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Avid financial troubles spook Hollywood film editors

Avid's board of directors appointed Louis Hernandez to be its new CEO in February.
(Courtesy of Raddon Financial Group)

In the realm of Hollywood film editors, Avid Technology Inc., is king. But in recent weeks, some unsettling news about the company has its loyal users worried about the company’s future.

I came across some of these concerns while reporting a story this week about how Apple is making a push to get high-end professional editors to take another look at Final Cut Pro X. The story notes that there appears to be some opportunity for Apple to take a run at this market in part because Avid has had some financial issues.

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Earlier in the year, Avid CEO Gary Greenfield said he was stepping down and the company replaced him with Louis Hernandez, a veteran member of Avid’s board of directors. Then, in late February, the company announced it was delaying release of its most recent earnings report due to some accounting issues that had emerged. As a result of that delay, Nasdaq is now threatening the company with de-listing its stock.

While no one expects Avid to disappear or to go bankrupt any time soon, it also can’t be understated just how important the company is to the Hollywood film community. Apple made some inroads to this market before the release of Final Cut Pro X in June 2011. But Avid’s Media Composer editing system was still far and away the leading choice for editing major studio releases.

Harry Miller is head of the American Cinema Editors’ technology committee. Miller used to conduct annual surveys of the 350 members of ACE, who include the most senior and highly regarded members of the film editing community.

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In a survey in 2008, about 21% of members used Final Cut Pro with the rest primarily on Avid. But Miller said the Final Cut Pro numbers dwindled after that, in part because Avid cut its prices, and he eventually stopped doing the survey because nearly everyone was using Avid.

In 2009, the ACE awarded Avid its first ever Technical Excellence Award for “Avid’s unparalleled innovation, the company’s commitment to working hand-in-hand with editors, and its role in evolving the art of cinematic storytelling.”

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Indeed, at the most recent Academy Awards, all five films nominated for a film editing Oscar were cut on Avid. And all nine films nominated for best picture used either an Avid video or sound product.

But Avid has been in financial decline for several years, caught between a business model that used to focus on the selling of expensive hardware and software legacy systems and the explosion of low-cost digital devices that allowed people to capture high-quality video. Avid itself was once considered a disruptive pioneer of digital video editing, but was hurt by Apple’s entrance into the market with Final Cut Pro in 1999.

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From 2007 to 2011, Avid’s revenues declined from $929.6 million to $677.9 million. The company was unprofitable each of those years.

Last summer, the company announced it was selling its consumer video and audio businesses to focus exclusively on its core high-end professional users. It also announced a restructuring that included the closing of some offices. The sale and the restructuring reduced Avid’s headcount by 330 employees. Before that, at the end of 2011, Avid had reported having 1,787 employees.

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As part of the Apple Final Cut Pro reporting, I got a chance to talk to Dave Colantuoni, director of product management at Avid, and Matt Feury, senior manager for Avid’s post solutions marketing. Neither could directly address Avid’s financial issues.

However, both insisted that Avid remained in a strong position to continue to invest in innovation and the evolution of its products.

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“We are now 100% focused on the enterprise, broadcast, music, video,” Colantuoni said. “Anything related to media and entertainment technology. Our job in product is to continue to invest in innovation and execute on growing the company. We are well positioned to continue our leadership.”

Avid is investing in cloud-based editing services and continuing to develop Media Composer.

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When Apple unveiled the controversial Final Cut Pro X in 2011, Avid made a run at Apple customers by offering a discount to its own products for users who switched. Media Composer costs $2,499, but it’s only $1,499 for someone switching from Apple’s Final Cut Pro 7. And it’s only $295 for a student, including four years of updates.

That compares to Final Cut Pro X’s $299 price tag, which includes a lifetime of updates. While Apple has said Pro X has become its most downloaded version of the software, Avid says it saw a lot of Pro users defect to its software.

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“It has been enormously successful,” said Colantuoni of Avid’s campaign to attract Apple users. “If there were broadcast Final Cut Pro users, we’ve seen them come back to Avid. And with film and independents, we’ve made huge inroads into space.”

Perhaps, but it hasn’t been enough to return the company to growth. Paul Coster, an analyst at J.P. Morgan, and one of the few analysts who still follow Avid, wrote in a recent note to clients that: “We are above consensus for revenue...but without much conviction owing to continued price pressure on storage and editing solutions.”

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Feury said the company is also focused on overseas markets. Part of Avid’s problem is that the high-end market it dominates is not growing much. But Feury said the company does see increased opportunities with customers overseas, where there does seem to be some growth.

“There are still markets that are emerging,” Feury said. “And because of tax breaks, more production is moving overseas. These people need a system that allows them to collaborate over a wide area.”

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Miller of American Cinema Editors said there is still a healthy amount of suspicion regarding Apple because of its radical overhaul of Final Cut Pro with version X. Feury and Colantuoni believe that frustration will work in favor of Avid, which has been serving high-end users for more than two decades.

Still, other folks besides Apple see Avid as vulnerable. Autodesk of San Rafael has beefed up its video editing software, called Smoke, in recent years. And Adobe of San Jose has also been making gains in the video editing market with its Premiere Pro software.

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Bill Roberts, director of product management for professional video at Adobe, said his company’s video editing tool, Premiere, was already growing fast before Pro X was released, and has seen growth increase since then.

Still, Miller also said American Cinema Editors members and other high-end pros tend to be older, less tech savvy, and more resistant to big changes. They’ll probably stick with Avid for now, but they also recognize that their segment of the video market is small and probably less profitable, and therefore there’s less incentive for big companies to make big investments in serving them.

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For now, they’re hoping Avid stabilizes. If not, they may be forced to consider alternatives.

“We’re not sure how financially solid Avid is,” Miller said. “We’re afraid all these big players are going to go away. We’re in a precarious business. As editors, we’ll support anybody that has the best platform out there.”

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