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Re: Corel buys Pinnacle - what are the consequences?

  •  07-10-2012, 11:52

    Re: Corel buys Pinnacle - what are the consequences?

    And the forum will easily function without me. The other new English speaking mods include Greg, who is contributing in a more mature way, and JKooch, who was appointed against his wishes and hasn't posted since. He is the one I would have expected to return with some financial insight because most of his predictions have come true. The  rest of the appointees were for other languages and work hard.

    Quite a surprise to be remembered at all!  I tracked Avid financial, results roughly every quarter, between 2007 and late 2011, and posted comments in the "off topic" forum every so often.  I'm surprised more people don't check the financial outlook of companies whose products they use.  Of course, no one can blame them if the presentations are obscure, or if it's hard to deduce if the product one uses makes any money or not.  Avid's disclosure is particularly obscure, since it ceased break-out of consumer video product results after 2008.  Most of the quarterly investor relations reports focus on "non-GAAP" results, which are essentially the operating margins before amortization of aquisition costs or restructuring expenses.  Gary Greenfield and (the belatedly fired) Kirk Arnold calculate their multi-million annual compensation bonuses.  Both must be credited for crafting very clever terms of employment, which shield them from the consequences of over-payment for Pinnacle and other subsidiaries bought in 2006, prior to their arrival.  The terms (filed with the SEC) allow them to do quite handsomely, even if Avid's consolidated results never earn a real GAAP profit or yield a dividend for shareholders. 

    Avid has not shown a profit since 2006.  In 2008, it wrote down the better part of the investments in Pinnacle and other aquisitions, but remained unable to cover operating costs or residual amortization of good will.  Cost cuts narrowed the losses, and it appeared possible in 2011 that the company's nostrils might emerge from the waterline.  Unfortunately, sales and margins have begun to fall again.  It also appears that part of the 2011 upturn owed to use of an intercompany loan (surely no factor in the recent dismissal of the COO and CFO) that (ahem) postponed recognition of certain costs from 2011 to 2012.  Management has decided, at long last, to unload the consumer software lines.  AMC is itself at risk, given the incessant competition from Final Cut and Adobe.  Long gone are the days when Avid could charge >$150k for maintenance of workstations used by hundreds of broadcasters and media firms that used film or tape and needed an analog-like product, with digital trappings, to create analog video output.  The decision to "diversify" by buying various consumer product lines in 2006 was a collosal mistake, both due to the inflated prices paid, tight competition, and the falling profit margins.   Avid still gets good PR from some high-end users, but they don't pay enought to cover R&D, rent, or overhead.  Avid can't even cut executive overhead without incurring hefty charges to break contracts and pay for gold parachutes.  Avid is forever presenting itself to potential investors, but the cost of pay-outs to the executives, plus the dim P&L outlook, make that a difficult mission.

    There might have been a "golden age" for consumer NLEs in the middle of the last decade, when hobbiests and small professionals would pay $200 or more to get anything--anything--that could capture tape video as editable MPEG2 for creation of DVDs or tape.  Pinnacle offered a few more tools than others, which won it a top market share for a while.  Subsequently, the competition caught up in most respects.  The introduction of Avid Studio in 2011 was ill-conceived: it might canniablize PS, but not win over users of Premier, PCPX, or Vegas, and Avid budgeted too little for support or patches.  The iPad App would make sense only if buyers then signed on to the full versions, which Mac users would be very unlikely to do.  If AS has more than 100k users, I would be surprised.

    An irony is that, although the volume of consumer video has exploded, very little of it is ever edited, and the few edit functions that ever get used are for clip splitting, deletion, simple titles, and addition of music--which can be done with an iPhone and a $9 app.  This is no way to make money, unless the software simply buttresses sales of one's iPhones, iPads, or Macs.  PC makers are not notoriously profitable of late.  Sony, which has lost a heap on consumer electronics of late, doesn't even  bundle Vegas with Vaios anymore.  Premier is a tiny appendage of Adobe's empire.

     Avid, Grass Valley, Magix, Cyberlink, Nero, and Corel are the only surviving firms that appear to rely primarily on consumer software sales for video and audio products.   The first two are unprofitable.  Magix has ups and downs.  Cyberlink publishes only condensed financial results in English, and not the schedules and notes that accompany the Chinese language reports files with Taiwanese authorities, which may be more lenient about capitalization or R&D or inventory write downs.  Nero is private and posts no statements.

    What's left of Avid may be worth more in pieces than as a whole, except for the cost of paying off the existing top management for the sake of buying a few of the choice jewels.  Apple has done well enough by forcing Avid to turn itself into a supplier of plug-ins for FC.

    Corel has been a private company since 2009, when an investor group that had loaned money to Corel bought all outstanding shares for next to nothing, and converted its notes to equity.  It paid $18 million for Roxio, which Rovi sold at a loss, in February, 2012 and is now to tender $17 for Pinnacle.  That translates to much less than $1 per past or present user of the Roxio suites or every version of Pinnacle Studio every written.   Those are pretty savvy prices to pay for doggedly loyal consumers with perhaps a 50% chance of willingness to pay $150 or more apiece to buy Corel versions of the old products or maybe even Corel Draw.  Corel will use Pinnacle engineers to put a new Corel face on Avid Studio, perhaps.  That won't cost much.  To expect a 64-bit AS or other hefty innovations or fixes is another matter.   A PS 16 would make just about as much sense as a Roxio Creator 2013.  Not bad product, but just not money-makers, and no reason to divert investments in Corel's existing products.  Whether Corel makes money is hard to say, since it is private, but if it pays < $1 per capita for lists of serial buyers of NLEs, it just might make some return on the $35 million spent for Roxio and Pinnacle.

    Corel's website and user blogs are are well worth a visit from curious PS or AS users.  Its Video Studio monitor is a good man.  Avid may maintain the Pinnacle and AS user forums for a number of months.  Volunteer monitors alleviate the costs.  Gary and Kirk (or their Corel counterparts) can high-five each other that there are people in this world who can graciously (and for no pay) reply to postings like  this.   It is also possible that Corel will host the Knowledge Base for Pinnacle, the same way it does for other legacy products it has bought from others over the years, at least so long as the queries bring visitors to the Corel site.  Some new iteration of Corel Studio, based on a transmorgified AS, may appear by 2013.  Expect it to be substantially similar to AS V1.1, except in name.  Perhaps users of legacy AS will get a special $50 upgrade rate.

    The dilemma facing any video hobbyist is whether it is worth buying a second or third NLE, at $150 or so for the full versions, for no particular advantage other than a few new tricks; or to pay >$500 for semi-pro tools that are hard to master and benefit only advanced projects that require far more time than the hobbyist has or that the viewers are apt to appreciate.  Key-framing, green screen, and a few overlays are quite enough to keep one busy.

    Any people who aren't busy enought with PS or AS might as well sample a trial version of Corel's own upper end product, especially to check whether the claims are true about its more agile previewing of HD projects without requiring proxy files.  Anyone shooting video with a DSLR will be especially interested to see whether the preview mode is usable at all.  It could be that Corel's preservation of AS may have everything to do with whether it works better with DSLR files than existing Corel tools.

    Other options are to work with PS, AS, or Liquid, without any support at all, until some self-obsolescing virus knocks them out, or until 4k video makes them obsolete by 2020. Hey, if people can be convinced that 4k resolution on a 10" iPad4 screen is somehow better, don't discount the likelihood that iPhone videophones will converge on a 4k or 8k video standard, eventually!  

    Corel already supports 3D, even if 3D displays and quality content remain scarce.

    PS 12.1 with Mercalli Pro continues to work for me, mostly.   When that is no longer so, I will simply buy another product that does, but not before checking whether the publisher provides regular patches or fixes and is candid about reporting "known issues."  Very likely, the story will remain the same: you get to know a product only when you know its flaws and learn all the workarounds.  Meanwhile, having seen some innovative new hardware (RX100, NX30, PJ760, GH3) on the horizon, I can think of a few things other than software that might lay claim on discretionary funds before Corel figures what it will do, or before Adobe rolls out something worth the price.

    Signing off.

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