No Summer Blockbusters for Troubled Film-Editing Giant

Quick, which local company’s name is more recognizable in Hollywood than it is here in Massachusetts? A gold star for you if you answered “Avid Technology.” Among filmmakers and TV producers, the Tewksbury firm’s Avid Media Composer brand is virtually synonymous with nonlinear film and video editing, the digital-age version of the cut-and-glue techniques used for decades to arrange film clips on celluloid.

But the company isn’t winning any stars for its recent performance. Its stock (AVID) hit a 52-week low on the NASDAQ yesterday, capping a difficult month marked by the resignation of embattled CEO David Krall and a quarterly earnings report on July 26 that detailed slow revenue growth and an overall operating loss.

For the three months ending June 30, Avid reported a net loss of $6 million on revenue of $225.3 million, compared to net income of $2.7 million on $222.2 million in revenue for the same period in 2006. Krall called the numbers “solid” and “in line with expectations,” but at the same time the company announced a restructuring that will eliminate 150 jobs in the company’s video division.

After breakneck expansion and a string of Oscar-winning technical achievements in the 1990s, Avid now faces increased competition from consumer-oriented rivals in both of its core markets—professional and consumer film and video editing—as well as computer graphics, an area it entered with the acquisition of former Microsoft subsidiary Softimage in 1998. If the company can’t find new leadership and innovate its way out of its current stagnation, some observers say, its falling stock value could leave it vulnerable to takeover.

In the world of professional video post-production, Avid’s Media Composer is still dominant, with more than 90 percent of members of the American Cinema Editors saying they still use the system in a late-2006 survey. But Apple’s Final Cut Pro is creeping up on Avid’s product, especially among independent film and video producers outside of Los Angeles and New York. Even some Hollywood movies, including director David Fincher’s 2007 film Zodiac, have been edited using Apple’s system.

“For a long time, [Avid] has been dismissing Apple’s product as not customizable enough or not sophisticated enough, but it certainly seems that professional video producers and moviemakers are embracing it,” says Irina Logovinsky, an analyst who follows Avid for Morningstar. Logovinsky notes that NBC, CNN, the BBC, and MTV have also begun to supplement their traditional Avid editing suites with Apple software. “Users actually think Apple’s products are easier to use than Avid’s, and on top of everything else, Apple’s products are cheaper.”

It’s possible, as the broadcasting industry goes entirely digital, that demand for professional digital video editing solutions will increase fast enough to keep Avid afloat, Logovinsky says. But the company also faces a challenges on the consumer side. Avid’s Pinnacle Studio—added to its product line after the August 2005 acquisition of Pinnacle Systems—competes directly with popular Apple offerings, including iMovie HD and iDVD, which come pre-loaded on new Macintosh computers.

Avid is also working to stay competitive in professional computer graphics. A new advanced version of Softimage’s 3D animation software package, Softimage XSI 6.5, will be cheaper than previous versions and will have more features for rendering crowds and character behavior, the company announced yesterday at the SIGGRAPH 2007 computer-graphics conference in San Diego.

But that news didn’t seem to budge Avid’s stock, which hovered between $30 and $31 yesterday, its lowest level since mid-2003. The stock has taken a severe tumble since reaching a high of almost $60 in January 2006. Analysts blame part of the decline on Krall’s handling of the Pinnacle acquisition. The company paid $462 million for the 800-employee company, representing a 30 percent premium over Pinnacle’s stock price at the time; a year later, in the fourth quarter of 2006, Avid was forced to take a $53 million write-down to reflect the difference between the “goodwill” value Avid had assigned to Pinnacle and the division’s actual fair value. “It’s basically another way of saying, ‘We paid too much for Pinnacle,'” says Logovinsky.

Krall’s resignation took effect July 31. He is succeeded by interim CEO Nancy Hawthorne. Logovinsky says Morningstar won’t revise its estimate of Avid’s fair stock value downward or upward until the company has found a permanent replacement. “We think they have lost some of their competitive strength, and we don’t know if they’ll be able to regain it or not,” she says.

Avid wasn’t able to immediately accommodate Xconomy’s request for comment.

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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2 responses to “No Summer Blockbusters for Troubled Film-Editing Giant”

  1. Sandy Lauren says:

    There is a big problem of perspective in this article, in my opinion

    First, the consumer video products by Pinnacle runs exclusively on Windows and Apple’s offering are on the Mac, which has a much smaller market share than Windows. So for users to switch, they would have to buy a completely new system and video hardware, and give up their current assert and current Windows applications, and learn a new operating system. It’s a major, and unlikely investment for consumers. Most video consumers will always be on the Windows platform.

    If you’re not mentioning Adobe, you’re missing completely the picture here. Apple has a large part of the mind share , but NOT of the actual market share.

    For professionals, Apple sells software – only solutions, and provides no pro support or services. Avid is in the hardware business for Video and Audio. This is its main business and its main source of revenues. A video production cannot be done without terabyte RAID arrays and strong asset management systems.

    So this article only makes sense from the perspective of prosumer who use software-only solutions, and the prosumer who is an Apple Mac user. This isn’t at all the market that Avid is operating in, and it isn’t where the big money is.

    The money is in the multi-milion dollar deals with companies like NBC.

    What you need to do now is go back to read the financial reports and see exactly where the revenues and profits of Avid are coming from.

  2. Tim Whiting says:

    And don’t overlook Avid’s M-Audio which is an important player in the professional audio and dovetails with their video offerings.