Avid Technology, Inc.Case No: 24

Presented By:Amjad Ahad

AdnanHasan Mehmood

Sabir Rehman

Company Overview and History Avid was founded in 1987 by William Warner, of Apollo

Computers Inc. to follow his revolutionary idea of Digitalizing moving pictures and sounds so that can be edited by computer. Traditional analog technology requires

Various people to capture moving pictures, and sound on magnetic tape;

cut and splice to edit picture sequences; Duplicate for distribution

Digital technology Captured moving pictures, graphics and sound in the form of binary

code recognizable by computers. Editing is similar to word processing file, Editor use mouse to cut and paste desired sequence on the computer.

Faster and less costly Greater capabilities for creating special effects Not losing quality as analog face wear and tear after few shows

Products used in film studios, independent and cable TV stations

The company introduced computer systems for digital editing Film & Television industry,

Special effects on star war series by Avid’s products Broadcast industry (CBS, NBC, CNN, CNBC and BBC), Advertising industries, Govt. & Educational institutions.

Corporate uses include video applications by real state firms By professional sports teams such as green bay Packers, to

analyze game plays.

Company Overview and History

Revenue pattern of the company:

Year: Revenue: Year: Revenue: 1989 $ 1 Million 1990 $ 7 Million1991 $ 20 Million 1992 $ 52 Million1993 $ 113 Million 1994 $ 204 Million1995 $ 407 Million 1996 $ 429 Million1997 $ 471 Million 1998 $ 482 Million1998 $ 482 Million 1999 $ 453 Million

2004 $ 589 million

Company Overview and History

Rapid growth was achieved after successful 1st product “Media composer” shipment in 1989

In 1993 Avid went public to finance its growth, generated additional $53 Million

Rapid growth continued with revenues recorded $204 million in 1994 and $407 million in 1995

81% and 100% increase over the previous years Revenues growth slowed

$407 and $429 million in 1995,96 ---5% increase only $471 and $482 million in 1997, 98---2% increase only

Key factor in rapid growth sales International sales in earliest days Sales offices in 7 different counties by 1993 increased to

offices in 20 different countries by 1999 Sales out side 11%, 42% and 51% in 1190, 1992 and

1999

Company Overview and History

Films TV Programs

Lethal weapon 4 Ally AcBeal

Lost in space Frasier

The perfect storm

Friends

Titanic Just shoot me

The X-Files; Fight in the future

Survivor II

The market of the company was divided into these segments: Film, television and related industry

$ 1 billion Film industry was rapid adopter (80% of the total revenue)

$2 billion TV and $900 million audio industry was almost Tape based

$350 million Broadcast industry 2nd most important revenue source as their analog

system obsolete Its migration from analog to digital delayed by high

switching cost Prefer to deal with better and stable financial position

company like “SONY” 18 % contribution was made by this industry.

Markets of the Company

85% of films and 95% prime time TV programs made in US in 2000 were edited on Avid’s systems

Corporate and institutional video industry Video applications by real state firms to display property

listings By professional sports teams such as green bay Packers, to

analyze game plays. Retail customer market

Entered in 1994 less than 2% Contribution was considered from this source of market but having great potential of sales

Buyers were professional individual who used to edit school plays, birthday events and family get-together by adding special sounds, images into their videos.

“ Avid Cinema” a package of software for retail customers Excitement generated when cost of high quality new cameras

fill under $500

Markets of the Company cont.

Avid’s 1st product Media Composer designed for Film and TV contributed the most

Dedicated to NPD and the company used to allocate 17 % of revenue towards R & D.

Acquisitions to complement in-house technology Develop presence in broadcast industry

System installation at CBC,NBC,CNN,CNBC and BBCAudio and special effects markets

Alliances to develop new technologies

Product Development

Avid’s six categories of products Mix1. Video and film editing products2. Audio products3. Digital news gathering systems4. News room computer systems5. Graphics and special effects products6. And storage systems

Avid’s symphony (a sophisticated film editing products) Cost $150,ooo designed for professional editors

Avid’s Cinema Cost $ 139 marketed to retail customers using personal computers

Product Categories

As a Pioneer in digital technology Develop and promote open industry standards

Release platform of basic digital technologyEvolved open media framework (OMF)

Cooperative effort of 150 leading manufacturersProducts based on OMF standards were

compatible to other OMF based media products Facilitate the production process

Establishing industry standards

Realizing advantages of releasing technology to competitors Increased development of innovative digital media

technology Increased speed of migeration from analog to digital

Avid ensured their products are compatible with complementary products of other firms Such capability increased the utility of Avid’s

products One problem with open industry standards Avid lost to

differentiate from competitors

Establishing industry standards cont.

Avid engaged in vertical and horizontal alliances to enhance its competitiveness Avid products were originally designed for Apple computers 1990’s efforts to eliminate differences between Apple and IBM

compatibles Apple market share dropped

Vertical alliances: Realizing the risk of dependency on the Apple Alliance with Intel

Deal included 6.75% ownership stake providing cash of $14.7 million in Avid in 1997

Develop products to migrate its software to Wintel based PC’s. In 1994 Avid began shipping products to both Intel and Apple reduced the

risk of uncertainty

Strategic Alliances

In 1993 with filmmaker “George Lucas” ( Lucas films and Lucas Digital Group) Resulted in extended line of special effects products

Avid software and hardware and Lucas deign and specification In 1994 with “ Ikegami Tsushinki Company”

Development of first “Full-Motion Digital Cinema” In 1998 acquired “Softimage” Canadian company by

paying $ 248 million Leader in 3D software for special effects in film and Adds

using Microsoft operating systems Microsoft stake of 9.1% in Avid

Strategic Alliances cont.

Horizontal Alliances: In 1998 a Joint venture “AVSTAR” with “Tektronix” a

competitor for mutual needs in broadcast industry. Tektronix has strong network with customers in news

industry Had vast competent area of Digital Storage Technology

Combining the competencies of digital editing and storage technology Enhance NPD and innovations in news broadcast industry Reduced the risk if they develop the market on its own

Strategic Alliances cont.

Board of directors

CFO COO

CEO

Avid Management

From 1989 to 1995, two CEO changed who led Avid to growth and success,

During period of rapid growth the basic aim was To achieve maximum market share, To be the leader in the industry

In 1996 due to more obsolete inventories and huge uncollectable receivables, slowing sales and decreasing profit led Avid’s Board of directors to Bring new out side management team

Shift in the focus from market share to have balanced growth Hired former CEO of Quantum Computers with experience in

computer hard drive industry as both CEO and Chairman New responsibilities to reduce cost and reestablish growth

Avid Management

Bill Miller excitement about Avid’s prospects and its competitiveness We intend to provide tools that people use to tell their story The proliferation of TV channels alone signaled Avid’s potential, Increase in household channels cause spread of digital signals The more the channels, the more programming to edit with

software like Avid’s. Build new management team

New CFO to decrease costs Inventories and accounts receivables reduced 1995 1997 63.4 million 9.8 million 107.9 million 79.8 million

Improved cash flows, reduced risks of inventory obsolescence and the collectability of receivables

Eliminate approximately 70 staff positions Discontinuing the development and sale of certain products

AVID ATTEMPTS A TURNAROUND

Significant changes in operations Distribution channels out sourced

Independent distributers, value-added resellers & dealers reducing overall operating expenses

Sales through this channels grew from 50% 1996 to 85%1999.

Focus on customer support system Increased support staff trainings

Ability to fix a problem on first service call improved from 50% to over 90% and technical help wait time reduced to 2 minutes

Avid’s work towards realizing the mission statement The leading provider of power full digital content creation tools used to entertain and inform the world Expansion in existing media markets Targeted new markets and drive and support open industry standards

AVID ATTEMPTS A TURNAROUND cont.

Softimage acquisition The most significant strategic action and the most important single

transaction in the company’s history was difficult to digest Revenues in 1999 $452.6million with 6% decrease from 1998 and net loss

of $137 million The cash and marketable securities decreased from $111 million to 72

million Resulted in the replacement of top management and thorough

restructuring for future growth David Krall COO of Avid’s Digidesign division appointed CEO in April

2000 11% reduction in staff (200 jobs at $10 million cost terminated) Discontinue the development and sale of limited no of products Significant restructuring of softimage and allowed to continue as an autonomous

division

AVID ATTEMPTS A TURNAROUND cont.

Superior digital products as a substitute for traditional analog products Originally developed by small innovative firms

Potential new entrants with greater Finencial, technical , distribution support and marketing resources

Analog firms (Sony and Panasonic) Computer manufacturers (IBM, COMPAQ and HP) Software vendors (Oracle and Sybase)

Intentions specially towards broadcast news and special affects markets

Adobe. Alias/Wavefront (Subsidiary of silicon graphics) BTS (subsidiary of Philips Electronics) Analog (Indirect Competition) Sony Tektronix Matsushita Media 100

The competitive Land Scape

Developed best affects creation tools in videos, film, 3D and audio 85% US films uses Avid technology 95% prime time TV programs uses Avid technology Having and maintaining leadership position in new technology they

need accurate understanding of Customer needs Technology advancements Competitive forces in the market

It is easy for expenses to get ahead of the revenues The 1st goal is to bring expenses back in line 2nd goal is to lay the foundation for growth in the future

Test of the Avid ability to compete against Sony and Panasonic

KRALL’S DIELEMA

Focus on internet related editing products Acquisition of $2.3 million

Pluto Technologies International (Storage and networking products for news broadcast industry)

Motion Factory (Interactive games for the web) Managed alliance with Intel and Microsoft

To develop products for interactive digital TV

Revenues growth was 5% in 2000 Losses reduced from $137 in 1999 million to $56million in 2000

Evaluation of 2000 decisions before entering 2001 Further diversification into

Internet, gamming and digital TV markets Commitment to news broadcast industry

To assess whether they had addressed the causes of company’s past performance problems

Tenure of the CEO

Strategic decisions for Avid’s Turn Around