SCRI Avid’s Official Report

[Franz Bieberkopf]

Craig,

Avid press release (which contains more detail than the SCRI summary):

https://ir.avid.com/releasedetail.cfm?ReleaseID=667860

[Craig Seeman] “Basically I’d like to see 2011 compared to 2012 once this year is complete. That will indicate whether it was a one time bump vs a trend. My concern is that Q1 2012 may not be better than Q1 2011 which may not be a good sign that it was anything other than a bump. In other words, typical comparison are in matching quarter Q4 2011v Q4 2012 or all 2011 v all 2012.”

Now that the info is published, have you done your comparisons?

Franz.

[Craig Seeman]

[Franz Bieberkopf] “Now that the info is published, have you done your comparisons?”

The 30% drop is year over year as opposed to quarter to quarter. A year over year drop is very bad news. One would expect a quarter over quarter drop given the big cross grade push. The very serious problem is that they’re doing worse then they were the same time last year, when FCP7 was still alive.

Units are up, which mean the cross grade is working as far a market share is concerned. The problem is (as I had read from a couple of analysts) that the price is unsustainably low for them. I can’t help but think Avid’s looking to make it up on the upgrade pricing. My own guess is you’re going to see Avid force a paid upgrade to Symphony as MC is EOLd.

Also interesting is the comment on over 50% software. I’m inferring a change in business model away from the dependency on Isis sales. Maybe the software tied to it becomes more open? Just wild speculation.

It’s bluntly clear Avid’s going to “trim” something and, given the Symphony cross grade price, I suspect that’s one component. I wonder where DS goes especially given Autodesk Smoke’s new price.

“While revenues were down from last year primarily related to the creative enthusiast portion of our business, we see positive signs in the post and professional and our media enterprise markets as customers seek to become more competitive by moving to more seamless workflows,” said Gary Greenfield, chairman and CEO of Avid. “Our balance sheet is solid, ending the quarter with $50 million of cash and we remain committed to delivering sustained profitability.”

BTW it’s still not clear to me how important “creative enthusiast” are to Avid. If it’s really that big of a sink hole, I’d think they’d just drop it if they want to get back to core business. Maybe they think there’s a way to turn that around.

I can see Avid’s positive spin on post given units sold are up but what they do to turn units (volume” into profit is going to impact Pro Post in some fashion. Lower price isn’t going to work for software IMHO. I think the bigger question is where they go with Isis that MC/Symphony/DS. It seems to me that MC/Symphony will become one with revenue from upgrade costs. Maybe DS goes away? Maybe Isis management tools open up?

Avid is very much a debt free company so that and the cash means they’re not going to fold up an go away. I’ll add that minimize debt is often a key factor in making a company an attractive sale. Not that that’s going to happen but I still think that’s a real possibility. I should also mention that “sale” can also mean to an investment firm as opposed to a competitor or a company looking to enter the field. A sale to an investment firm can happen because there’s belief that with an influx of capital, they can turn it around and make significant acquisitions. I know I’ve speculated wildly on Blackmagic but on the other hand an investment firm would give Avid the chance to become more like Blackmagic (capital to make lots of good acquisitions).

In any case I’d anticipate some significant changes at Avid this year. Although it’s interesting that
Ken Sexton, Avid’s CFO, stated in the call that the company expects 2012 revenue to be “relatively flat”
That doesn’t sound like a turn around is expected so much as just a leveling off of losses financially. Of course that wouldn’t be unusual for a turnaround year (transition to a new/improved business model).

It’s interesting that SCRI thought it was significant to include this snide comment.

A comment from the analyst at JP Morgan questioned the company saying that “the stock (Avid) is not showing anything over the last ten years or so and that he is surprised that the company (Avid) is not doing more to get sustainable profitability rather than to just aspire to it”

[Andy Neil]

Maybe they’ll get rid of Avid Studio as well. It never made that much sense to me. Then it’ll just be Symphony/Pro Tools for the software, and hardware for the rest.

Andy

https://www.timesavertutorials.com

[Craig Seeman]

[Andy Neil] “it’ll just be Symphony/Pro Tools for the software, and hardware for the rest.”

It’s interesting that Pro Tools doesn’t really get mentioned in any of the reports one way or another. I don’t think it’s dumped into Pro Editors (just my guess) nor Creative Enthusiasts. I’m curious given all the uproar (it seemed like an uproar to me) over the hardware side of the Pro Tools upgrade.

[Richard Herd]

They’re kicking @$$.

Net cash in 2011 was underwater. Now they’re way above water. Then cash equivalents at the end of q1 are also dramatic increases y/y.

The real question is: What are they going to do with their $49,681 (x 1000) in cash?

They could probably save a fortune by getting rid of track based editing because tracks (especially audio tracks) are huge overhead; also, range based exporting really drains the coffers.

[Oliver Peters]

I think the way Avid defines the “pro editors” segment doesn’t include storage, i.e. ISIS. That’s a different business unit and calculated separately in their income reports. “Pro editors” would be sales from DS, Symphony, Media Composer (also maybe NewsCutter?) and associated DX hardware. So moving to a 50% software base means lower sales on Avid i/o hardware. “Creative enthusiast” would be Avid Studio and also the M-Audio products, especially ProTools M-Powered. Maybe also Sybellius sales.

– Oliver

Oliver Peters Post Production Services, LLC
Orlando, FL
http://www.oliverpeters.com

[Craig Seeman]

[Oliver Peters] “So moving to a 50% software base means lower sales on Avid i/o hardware.”

That would be a “natural” occurrence given the opening up of Avid’s NLEs. That would seem almost a “throwaway” comment unless there’s more to that business model.

[Oliver Peters] “”Creative enthusiast” would be Avid Studio and also the M-Audio products, especially ProTools M-Powered. Maybe also Sybellius sales.”

It seems the loses here are having a significant impact. I wonder what their changes would be in this area. Certainly they invested in making an iPad NLE.

[Tim Wilson]

[Craig Seeman] “Certainly they invested in making an iPad NLE.”

Not that big a deal I think. It’s an iteration of the consumer-oriented Pinnacle Studio that used to retail in places like K-Mart and Circuit City for $99. The (former) Pinnacle guys are software maniacs — they probably did most of it in their sleep on a Sunday night, wrapped it up by lunch Monday. I could be wrong, but it looks like the definition of low-hanging fruit.

We can have a different conversation when Symphony makes its way to iPad.

(Note that one of the FCPX product managers was the designer of Symphony. We came close to overlapping at Avid — he was one of the people who interviewed me, was very generous to me, but left before I started. He had my old job at Boris FX before he moved to Apple. Great guy. So Symphony winding up on an iPad, cue “Circle of Life,” the Elton John version, but stick with the Debbie Allen choreography from the Oscars.)

Given that I’m mathlexic and can barely read…or wipe my own drool…here’s how I read this.

Avid CAN sustain a video business that’s mostly software. When I was there, it was something like 40% margin across the business (including storage, services, Pro Tools — the whole shebang). They’re now at SIXTY points. That’s really good, especially for a business with so many hard costs (storage, mixing boards, etc.)

If their margin is 60%, they can survive as long as they want, as long as they’re spending something less than 60% of revenue. That’s not currently the case. Time to call in the MBAs, give ’em machetes, and turn ’em loose. Kidding aside, there’s a lot of smart people at Avid. They can figure out how to create net profit on a 60% margin.

I’m an idiot and can probably make a step or two in the right direction.

Usual disclaimers: I’m speaking only for myself, not anybody I work for now or worked for then….and I’m an idiot.

Tim Wilson
Associate Publisher, Editor-in-Chief
Creative COW Magazine
Twitter: timdoubleyou

[Craig Seeman]

[Tim Wilson] “I could be wrong, but it looks like the definition of low-hanging fruit.”

I don’t think that there’s an issue with the attempt though. If Avid really wants the “creative enthusiast” it would be worth pursuing. The report notes that it received good reviews. It may be that sales were disappointing though. At issue is how Avid pursues the creative enthusiast or whether it’s worth the bother.

[Tim Wilson] “(Note that one of the FCPX product managers was the designer of Symphony. We came close to overlapping at Avid — he was one of the people who interviewed me, was very generous to me, but left before I started. He had my old job at Boris FX before he moved to Apple.”

Interesting career path. So when do you start your job at Apple? ;->

[Tim Wilson] “Avid CAN sustain a video business that’s mostly software. When I was there, it was something like 40% margin across the business (including storage, services, Pro Tools — the whole shebang)”

So maybe this is the way to go for them. I enter treacherous waters with some folks here but maybe Isis moves to software management front end that works with a variety of hardware.

Avid themselves talked about “trimming” some things so it should be an interesting year for them (and some of us too).

[Oliver Peters]

[Craig Seeman] “So maybe this is the way to go for them. I enter treacherous waters with some folks here but maybe Isis moves to software management front end that works with a variety of hardware.”

You’re assuming that ISIS isn’t making money. I doubt that big time. ISIS is an enterprise-grade storage solution primarily intended for broadcast and high-end post. As such it competes against Grass Valley, Quantel, Harmonic, EditShare, EMC, etc. That’s a space that requires consulting services, training and other value-added items, which can’t be supplied by software-only front-end management. You know, the market Apple walked away from, because it requires a lot of direct involvement without an iPhone-level of return 😉

– Oliver

Oliver Peters Post Production Services, LLC
Orlando, FL
http://www.oliverpeters.com