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Avid Reaches the Pinnacle

Deal creates majority stake in global editing market 3/27/2005 07:00:00 PM Eastern

Avid’s estimated $462 million acquisition of Pinnacle Systems last week created one of the three largest broadcast-equipment suppliers worldwide. It also grabbed a majority stake in the global consumer-level editing market.

The purchase rounds out Avid’s portfolio, adding products like Pinnacle’s MediaStream play-to-air server, which complements Avid’s content-creation servers, and the DekoCast character generator to its inventory. All fit nicely into Avid’s newsroom and editing systems.

“Leveraging those products will increase the efficiency of our sales,” says David Krall, Avid Technology president/CEO. While there is some overlap in the Pinnacle/Avid product line, Krall says, 90% of Pinnacle’s $350 million yearly revenues come from noncompeting products. (Two-thirds of that revenue comes from the consumer side. Projected annual revenue for the new combined company is more than $1 billion.)

Some integration work has already been done. Pinnacle, for example, will demonstrate the integration of its Vortex editing system with the iNews newsroom system at NAB. (The two companies will continue to compete until the deal is sealed, sometime in the second or third quarter.) Says Dave Schleifer, Avid VP broadcast and work groups, “There’s a chance to deliver a lot more efficiency to users by bringing different functions, like editing and graphics, closer together.”

Long-Term Consumer Strategy

The sale of Pinnacle’s broadcast division has been anticipated for nearly a year. But Avid’s announcement surprised most in the industry, because it purchased the whole company—not just a division.

“We see the consumer side as a growing, vibrant community,” says Krall. “There are more ways to capture video electronically, whether it’s a cellphone, digital still camera or low-cost HDV camcorder.”

By acquiring the consumer side of Pinnacle’s business—its Studio video-editing application holds a 51% market share globally—Avid becomes an immediate player in a global market valued at $500 million to $600 million worldwide. But there was a more important long-term reason for the move: protecting Avid’s professional business.

One of the reasons Avid has established a dominant position in professional nonlinear editing (NLE) is that older NLE operators did not grow up with access to an NLE system. In the past 10 years, high school and college students have had their first editing experiences using systems from Apple, Pinnacle and Adobe, among others. That means new and future editors already have a preference for working with a non-Avid system. The concern was that future editors would pass on Avid products.

“As the industry evolves, it’s hard to have a professional business without connecting to the early stages of people first learning the editing craft,” says Krall. “Long term, this will cement our position in content creation at both the consumer and professional level.”

Bob Wilson, president of Modulus Video and a former Pinnacle executive, says buying the company is a smart move on Avid’s part. “It’s something they need to do. Their biggest competitor is Apple, and Apple’s strength is the consumer or prosumer platform,” he says. “The entire deal is as much about leveraging those 10 million seats [a seat is a computer outfitted with the software] as anything else.”

Market Impact

But the move by Avid, which brings one of its main editing competitors into the fold, has one manufacturer wondering about market impact. “We’re concerned this could limit customer choice when it comes to editing systems,” says Jeff Rosica, VP for strategic marketing and business development for Grass Valley, a broadcast- electronics maker. “There’s a real fear about this leading to a more closed or proprietary approach by Avid.”

Krall counters that consolidation in the market already exists. Sony, for example, purchased the Vegas NLE from Sonic Foundry. “The best place for NLE technology to exist is within a more diversified business,” he says. “What we’re doing is fairly consistent with what is happening in the industry today.”

Ajay Chopra, Pinnacle Systems COO, adds that the deal simply reflects a drive by vendors to fulfill customer needs for integrated systems. “If you’re putting together end-to-end production tools like editing, graphics, playback and newsroom control, the company that integrates those best will have a market advantage,” he says.

Both Avid and Pinnacle are known for doing facility-wide deals with broadcasters that cover editing, server and other equipment. Joe Truncale, chief engineer for NY1 News, uses equipment from both. He says he is concerned with how Avid would support Pinnacle’s Vortex editing system.

“The one positive is we do have a relationship with Avid,” Truncale says, “and it’s been a successful one.”

The deal now awaits approval by the SEC. Under the terms of the agreement, Pinnacle shareholders will receive 0.0869 shares of Avid stock and $1 in cash for each Pinnacle share.

At closing, it is expected that Avid will issue approximately 6.2 million shares and pay $71.3 million in cash, for a total estimated value of $462 million.

 

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