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Steinberg & Pinnacle: The Buyout

What It Means For You
Published March 2003
By Dave Shapton & Mark Wherry

The shape of the music-technology market changed dramatically in 2002, with the two largest German music software companies gaining new ownership from American corporations. Have Steinberg reached the summit with Pinnacle?

Pinnacle Systems logo.Apple's buyout of Emagic in July of 2002 shocked many people in the music-technology industry — it was a move that made it clear that the role and importance of music software in the larger multimedia arena was changing. And this fact was confirmed again in the last days of 2002; on 18th December, the news broke that Emagic's main competitor, Steinberg, hitherto a privately owned company, had been bought out by desktop-video specialists Pinnacle. So again, as in last September's issue of Sound On Sound, we find ourselves asking similar questions: why would Pinnacle want Steinberg? Why would Steinberg want Pinnacle? And what does it now mean for musicians and users of Steinberg's software?

Facts & Figures

Steinberg logo.Rumours concerning a possible buyout of Steinberg by Pinnacle were in circulation following the Apple/Emagic deal, but it seemed reasonable to assume that these were pure speculation — after all, previous rumours that Pinnacle were going to buy Avid had come to nothing. But there was, of course, an obvious precedent for a video company buying an audio company — Avid's purchase of Digidesign in 1996.

Pinnacle Systems itself was founded in 1986 in Mountain View, California, and over the last 16 years has grown to be a corporation worth $270 million, listed on the NASDAQ (America's stock exchange for the best-performing technology companies) and with revenues for the third quarter of 2002 totalling $68.6 million. If you've ever been involved with video production, either on an amateur or professional level, you'll probably be familiar with many of Pinnacle's products, since they've managed the difficult task of having a successful presence in just about every sector of the video-production industry.

Pinnacle's product range includes sub-£100 products for hobbyists, such as Studio (a home video-editing package), or the PCTV series of hardware for watching TV on your computer, but also mid-range products for consumers and professionals alike (along with smaller production companies), like Edition or Liquid for desktop video-editing. And, at the pinnacle of the company's range (so to speak) for want of a better word, there are studio systems used by some of the biggest broadcasters in the world, such as the Mediastream and Edge series of broadcast servers.

Steinberg Media Technologies AG, to use the company's full title, was founded in 1984 by Karl Steinberg and Manfred Rürup, and planned to go public on the Frankfurt stock exchange in 2001, after two successful years of sales that had indicated tremendous growth. In 1999, Steinberg quoted 13 million Euros of sales, and in 2000, the figure nearly doubled, reaching 22 million Euros. However, after the technology market ran into serious economic problems in 2001, Steinberg decided to postpone their plans.

From a financial perspective, the price Pinnacle paid for Steinberg, $24 million ($8.2 million in cash and $15.8 million of Pinnacle System common stock), indicates how small the music-software industry really is, especially considering that Steinberg is one of the biggest players. It's also interesting to compare this figure with the alleged $30 million in cash that Apple paid for Emagic.

Pick & Mix

One of the most interesting aspects about Pinnacle is the fact that their products address all levels of the video market, and that the company has arrived at this position primarily through the acquisition of other companies. Indeed, according to Pinnacle, they've integrated more than 15 companies in the last decade alone, and this would appear to be a long-term strategy; a 1999 report of theirs stated: "The company intends to expand its core software and hardware technological base through both internal development and acquisitions." As with the Apple/Emagic takeover, it's interesting to look at the background to Pinnacle's most recent acquisition, and the results of some of Pinnacle's older purchases, to speculate about Pinnacle's long-term strategy, and thus get an idea of what might be in store for Steinberg.

Miro was bought by Pinnacle in 1997, and, at the time, was one of the very few producers of PCI-based video-capture cards for PCs. The product that was current at the time of the takeover, the DC20, led to a whole family of PC cards, including the popular DC30, whose only rival at the time was produced by Fast Multimedia (ironically, Fast too were later purchased by Pinnacle, in September 2001). But the buyout of Miro and their marketing channel gave Pinnacle an instant presence in the desktop-video market, and Miro's product range has not only survived the takeover, but formed the basis of a new range of products that remains largely consistent with what Miro might have developed themselves, had they been better equipped financially.

In addition to the technology that they gained in the Miro acquisition, Pinnacle's strategy to provide solutions for all areas of video production needed a high-end capture and processing card, so in 1998 they bought Truevision, developers of the Targa range of video cards. It's likely that one factor that made Truevision such an attractive purchase was a new video-oriented DSP architecture they were developing, which now forms the basis of Pinnacle's Targa 3000 and Cinewave products.

Puffin's former video paint package Commotion was rebadged as a Pinnacle product when the company was bought out by Steinberg's new owners — could this be the fate of Cubase? Both Steinberg and Pinnacle claim not — at least not for the foreseeable future.Puffin's former video paint package Commotion was rebadged as a Pinnacle product when the company was bought out by Steinberg's new owners — could this be the fate of Cubase? Both Steinberg and Pinnacle claim not — at least not for the foreseeable future.In March 2000 Pinnacle bought Puffin Designs, whose product, Commotion, was a video paint package — the video equivalent of Photoshop, if you will. And since the purchase, Pinnacle have kept the product going (it's now sold as Pinnacle Commotion), and have bundled it with their products where they've felt it adds value relative to the competition. However, while Commotion has been maintained, its price has been lowered to an extent that you have to wonder how viable a long-term future it has.

Software Manoeuvres

However, recognising that having good software products would be essential to the long-term future of the company, Pinnacle, in 2001, bought Fast Multimedia. The strategy behind this acquisition was unclear at the time, because Fast was primarily a creator of video hardware. But for a number of years, Fast had been developing a video-editing software product called Blue, and crucial to the appeal of Blue and its offspring (601, Silver, Sony's ES3 and Purple) was its user interface for editing. Looking like a 'next-generation' version of the Avid interface, it had the potential to become the software of choice for professional video editors: a market niche that Pinnacle had firmly in its sights.

High-end video editor Liquid and consumer package Edition were developed from technology Pinnacle acquired in their buyout of Fast Multimedia.High-end video editor Liquid and consumer package Edition were developed from technology Pinnacle acquired in their buyout of Fast Multimedia.

However, unlike in the Steinberg acquisition, Pinnacle didn't buy the rights to use the name Fast — they only bought the products and intellectual property. This forced Pinnacle to rename the products acquired from Fast; the name Liquid was adopted for the professional market, while a low-end consumer version of the software became known as Edition. Edition is priced around the £500 mark and is receiving good reviews as a competitor to both Adobe's Premiere and Avid's Xpress DV. With Apple's recent announcement of a cut-down $299 version of Final Cut Pro (Final Cut Express — see this month's Apple Notes), it's clear that the stakes are becoming high in this market sector.

It's widely acknowledged that audio is a weakness in the current versions of Liquid and Edition. Although it's effective for some tasks (such as letting you create a voice-over while watching video playback on a computer monitor), its audio-manipulation capabilities are underspecified when compared with those of almost any dedicated audio-editing package (or indeed Sonic Foundry's Vegas Video). Avid's Xpress DV, for example, has the benefit of having access to Pro Tools' native-based plug-in technology. Knowing this, it's no longer hard to see how the acquisition of Steinberg could be of help to Pinnacle.

While the majority of Pinnacle's acquisitions have been video-related, Steinberg users should be interested to note that at the beginning of the year, VOB Computersysteme GmbH were also acquired by Pinnacle. Although this company's name might not sound immediately familiar, VOB license their technology for other developers to incorporate in their own products, as well as producing their own range of CD- and DVD-authoring products. And, as you might have already guessed, Steinberg licensed VOB's technology to provide the CD-authoring facilities in products like Wavelab.

Although it's pure speculation at this point, the fact that all of these technologies and developers are now owned by the same parent company could have some interesting ramifications for Steinberg's product range. It's long been rumoured that Cubase and Nuendo may gain CD-writing facilities at some stage for backup or mastering, and the combined forces could allow the creation of other integrated products.

The Inside Story

Steinberg CEO Manfred Rürup.Steinberg CEO Manfred Rürup.To get the inside story behind Pinnacle's buyout of Steinberg, we were fortunate to speak with Steinberg CEO and co-founder Manfred Rürup, who assured us that "no changes are planned for the short term" to Steinberg's brand or product line. This extends to forthcoming products like Nuendo v2.0 and the continuation of cross-platform Mac and PC support, a factor that had caused concern amongst some users. "Nuendo v2.0 is scheduled for February, and will be cross-platform — in fact, we're trying to release the Mac and PC versions at the same time, and hopefully within one package. Our commitment to the Mac will continue, along with Cubase SX/SL and Nuendo — and all of our major VST plug-ins will be available for OS X."

Another point that caused much speculation among users on-line was whether the international distribution channels (and therefore customer support) for Steinberg products would stay the same. Will Arbiter remain the contact point for customers in the UK to receive technical support, for example? Manfred Rürup: "Currently, there are no plans to change our distribution channels in the Musical Instrument and Professional Audio fields. Arbiter will continue to be our distributor in the UK."

Pinnacle's Bill Loesch.Pinnacle's Bill Loesch.

We also spoke with two executives at Pinnacle, Bill Loesch (Vice-President of Engineering and Product Management) and Bob Wilson (Senior Vice-President of Corporate Development), who both confirmed this situation: "Cubase, Wavelab and Nuendo will continue to be sold through Steinberg's channels under the Steinberg brand name. In fact, with the closing of this deal in January 2003, Pinnacle Systems has acquired all assets and liabilities of Steinberg Media Technologies AG."

Pinnacle's Bob Wilson.Pinnacle's Bob Wilson.

However, as with all buyouts of this nature, the most interesting aspect isn't what remains the same, but what the plans and directions of the two companies are for the future. Steinberg's Nuendo, for example, will be a particularly important product for both companies, especially as Steinberg have consistently aimed this product at the post-production market since its inception. Pinnacle's executives confirmed that they wanted Nuendo to be a real competitor to Digidesign's Pro Tools, and we asked Manfred Rürup if he thought that with Pinnacle able to provide more video-related experience, Steinberg would be able to make bigger inroads into this market. "Steinberg will concentrate on anything that has to do with audio within the post-production market; that's where we have the expertise. However, when it comes to offering complete solutions, we can offer a video/audio solution together with Pinnacle that will offer a high level of integration."

Technological Reasoning

The release of Nuendo v2.0 will be unaffected by Pinnacle's acquisition.The release of Nuendo v2.0 will be unaffected by Pinnacle's acquisition.For those speculating on why Pinnacle would be interested in Steinberg, it perhaps goes without saying that part of Pinnacle's reason for buying Steinberg will be to incorporate some of their audio technology into Pinnacle's video products. And this move could at last result in a situation where audio and video can be edited seamlessly, with the type of speed and precision users have yearned for after so many years of separate audio and video non-linear editing. Pinnacle's executives were quick to offer confirmation: "Avid bought Digidesign, and Apple bought Emagic precisely because audio is an important aspect of every video production. Steinberg's world-class solutions and their talented team will significantly enhance Pinnacle's editing solutions; Pinnacle are combining their video technology with Steinberg's audio technology, making a much stronger set of offerings for our united customer base."

To get the Steinberg perspective, we asked Manfred Rürup if technologies such as ASIO, VST, and, most interestingly, VST System Link (which could facilitate the possibility of seamlessly networking audio and video workstations) would be incorporated into Pinnacle's products. "Multimedia has really only just started, even though everyone thought it began about 10 years ago! With Pinnacle, we can work on products that cover many aspects of multimedia and, of course, they might integrate VST technology into their products. VST is our key technology, and we want to expand that into video as well."

So will Steinberg continue to focus on products for musicians, such as Cubase, The Grand, and so on, as opposed to just providing audio-related technology for Pinnacle's video products? Manfred was quick to reassure us: "It's important to point out that Steinberg is a separate company where the owners have changed. We will put all our efforts into Cubase, Nuendo and various plug-ins for musicians of all kinds, and share some of the underlying technology with Pinnacle, and vice versa — but our main focus will remain in the music and audio markets."

While Steinberg are primarily a software company, they have collaborated with companies such as RME to produce Steinberg-branded audio hardware, most notably for Nuendo systems. As a manufacturer of PCI video cards, Pinnacle obviously have a great deal of experience in this area, and we wondered if Steinberg would take advantage of this or continue their partnership with companies like RME. "Pinnacle certainly have a great deal of experience in manufacturing hardware; however, the expertise to develop audio hardware and drivers is certainly with RME. I have a lot of respect for RME and their products, so I imagine that we will continue to work with them — but maybe under different conditions."

Another consideration we were interested to find out about was whether the deal would have any impact on recent announcements, such as the strategic alliance Steinberg announced with Euphonix, which will hopefully bring Euphonix's expertise in mixer design to control surfaces, and Manfred was again quick to clarify the situation. "We will follow up all our plans, including the strategic alliance with Euphonix."

Conclusions

So, at the end of the day, what does Pinnacle's buyout of Steinberg mean to the average user? We believe that the clearest indication can be found in looking at what's happened to Digidesign over the last six years, which shows that they've continued to prosper under Avid's ownership, and this is likely to be the case for Steinberg under Pinnacle. For the most part, it seems that it will be business as usual, although it's likely Steinberg will have greater resources for research and development, and the sharing of mutually beneficial audio and video technologies should hopefully mean better and more integrated solutions, for those working with both of these media.

In closing, and on a more general note, we wondered if Manfred felt it had been necessary for companies in the music-technology industry, such as Steinberg, Emagic, and Digidesign, to become part of larger media-related companies to stay competitive and survive in an increasingly difficult marketplace. "Whether it's necessary or not is hard to say, but it is a strategy that allows smaller companies to significantly increase their resources in order to compete with larger companies. The alternative would be to stay small in a niche market, and be a happy camper. I don't like camping that much."

Published March 2003