Michael Grotticelli /
12.19.2011
Originally featured on BroadcastEngineering.com
Blackmagic finds a winning strategy in reducing the price

When Blackmagic Design, based in Milpitas, CA, recently announced that it had acquired the technology assets of Teranex and then proceeded — a week later — to offer the once $90,000 Teranex VC100 image processing hardware and software-based platform for $20,000, there was a collective, though unofficial, “here we go again” refrain from the manufacturing community at large. New customers were overjoyed.

For Blackmagic Design president Dan May, it was business as usual. They’ve done it with the acquisition of da Vinci color correction technology (offering what was once a quarter million dollar Resolve color correction system for around $30,000) and again with Echolab’s video production switcher products (a $20,000 Atem switcher became a $7500 product, with control panel). Some think the strategy has negatively affecting other manufacturers’ opportunity to turn huge profits. For May, it’s about giving customers what they need, quickly.

“The companies that we’ve acquired were up for sale because they were struggling in some way to maintain a business model that works in today’s world,’ May said. “The days of selling a $100,000 box are just not viable in today’s economic climate. For us, our goal is to create products that are accessible to the largest amount of people possible. You can have the greatest product, but if only 10 people can afford it, that business model is bound to fail over time.”

He said they see the potential in technology and then repurpose it, or reduce the price significantly, in order to revitalize the brand.

“The Teranex VC100 is and has been s a great product, but we looked at it and said ‘they have a nice hardware solution but then charging tens of thousands of dollars for all the software,’” May said. “We’ve simplified the selling process by making the entire platform and modules available for a reasonable price. We don’t need to make $60,000 on software sales. We’re quite happy to make a smaller profit on a $20,000 solution that many more people are going to get excited about.”

The entry-level VC100 hardware was available and some software features from Teranex for about $15,000, and then customers paid extra for the separate signal proceedings (crossconversion, aspect ratio conversion, etc.) modules. If you bought them all, it would run you roughly $90,000. Blackmagic is now selling the entire suite for $20,000.

That price includes signal de interlacing, upconversion, downconversion, SD and HD cross conversion, SD and HD standards conversion, automatic cadence detection and removal, noise reduction, adjustable scaling, and aspect ratio (4:3 to 16:9) conversion — all with full-time code and multichannel audio conversion. Also included is the ability to perform 3-D dual channel conversions, new patent-pending 3D simulation and a 3-D toolkit for synchronizing cameras in 3-D rigs.

And existing VC100 owners can get all of the software they don’t have for $3000.

“Now that the Teranex guys are part of the Blackmagic family, they don't need to worry about making huge margins because they are not expected to meet certain numbers to fund R&D,” May said, adding that Teranex was a good strategic acquisition because of the 34 patents and other prototype intellectual property that came with the Teranex acquisition. “Blackmagic absorbs all of the seed money and marketing costs, so Teranex can focus on continuing to make great products. These are a bunch of really smart and talented guys; they just didn’t have the ability to productize things in such a way because they didn’t have the leverage and resources of a bigger company behind them.”

At the end of the day, May acknowledges that vendors like Blackmagic are in the business to make money, but with an expanding product line, profits can be spread out across the entire portfolio. And they also look for ways to incorporate the new technology into other Blackmagic products, offering customers more value for the money.

In light of this, May said that the privately owned company has enjoyed “astounding profitability” over the past few years, when other manufacturers have struggled.

“When we acquire a company, we have the benefit of not having to pay for a lot of R&D because the acquired company has already invested there,” he said. “That’s how we can focus on the right price point to make the technology commercially successful. It’s a sustainable model that we think is right for the market today.”

And what about all of the industry grousing about how Blackmagic is “ruining the business” by undercutting its competitors? May said it’s time for a reality check across the industry.

“To all of our competitors that are clearly not happy with us, I would say, ‘Look. Someone is going to do it. If it’s not us, it will be some guys in China,’” he said. “We hear from our resellers: ‘Hey, we love you, and we hate you. We hate you because you drive the price [and profits] of these products down, but we love you because you are the only company that people walking in the door are looking to buy.’”

May added, “We don't want to be the grim reaper here, but the times they are changing and we as manufacturers have to adapt or die. The same thing happened with desktop publishing and audio and video editing. There’s always going to be a visionary person or company that stands up and says, ‘There’s no reason why color grading needs to cost $250,000 to do professionally.’ If our competitors are upset that we’ve ‘destroyed things,’ there are 10 customers behind those naysayers thanking us for making the technology affordable and empowering them to be produce a professional broadcast level of work.”

In 2000, there were many "naysayers" that said Blackmagic, with its small structure and limited sales channels, could never sustain its price-reduction business model and be successful. Ten years later, the company is going strong, and customers have enjoyed every minute of it.



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