Part one of a three-part series speaking in-depth with CEOs of noted pro audio manufacturers:
Louis Hernandez, Jr. lives in Boston and grew up in the university town of Claremont, CA. “There’s seven universities and five campuses there, so both my parents were professors. My father taught computer science, which is how I got in technology. And my mother taught English.” Hernandez considers himself “mostly a technologist even though I have no formal training. My education is in economics and finance.”
After teaching for a couple of years, then working at Price Waterhouse in a group helping companies structure their balance sheets, Hernandez began buying and selling technology companies, and he found that he enjoyed operating them. He was involved in several startups in e-commerce, banking, sports and media, and eventually became an Avid board member and investor for six years. He spent eight weeks as a consultant before being asked to step up from his board role to that of CEO and president. While Avid’s leadership wants the investment to perform, Hernandez says that key is the opportunity that the company represents, with his primary focus on “using technology to bring people together in industries in transition.”
Though his pattern has seen him active in high-potential growth companies operating on front of the technology curve, Avid, while having “a fantastic heritage” has “been slow to adapt to the fastest-growing parts of where the market is, even though it has a very loyal and very emotional clientele—a very passionate following.” Visiting with customers during his consultancy period, Hernandez came to the conclusion that there are “significant transition points occurring in the industry,” and became convinced that there was opportunity to build on Avid’s base and heritage.
Avid Everywhere is the new grand vision for Avid’s future, announced at the NAB Convention in 2013. At it’s core, Avid Everywhere is conceived to bring content creators together “at a lower cost, more powerfully, using technology…we started at the creative side and now we want to allow that community to connect more powerfully with consumers of that content,” a fusion of creativity and monetization.
The vaunted commoditization of creative technologies means that, “From a technology perspective, the spend is much lower per person, per creative artist, but in total, it’s gone up,” says Hernandez. In many categories of technology, the number of manufacturers has shrunk dramatically, while in others, there’s been a proliferation of competitors, he explains, calling these trends “signs of a transitory state” that, for Avid’s clients, means more connectivity, interoperability, but also “more noise in between their idea and the consumption of that idea. The more noise there is, the less there is for them.”
Hernandez says a more direct connection between two people—a content creator and a consumer—has been in place in music for 10 years, “And now it’s happening in every rich media category,” with lessons adapted from what’s happened with music. “The competitive landscape has increased the competition for viewership, listenership, ad revenue—all that is changing.” The bar has become low because most anyone can produce digital media files at low cost. “The good news is that humans have decided it’s something that brings joy to their lives and it’s proliferating unbelievably, exponentially…good news for those people who know how to do that well. The bad news is there’s more pressure than ever to create [content] at a much lower cost, to get more value out of each asset.” Offering an example from NAMM discussions with music producers, tracks that might have not made the cut due to creative decisions or because of the container limitations of physical media can be cost effectively made available. “The pressure to optimize these asset now is greater.” Available technology has “changed the business model and created a lot of pain points for the industry, but it’s also created a lot of opportunity.”
Calling the content creation industry “fragmented,” Hernandez offers a comparison to the banking sectors, the number one consumer of technology, with rich media coming in fifth or sixth place. The top 10 vendors in banking technology claim about 50 percent of the market. In our “rich media” markets, he puts the market share of the top 10 vendors at about 15 to 20 percent, a “smaller spend” with “much more complexity,” with operation often in silos of isolated technology solutions for the same applications. Hernandez queries, “Why do we have a lot of silos?” Is it the clients who still want to operate that way or the vendors who don’t want to integrate standard tools?…So that’s just another challenge that we have: It’s an inefficient industry.” The “value chain” of media production and monetization was traditionally a linear process. Avid’s model of the media asset and information flow in the digital file-based “new media value chain” is a significantly more complex infinity loop of interactive elements. “More complexity, more interactivity, but much more powerful,” says Hernandez, which “allows you to do much more with the file record.”
Whether the creators using Avid solutions are working in Media Composer, Pro Tools, iNews or other Avid content creation offerings, the Avid Everywhere concept begins with unification of collaboration, connection to distribution, asset protection, repurposing content, conversion, storage and more, all available by toggling channels and devices from a single platform. “This is a pretty dramatic change that will expand the feature and function capability of Pro Tools [for example] because anybody will more easily be able to connect to it. And we’ll ensure [third party apps are] certified so it doesn’t break.” Workflow, Hernandez says, will be enhanced. “You’ll have a single sign-on to the platform. If you’re a Pro Tools user, Pro Tools would be available to you. But the nice thing is, if you wanted to work in Media Composer, iNews, you’re already on the platform, you just turn those apps on…It allows the industry to collaborate together.”
Applications suites sit atop the model, The Artist Suite is comprised of familiar content creation platforms, but also new things like cloud-based offerings for Pro Tools and Media Composer (core functionality applications available from anywhere there’s web access). The Media Suite allows automated and manual metatagging of content for content repurposing. Hernandez calls this a “much lower process. You’re not taking the file and putting it into another database and then doing the tagging. It’s happening automatically off the platform.” The process includes distribution and analytics. Searchable storage capabilities will sit on a common repository, with protective file sharing of encrypted assets.
“We want to give you the efficiency of a common platform,” says Hernandez, “but the flexibility tailored to your particular needs,” be those needs storage, cloud access of protected assets or public marketplace posting of assets for rights managed distribution of finished content for accessibility by other media professionals, including a variety of license, subscription or cloud based pricing.
Hernandez offers an example of Avid Everywhere enabled workflow: “You’re a band playing in your garage, laying down a track, starting out a session. You just finished and you want to edit it.” Contacting a friend with Pro Tools editing chops, anywhere in the world, “You add them to the session for the editorial suite using Pro Tools. You’ll see them pop in. There’s a chat bar that pops up and they start talking about what to do with this recording. Once they’re finished and they want to post it as a finished session, they’ll have a choice whether or not they want to post it to a marketplace or not. If they do, they can also select which channel they want to make it available to, and which devices, and they’re finished. Now they just made an automatic connection to all Avid clients, which is 10,000 of the largest media companies in the world sharing a common platform. So for that group, we’re really excited; we think it will be very powerful.” With the app-based approach, small pieces sitting on top of a common platform, Hernandez says that the independent professional will find it possible to afford capabilities previously out of their reach.
Hernandez says Avid’s vision is to “recapture the imagination of the industry to solve the biggest problems in the industry…every product we currently have is included in this vision,” including live sound products, for direct commoditization of live performance audio and video production.
Whatever the content, Hernandez says, “we want to allow you, no matter what file type or format it is—audio, video, whatever—to modify it to tell your story, protect it, repurpose it, optimize it and distribute it without leaving the platform, so it’s much more efficient. We think we can take 35-40 percent of the cost out if you do it this way. Everything becomes very simple.”
He continues, “We’ve already seen some momentum off of this strategy in some of the changes we’ve made. Some people aren’t aware that we’ve had just in the last year, 20 new product and software introductions—totally new. Our R&D spend as a percentage of revenue for the industry is high. We’re continuing to spend a lot.”
Alongside Avid Everywhere is the formation of the Avid Customer Association, “a group for and by the community to help guide us, with us as a partner, on the future direction of the industry,” which includes a board of directors with players from the world’s largest media companies. Avid Connect, the inaugural Customer Association event, is slated for Las Vegas, just prior to the 2014 NAB Convention. Broken down into seven groups, the Association will be involved in directing Avid’s course from broad industry strategic direction to product level end-user feedback. Industry advocacy will be an additional component. Avid is also not “abandoning the resellers like so many have done” to take distribution simply online, Hernandez explains. Through the Avid Partners relationships, Avid will “double down on resellers, giving them the tools to make money and add value to our offerings, even when it’s cloud-based.”
While NAMM-time news of Avid’s NASDAQ delisting has been a hot topic online, Hernandez calls it a judgment-based restatement issue. From his CPA background, he explains, “There are judgments you make in the accounting process and it was determined that we had to review one that’s equaled almost eight years worth of data. It had to do with software that when you include improvements to that software, you have to determine how significant it is, and if it’s significant or insignificant, it changes the way you account for it.”
A review for one product for one year led to a review of all products for that year, and then all products in all years—from a simple question to a review of seven million lines of accounting entries, a review of how every client’s updates and upgrades were accounted for. A decision was made to change auditors, believing the process would be better served by having analysis being made by individuals without ties to conclusions made in the past. NASDAQ exchange delisting followed the inability to conclude the process by the extended deadlines. Hernandez states: “We’re confident we will resolve it and get back to where we need to be from a trading perspective. Interestingly, we’ll still be a publicly traded company, you just trade on a different exchange and we’ll continue to operate. We’re a strong company, we’re a large company, we generate cash and we have no debt. Viability is not an issue for us.”
Hernandez sums up Avid’s current initiatives thusly: “We really reimagined the creative space at the beginning and we’re now reimagining with the latest technologies. It’s a good example of a market leader taking the latest technologies and integrating them in a way, and in a phased approach, that makes sense for its clients.”