Is Avid OK…Or Not? What the NASDAQ Delisting Really Means to Pro Tools Users

March 4th, 2014 by Trenton

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Red flag, harbinger of far-off things to come, or non-issue?

Avid was officially delisted from NASDAQ on February 21.

Last week, Avid created a not-surprising wrinkle in the financial world, when the maker of Pro Tools announced that it had – as expected – been de-listed by NASDAQ and banished to the less prestigious OTC (Over The Counter) stock exchanges.

The seeds for this unfortunate development were sown back on February 25, 2013, when Avid made it public that that it was postponing its Q4 and full year earnings for 2012, with the purpose of providing “additional time for the company to evaluate its current and historical accounting treatment related to bug fixes, upgrades and enhancements to certain products which the company has provided to certain customers.”

In other words, the audio and video solutions provider became aware that they were going to have to restate their financial data from years past, due to how they had been accounting for updates to their software. Peter Kirn of createdigitalmusic, who initially broke the story of Avid’s delisting to the pro audio community, does a thorough job of explaining the restatement in his article.

Throughout 2013, Avid did its best to complete the restatement and stave off a delisting by NASDAQ, but they couldn’t move fast enough. After the NASDAQ axe fell on Monday, February 24, the company issued a statement, which read in part:

“Avid’s de-listing from NASDAQ and its subsequent listing on OTC is the result of delays in the reporting of financial information  — it was not related to operating performance in any way; As we have previously reported, as a result of the restatement, previously issued financial statements are not accurate and should not be relied upon.

“We are continuing to work very hard to correct the accounting, which is related to nearly 5 million transaction lines spanning eight-and-a half years. We announced that we are targeting completion of the restatement by mid-2014.”

Good News & Bad News

Five million transaction lines sure does sound like a lot of code to cut through. And, as Avid pointed out, they did manage to release an abundance of new solutions since the restatement process began: These include Pro Tools 11, Media Composer 7, Sibelius 7.5, two new online shared storage offerings, the S6 mixing console, and the Avid S3L live sound system.

Furthermore, the company’s financials seem OK, currently holding $48 million in cash with no debt, and a market cap just shy of $261 million. So, fortunately, it does not seem that a bankruptcy or total meltdown is in the offing for Avid, whose Pro Tools software and related hardware are at the core of most music and sound creation businesses.

Pro Tools 11 — grab your faders and hang on!

But nor does a delisting mean that all is business as usual for a publicly traded company. “Once delisted, a company loses a real advantage in terms of the ability to access capital markets,” says Robert F. Dow, a Partner in the corporate and securities practice for Atlanta-based law firm Arnall Golden Gregory. “A company typically may move down to the OTC market, which is much less attractive. This impedes its ability to complete public and private offerings of securities. Also the stock becomes less attractive to employees, so that stock-based compensation — e.g. stock options, restricted stock — becomes less attractive to key employees.

“Normally, the delisting will have little direct effect on customers,” Dow continues. “However, if a major supplier is being delisted, the customer may want to see if the delisting is sort of a ‘leading indicator’ of other problems — particularly financial difficulties — and do some due diligence. Some business partners may also feel that the delisted company is less prestigious than a competitive listed company, which may affect key business relationships.”

PT Users Speak

Avid has had their say, and we’ve heard from the analysts. But what about the court of consumer confidence? Do Pro Tools users really care how Avid stock is currently traded, and whether or not the symbol AVID will ever again be seen on NASDAQ?

For a vast majority of mixers, producers, studios, and audio post facilities, the long-term durability of Avid has an impact on the signal path. Either the music and sound they make has a Pro Tools system directly on their front- or back-end, or it will touch a system that does elsewhere in the chain.

When asked if the latest financial developments at Avid would affect their confidence in the future of Pro Tools, audio professionals provided a range of opinions.

Jeff “The Jedi Master” Jones calls Pro Tools audio’s “globally accepted currency”.

“No, Pro Tools is still the globally accepted currency in audio and has been for quite some time,” said GRAMMY-winning producer Jeff (the Jedi Master) Jones, on whether his own personal faith was shaken. “Avid’s recent upgrades of Pro Tools have been substantial, and while I don’t personally use Pro Tools for my heavy mixing and editing, the recent changes have been applauded within the audio community.”

“As a Cubase user in my studio, it’s a bit encouraging because I think part of this may be due to the strength of other platforms like Cubase, Logic and even Reaper,” stated Paul “Willie Green” Womack, a Brooklyn-based record producer & recording engineer. “I also wonder if people are a bit put off by the RTAS/AAX changeover, and having to deal with plugin hassles — that PT10-to-PT11 transition seemed pretty shaky for a lot of people. But for many people computer recording still equals Pro Tools, and with so many studios large and small based around it, it’s hard to imagine it not remaining the standard.”

At one of New York City’s largest-scale recording complexes, Kirk Imamura, President of Avatar Studios broke his reaction down to two primary components. “As a professional studio that clients depend upon, we like stability/reliability and support when we need it,” he said. “Pro Tools is still the de facto DAW, and if these two factors can be maintained, then we would be satisfied.”

But for some other multi-license users, like NYC-based audio post facility HOBO Audio, the all-important customer service has now become a real question mark. “It does affect my confidence in the long term with the product,” states Howard Bowler, Founder of HOBO. “Pro Tools has served us very well, but as we consider upgrades, we also take into account tech support. If they are preoccupied with stemming the flow of red ink, that could have an impact on their ability to provide customer service.

“My guess,” Bowler continues, “is if they don’t do something fairly quickly they could be forced to sell assets. As I wasn’t a big fan of Avid’s purchase of Pro Tools to begin with, spinning it off might be the healthiest move they could make for the future of the product.”

To other industrial-strength users, the strategy for offsetting a dependence on Pro Tools is DAW diversity. “At Stephen Arnold Music, we use multiple platforms for that very reason,” notes Chad Cook, VP/Creative Director for Dallas-based Stephen Arnold Music. “While we have a Pro Tools workstation, we also use programs such as Steinberg’s Nuendo, Final Cut Pro, and Logic.  In fact, we prefer Nuendo over Pro Tools for most of the things we do.  I don’t worry about the future of Pro Tools, because it is so established in the audio production world.  If anything, I can see another company purchasing the rights to it just like Apple did when they purchased Logic from Emagic.”

Bowler and Cook weren’t the only ones who reinforced the growing consensus that Pro Tools is eventually headed for another home outside of Avid – no matter how Pro Tools itself fares in the short- to mid-term.

PJ Hanke does not see Pro Tools and Avid as inseparable.

“These developments do not affect my confidence in the Pro Tools platform in the least,” says composer PJ Hanke, of LA-based Sovereign. “From information I’m aware of, the Pro Tools division is not the ailing arm of Avid currently. In my opinion, I think the platform is too much a staple in our professional and post communities to be killed off in any kind of restructuring at this point. I also think a purchase of the division by another entity would not be an unrealistic idea in the future.”

Split Decision

Indeed, for many users, the recent NASDAQ delisting is a chance to reflect on the dichotomy they often experience: The product they love and need is sold by a company they fundamentally dislike.

The position of Ryan Billia, founder of the new Brooklyn audio post facility Rumble Audio, may be typical. “Speaking specifically about the audio post world, it does not affect my confidence in Pro Tools and its ability to remain a standard,” he says. “In fact, it gives me hope that Avid will have to do some self-reflection regarding it’s handling of customer support. If you have an inside track, Avid techs and support can be extremely helpful, but for people without that, customer support isn’t so great — so you rely mostly on forums and Internet research.

“For years, Avid has been able to count on the fact that they are the standard and we the users need them. But as the market is correcting itself, I hope Avid will acknowledge the loyalty it receives from us and act accordingly.”

Billia goes on to note the strong hold that Pro Tools has in particular on audio post in the USA – and that things are different outside of that market. “Without exception, Pro Tools is still the de facto standard for audio post in the US,” he says. “I know in Europe, Nuendo had a strong hold, but in the States, it’s primarily Pro Tools. I read a number of complaints on the Internet regarding recent upgrades and that they seemed they were focusing more on the audio post industry.

“Now, I can’t say if that is true or not, but it would make sense that they would be catering more to that market — you simply cannot do the things you can do in Pro Tools when mixing a film in any other program: Automation, Quick Keys, track count, routing, and processing power all make it possible to deal with 100+ tracks mixing in 7.1 and recording surround mixes, fold-downs, stems, and other deliverables simultaneously. Granted multiple Pro Tools rigs can help, but it’s still Pro Tools.”

For Randy Crafton, Owner of Kaleidoscope Sound in New Jersey, Avid’s NASDAQ delisting is clearly representative of a long downward spiral, even as the upgrades of Pro Tools 11 have been impressive to his staff and clients.

The API at Kaleidoscope Sound — Pro Tools sold separately.

“I have been aware of Avid’s extremely poor position as a company for some time,” he observes. “There was hope that the new CEO [Louis Hernandez, profiled here on SonicScoop on February 18, 2013] would be able to create some transparency, and put things back on course.  Nothing yet indicates that to be the case.  As a long-time user of Pro Tools, it would be very stressful for me to see the platform be orphaned — think Opcode and OMS.

“On the other hand, going public was a bad idea,” continues Crafton. “We are a small interconnected ‘cottage industry.’  Although the advent of a studio in every home has certainly given rise to a larger market, it is still far from a company that should be traded publicly.  That brings a lot of responsibilities to investors that are in direct opposition to their responsibilities to clients.  In a non-publicly traded company, you have the opportunity to treat your clients as your investors.  This is a far superior model for most businesses, and certainly one as small and specific as ours.”

For Crafton, like many others, indicators are that the platform will indeed live on, but with a different corporate parent. “I suspect that the Pro Tools platform will, at some point be bought up by one of its clients,” he reflects. “Peter Gabriel bought SSL, and I can certainly imagine that Pro Tools could come full circle, and be bought up by one of its film or television users — this was, after all, its original market.  Pro Tools is not going to just drift off, because too many billions — probably no exaggeration — of dollars in content are sitting around in this format.

“I worry for the fate and support of my D-Control, but I think the software will be around, and despite their poor business managing, Pro Tools 11 is a long overdue and competitive upgrade.  There is enough quality in the product, and it is, after all, the Kleenex of the DAW’s.  Let’s hope for the best, which for me would be to be bought up by a non-publicly traded company with a strong vision to support our industry into the future.”

Avid and Pro Tools are everywhere in audio today. Nonetheless, professionals owe it to themselves to at least imagine an alternate universe without one or both. Because even the seeming staples of industry can wake up and find themselves in a vastly reduced role, brought on as the world changed inevitably around them.

“Like many I do think Pro Tools is the standard, and will have a great life with or without its parent company succeeding,” says the Emmy Award-winning composer Peter Fish. “But then again, I used to say the same thing about Synclavier, Fairlight, Ampex, and Kodak. So you never know.”

— David Weiss