Avid Technology Inc.

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Avid Technology Inc.

Avid Technology Park
1 Park West
Tewkesbury, Massachusetts 01876
U.S.A.
Telephone: (978) 640-6789
Fax: (978) 640-1366
Web site: http://www.avid.com

Public Company
Incorporated: 1987
Employees: 1,550
Sales: $452.6 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: AVID
NAIC: 511210 Software Publishers

Avid Technology Inc. is a pioneer in the development of digital video editing systems and provides the tools to help Hollywood studios, post-production houses, and newsrooms make the transition from analog film to digital video. Through acquisitions the company has acquired the technology to provide digital audio and newsroom automation systems. In addition to professional-level systems, Avid also publishes video editing software for amateurs and novices for use on Macintosh and Windows operating systems. With the growth of streaming media on the Internet, Avid has dedicated itself to providing Internet-based solutions for video, audio, and other high-bandwidth streaming media.

Revolutionizing Film and Video Editing: 1987-93

Avid Technology Inc. was founded in 1987 by William J Warner. He developed a system to copy video footage in real time to digital hard disks to allow editors to more easily view shots and quickly make trial cuts and changes. Warner originally designed the system on an Apollo computer. When Warner’s preliminary system came to the attention of Apple Computer Inc. in the fall of 1988, he was persuaded to switch to a Macintosh computer. Avid and Apple became informal partners, with Avid receiving marketing help, technical support, and distribution matching from Apple. At the time the Apple Development Group was working with some 10,000 similar companies that were developing hardware and software for the Macintosh.

In 1989 Avid introduced its Media Composer system, a digital nonlinear editing system that revolutionized the film and video post-production process by providing editors with faster, more intuitive, and more creative ways to work than was possible with traditional analog linear methods. In linear editing, the editor starts at the beginning and continues chronologically to the end. Nonlinear video editing, on the other hand, is not necessarily chronological; it depends on the rapid recall and utilization of any segment of the original video sequences. Avid’s Media Composer system, priced between $50,000 and $80,000, integrated all of the monitors and tape recorders that were previously needed to get from one place to the next in the video editing process. Avid did it on a PC-based platform and in a visual way that let editors click directly on an image.

Warner served as president and CEO of Avid until May 1991, when Curt A. Rawley was hired as president and COO. Warner retained his CEO title until September 1991, when Rawley was promoted to president and CEO. In 1992 Warner established and became chairman of Wildfire Communications, Inc., a developer of personal communications products. He remained a part-time employee of Avid.

In April 1992 Avid released its Open Media Framework (OMF) into the public domain. According to PC Week, “Industry analysts describe OMF as a high-end version of Apple Computer Inc.’s QuickTime, which synchronizes video and audio.” Later in the year Silicon Graphics Inc. (SGI) and Avid announced an agreement whereby SGI would bundle OMF with its Iris RISC workstations to provide users with a multimedia platform. Upon its release OMF received support from some 20 companies, among them Eastman Kodak Co., Polaroid Corp., and C-Cube Microsystems Inc. By this time Avid’s Media Composer system for professional TV and film post-production was in use at nearly 1,000 sites.

In 1993 Avid’s Media Suite Pro was described by Computer Graphics World as “in a class by itself” and “the closest thing to real-time, non-linear video production available.” The turnkey system for Apple’s QuickTime consisted of the Media Suite Pro software, a NuVista video board, a CD-quality audio board, and an SCSI accelerator board for pre-approved hard drives. In its review of the Media Suite Pro 1.1 digital video editing system, priced at $9,995, PC Week said it “offers sophisticated editing tools for both novices and experienced users and sets a new standard for desktop video post-production.”

Also in 1993 Avid entered into a six-year partnership with Lucasfilm Ltd. to develop a better nonlinear editor. The project would involve combining features developed by Star Wars producer George Lucas with Avid’s existing editors. The new editor would be based on Silicon Graphics computers, which indicated Avid’s commitment to serve a variety of computer platforms. During 1993 Avid and SGI continued to work together to create Open Media Framework Interchange standards for computer graphic and editing products, which would become a key enabling technology for all-digital post-production. This industry-standard file format permitted the exchange of digital media among different platforms and applications.

Meanwhile, Media Suite Pro 2.0 was scheduled to ship in the fall of 1993. From 1989 to 1993, when the company went public, Avid’s revenue jumped from $1 million to $112 million. The company was positioned to provide the broadcast industry with tools to help it make the transition from analog to digital. Avid’s latest system would allow a video image to exist as a digital computer signal, from the time it entered a studio, through editing, and finally through a transmitter, thus virtually eliminating the need for video tape. Hollywood studios could purchase an Avid editing system for less than $100,000, compared with about $1 million for a fully equipped film-editing studio. In addition to saving money, the Avid film editing system gave film editors more creative freedom and the ability to edit quickly.

For home video enthusiasts, Avid introduced VideoShop 2.0 for $499. This QuickTime movie-editing program was originally produced by DiVA Corp., which Avid acquired in 1993. For TV stations, Avid offered the AirPlay playback system. Other products included NewsCutter, a news editing system; Media Recorder, a VCR replacement; and AvidNet, a networking system for sending video between different programs. Together, AvidNet and MediaServer created an integrated, networked audio, video, and film environment.

Developing Newsroom Automation and Other New Technologies: 1994-96

In 1994 Avid acquired the news division of BASYS Automation Systems, based in Langley, England, and SofTECH Systems Inc. of Maryland, two leading providers of newsroom computer systems for broadcasters, for a total of $5.5 million. The acquisition gave Avid an installed customer base of 500 firms, including CNN and NBC, for the newsroom automation equipment.

Along with increased demand for Avid’s Media Composer nonlinear editing system came a demand for training on the system. Avid set up a program to designate selected companies as Avid Authorized Education Centers. Media Composer was used by post-production companies, advertising agencies, and other corporations.

At the November 1994 Comdex trade show and exhibition, Avid announced Media Suite Pro for Windows, one of the first nonlinear professional video production tools for Windows. The product was scheduled to ship in April 1995 through resellers, with the software priced at $15,000 and $35-$40,000 for hardware and software combined. Included in the system were video-capture, compression, and audio boards and an SCSI-2 disk controller. The system would run on a 486-based PC with 20 megabytes of RAM, a three-gigabyte or larger hard drive, and a pair of speakers.

In 1995 Avid completed its $200 million merger with Digidesign Inc., a pioneering developer of digital audio production software based in Menlo Park, California. The acquisition formed the basis for Avid’s new professional audio products group, which would be headed by Digidesign President and CEO Peter Gotcher. Avid also acquired Parallax Software Inc. and Elastic Reality Inc., two leading developers of paint, compositions, effects, and image manipulation software, in 1995.

Company Perspectives:

Today, Avid offers a broad range of products and solutions to multiple markets that vary dramatically in terms of user requirements, applications, and budgets. All of Avid’s products stem from the company’s core philosophy: provide customers with innovative, computer-based content creation tools that will allow them to work faster, more productively, and with greater creative freedom —and, in many cases, do things that simply were not possible before. Avid is also extending its business of providing industry-leading client tools for audio and video creation and production into Internet infrastructure technology that helps customers exploit opportunities created by the Internet. Avid is helping content creators and distributors leverage the full power of the Internet by providing them with new, complete, connected, and collaborative solutions.

Avid introduced its disk-based camera technology at the April 1995 convention of the National Association of Broadcasters. Following the introduction, Avid’s stock jumped nearly six points, an increase of about 20 percent. The company also announced plans for its new nonlinear online suite called Media Spectrum. The system provided full-resolution, uncompressed digital image quality and was based on SGI’s Onyx platform. Although individual components of the system were available separately, a complete package with SGI’s Onyx supercomputer would be priced at $450,000. Other new products introduced in 1995 included Avid’s CamCutter camera for TV and cable news reporting that recorded images on a computer disk rather than on film. Later in the year Avid released its 32-bit Real Impact for Windows NT package, which let users create digital video content for multimedia presentations, CD-ROMs, information kiosks, interactive training, and Internet distribution, as well as for videotapes. Real Impact was priced at $2,995 and ran on a 486- or Pentium-based PC running Windows NT 3.51. It replaced the company’s Media Suite Pro for Windows.

Avid and SGI formalized their alliance in September 1995 and announced they would jointly develop a complete newsroom system to be priced between $1 million and $3 million. The prototype for the alliance was the Avid/SGI system being installed in CNN’s new digital production facility for the CNN Financial Network. In December Hearst Broadcasting placed a $1.5 million order for three Avid NewsView newsroom automation systems. CBS News also purchased multiple Avid Media Composers for work on the network’s news magazines.

The year 1995 was difficult financially for Avid. Although revenue nearly doubled from $203.7 million in 1994 to $406.6 million in 1995, the company reported a 22 percent drop in earnings to $15.4 million, with fourth quarter net income dropping 77 percent despite a 46 percent increase in quarterly revenue. In January 1996 the firm announced that Daniel Keshian, vice-president and general manager of Avid’s post-production division, would be promoted to president of Avid. Curt Rawley would remain as CEO and take on the new position of vice-chairman of the board. The company also was looking for a permanent head for its broadcast division, following the departure of Tony Mark in May 1995. In April 1996 William Miller, former chairman of Quantum Corp., was named CEO and chairman, with Rawley remaining as vice-chairman. The company hoped to improve its financial performance in 1996 by cutting back on research and development and eliminating 100 jobs. Development of the disk-based camera, a joint venture with Tokyo-based Ikegami, had proved extremely costly. By the end of 1996 Keshian had resigned as president, leaving William Miller as chairman, CEO, and president of Avid.

Avid introduced Beyond Reality 1.0 in the spring of 1996. Priced at $9,995, Beyond Reality was based on Elastic Reality, a special effects technology that Avid acquired in 1995. It enabled users to create special effects in two- and three-dimensional graphics, including morphs, composites, and warps. Avid continued to form alliances with other companies, announcing joint development partnerships with Hewlett-Packard and Panasonic Broadcast Television Systems at the NAB convention in April 1996.

Later in 1996 Avid postponed launching its Media Spectrum system with SGI’s Onyx supercomputer. During 1996 Avid had released Fusion and Illusion, two standalone products for editing and graphics effects, that were to be portions of Spectrum. After extensive beta testing of Media Spectrum at ten sites worldwide, Avid determined that it did not deliver on price performance when coupled with the SGI Onyx. As an alternative, Fusion and Illusion could be networked together to run on the same workstation or two separate ones.

Other new products included the first release of AvidNews, the company’s next-generation newsroom automation system. AvidNews would allow journalists to browse low-resolution video feeds and build a shot list, compose text scripts, create spreadsheet-style rundowns for on-air playout, and publish finished stories to the Web in HTML (hypertext markup language). AvidNews was directly accessible to Avid’s NewsCutter nonlinear editing system and was scheduled for beta testing in Europe in January 1997, with shipping to begin in June 1997. In August 1998 the CNN News Group selected AvidNews to replace 150 existing Avid NetStations for CNN Headline News. If the Headline News installation proved successful, CNN would roll out AvidNews throughout CNN, CNNfn, CNN International, and all CNN domestic and international bureaus.

For fiscal 1996 Avid reported revenue of $429 million and a net loss of $38 million. Contributing to the loss were a one-time charge of $29 million, an increase of $15.6 million in R&D, a nearly $25 million increase in selling and general administrative expenses, and an additional $40 million attributed to cost of sales.

Strengthening Ties with Microsoft and Intel: 1997-98

In March 1997 it was announced that Intel Corporation would invest $14.75 million in Avid by purchasing a 6.75 percent interest in the company’s common stock. Although Avid’s customers tended to be loyal Macintosh users, an Intel spokesperson noted that Intel’s next-generation Pentium processors would be well suited for high-end video editing work. It was expected that future and current Avid products would be tailored for use on both Intel-based PCs and Macintoshes.

Avid enjoyed a financial comeback in 1997, showing strong first-half revenue and overall revenue of $471.3 million for fiscal 1997, an increase of 9.9 percent. After trimming operating costs, the company returned to profitability with net income of $26.4 million.

In mid-1998 Avid acquired Softimage Inc. from Microsoft Corporation for $285 million in stock and cash to strengthen its television finishing and 3-D product lines. Based in Montreal, Softimage developed high-end software for all areas of professional visual content production, including tools for 3-D and 2-D animation and for creating, editing, and finishing graphics and effects-centric video programs. Softimage had an installed base of more than 21,000 products used by more than 6,000 customers. As a result of the acquisition, Microsoft owned about 9.1 percent of Avid’s shares of common stock then outstanding and received warrants to purchase up to 12 percent of Avid’s stock over the next three years.

Key Dates:

1987:: William J. Warner founds Avid Technology Inc.
1989:: Avid introduces the Media Composer system.
1994:: Avid acquires the news division of BASYS Automation Systems and SofTECH Systems Inc.
1995:: Avid merges with Digidesign Inc. and acquires Parallax Software Inc. and Elastic Reality Inc.
1997:: Intel Corporation invests $14.75 million in Avid.
1998:: Avid acquires Softimage Inc. from Microsoft Corporation.

Later in 1998 Avid entered into a technology alliance with competitor Tektronix, which subsequently announced that it would exit the nonlinear editing business following the release of its Lightworks VIP 4500 3.0 in 1999. The alliance combined Avid’s newsroom nonlinear editing systems with Tektronix’s playback servers, storage, routing, and networking products to create a “production-to-air digital broadcast solution.” Effective October 1, 1998, Tektronix became the exclusive distributor of Avid’s broadcast products in the United States and Canada and could also sell Avid’s professional products to broadcast customers in both countries on a nonexclusive basis.

Before the end of 1998 Avid shipped Symphony, a nonlinear noncompressed editing system for Windows NT that was priced at $150,000 for a basic turnkey system. Employing the familiar Avid Media Composer interface, Symphony was essentially a noncompressed version of Media Composer. For 1998 the company reported revenue of $482.2 million and a net loss of $3.6 million. Contributing to the loss were a one-time charge of $28.4 million and an amortization/depreciation charge of $34.2 million.

New Management Addressing Company’s Financial Concerns: 1999-2000

The Avid Film Composer won an Academy Award for its concept, design, and engineering, with the Oscar being awarded February 27, 1999. For novice editors, Avid released Avid Cinema for Windows. Priced at $140, Avid Cinema supported Web, CD-ROM, and tape-based distribution.

Avid’s revenue in 1999 was affected by broadcasters’ reluctance to adopt high-definition TV (HDTV), which required digital editing systems. After third-quarter results failed to meet expectations, CEO William Miller and President and COO Clifford Jenks resigned. Contributing to Avid’s poor financial performance was its 50 percent discount promotion for its new ABVB (Avid Broadcast Video Board)-based Media Composer, which hurt margins. In October 1999 David Krall was named president and COO. He was formerly COO of Avid’s Digidesign division. Krall would become Avid’s president and CEO in April 2000. As part of its restructuring Avid laid off nearly 200 employees, or 11 percent of its workforce, in November 1999. For fiscal 1999 Avid reported a six percent decline in revenue to $452.6 million and a net loss of $137.5 million.

For 2000 Avid intended to focus on Internet-based products. In June 2000 its new Internet infrastructure division, Edgestreme Systems, introduced the Edgestreme Cluster, a turnkey streaming media server platform. The server platform employed new Internet infrastructure technology that allowed corporate communicators as well as the entertainment industry to deliver streaming media and other high bandwidth content over the Internet. Another Internet-based product introduced in 2000 was Avid ePublisher, a streaming media publishing tool for Web-enabled video production that began shipping in November 2000.

Avid acquired The Motion Factory, Inc. in June 2000. Based in Fremont, California, the company specialized in applications for the creation, delivery, and playback of interactive-rich 3-D media for character-driven games and the Web. The Motion Factory’s former president and CEO, David Pritchard, was named general manager of Softimage Co., a subsidiary of Avid Technology.

In September 2000 Avid acquired Pluto Technologies International Inc. Pluto was a video-server vendor that provided video storage and networking solutions for broadcast news, post-production, and other bandwidth-intensive markets. Avid, together with Grass Valley Group and Pluto Technologies, jointly owned Avstar, which marketed newsroom automation equipment.

As 2000 drew to an end, Avid was still in the process of putting its financial house in order. For the first half of the year Avid enjoyed two modestly profitable quarters exclusive of acquisition-related charges. Acquisitions made during the year reinforced Avid’s commitment to develop Internet-based products, although its core businesses remained its popular video and film editing systems, professional audio systems, and newsroom automation systems.

Principal Subsidiaries

Softimage Co.; Avstar (50%).

Principal Divisions

Avid Internet Solutions; Edgestreme Systems; Broadcast Media Solutions; Digidesign.

Principal Competitors

FutureTel Inc.; Adobe Systems Inc.; Macromedia Inc.; Pinnacle Systems Inc.; Ulead Systems Inc.; MGI Software Corp.; Grass Valley Group; Quantel Inc.; Autodesk Inc.