This week, Grass Valleyannounced that they are being acquired by Black Dragon Capital, a venture capital firm headed up by Louis Hernandez Jr., former CEO of Avid. TV Technology Editor in Chief Tom Butts sat down with Hernandez and Grass Valley CEO Tim Shoulders to discuss the implications of the transaction.
TV Technology:First off, congratulations on the announcement. Tim, I know that when you made this announcement last fall, you wanted to emphasize that it's “business as usual.” Is that your policy at this point as well?
Tim Shoulders: Yeah, absolutely. So nothing I shared with you in the fall has changed substantially. At that point in time we thought this was the transaction we were going to consummate and it's the one that got completed. So nothing has changed significantly there.
I think it's really important to emphasize, we take very seriously our responsibility in the industry to provide our customers with reliable solutions that are mission critical and they can count on to get the productions done, not just efficiently but without problems day after day after day. And I feel confident that we'll manage the transition away from Belden in such a manner to make it really seamless for our customers so that they can count upon our reliability and our stability just as they have in the past.
TVT:Louis, we know you're not a “business as usual type” of guy. You brought a lot of changes to Avid that you said created a lot of turmoil among long timers at the company. In a white paper from last fall you wrote "Avid had made a series of costs cuts as noted, and it also attempted to launch new products, but these never took hold.” Avid slowly sank in a swamp of disconnected acquisitions, the promise of which was never realized.
So two questions. What did you learn from this experience in Avid? And number two, do you feel this is the same situation with Grass, who themselves have done a number of acquisitions in recent years.
Louis Hernandez Jr.: I think that the lessons are that a lot of these iconic brands with great distribution just really have a tough time with the transition. And in Avid’s case, they were in a much worse financial situation from Grass; they lost $44 million the year I joined. Their business model was mostly hardware-based, and they had very low recurring revenue as well as accounting issues.
The big surprise to me was the disconnect that some of the leaders have in these iconic brands with their history and their current transition. And so that's one lesson that I learned as the person who has built companies from scratch into multi-billion dollar businesses, that sometimes these iconic brands have a very tough time with the realities of the transition of industries.
I'm very excited to say that Grass Valley is much better off just because of where it is in every dimension. So it's true that they also have aggregated some of the most well known brands in the industry. But the big difference is they're quite profitable, they're growing, they're already making the move to IP workflows much further along I think than my last assignment.
And I think the leadership team through the financial results are much more disciplined and much more aware of the importance of having a business that is economically sustainable. You can't help your community if you don't do things that are sustainable for the long-term. I think that's what this team has done. Their recurring revenue is almost twice what Avid was when I joined it. And it's much more profitable of course, in generating cash and growing.
As a result, we don't have to look at this as a transformation as was required with Avid. Here we have a strong performing company that has very responsibly, and I think very thoughtfully, invested in the future. And they have, unlike many companies, not bragged about it. I'm a technologist, Tom, we've talked many times. I was very surprised and so is the team, and if you read the names of the people involved in this project it's the “who's who” in the industry.
And the other thing is, we own 100% of the company, we can invest for the long term. We don't have to worry about quarterly reporting or board governance where you may have a diverse view of what's best for the future of the business.
TVT:Do you think Grass Valley needs a customer association like Avid developed?
LH: I think if you look at my history, everybody knows that intimacy with your customers is paramount. As somebody who used to develop the tools we had, it didn't allow us to be so inclusive.
But today that's not the case. Today the tools are flexible enough that you can work hand in hand with your constituents, your customers, and that's what we intend to do. So I wouldn't be surprised if Tim and his team didn't demonstrate a greater inclusiveness and intimacy with their customers.
Tim has spent most of the morning on the phone with some of the largest media companies in the world. They need some people like Grass Valley to embrace a leadership role as we navigate this transition and I think you'll see that that expectation will intensify and we're going to be very willing participants and embracing a more intimate relationship with customers globally.
TVT:Tim, Grass Valley and Belden played a leadership role in advancing the standardization of SMPTE ST 2110 and AIMS. Will this acquisition have any impact on Grass Valley's position on IP and signal transport?
TS: I don't expect it to. We’ve long advocated open standards within the industry to promote interoperability and nothing about this acquisition changes that. And we think we've got significant opportunity as our customers transition to IP. And we've had some big wins over the past several quarters that we look to translate into some great case studies that will then ultimately allow us to continue our growth and our IP revenue. Our IP-related revenues were up something like 50% last year.
We think we are finally exiting the trough from the high curve and heading into that steady growth phase. And we're positioned really well. We've made some investments in our control and monitoring solution—Core IP networks—that I think are really hitting the right notes with our customers. I think we're heading for another year of substantial growth in that area.
TVT:Louis, are there other companies in the Black Dragon portfolio that we would be familiar with in this industry?
LH: None that we have publicly announced. We work exclusively with software companies in sports and media and banking and e-commerce. All of us who run the firm have to have been successful executives or entrepreneurs in those fields and we think as a result, we're more familiar with the challenges that leadership teams like Tim and his team have in navigating this disruption. We don't get spooked by the short term—we like to look for the long term. We like to create market leading companies and we're courageous enough to put our own money to work as we've done here.
We've got quite a roster of advisors and we invest a lot of time and energy in the industries we care about. Now we have a platform with a brand where we can work hand in hand with our clients to figure out how we navigate forward. And I can't think of a better brand and a more comprehensive product suite or a better team to do it with.
TVT:Tim, when you announced thatBeldin was selling Grass Valleylast October, you talked about how your switcher business was among the most robust parts of your business. Grass Valley has been known to be a fairly hardware-intensive company, but so much now is being moved to the cloud and software as a service. Louis, where do you see that in relation with Grass as far as its importance?
LH: We try not to dictate the rate at which our clients and communities move to IP workflows. So what you're going to see is an embracing of the integrated solution, which includes hardware. You may even see an expansion of that, but the backbone will increasingly become a software platform that is flexible enough to allow you to transition when you're ready. So you might be able to get IP with an integrated solution and over time switch the integrated solution, the hardware piece to a third-party vendor and eventually software-only or any combination.
TVT:Let’s talk cameras.
LH: I'm really excited that we have some camera innovations we'll be showing you guys at NAB on the biggest stage for industry. I'm pumped about that because I think we're going to take our camera platform to a completely new level and you'll see the fruits of all that hard work the camera team has put in over the last few years in R&D.
TVT:Louis, can you explain the “Black Dragon Playbook” and how you think this could impact Grass’s business?
LH: The Black Dragon Playbook and Black Triangle Leadership Index help us hire the right people at the right phase. The playbook is really how to create high growth, sustainable technology businesses that solve the biggest industry issues of the day, about how they can build a high performing accountable culture. It's a codified way to help Tim and his team figure out how to solve the biggest issues, how to do it in an economically sustainable way and help lead industries in a profitable way.
Grass Valley has a great brand, huge distribution around the world, and one of the most comprehensive product suites in the world at a time when people are trying to compress and save money and solve the yield per asset problem and some very disciplined smart executives at the helm. And we just thought our playbook is going to work perfectly here and the goal has become the clear market leader and help our friends transition to digital workflows.
It's a very detailed codified set of steps to go through. And when we went through it with Grass Valley we thought, boy, there's quite an opportunity here with this company as a platform. And it could lead to and dovetail into other acquisitions down the road that just make the platform either stronger, always aimed at how do we solve the biggest problems for the biggest most iconic brands in media.
TVT:For both of you, what do you see is the most lucrative markets for Grass Valley right now beyond the traditional broadcast market?
TS: What we see is as content expands, it's expanding in areas that appeal to more niche audiences. And our responsibility is to allow our customers to be able to experiment with new business models appealing to those niche markets and creating professionally produced content, by the way, not just any content.
So the best thing we can provide is a flexible solution that lowers the cost of experimenting with some of these new types of content and new workflows. So I think what I would look to do as part of Grass Valley strategy is to develop solutions that our customers can buy to do productions that are flexible, that are consumption-based and that will allow them to produce more content more efficiently.
LH: I completely agree that we look at it in two ways: The traditional market—people who create content in order to monetize it—and then there's people who create content in order to improve their business, and both sectors are growing. I think Tim's mentioning that in the former—people who create content in order to monetize it—they're having to deal with the new economic realities that the yield per asset is dropping that's causing them to try and drive down production costs and increase yield-per-view. And that means new models.
There's a reason why Bob Bakish at Viacom paid such a premium for Pluto TV, a free-to-air, pure ad-based supported network, because he needs to experiment with new economic models at the same time because technology has come down and the power of telling stories is as important as ever.
You're seeing people—who are not in the business of monetizing but creating in order to make their business better—start to use the same tools that used to only be used by broadcasters. And that's an emerging segment that I think we'll be considering as well as we go down. But I think Tim properly pointed out that there's enough work to do in the traditional broadcast and adjacent markets to keep us busy to help our core constituents and that's where I think you would see us focus at least in the near term.
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