Long before the terrible events of September 11 cast a pall over the entire world economy, the broadcast marketplace was reeling from its own economic slowdown. Like many other high tech companies facing flat ad revenues and other financial problems, the Grass Valley Group (GVG) was forced to cut 10 percent of its staff. More recently, Thomson Multimedia has declared its intention to acquire the Grass Valley Group. Nonetheless, GVG president and CEO, Tim Thorsteinson sees a brightening business future, made possible by a rapidly expanding digital newsroom market. In April, the company announced that it had penned a $25 million deal with NBC to deploy its solutions in support of the network's centralcasting, news production, media asset management, and high-definition media platform. Since then, Thorsteinson has been taking that strategic technology message to the masses of NBC affiliates.
DigitalTV: Probably the high point for GVG in 2001 was the announcement of the NBC relationship in early April, just prior to NAB. One of the key goals of the partnership was for GVG to preach the virtues of the new approach to the affiliates--and--to win them over. How has that aspect of the project been progressing since then?
Thorsteinson: The ÎHub Project,' which was the first part of it, and involved Hartford, Miami, New York, and Los Angeles, is on-line at this point and has met everybody's expectations. We are starting to roll out the first of the newsroom systems at the affiliate stations. The very first one is in San Diego and that deployment is going well. And, we expect to roll out one station or so per quarter as we go forward through the end of 2002. With so many stations converting from analog to digital, we have plenty of business. We've also had some ABC stations where we've gotten commitments. We see the newsroom business doubling in 2002 over 2001.
DigitalTV: We can understand that from GVG's point of view, the ideal is that every affiliated station puts the package in. The deal with NBC was stated to be in the neighborhood of $25 million, but that didn't include the spending by the affiliates, did it?
Thorsteinson: It included some anticipated affiliate spending. DigitalTV: What does an individual affiliate spend to join the party and how much of the cost gets picked up by the network?
Thorsteinson: That is an internal NBC issue. The price tag at an individual station depends on how many workstations they want, how much storage, but it is about a million dollars. And, again, there are lots and lots of newsrooms around the world, and what we need to do is mature the technology to the point where it is easier to install than it has been, because we have had difficulty in the past in installing these things. Mainly, I'm talking about the software. There is a software maturity curve and the whole industry was way down the curve.
DigitalTV: Are your partners keeping up with you in climbing up the curve to competency?
Thorsteinson: There is no problem with them at all. I'm just suggesting that in the past the software has lagged behind the hardware.
DigitalTV: The Aqua Internet encoder marks an interesting new direction for GVG, albeit a highly competitive one. What else are you doing to develop that space? Will you be moving in the direction of the one-box-does-all solution?
Thorsteinson: We see that space as an opportunity to take some of our competencies and improve the quality of the video being delivered over the Internet. Our solution is a little more high-end and its initial customer base will be broadcasters who want to improve their Web presence. But, we are also getting a lot of interest from the telcos. Other manufacturers who are in it already, however, don't report significant revenues from the space, so that is a bit of a concern.
DigitalTV: GVG has a digital cinema initiative. What is the role of your Cinema Server?
Thorsteinson:The digital cinema area for us is just a natural offshoot of our HDTV presence. We found customers who had presentation walls that wanted to use a high definition server in a non-standard application and then we started working on the Cinema Server and showing it to the major studios. We are pretty close to having a good product but the server is just one piece of it. The customers we are talking to now are really looking for a turnkey solution. Not surprisingly, the price point for a digital server and a digital projector for a movie theater--to hit the Îsweet spot'--would have to be half of what they are selling for today. We think that in the future, when that cost-effectiveness is reached, theater complexes will be built with at least one electronic room. We think that the marketplace is looking for a price of about $75,000 for the combination of the server and projector. This should be achievable within about 18 months.
DigitalTV: Newsgathering and news dissemination have been undergoing radical change in the past several years. What direction do you think they are going to go in the next three years?
Thorsteinson: I think we are still in the early adopter phase of the true digital newsroom. If these initial installations are successful and the customer base gets the benefit they are expecting, then we are going to see it really take off. I see a total transformation in five years. The pace will start picking up.
DigitalTV: You announced that GVG was going to lay off about 10 percent of its workforce. Are there people who will be missed?
Thorsteinson: We miss everyone we let go. We are not a big company. But, we tried every other method including a shorter workweek, shutdowns, and pay cuts. So, we decided that with the recession in the industry turning out to be a two-year one, we had better gear down. A lot of cutting was among outside contractors. About 70 people were eliminated internally, mainly in areas that are demand-driven, like order entry and processing and some in engineering. But, we didn't cut any field support people, save a few account managers.
DigitalTV: Some financial analysts have been predicting that because of the events of September 11, the recession has not only been pushed somewhat deeper but that the recovery will be sooner and sharper. They suggested that it would be ãVä-shaped rather than ãUä-shaped. Furthermore, with the positive trend in how the war is going in Afghanistan, this is perhaps even more feasible. Are they onto something or just engaged in wishful thinking?
Thorsteinson: This downturn for us--relative to station ad revenues--started well over a year ago. I had been thinking for the longest time that business would start to get better at the beginning of the calendar year, but at this point I don't see it getting better until summer. But we track our opportunities, worldwide and we know which orders are pending. We are always tracking about six months ahead. People haven't cancelled any projects, they just keep pushing them out. The only difficult part is surviving to get to that point.
DigitalTV: Do you look toward station ad revenue increases as the major mark of an incoming tide of prosperity in the industry?
Thorsteinson: Yes. But, that is only a U. S. phenomenon. Third quarter in Asia we did $12 million. In the U.S. it is heavily ad-driven. But, it is still flat and I haven't seen any improvement yet.