With the recent Cannes Film Festival and summer blockbuster movie releases, there is no more appropriate time to look at some of the companies behind the scene that are playing their role in the digital video revolution.

What is the digital video revolution? It's more than just a move from analog-based production to digital-based architecture. As technological developments continue to emerge and as the price of these powerful tools continue to drop, the real revolution becomes the empowerment of the "little guy," the independent producers. Now it is possible to produce quality movies, commercials, music and educational videos, Web projects, and DVDs on hardware and software packages purchased for as little as $10,000.

At this base entry point, independent film firms essentially need three components to make a digital project: a camera, a computer, and software. Matsushita Electric Industrial Company's Panasonic (NYSE:MC) AG-DVX100A digital video camera is perhaps the most important camera on the market for independent film producers. At a cost of around $3,200 and with the capability of creating movie-film-like images, it is much cheaper than the old entry cost of around $25,000 for such a movie camera. Canon (NYSE:CAJ) and Sony (NYSE:SNE) also make competitive digital video cameras at this price range, but Panasonic has set the industry standard.

There is equally stiff competition on the digital video editing software side as well, but look no further than the A-list for quality investing opportunities. Apple Computer (NASDAQ:AAPL), Adobe Systems (NASDAQ:ADBE), and Avid Technology (NASDAQ:AVID) each make astounding software packages for digital video editors and each may present opportunities as potential investments.

A bite of Apple
The success of Apple's iPod has been well documented by the investment community. But with its high-performance hardware and software products, this pony is performing more than one trick. Apple is one of those truly impressive turnaround stories that specializes in both hardware and software. The most important piece of hardware for independent film editors that Apple produces is the Power Mac G5. With a top-of-the-line G5 running near $10,000 (including all the bells and whistles and a 20-inch flat screen monitor), this high-end, high-powered machine is the computer of choice for professionals dealing with demanding applications, multi-layered musical pieces, computer-intensive 3D graphics, animation, and special effects.

As Alyce Lomax recently highlighted, Apple's computer sales have trailed the rest of the computer market, but things continue to improve as Power Mac's net sales (the last two quarters) increased 28% year over year. Another important piece of equipment from Apple's lineup is its industry-leading widescreen LCD monitor -- a tremendous compliment for video editors who wish to see their widescreen production before it hits the big screen.

Apple's high-end hardware line is impressive, but the most important products developed for video and audio editors are its software. Final Cut Pro HD, Soundtrack, Logic Pro 6, Shake 3.5, Motion, and DVD Studio Pro 3, together offer a complete package that enables an editor to point and click their way to movie magic.

From video editing, sound effects, musical composition, digital effects, motion graphics, and DVD production, Apple's lineup offers truly impressive tools for production of today's digital works. The recently released Lord of the Rings: Return of the King, partially produced with Shake 3.5, is an example of the powerful software that Apple is creating. If it's good enough for Peter Jackson, it's good enough for independent film producers.

Apple's comprehensive software package offers all of the software tools needed to produce quality movies, commercials, videos, and DVDs. And at an approximate cost of $6,000 for Apple's total software package for digital video editors, this is a small price to pay for ease-to-use, powerful editing tools.

An important piece of data that Peter Lynch used in his investment career is percent of sales. If you've found a product that you like and you are interested in investing in the company, it is important to know what percent of its net sales is derived from the product. Apple's total net sales (the last two quarters) were $3.9 billion and only 7% of its net sales were from its software lineup.

Also, Apple's iLife and Mac OS X Panther software together contributed to 24% of its net software sales. Although its video editing software contributes a very small percentage to its total revenue, fortunately for prospective investors, Apple offers a wide range of impressive products and makes for an intriguing potential investment. With total net sales (the last two quarters) having increased 29% year over year and software net sales (the last two quarters) having increased 51% year over year, there is no question that Apple's products have found some buyers.

Unfortunately for those looking to take a bite into Apple, its stock has also attracted buyers. Trading at a forward price-to-earnings (P/E) of 35 with projected earnings growth of 35% for 2005, this stock certainly is not a steal. However, Apple is reinventing itself with some outstanding products, and with additional research it may prove to be a worthwhile addition to an investor's portfolio when purchased on weakness.

Adobe-wan Kenobi
Adobe's name is almost synonymous with "PDF," but the company is working hard to make sure the Adobe name is known for other important products. For those looking to invest in the digital video editing sector, Adobe is more a pure play than Apple. Twenty-four percent of Adobe's overall revenue comes from digital imaging and video software sales. While not yet considered on the level of Apple's or Avid's video editing software packages, Adobe's Premiere/Premiere Pro and After Effects are competitive alternatives to Sony's Vegas Video as both software packages are designed to run on Microsoft's (NASDAQ:MSFT) Windows XP systems.

With Adobe not having the hardware baggage that Apple has to deal with, its concentrated software product line has enabled it to maintain a high standard with its profit margins, as Mark Mahoney recently highlighted. Its stellar profit margins have enabled Adobe to accumulate $218.6 million in cash and over $1 billion in short-term investments and no debt. Its stock carries a forward P/E of 24, and the company raised third-quarter earnings guidance. Selling in the low-$40s, this stock merits additional research and a tab on your watch list.

Rabid for Avid
The least-known of this bunch is Avid Technology. This small but powerful company is the pure play investment in the digital video editing arena. If you want a piece of Hollywood and don't have a fortune to buy your own production studio, an investment in this little company may be the next best thing. Many award-winning projects have used Avid's products -- these projects and Avid's products have won Oscars, Emmys, and Grammys. Avid's quarterly filing says it all: Its products enable customers to "Make, Manage, and Move Media."

Avid's software lineup, like Apple's and Adobe's, is based on a digital format that makes production faster and easier than the old-school traditional analog tape-based systems. Avid's industry-leading Xpress Pro and Avid Mojo operate on the Power Mac G5 and offer stiff competition for Apple's software package.

As far as revenue streams go, in its last quarter, 72% of Avid's overall revenue came from video editing software -- audio editing software produced the other 28%. Avid's stock price has been on a tear of late, and this is no longer a sleeper doormat stock. Recently Avid was given mention in an article by Shannon Zimmerman where a successful money manager was highlighted as being one of the investors in this great little company.

Sporting a forward P/E of 18 with projected earnings growth of around 20% for 2005, Avid has a reasonable price to go along with its strong balance sheet of $190.6 million in cash and equivalents and virtually no debt. This cutting-edge company is certainly deserving of a second look.

For $10,000, I can buy a camera, a computer, and a software package, and start making my own movie magic. Or, I can take that $10,000 and look for opportune times to invest in such creative corporations as Apple Computer, Adobe Systems, and Avid Technology. As a Foolish investor, I lean toward the latter, but I look forward to watching the next Quentin Tarantino or Guy Ritchie rise up out of the independent film ranks using the products of these great companies.

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Fool contributor Jeremy MacNealy is a movie collector but he has not collected the stocks mentioned in this article -- he does not own shares in any of the companies mentioned. The Motley Fool is investors writing for investors.