospects.”

With Avid’s niche – most definitely studio film and broadcast/cable television editing – rapidly becoming a small market compared with the explosion of editing for video that is now being done, doubling down on that market will either prove to be a focused, great move (as Gary Greenfield says), or will be the final push that moves Avid out of relevance in the NLE space.

Always remembering that NLE products have been a diminishing portion of Avid’s consolidated net revenue over the last couple of years: down now from 14% three years ago to just 12% now. The rest of the income is from services and “big iron” hardware that drives big media production facilities.

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33 comments

  • Robert Desaeger · July 2, 2012 at 1:03 pm

    I believe you said it all to well a few months ago. You stated that for see Avid pitching the Cloud for Future Editing and having Corporations outsourcing to editing to India and China. With this article, it certainly to start to look like this, PHilip.
    robert

  • Chris Wilby · July 2, 2012 at 1:34 pm

    Quark XPress comes to mind…

  • Andrew Richards · July 2, 2012 at 1:47 pm

    Burning the furniture to keep warm.

  • John Burkhart · July 2, 2012 at 7:10 pm

    I actually think this is a positive for Avid. High end pro editing is a niche market, that can be served well by a small niche company. I think that Avid’s previous attempts to expand its core competency were doomed from the beginning. There’s nothing wrong with being a small profitable company, which is the direction they’re headed. It sure beats being a larger unprofitable one.

    I’m just glad there’s someone out there whose business model is focused on us pros.

    • Craig Seeman · July 2, 2012 at 9:37 pm

      John, you must be using Unity/Isis because that’s where Avid is getting the bulk of its revenues from (and maybe ProTools hardware as well). It’s not from selling Media Composer. As technology overtakes Unity/Isis with more affordable options, where does that leave Avid?

      The “Pro” market is like a game of musical chairs. The chairs are dwindling relative to the size of the market.

      Avid reminds me of CMX.

    • Chris Wilby · July 3, 2012 at 12:06 am

      “There’s nothing wrong with being a small profitable company, which is the direction they’re headed.”

      I don’t think so… :-0

      Is that the trumpet sound of BlackMagic Corp. I can hear coming over the hill?

      • Steve Speed · July 3, 2012 at 1:34 pm

        Chris you’re spot on.

        BMD are a dark horse. The Foundry could branch out from VFX pipeline to more general video asset management.

        There’s a whole host of companies that could whittle away at the last vestiges of Avid’s market share or the market completely changes and fragments into the cloud and then the agile internet companies take centre stage.

        With no “consumer” base product to bring new customers into the Avid family it’s hard to imagine MC surviving when all the old Avid pros retire. There’s going to be a whole new generation of creatives who are more comfortable with Events than Bins.

        Try as I might I cannot see Avid surviving and the current strategy of throwing the deck chairs overboard while the ship sinks seems pointless.

        Iceberg ahead!

        • Author comment by Philip · July 3, 2012 at 1:56 pm

          In our post NAB show, Terry and I hypothesize that Blackmagic might buy Avid’s editing business. But couldn’t find a good reason why they would.

          The consumer apps did nothing to bring people to Avid’s Pro apps as they shared no interface or code.

          • Chris Wilby · July 4, 2012 at 6:04 am

            If I was working for Avid or, if I’de just moved my entire production company over to Avid (Bunim/Murray for instance) I’de be a little bit worried now.

          • Steve speed · July 4, 2012 at 12:07 pm

            You’re right Philip about the consumer not sharing anything in common but that was Avid’s choice just like the predicament they find themselves.

            I was an Avid owner for many years before their appallingly bad update quality left me ballsed. I moved to FCP and haven’t looked back.

            When I was an owner we called for Avid to do a software only version of MC and rationalise their products. That was 10 yrs before it finally happened. I lived through the crazy crippling of Xpress era, the Avid Liquid debacle and the continual confusion of where they were heading and not being feature competitive or providing a finishing toolset.

            Apart from feeling some sympathy for staff losing their jobs I couldn’t give a toss if Avid closed tomorrow.

            Andi

          • Steve speed · July 4, 2012 at 12:12 pm

            Oops clicked submit too soon.

            Andi is right, Avid have been asleep for years and haven’t woken up and realised what new customers need.

            There is always positive spin come from their management which is aimed at appeasing their users but real change is rolled out at glacial pace.

            SS

    • Andi Moepse · July 4, 2012 at 8:46 am

      “I actually think this is a positive for Avid.”

      Wha?? How?? X_x

      I think I remember people say similar things about *Media100*… remember them? Only this time the fall will be from a much higher ledge. Sorry, but I find it rather delusional to think anyone, large OR small, can live from the market Avid caters to. Especially since that market as we know it is itself a dying one! Focus on the market they’re ALREADY losing in? Yeah… sounds like a real plan. Which voodoo did they suddenly gain by cutting a crappy deal for their consumer dept. that’s going to magically turn them around??

      Makes no sense. Zero.

      Avid simply slept through every change the biz has gone through within the last 10 years. They were too high on their arrogant, elitist, overpriced horse, getting off on listening to their apologists yell “they’re so PRO!”, to even notice. I’d say most of them were only yelling it to justify their own, already questionable investments of yesteryear, to feed their state of denial. Their business model is focused on exactly those pros, yes. The ones on their way OUT of not INTO the market, sorry.

      I’d say both fool.com and Philip nailed it. Killing the consumer business was the dumbest move imho and just the next nail in the proverbial coffin.

      Bunim/Murry are certainly headed for a pie in the face and foot in the mouth for spearheading the “Rage Against X!” so publicly (or rather letting Avid do it).

      And Apple oughta be smiling rather diabolically about now, if not soon.

      • Chris Wilby · July 4, 2012 at 9:20 am

        Strange as this may seem; I actually agree with you! Avid are fighting a loosing battle.
        If I where Adobe I’de be rubbing my grubby little mits and trying to make Adobe Premier as much like Media Composer as I could. It can only end in tears…

        • Andi Moepse · July 4, 2012 at 10:59 am

          Superb logic. Copy something that’s tanking, as best possible.

          If only Apple had had that much sense!

          • Chris Wilby · July 4, 2012 at 11:54 pm

            I think you misunderstand me. Its that kind of logic that Adobe has, in spades… Apple would never do that, fortunately for us. They tend not to look back, whereas Adobe have been thrashing about for quite a while now, trying to work out what the hell they do next. CS6 proves this to me. God luck Adobe.

        • Andi Moepse · July 7, 2012 at 3:16 am

          You’re right. It read more the opposite of what you apparently meant.

          I find CS6 cute to embarrassing. Cute because of their futile attempt at copying X’s skimming… which is just so much like what M$ would do: give it your own spin (so no one can accuse you of stealing… right away) whilst *completely* missing the point. Embarrassing because of their new multi-cam…. WTF?? What a joke. A SAD joke.

          • Jim Woo · July 9, 2012 at 3:10 pm

            Have you used Premiere CS6?

          • Chris Wilby · July 10, 2012 at 12:00 am

            Do we have to?

  • Chris Wilby · July 3, 2012 at 5:08 am

    Does anybody know how much of the business that remains is PC/Windows based?

    • Jack Guthrey · July 3, 2012 at 11:30 am

      With our clients, it is probably 65/35 Windows/Mac.

  • Chris Wilby · July 4, 2012 at 11:48 am

    I think you misunderstand me. Its that kind of logic that Adobe has, in spades… Apple would never do that, fortunately for us. They tend not to look back, whereas Adobe have been thrashing about for quite a while now, trying to work out what the hell they do next. CS6 proves this to me. God luck Adobe.

    • Steve speed · July 4, 2012 at 12:14 pm

      Adobe know only how to do one thing, BLOAT.

  • Marc · July 8, 2012 at 11:26 am

    Avid has been sinking for quite a few yrs. they refuse to develop tools fast enough to be relevant. they’re bleeding the talented developers like a sieve.
    If only Avid had concentrated on developing and promoting the tools they had 5-6yrs ago, when they had the chance, before everyone else caught up tot hem..

    This is what will kill Avid completely. Project Sharing. and no, the FCP/FCP server thing is a bunch of BS. it doesn’t work like Avid. and that’s what needs to happen to sell all the Hollywood editors on a new system. If it can share a project like an Avid does, so that the lead editor, the 1st Assist, and the 2nd assists can all share, reliably.. then they’ll take a look and move in.. that’s why Bunim Murray went to Avid, that’s why the Ellen Degeneres show dumped the FCP experiment, and so many other shops in La La land…

    Get Project sharing locked in, and they will come..

    • Author comment by Philip · July 8, 2012 at 11:44 am

      I would think Event sharing would be more useful than Project sharing in the FCP X world. The Project being the edit I don’t think I’d want anyone else modifying an edit I was working on. OTOH, we all need access to the source Events to build the Projects.

      There are some hints in the FCP X code that Event (or Project) sharing is at least being thought about.

  • Bill D · July 9, 2012 at 4:27 pm

    Speaking as a soon to retire post-production specialist, who has earned a great deal of his living working with MC, FCP, and ProTools, I find that second guessing what the major hardware and software companies are going will often lead you to using a tool that is no longer supported by the maker.

    With the conspicuous dearth of upgrades for MAC Pro desktops (editors now debate the advantages of editing on iMACs),it is very clear Apple is leaving the professional grade hardware market. Apparently there is a bigger markup on iPhones and iPads, than on desktops, and require less hand-holding support.

    Out sourcing via the Cloud is absurd for large production companies. They lose CONTROL of their product. No amount of cut-rate labor and lack of copyright protection will ever make this a feasible alternative.

    Instead, most large production companies have developed their own proprietary post servicing and master archiving systems. Those companies that distribute internationally and by VOD use 1080p/23.98 ProRes 422 HQ as their standard mastering format. The digital file has made tape delivery obsolete.

    This is the market that Avid should continue to focus upon. Especially if it concentrates on their PC based ProTools and Avid systems.

    • Chris Wilby · July 10, 2012 at 12:08 am

      “With the conspicuous dearth of upgrades for MAC Pro desktops (editors now debate the advantages of editing on iMACs),it is very clear Apple is leaving the professional grade hardware market.”
      So an iMac isn’t a professional grade machine? Using Smoke on a MBP isn’t professional? I don’t get your argument here I’m afraid.
      If Avid have any sense they should flee/dump their PC section… but they won’t.

    • Steve Speed · July 10, 2012 at 8:32 am

      Speaking as someone who owns a 12 core Mac Pro, I’m convinced my next computer will be an iMac (retina).

      I’d be quite happy to swap my Mac Pro for a rack of Thunderbolt devices connected to an iMac. How is that less “Pro” or vacating the “Pro” space?

      I should imagine the iMac will be Hexacore in time and outperform my current 12 core by some margin in all relevant benchmarks and be significantly more affordable too.

      Just like some “Pro” can’t see beyond their Bins and Subclips others can’t see beyond a Tower PC.

      I wonder if the Cube will return? A Mac mini Pro?

  • A. Sab · July 10, 2012 at 3:18 pm

    FCP X and Avid can co-exist. Largely they will probably serve different markets. FCP7 was disruptive because it incurred to some degree on Avid’s traditional markets as well as at the low end. As someone who has worked in the low end of training videos, corporate videos etc for many years in the past and over more recent years on major broadcast productions and some mid budget features, I do not see FCP X being a significant player in those markets any time soon. Bunim Murray is not the only LA company switching back to AVID – several I have worked at are in the process of doing exactly the same thing.

    Sure things are always changing…….but the form of the feature film (90min + narrative drama) has been around for about 100 years through several technolgical changes etc…… I think it will be around for a while longer….. and people are still writing novels…..

    • Chris Wilby · July 10, 2012 at 11:59 pm

      Your assumption about FCPX is short sighted… good luck with that. :-)

      • Dave Barnard · August 1, 2012 at 11:36 am

        If Apple can get FCP X to sync collaborative projects using the cloud they would have something of real interest – we’ll see.

        • Author comment by Philip · August 1, 2012 at 11:42 am

          Indeed they would Dave, indeed they would! And I’d be the first in line. Interestingly Mountain Lion has some methods for synchronizing documents via iCloud for CoreData applications (FCP X’s Events and Projects are CoreData databases essentially). I think I’d only be interested in dynamically updating Events. Not sure I want anyone else working in the same Project timeline as I am but others may have different needs.

  • jb · August 10, 2012 at 10:28 am

    I think some folks are mixing metaphors here. What is clear is that AVID has thrown away literally hundreds of millions of dollars of R+D and product introductions over the last 8 and cannnot produce a profit. “That” had to give and what was obvious was the give was the consumer/amateur business – really an MBOX is their core competency? While as noted here, the “pro” market is shrinking, they are better off doing something smaller very well than spraying money and bodies all over the place and doing nothing well – which the comments here suggest was clearly the case! Avid the company is also a lot more than just NLE – they arent going away anytime soon. jb

    • Author comment by Philip · August 10, 2012 at 10:45 am

      NLE sales are just 12% of Avid’s consolidated net revenue. And dropping (three years ago it was 14%)

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