Avid Technology (Nasdaq: AVID) with its Media Composer was the name of the game when nonlinear editing began to take over in the early 1990s. Avids were the must-have professional editing equipment for high-end video and film production. It was a good product without any real competition. With a virtual monopoly on nonlinear editing the company did what any self-respecting entrepreneurial venture would do ... it went for the jugular.
Not only did you have to pay an arm for the software, you had to spend the leg for the proprietary Avid hardware. And if you wanted to keep it all running, you had to buy a service contract too. That stuff added up fast. But producers, under heavy deadlines that never seemed to let up, paid the price.
There were other nonlinear editing systems out there, but none of them caught on with the pros. Not until Apple (Nasdaq: AAPL) got into the game with its Final Cut Pro in the early 2000s and, as usual, changed the rules. First, the software would run on any reasonably fast Mac and didn't need special graphics cards to work. Second, it was a small fraction of the cost of an Avid, which made it cheap enough for colleges to train the next generation of video professionals. Avid didn't react fast enough to this threat, and by 2007 Final Cut Pro had taken over nearly half of the professional editing market in the U.S., with Avid holding only 22%.
Avid still makes a good product, but the company is now such small potatoes in the video and audio editing biz that I can't see any way it can continue to compete against not only Apple, but also Adobe (Nasdaq: ADBE) and Sony (NYSE: SNE). With Apple having just completed a bottom-up redesign of Final Cut, about the only hope that Avid has of regaining market share would be if Apple totally screwed it up. Possible, but not likely.
Avid has lost money the last five years, and about the best thing you can say for it financially is that it has no long term debt. However, with its cash pile draining down from $225 million in 2007 to $33 million today, Avid might need to raise debt or dilute existing shareholders soon if struggles continue. And with losing money being the standard operating procedure and inventory levels surging 74% over last year, I'd have to agree with Fool contributor Anders Bylund when he said don't go near Avid.
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Fool contributor Dan Radovsky has no position in any of the above companies but has slaved over a hot Avid in a previous life.
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