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Screenlight: Will Accounting Woes at Avid Spark Big Changes or an Acquisition?
Screenlight: Will Accounting Woes at Avid Spark Big Changes or an Acquisition?
https://www.screenlight.tv/blog/2013/03/05/will-avids-accounting-woes-spark-big-change-or-an-acquisition/I don’t know if I’d agree with him entirely on some of his reasoning but it’s good to see someone looking at the numbers, the history, the key players and doing this kind of analysis.
I certainly have some things to say (don’t I always) about his analysis but others might want to look an comment first since my own thoughts might be a bit stale.
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145 Replies
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Hey Craig,
Thanks for reading and sharing my post. Would love to hear your thoughts on where my reasoning is off. It’s a tough story to get straight. I’m not sure that the accounting delay is really going to be the thing that pushes them over the edge, but I do think the clock is ticking in terms of them needing to find a way to unlock the value of the assets. You can only have great products and a losing business model for so long (unless as I think Ron Sussman spelled out on twitter, you are a car company or to big to fail).
– chris
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[Chris Potter] “Would love to hear your thoughts on where my reasoning is off. “
I wouldn’t use the term “off” since, in this case, it’s not really a matter of right or wrong. People looking at the same financial facts may draw different conclusions though. There certainly are large segments of your piece I do agree with which is why it’s good to see someone else with that kind of analysis. Also there are some points I’d emphasize more strongly than you may have. In other words my accent marks would fall in different places.
I’ll post more later since I’m a bit busy at the moment but here’s some of my points. Some may be similar but I may flesh out some differences.
R&D is one of Avid’s biggest problem. The lack of capital is one. They employee unhappiness and insecurity is another. Their “product stasis” is basically buying time for any number of potential competitors to beat them badly. It may take a few years but baring any changes in capital at Avid, this seems nearly inevitable. Also keep in mind the very value of the niche they serve is changing relative to the growth of the overall market. To put it another way, there are markets Avid competitors can enter and grow in without even going near Avid’s niche. Eventually that would make even Avid’s niche a very easy target.
I’m not sure that Adobe or Apple’s NLE pricing is a big factor, although it does play a role long range. You also have to factor in Editshare which can be a hardware competitor, has what is now a free NLE, has had entry into the niche market that is one of Avid’s few strengths. I can say more about this when I have the time. Again it’s not “right or wrong” but I do think there’s a variety of factors in play.
Private Equity is a strange thing though. A debt free company may always have some value much like a penny stock only better. There are a few different Private Equity models and Avid’s stock is on the decline. You never know at what price point it becomes a worthwhile jump. It may very well be Private Equity that decides to keep or sell off parts. For all we know (and we don’t really know) the delay on the earnings release may have been an attempt by the owners to forestal a more severe stock drop (making them a more attractive target).
I’ll have more to say when I get the chance.
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Your R&D point is a great one. Without spending in this area it’s hard for the product portfolio to continue evolving. Without deep pockets it’s hard to invest in this area. Avid faces real constraints in this area. I believe that one of the risk factors that they mention in the annual report is along these lines:
“The market segments in which we operate are highly competitive, and our competitors may be able to draw upon a greater depth and breadth of resources than those that are available to us.”
It’s funny that they don’t mention people as a risk factor. I would be worried about the culture after so many restructuring plans and rounds of layoffs. I do think that if the new CEO decides to restructure in some form he will have to address people’s fears that it’s going to be death by 1000 cuts.
The Final Cut and Adobe pricing is kind of like the icing on the cake, the real pain started with hardware sales. Your point about EditShare highlights the problems they face. There are nimble and innovative competitors in every segment in which they operate. These competitors will continue to erode their pricing power (unless they can invest in R&D and stay far ahead of the curve).
Yes, with the stock price on the decline I wouldn’t rule out other form of private equity play. If hedge funds can take shots at Apple for sitting on cash hoards, then surely they have some thoughts on how they could take out Avid and make a buck. Never underestimate the creativity of investment bankers :).
It will be interesting to see what if some of the class action lawyers that are putting out press releases create more problems and put more pressure on the stock price.
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[Chris Potter] “It’s funny that they don’t mention people as a risk factor. I would be worried about the culture after so many restructuring plans and rounds of layoffs. I do think that if the new CEO decides to restructure in some form he will have to address people’s fears that it’s going to be death by 1000 cuts. “
I don’t know how accurate “GlassDoor” is since it really depends on voluntary employee and former employee input but this is simply not good.
https://www.glassdoor.com/Reviews/Avid-Technology-Reviews-E2291.htmI’m not sure another round of layoffs would make sense at this point unless there’s some hidden “fat.” Keep cutting either sales, service, development staff and you’re just damaging the company further.
Interesting comments on Autodesk and Blackmagic.
If the price were low enough (again we don’t know what that point would be) they themselves could buy and use what’s valuable to them and scrap the rest. The question is which products would fit in with their business models. Without knowing any details I’d imagine ProTools might still be valuable and Blackmagic could approach it as they did with Resolve. I’m not sure what the market is for Avid’s storage related products. I can’t help but think if it were good, Avid wouldn’t be in this situation. Media Composer would have to present a very different approach than Avid’s in order to be of any value IMHO.Ultimately I can’t help but see any end point but private equity or being sold to another company to use for parts.
With a track record now going on years with no ability to right themselves, With only a strategy of cutting and cutting more, with a change in CEO which amounts to no obvious significant shift, I only see them bleeding down to the point where they become an affordable purchase for somebody for some reason. There’s no other influx of capital.
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Hey Chris!
I thought it was a good, well-rounded assessment. Thanks for writing it, and thanks to Craig for sharing it.
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[Chris Potter] “Your R&D point is a great one. Without spending in this area it’s hard for the product portfolio to continue evolving. Without deep pockets it’s hard to invest in this area. Avid faces real constraints in this area. I believe that one of the risk factors that they mention in the annual report is along these lines:
“The market segments in which we operate are highly competitive, and our competitors may be able to draw upon a greater depth and breadth of resources than those that are available to us.”
It’s funny that they don’t mention people as a risk factor. I would be worried about the culture after so many restructuring plans and rounds of layoffs. I do think that if the new CEO decides to restructure in some form he will have to address people’s fears that it’s going to be death by 1000 cuts. “
It’s not just capital and employee talent. Avid’s ability to innovate is also constrained by their existing user base, which is surely the most conservative in the industry. Take Media Composer, for instance. I suspect pretty much everyone who hasn’t been using Media Composer for a decade or more (and some people who have) will admit that its interface is largely impenetrable to new users. There are lots of features hidden in there, but it doesn’t feel like a modern app, its UI is practically maze-like, and the ways it handles many things (like non-native media — a distinction that ideally shouldn’t even exist in a modern NLE) seem grafted on, because they were.
It seems unlikely Avid can grow the product into new markets and attract new users without addressing these issues. But addressing these issues looks like it would require a full-out rewrite of the technical foundations of the app, and a huge overhaul of the UI. And how do you do that without the existing, extremely conservative user base revolting?
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Digital Workflow/Colorist, Nice Dissolve.You should follow me on Twitter here. Or read our blog.
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I have a good friend who worked in the AVID mass storage and engineering departments, and his take on it was very similar to the Glassdoor comments. The way he puts it though, is pithier:
“Beatings will continue until morale improves…”
And of course AVID’s method of dealing with competition was often to buy them; and then use these technologies in lieue of innovation and R&D.
Joe Bourke
Owner/Creative Director
Bourke Media
http://www.bourkemedia.com -
One might say Avid is so afraid of offending its current small niche that it has forsaken the rest of the industry. While defending that niche may have been of great value when they were all paying $80,000 a box, it’s not as lucrative when it’s $2500. $80k included proprietary hardware sales. $2.5K does not. Wider sales of the lower price hasn’t resulted in the hardware sales they need. $900 cross grade pricing hasn’t either. Feature innovation isn’t matching that of other NLE developers working on expanding their user base, revenue and profits. Avid’s MC feature set is still primarily targeted to the $80K base which isn’t paying $80K. MC still has features that lead. The importance of those features to the broader market is diminished though or, at least, the profit they can make from those features are.
Basically Avid doesn’t have a business model to be a profitable software company. Avid doesn’t have a business model to be a profitable hardware company. Avid shows no signs of changing.
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[Chris Kenny] “There are lots of features hidden in there, but it doesn’t feel like a modern app, its UI is practically maze-like, “
Maize-like? Really? Doesn’t feel like a modern app? I’m sorry. I find these silly statements.
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This short commentary from Richard Harrington who many of us know for his Photoshop tutorials here and elsewhere. More of an outline with links to articles.
The comments following the article are also interesting.
Avid — Has the Ship Sailed (or Even Sunk)?
https://www.richardharringtonblog.com/files/6d1f0a98ed850b763d121e0541411e1f-2157.php
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