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AVID stock is ready to go up?!?

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Re: AVID stock is ready to go up?!?

Postby ManFromGlass » Tue Mar 03, 2020 3:36 am

So in general subscription based software has gained acceptance? I haven't researched the current state of it but recall great resistance as the bigger companies switched over to it. The resistance I noted was from single users, I have no idea about how large companies got on with it.
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Re: AVID stock is ready to go up?!?

Postby Wonks » Tue Mar 03, 2020 10:22 am

Significant users will have already been negotiating their own prices for outright purchasing, so they will have done the same with the subscription model as well. Unfortunately, the small guy always pays more than the big guy.
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Re: AVID stock is ready to go up?!?

Postby Eddy Deegan » Tue Mar 03, 2020 12:22 pm

ManFromGlass wrote:So in general subscription based software has gained acceptance? I haven't researched the current state of it but recall great resistance as the bigger companies switched over to it. The resistance I noted was from single users, I have no idea about how large companies got on with it.

In those parts of the software industry where the product is aimed at corporate customers rather than individuals, a subscription model is significantly more common than it was in the past. We use it ourselves (our product is volume-based; the more data you push through it the more it costs).

The benefit to us is a smoother revenue stream which makes planning and forecasting significantly easier.

The benefit to the customer is similar, in that they can predict their spend once they have forecasted their usage growth.

The benefit to both is that the revenue stream can adjust on neat boundaries (ie: per month) to cater for fluctuations in use of the software, so the customer pays for what they use, effectively.

We further simplify these changes by grouping usage into a small number of bands, with a fixed price per month per band which means that minor (and often medium) fluctuations in the usage remain at a steady cost.

For our largest customers we have also negotiated fixed pricing regardless of usage.

So far it's a model that has worked extremely well for us and our customers, although as an individual I much prefer a perpetual license when buying software for my own use.

To be fair, in our case should the customer cease to maintain their subscription they do get to use the product indefinitely, just restricted to the range of dates for which their subscription was active, given very limited support and updates constrained to bugfixes only.

Public cloud providers like Microsoft Azure and Amazon AWS adopt a completely variable subscription model where you literally pay down to the cent based on per-hour (for resources such as virtual machines) or metered (for resources such as network traffic) usage of their services, which works well for the gigantic amount of usage they have.

The advantage is that it's very fair. The disadvantage is that it makes it very difficult for the customer to predict costs and perform meaningful analyses of the massive cost breakdowns of usage they get every month (millions of records in some cases). But then that's where our stuff comes in to help, so it all goes full circle in the end!
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Re: AVID stock is ready to go up?!?

Postby ManFromGlass » Tue Mar 03, 2020 1:49 pm

Most interesting. So with Avid/ProTools their subscription is yearly (I’m not 100% on that). I need the software 5-6 times a year. As a small user I either buy in and that’s the cost of doing business or I take my files to the studio down the hall and pay a few bucks to have them loaded into PT and sent off.
From the corporate perspective would small users be considered a "bonus"? What I mean is that the main revenues are from corporate users and any small users picked up along the way doesn’t hurt but also doesn’t really impact the company being able to somewhat predict their future viability.
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Re: AVID stock is ready to go up?!?

Postby Eddy Deegan » Tue Mar 03, 2020 2:31 pm

ManFromGlass wrote:Most interesting. So with Avid/ProTools their subscription is yearly (I’m not 100% on that). I need the software 5-6 times a year. As a small user I either buy in and that’s the cost of doing business or I take my files to the studio down the hall and pay a few bucks to have them loaded into PT and sent off.
From the corporate perspective would small users be considered a "bonus"? What I mean is that the main revenues are from corporate users and any small users picked up along the way doesn’t hurt but also doesn’t really impact the company being able to somewhat predict their future viability.

I can't speak for Avid; I was just giving some additional context with regards to subscriptions and the software industry.

The main difference between Avid and the stuff I was talking about is the use-model, which in their case is not volume-based, rather it's a capability you're paying for periodically which permits unlimited use of that functionality for the duration of the license.

They also deal direct with individuals whereas we do not. It's not that we wouldn't, but ours is not the sort of product that a single individual would likely wish to use or find affordable.

As Avid are in the business of dealing with individuals, if I put myself in their position I would be unlikely to offer anything other than the standard license costs to 'small' users because I don't have any practical means of determining what they are using the product for without getting quite intrusive.

You say you use it 5-6 times a year, and I believe you, but if Avid were to offer much cheaper deals for infrequent users then they would have to engineer checks into things to enforce that, else people would simply abuse the license system.

Pro-tools appears to be a good solution for many people, a lock-in for others (for various reasons) and potentially opt-outable for yet more. Their license model isn't something I would sign up to myself, but I'm none of the above.

Regardless of one's views of the company, how it's run etc. the choice is a simple "use it or don't" really. If you decide/need to use it then you accept their licensing requirements.

Some will pirate I guess, but that's morally indefensible in my view and they deserve every crash, bug, virus infection or malware catastrophe they encounter along the way!
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Re: AVID stock is ready to go up?!?

Postby James Perrett » Tue Mar 03, 2020 3:13 pm

Eddy Deegan wrote:In those parts of the software industry where the product is aimed at corporate customers rather than individuals, a subscription model is significantly more common than it was in the past.

In my experience there has always been a subscription element with corporate software as corporates like to have continuous support and updates. In the past there was usually a large upfront cost with a smaller (10-15%) annual charge. The subscription model just shifts the cost from mostly upfront to a continuous charge which would be attractive to customers who would otherwise have used a support contract anyway.

As a private customer I think many people still prefer to own a perpetual license. Personally I'm still very wary of any software that requires the use of a remote license server to authorise software and I deliberately use an older version of one Adobe program that doesn't require a subscription.
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Re: AVID stock is ready to go up?!?

Postby Eddy Deegan » Tue Mar 03, 2020 4:05 pm

James Perrett wrote:
Eddy Deegan wrote:In those parts of the software industry where the product is aimed at corporate customers rather than individuals, a subscription model is significantly more common than it was in the past.

In my experience there has always been a subscription element with corporate software as corporates like to have continuous support and updates. In the past there was usually a large upfront cost with a smaller (10-15%) annual charge. The subscription model just shifts the cost from mostly upfront to a continuous charge which would be attractive to customers who would otherwise have used a support contract anyway.

I never really thought of the old "purchase-followed-by-maintenance" model as a subscription, as you could (often if not always) still use the product if you opted out of the maintenance but I think you're right there James.

There has certainly been a shift away from the concept of 'purchase' towards the concept of 'license', especially over the last 10 years or so. I remember hearing a lot more discussions about capex vs. opex in the past!
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Re: AVID stock is ready to go up?!?

Postby Hugh Robjohns » Tue Mar 03, 2020 4:20 pm

Eddy Deegan wrote:There has certainly been a shift away from the concept of 'purchase' towards the concept of 'license', especially over the last 10 years or so.

And not just in software sales. Lots of other commodities and products are now sold that way too. PCP Car purchase, mobile phone plans, on-demand TV and streaming services, for obvious examples... it's all about providing the manufacturers/retailers with a more precictable, reliable and consistent long-term income stream.
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Re: AVID stock is ready to go up?!?

Postby Eddy Deegan » Tue Mar 03, 2020 5:10 pm

Hugh Robjohns wrote: Lots of other commodities and products are now sold that way too. PCP Car purchase, mobile phone plans, on-demand TV and streaming services, for obvious examples... it's all about providing the manufacturers/retailers with a more precictable, reliable and consistent long-term income stream.

Indeed. Thinking about it, subscriptions are also commitments, especially in cases where there is a minimum contract length (such as mobile providers). Even without such contracts, the idea that you could lose access to something you have come to semi-rely on for certain things is a bit unsettling.

For some things, such as phones etc. I don't see a better model than subscriptions though, due to the open-ended nature of the usage and the fact that it incurs COGS on the provider.

I have a few commitments in life which I'm happy to take on, and a few I have to regardless of whether I'm happy about it. The ones I am happy to take on are non-financial in nature and I think deep down I'm uncomfortable with the idea that if I was to lose my arms in a freak knitting accident tomorrow that some 'convenient' subscriptions would immediately turn into a nightmare, whereas stuff that I own outright is more of an asset than a liability.

For the provider of course, subscriptions are much preferred as you say!
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Re: AVID stock is ready to go up?!?

Postby blinddrew » Tue Mar 03, 2020 7:14 pm

Personally my beef with subscription based services and 'licensed' purchases is what happens when the manufacturer pulls the plug or goes out of business?
If I own something outright then i'm free to keep using it until it dies or i move on.
But the last 20 years is littered with customers ending up with worthless hardware and software because the original manufacturer or seller has stopped supporting it.
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Re: AVID stock is ready to go up?!?

Postby DC-Choppah » Thu Mar 05, 2020 4:11 am

Subscription costs are operating expense and are charged to the client. ‘Program costs’.

Buying software is a capital expense.

Therein lies the reason for the popularity of software subscription costs that can be charged to the client.

Same reason why companies lease things rather than buy them.
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Re: AVID stock is ready to go up?!?

Postby Mike McLoone » Thu Mar 05, 2020 10:24 am

blinddrew wrote:But the last 20 years is littered with customers ending up with worthless hardware and software because the original manufacturer or seller has stopped supporting it.

Which reminds me of the time a colleague popped in to my office to ask if anyone had an old tape deck he could use as he'd found a bunch of cassettes on the street. I said no, but handed him a rather heavy 19" rack unit, made mostly out of high quality steel and with a bunch of LEDs on the front.

He took the ProTools 192 IO from me, slightly bemused and said "What is it?!"

It's an audio interface, I replied. 16 channel analogue IO, really good THDN values. It still works, but it's useless.
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Re: AVID stock is ready to go up?!?

Postby The Red Bladder » Thu Mar 05, 2020 11:29 am

DC-Choppah wrote:Subscription costs are operating expense and are charged to the client. ‘Program costs’.
Buying software is a capital expense.
Therein lies the reason for the popularity of software subscription costs that can be charged to the client.
Same reason why companies lease things rather than buy them.
It can be either.

If you hire a camera person, you will either get a fixed fee, or you get a list of kit with a daily rate for every item - the effect is the same unless the camera person is a fool and is unable to calculate and is undercutting themselves (the way musicians and recording studios have been for far too long).

If you book a video facility, you either get a team 'all-in' so to speak, or you hire the bits individually. Let's say you book a cinematographer for a major film, you get one whole crew for X-days for $X. That includes all grips, data-wrangler, monitors, gimbals, assistant cameraman, focus-puller, cameras, lenses, etc. and you 'just' have to hire lights and studio and everything else.

The same applies to music - you approach an agency and they supply a composer, arranger, studio, musicians, engineers, etc., etc. and all for one fixed fee. Or of course, you can try to put all those bits and pieces together yourself.

In the good-old-days of studios like Paramount, Universal and MGM, all those people were either under contract or on the payroll. There was a system that could churn-out movie after movie to fill cinemas every week, week after week. Them days is over! Now it's a battle of bits and pieces, with every musician and agency with their own studios or with a deal with a studio and lists of people they go to.

The problem for musicians and hobbyists is that Avid is a video company with audio bolted on. There was a time when Sony, Adobe and others were looking at ProTools as an add-on to their other offerings, but with Resolve having the entire Fairlight IP and is just giving it away and Reaper being a $60 package, ProTools just is no longer worth a great deal. People like Grant Petty (Blackmagic-Design) or Uli Behringer are only going to 'rescue' PT if it is being sold at fire-sale prices.

Sony left the pro-audio market over a decade ago and is rapidly losing ground in pro-video so that just leaves Adobe as the one and only company that could possibly find a reason to pay a higher price for PT - and they certainly do not want any of the hardware rubbish like Euphonix and the other bits and pieces that are struggling to find a market.

Adobe is a software company only. Sibelius - yes. PT - yes. Live desks and servers - no thank you!

Autodesk (Maya, AutoCad, etc.) is a possible suitor, but they too are a software company!

That just leaves Blackmagic-Design and Mr. Petty is the very opposite of a charity. "Buy anything if the price is right!" sums up his M&A strategy!

This Corona-Virus scare could not have come at a worse time for Avid. The unsold inventory is piling up, movie and TV programme commissions are being put on hold, studios from Angel to almost every residential studio out there are closing or have done so already and pretty soon people are going to start losing their jobs and quite honestly, a subscription for some A and V software (when there are free alternatives that some claim are better) comes right at the bottom of the long list of economic priorities!

Avid is a company built upon debt - and in times of crisis, that is a very dangerous position to be in. The economic function of a recession is to prune the market by getting rid of sickly enterprises.

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Re: AVID stock is ready to go up?!?

Postby ManFromGlass » Thu Mar 05, 2020 1:41 pm

Although I’ve heard it said that even in tough times people need their entertainment, perhaps more so.

What people are able or willing to pay for it is another story, which impacts on what musicians can pay for their tools. Excuse the oversimplification but I understand value or perceived value is a complex issue. So in essence whether to buy Avid stock is a guessing game, possibly tempered by common sense? Wouldn’t one make money now by investing in companies that produce paper face masks? Even though experts have said they are useless for the current plague. Yet the guy down the street from my studio says he is selling thousands every week.
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Re: AVID stock is ready to go up?!?

Postby The Red Bladder » Tue Mar 10, 2020 12:14 pm

Avid's Q4 results came out and are slightly below estimates. Given the volatility of the stock and the mood of the markets right now, I would expect a slight sell-off. Total revenue for 2019 was down by a tiny amount (0.4%) to $412m. Subscriptions only account for about $45m p.a.

Subscriptions year-on-year were up by about 26% but service sales were down slightly.

The quarter to watch is Q2 of 2020. Guidance for 2020 is rather optimistic at 84-93 cents per share earnings and if Q2 trousers as a result of this virus scare and a global downturn, Avid could fall foul of the strict covenants on its borrowings from Cerberus and others.

It would however not be in their interest to call-in those loans and crash the company, as they hold all the rights to the IP and that is falling in value and would be unlikely to cover any shortfall.
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