On Monday, Avid announced that Gary Greenfield has resigned from his position as CEO and Chairman of the Board. Louis Hernandez, who was appointed to Avid’s Board of Directors by Greenfield in 2008, has been named as Avid’s new President and CEO. George Billings, who has been a member of Avid’s board since 2004, is now Chairman. Greenfield will continue to serve as a member of Avid’s board.
These changes in Avid’s leadership follow several years of declining results. Here are some of the numbers:
- When Greenfield took the helm on December 19, 2007, Avid’s stock price was $25.40. At close on Monday, it was $7.87, a decline of 69%.
- Avid’s revenue for 2007 was $989.6 million. Although Avid has not announced official results for the fourth quarter of 2012 as of yet, some analysts are predicting roughly $614 million in total revenue for 2012. If this estimate is accurate, Avid’s top line will have declined by more than 33% during the last five years. (Note that these numbers are not fully adjusted for acquisitions and divestments.)
- Avid’s cash position has declined from $224.5 million at the end of 2007, to roughly $71 million, according to Avid’s most recent results announcement (Q3 2012), a decline of more than 68%.
It’s important to note that other large vendors such as Grass Valley and Harris Broadcast have also struggled during this interval. And despite poor financial performance, Avid achieved several important accomplishments over the last five years:
- Significantly reduced price points for many products, achieving better alignment to the market.
- Decoupled hardware and software for Pro Tools and Media Composer, enabling customer choice.
- Implemented “voice of the customer” programs, to increase customer influence.
- Expanded product categories through strategic acquisitions, including Euphonix (audio consoles and control surfaces) and Blue Order (media asset management).
- Refreshed several key product lines, while improving overall product quality and customer support.
- Unified multiple brands under a single Avid brand.
- Streamlined costs by transitioning to shared services and increasing offshore contract engineering.
- Narrowed market focus on professional customers by divesting its consumer product lines, while expanding Avid’s professional services capabilities.
Although these accomplishments are significant, they did not result in sustained growth or profitability. To rebound, Avid will need to take bold steps. The good news is that the media industry’s value chain continues to evolve, creating new opportunities for technology vendors. Here are ten of the top macro trends, as I see them, in no particular order:
- Transition to HD and Digital. Although largely complete in North America, the transition to digital distribution and HD television is still in full swing globally, creating upgrade opportunities for technology vendors.
- Beyond HD. Film studios and broadcasters continue to advance beyond HD for high-end content production. As content creators adopt higher spatial resolution (e.g. 4K), higher frame rates (e.g. 48 fps and 60 fps), stereoscopic, and high dynamic range, as well as other advances in imaging, they will need to upgrade their equipment and expand their storage infrastructure.
- Growth in the MI Market. As the global economy has rebounded, so has demand for musical instruments, as well as music creation tools and audio recording products.
- More Broadcast Channels. Broadcasters continue to add new channels, especially outside of North America, driving increased demand for content creation and distribution technologies.
- New Distribution Outlets and Multi-Screen. Broadcasters and media companies are monetizing content across more distribution outlets, including on demand, web, mobile, and social media, fueling the market for content transformation and distribution technologies. Additionally, new viewing paradigms are emerging including interactive, multi-screen consumption, creating new opportunities for targeted advertising.
- Corporate Video. The use of video in corporate environments continues to explode, creating opportunities for vendors of simple content creation tools, collaboration infrastructure, centralized storage and content management systems, as well as transformation and distribution services.
- Expanded Audio Deliverables. More content production means more audio production. Broader international distribution is driving more language versioning than ever before. New audio accessibility and loudness regulations, as well as new surround formats like Dolby Atmos, require more audio processing. All of these trends are fueling increased demand for audio production and processing tools.
- Transition to File-Based Workflows. As the entire media value chain continues its transition to file-based workflows, demand will increase for media asset management, media storage, and workflow orchestration solutions.
- Operational Integration and Automation. Media companies are looking for ways to increase their productivity without increasing operating expenses. To this end, they are adapting concepts and technologies from the IT industry to achieve new levels of process automation and operational integration, expanding the market for professional services and integration technologies.
- Cloud. As media companies streamline their operations, cloud-based infrastructure will become increasingly appealing – providing elastic capacity and cost, while enabling new workflows for distributed teams. This trend will unfold over the next several years, creating opportunities for media-savvy cloud-based service providers.
These opportunities are not new, and they are not accessible only to Avid. But none of these opportunities is out of reach for Avid either. The question is whether Avid will participate meaningfully in these opportunities, or continue to retrench in its existing core business.
Earlier this week, one of my former colleagues at Avid told me that many Avid employees do not see this week’s announcement as a regime change, but rather a modest change in roles for the existing management team. No board members have come or gone, an existing board member chosen by Greenfield is now CEO, and Greenfield himself is still in the picture as a board member. It’s hard to argue that this week’s announcement represents a radical departure from the status quo.
Still, one could argue that Hernandez is well positioned to effect change. Although Hernandez has been on Avid’s board for several years, most Avid employees and customers are not familiar with him. This affords Hernandez the opportunity to approach his appointment as a newcomer would. Yet his tenure on Avid’s board has exposed Hernandez to Avid’s business, customers and markets. The question is whether Hernandez will take this opportunity to effect change, or continue the course set by his predecessor.
Predictably, Monday’s announcement has sparked increased interest in Hernandez’s track record. According to publicly available documents, Hernandez was previously Chairman of the Board and CEO of Open Solutions, Inc., a technology company that was acquired in January 2013 by Fiserv, Inc. for $55 million. As part of the acquisition, Fiserv also assumed approximately $960 million of debt. Open Solutions had been taken private roughly six years earlier by the Carlyle Group and Providence Equity Partners for $1.3 billion. In the six years since Open Solutions was taken private, the company’s debt more than doubled from roughly $448 million to $960 million. Because Open Solutions has had a history of losses, Fiserv will realize tax breaks to the tune of $165 million, lowering the total cost of the acquisition to around $865 million.
This means that the market value of Open Solutions has declined by roughly 33% over the last six years, from $1.3 billion to $865 million. According to articles and posts on public websites like Glass Door, Open Solutions has also implemented layoffs and has reduced employee benefits in order to manage costs, affecting employee morale. While the decline of Open Solutions has not been as precipitous as Avid’s, these similarities are worth noting.
In Avid’s Press Release Monday, Hernandez described his appointment as “…an exciting opportunity to lead Avid at this very important juncture…” adding that “[Avid] is well positioned for growth and global expansion in this fast-moving marketplace.” It certainly is an exciting time of change for the media industry, and a potential inflection point for Avid. Along with many other fans of this great company who continue to root for an Avid turnaround, here’s hoping that Hernandez is ready and able to chart a new course forward for Avid.