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Avid Scoops Up Pinnacle - TvTechnology

Avid Scoops Up Pinnacle

Pinnacle's consumer division to form basis for new branch
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Pinnacle's consumer division to form basis for new branch

TEWKSBURY, MASS.

Avid took a larger stake of the video editing and broadcast market when it announced in late March that it would acquire Pinnacle Systems for $462 million in cash and stock.

One big draw for the Tewksbury company? Pinnacle's healthy consumer video business, which has shipped more than 10 million units of products to users since its inception and posted revenues of $334.8 million for the year ending June 30, 2004.

While Avid has found success in the high-end professional video industry--with 2004 revenue of $589 million, making last year a record year for both revenues and profits--the company has not had comparable success in creating products for those at the entry-end of the video editing spectrum.

In response, Avid said it hopes to use Pinnacle's consumer video business as the basis for a new consumer video division at Avid, giving the company immediate access to the entry-level video editing market.

"Avid was pushed out of the [consumer] business [years ago] by Apple and to some degree by Pinnacle, who was a fierce competitor," said Neal Weinstock, founder of Weinstock Media Analysis, a New York-based consulting firm focused on the professional video industry. "This [acquisition] gives them the opportunity to enter the consumer market again.

"But Avid needs to carefully decide how to best integrate Pinnacle, and it's going to be tough," he said. "[The consumer market] is a risky area."

NEXT GENERATION

Avid believes that by acquiring Pinnacle and its consumer video business, it will be able to tap into the next generation of video editors, creating "a very large potential customer base for Avid's future," said David Krall, Avid president and CEO.

"It used to be that an editor would be exposed to our equipment when they were in their 30s or 40s,'' Krall said. ''This generation is being exposed to video editing in their teens. It's an important strategic move for Avid to make sure that they are relevant to this generation.''

Krall also said that Pinnacle's professional broadcast solutions--such as the MediaStream server and Deko graphics system--will extend Avid's end-to-end broadcast solutions. "We see this acquisition as the next logical step in our long-term strategy," he said, pointing to the company's August 2004 acquisition of M-Audio, a manufacturer of digital audio and MIDI solutions, which gave Avid immediate access to the consumer audio market.

That acquisition has yet to turn profitable for Avid, Weinstock said.

There was no official word on the fate of Pinnacle's more than 650 employees, though Avid has said it would maintain a presence in Mountain View, Calif., where Pinnacle is headquartered. Avid said it was also too early to tell exactly how the consumer division would take shape.

Still, Pinnacle believes the acquisition is a good move for Pinnacle's shareholders, employees and customers.

"The industry is in the midst of a consolidation, and it's happening in an aggressive way," said Ajay Chopra, co-founder and COO of Pinnacle. "In reality, there will probably be two or three major players in the digital video marketplace in the future, and we want to be one of those players.

"Our employees understand that this is a path forward, and our customers are telling us that this [acquisition] makes sense over the long-term," he said.

Some customers, however, are not so sure.

"Avid's public reason for the acquisition is that they want to leverage Pinnacle's consumer line of video editing products," said Jay Shaffer, a long-time user of audio and video editing systems. "Most observers are saying the real reason for the acquisition is to further narrow the field of broadcast-quality non-linear video editors. Overall my impression of the acquisition is that Avid is shoring up its defenses in the broadcast market against Apple and seeking to dominate the consumer video market on the PC platform."

On the day of the announcement, Pinnacle's shares rose 77 cents to close at $5.74 on the Nasdaq Stock Market, while shares of Avid fell $6.34 to $56.61.

After the acquisition is finalized, which is expected next quarter, shareholders of Pinnacle will own about 15 percent of Avid. Avid's stock has risen 41 percent over the past year.

"Avid's acquisition of Pinnacle is an interesting opportunity and a challenge," Weinstock said. "It's also paradoxical because Pinnacle built its business on serial acquisitions. But they were [flummoxed] by one too many. Now Avid has acquired them. I hope that they're not going down the same road."