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

Nov/13

11

Final Cut Pro X is as important to Apple as Media Composer is to Avid!

Many people “worry” that Apple will abandon their professional applications (Final Cut Pro X, Aperture and Logic Pro X) because they don’t make much money for the company. Ironically, the same argument can be made about Media Composer: it is not core to the company’s primary business . In reality it’s more likely that Avid would abandon (or sell) Media Composer than Apple is to get out of the professional creative tools market.

The obvious question is how can I be so sure that Apple won’t abandon the content creation markets? It’s simply part of the company’s DNA. Apple consider themselves at the intersection of liberal arts and science – something that Steve Jobs repeated regularly and that has been confirmed by Tim Cook.

So, in essence, it really doesn’t matter to Apple whether or not the professional content creation apps are profit centers (although I’m pretty convinced they are), they will always be part of Apple – at least until their DNA changes!

Unfortunately I can’t say the same about Media Composer and Avid. In the most recent financial statements the contribution to consolidated net revenue from “professional video editing products” (these days Media Composer) is down to 11%, dropping about 1% per year. That was also while Media Composer was still $2500. With the new lower price, the contribution to consolidated net revenue will likely be much lower. Based on a simple interpretation of (admittedly) nearly three year old information Media Composer’s revenue will drop to about $26 million a year from around $67 million in 2011.  (2011 is the latest 10K filing.)

That’s fine: that’s not where Avid makes its money, which is largely from big video infrastructure projects: the media enterprise. That’s where the company has evolved, but do they need to keep Media Composer?

The same quick back-of-the-envelope calculations that suggest the pro apps are quite profitable for Apple isn’t quite so positive for Media Composer. While the costs of developing Media Composer have dropped after the recent (complete) rewrite over many releases, they’re still very high to be amortized over only around 25,000 seats a year. (It’s probably lower as upgrade revenue isn’t split from new sales and I’ve assumed all new sales.)

So, while Final Cut Pro X is almost certainly a profit center for Apple – although a small one in their context of profits – I doubt that Media Composer is a profit center for Avid. With the new lower price it’s almost certainly not profitable for Avid as a product line.

Fortunately for the passionate users, Media Composer has strategic value to Avid (as Final Cut Pro X does to Apple) and I seriously doubt that it’s going to go away, particularly now that Avid’s financial position is improving. However, I do think Apple are more committed long term to Final Cut Pro X than Avid is committed long term to Media Composer.

I also don’t think either are going away any time.

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18 comments

  • Adam · November 11, 2013 at 10:40 am

    Only issue I see here is that of overall company message per stock price. It’s about the message that gets to the average investor, and what happens to the emotional side of things

    If Apple dropped a Pro App (FCPX) it would probably drop their stock price by a couple bucks (which would be a .003% price differential in their stock). People would see it as another bump in the road towards their total domination of the tablet and phone markets today.

    If Avid dropped MC it would probably garner about the same couple bucks off their stock or about 1/4 of their value. People would see it as a changing of their overall business model and wonder if it’s a big mistake, spooking investors.

  • Michael · November 11, 2013 at 10:51 am

    As always, thanks for the insight Philip.

    In my estimation, there is a significant difference between the comparison, and this will skew the comparison slightly.

    Avid Media Composer (and all it’s software offshoots, Newscutter, etc) is the reason the hardware has any play in the market. For example, ISIS 5000 and 7000 have the ability for shared Avid projects. Without this core feature, ISIS becomes much more pedestrian. Interplay, which requires expensive Avid hardware, is rooted in this functionality. In fact, without MC, most of the hardware solutions which are themselves based off the MC workflows become severely overpriced hardware. Without MC, the company fails.

    The same cannot be said for FCP X. Dozens, if not hundreds, of applications can take advantage of the horsepower of the hardware with no interaction from FCP X, and thus the ultimate success of the Mac Pro is far less reliant on FCP X than the importance of MC to Avid.

    While I see some similarity between the 2 softwares and companies, I can’t say the relationship is as close as you may think.

    • Author comment by Philip · November 11, 2013 at 2:50 pm

      My point may not have come through as clearly as I wanted: FCP X (and Aperture and Logic Pro X) aren’t important to Apple because of the equipment sales. They are important to Apple because having the tools for creation on their platform is part of Apple’s DNA and that’s unlikely to change.

      Media Composer does have additional benefits for Avid that make it unlikely to be dropped, as you point out.

  • Mark Raudonis · November 12, 2013 at 10:34 am

    Phllip,

    I have tremendous respect for what you’ve accomplished in the FCP-X ecosystem.
    However, this comparison of hypotheticals has me scratching my head? What are you trying to say? Neither of these events are likely to happen? So, if that’s the case, then why waste the bandwidth?

    Mark

    • Author comment by Philip · November 12, 2013 at 10:37 am

      I constantly hear that Apple are not committed to professional content creation. The point is that they are more committed to professional creation tools than Avid are. For Avid it’s just business; for Apple it’s in their core DNA.

      • Frank Capria · November 15, 2013 at 7:00 am

        I strongly contest your assertion that creative tools are not in Avid’s “core DNA” as they are in Apple’s.

        If we are to apply the DNA metaphor, Avid was born as a creative tools company and early on acquired another similar company. To further that metaphor Media Composer and Pro Tools are the mitochondrial DNA of this company. I don’t believe Apple was born from the desire to make tools for artists and artisans.

        Avid’s gene pool is loaded with artists. I doubt that any company in the creative tool space has as high a percentage of employees as Avid that have made their living as creative professionals prior to joining Avid. Avid’s mission remains to shorten the distance between the inception of creative idea and its delivery to an audience. Everything we build is to that end.

        Next time you’re in the Boston area, I invite you to visit us and see for yourself. You’ll be in your element walking our halls.

        • Author comment by Philip · November 15, 2013 at 8:23 am

          Apples’ gene pool is likewise full of artists – many who worked for Avid over the years, but you make a fair point. I’ve had the pleasure of walking the old Avid HQ, but would love to visit the new one.

          And I trust you know that I have immense respect for Avid and for Media Composer even though it isn’t my personal preferred tool, but I do feel that Avid is far more focused on the Media Enterprise than the creative editor these days.

          Philip

        • Robin S. Kurz · November 16, 2013 at 7:49 am

          I understand your need to defend the people that pay your rent, Frank, but…

          “I doubt that any company in the creative tool space has as high a percentage of employees as Avid that have made their living as creative professionals prior to joining Avid.”

          … you CAN’T be serious. :-D At least not as far as such banal things such as DESIGN (e.g. interface) are concerned. Please fill me and others in on which creative achievements you are talking about *specifically*, because for me looking at Avid software is like looking into a magic mirror into the 80′s, whether you consider that relevant or not. Sorry, but in my book there’s is certainly *nothing* “creative” about Avid. “Technical”? “Ridged and stayed”? Oh, no doubt. But in terms of “creative” (which obviously includes DESIGN), Avid is a study in creative NO-GOs for the 21st century IMHO.

          So again, I’d love to know what “creative” achievement of Avid within the last five or even ten years can even so much as hold a candle up to any number of things Apple has done creatively in the same time period. Seriously. Name me just one. I’d love to be proven wrong because I’m most certainly not aware of any.

  • Robert · November 12, 2013 at 4:31 pm

    Michael, what expensive hardware does Interplay require? There are already many Avid systems which are built on hp ProLiant servers which Avid does *not* re-sell (Interplay Central, Sphere, MAM). The Avid AS3000 server used for most Interplay core functions costs less than the recommended configuration for the HP servers.

    Expensive? Perhaps but not due to hardware.

  • Jim Stewart · November 14, 2013 at 10:10 am

    It’s been my experience that when a company or it’s pundits start denying rumors about something, that’s when the rumors come true.

    • Robin S. Kurz · November 16, 2013 at 7:50 am

      Who is denying which rumors exactly?

  • Robin S. Kurz · November 16, 2013 at 7:52 am

    Philip, wouldn’t the actual upshot of your analysis be, that FCP (i.e. the Pro Apps as a whole) is in fact MORE important to Apple than MC is to Avid?

    • Author comment by Philip · November 16, 2013 at 9:26 am

      Yes, that FCP/Pro Apps as a whole are more important to Apple than MC is to Avid is my point.

      Go easy on Frank. He’s one of the people at Avid that do care about MC and creative editors.

      Philip

  • Shameer Mulji · November 17, 2013 at 11:53 pm

    “Apple consider themselves at the intersection of liberal arts and science – something that Steve Jobs repeated regularly and that has been confirmed by Tim Cook.”

    During the iPad 1 and iPad 2 events, Steve Jobs definitely touched on this during the end of the keynotes but I have never seen (or heard) Tim Cook confirm this.

  • Bret Williams · November 18, 2013 at 6:46 pm

    I think the art that Apple has always referred to was in the physical designs. And the science was technology. Neither of which is lessened by not having a pro app. Apple didn’t have Pro Apps for the first half of their existence, and they still had this DNA. They relied on others to create software. In fact, Apple never really wanted to sell Pro hardware or Pro software. It just kinda happened because the art and science put into their machines made them so expensive. They had always strived to make computers that were beautiful and capable and easy to use for the masses. Jobs always knew that’s where the market was. And that was his constant focus when he returned to Apple. The whole Pro-App stuff was a culture that grew of its own accord, and along the way seemed to occasionally lure Apple or distract them from their vision, but I don’t ever think this was Jobs goal.

    • Author comment by Philip · November 19, 2013 at 10:06 am

      Apple didn’t have a pro editing app for half it’s life – true, but editing on the desktop wasn’t even possible in that time. Right from the beginning Apple have insisted on having the tools of creation on their platform. When it seemed that third parties weren’t going to continue doing that, they made the determination to buy in the technology and develop it.

      Having the tools of creation for print, music, photography and video was always part of Steve Jobs’ vision for the company. Transcribe a few of his speeches or product presentations and you’ll see that the drive for tools of creation on the platform came right from the top.

      Jobs was incredibly closely involved in the pro apps right from the beginning, forcing over 200 revisions of the FCP 1 icon before deciding on the one we got.

  • Robert Barnes · November 21, 2013 at 10:40 pm

    I use FCP X. Plan to keep using it. But some of my pro friends have finally thrown in the Apple towel and gone NOT to Avid – but to Adobe Premier.

    They don’t think it’s perfect – far from it – but they know how to fly it vs the ever evolving FCP X.

    I find it interesting that You left out Premier… even though Media Composer was the gorilla in the room for a few decades. (I remember paying over 100K for one that ran on souped up Macs with DigiDesign boards installed.)

    I WANT and need FCP X to succeed and become a standard that we can use like we did with FCP 7. — That was a lear jet and we were pilots for hire.

    • Author comment by Philip · November 21, 2013 at 10:55 pm

      In the context of that post, Adobe doesn’t feature. They make a great product for sure, but it’s not the same as Apple – where having the tools of creation on the platform is crucially important to the company – or Avid, where the company is mostly known for Media Composer which isn’t crucial to the company’s future. (Although good folk like Frank Capria will continue to push to improve Media Composer and keep it out there and relevant.)

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