It came as no surprise yesterday when Avid Technology received a notification letter from NASDAQ that the company would be delisted and trading of its stock would be suspended. For many of us in the creative end of the entertainment business who have watched the company try to battle through its troubles during the last few years, the question was more of “when” than “if” this scenario would happen. The writing had been on the wall for some time.
If you’re not aware, Avid Technology is the maker of video editing tools that are used at all levels and stages of the creative process in both television and movies. In 1995 Avid acquired Digidesign, the maker of Pro Tools, which is the standard audio editing hardware and software used by professionals everywhere, giving the company leadership in both the audio and video editing sectors. In fact, Pro Tools is the standard digital audio workstation used in the creation of nearly every major motion picture and television show, as well as most of the music you hear today. While there are other very capable software audio packages available, Pro Tools is truly a universal standard when it comes to any audio job done on a professional level.
But leadership comes at a price, as does being publicly traded. Over the years Avid has tried to wring every dollar out of its various technologies with what some would characterize as ruthless upgrade plans, and every time their substantial customer based would wince with pain but eventually give in. After all, if the rest of the professional world was upgrading, you were forced to as well just to say compatible and therefore stay in business.
Of course what eventually happened was that the market for new systems became saturated both on the audio and video side, and you can only force someone to upgrade every year or 18 months or so, which isn’t exactly a great recipe for sustained growth. The company tried to expand by acquiring a number of companies with markets at the neophyte or even consumer level in an effort to increase its user base. Of course, as is often the case, Avid integrated those companies into their infrastructure, which unfortunately wasn’t very adept at speaking to those markets, and the investments brought little of the expected return. As a result, the company began to hemorrhage cash and the stock went from a one time high of $42 down to less than $5 when it was finally delisted.
In the past few years, Avid has suffered from a brain drain across every division and every department. It seems like a shell of its former self. That said, Pro Tools is still very much alive and well. The latest Version 11 is rewritten from the ground up, getting rid of legacy code that was very long in the tooth. The adoption is slow, but steady, as the industry gradually upgrades. Its current audio hardware is better than ever, and has drawn praise from even its staunchest critics.
My guess is that even if Avid were to fail, Pro Tools would survive in some form, given its huge installed base across the various sectors of the audio industry. The problem is, is there a company within the industry that’s both large enough and healthy enough to acquire it were it to become available?
My guess is no, unless there was a fire sale, which would mean that an acquisition could come from outside the industry, a scenario that hasn’t ended well in the past. Also, the audio industry is indeed fickle and time and again has turned on a dime when it came to so-called “standard” gear. If a newer cheaper alternative were to grab a toe-hold, it could knock Pro Tools out of the professional driver’s seat a lot faster than one might think.
Ironically, Avid is today being traded Over The Counter and has had it’s best showing in years. That could be just bargain hunters looking for a deal, and they could be very well be gone tomorrow, but then again it could very well mean a new birth of sorts.
The Avid saga is just another example of a technology company in a small market that’s based around creative professionals. A company like this has no business being public in the first place as it’s growth will be capped by the market size sooner or later. A public company is more beholden to its stockholders than its customers, especially when things go bad, which is a bad recipe when it comes to the entertainment industry.
