Background
On July 3, 2012, Avid Inc. issued a press release in which it announced the divestiture of its consumer product divisions (audio divisions M Audio and Torq to inMusic, video division Pinnacle to Corel).
On or around that same date, it sent a non-public communication to its employees at UK subsidiary Sibelius, in which it announced its intention to close the research and development offices in Finsbury Park, UK, and relocate the product development of Sibelius to either the Ukraine or the United States. Apparently this is part of a worldwide streamlining and simplification of Avid's operations.
All of the product development of Sibelius is concentrated at the Finsbury Park offices, under the leadership of senior product manager Daniel Spreadbury. Over more than a decade, Daniel Spreadbury has earned an exceptional reputation among Sibelius users, both as a musically gifted developer and brilliant visionary, and in terms of his dedication to user support. After word got out about the intended closure, a massive online revolt erupted among Sibelius users in which the closure was unanimously condemned as short-sighted and tantamount to a termination of future development of the product.
Apparently, Avid got the message. Nearly a week later, Avid Vice President Product & Solutions Audio Martin Kloiber made a statement on the official Avid website in which he now officially announced Avid's decision to close Sibelius's UK offices. At the same time, he stated Avid's intention to keep supporting the future development of Sibelius and he invited the Sibelius user community to give feedback on Avid's plans.
Again, Sibelius users reacted massively by posting unanimously condemning feedback on that page. The negative feedback is growing every single day. A dedicated Facebook page aimed to save Sibelius was created, which in a matter of days went viral with thousands of likes and feedback; twitter pages were set up; an e-mail campaign was launched aimed directly at Avid's management; messages were posted across a host of different music websites and forums; and this website was created. The protests continued on the regular Sibelius forum as well.
Avid reacted again by posting another letter from Martin Kloiber in which he attempted to reassure Sibelius users of Avid's commitment to Sibelius. As before, the reactions from Sibelius users to this latest Avid communication are unanimously negative.
At this point the future of Sibelius is uncertain. Avid's actions have caused severe distrust among the Sibelius development team and customers regarding Avid's leadership and support for Sibelius. The approval rate of Avid's CEO and management by Avid employees was already exceedingly low, in the single digits. It has now sunk ever lower.
Although Avid publicly states that "Sibelius brand and product family remains with Avid" and "should not in any way be considered a diminishment in our commitment to Sibelius", the reality is that without the continued support of the team that for well over a decade has helped shape Sibelius to the product it is today, Sibelius is doomed to fail.
Avid's Financial Situation
While Avid professes its commitment to Sibelius as part of its professional audio division, its true motives become apparent after taking a closer look at Avid's financial performance by visiting Avid's Investor Relations site. In particular, take a close look at the quarterly reports, which include balance sheets. Compare their "Cash and cash equivalents" lines for each succeeding quarter; compare, as well, their "Accounts payable" lines for each quarter. What you'll see is disturbing - a decreasing amount of cash, quarter after quarter. Avid is running out of cash.
What is more disturbing is the disclosure of Avid share sales by board members immediately after the annual shareholders meeting; and what is particularly disturbing was, along with the announcement of asset sales on July 2, the announcement of the immediate departure of the Executive Vice President and Chief Operation Officer ("COO") on July 2, followed by the departure of the Chief Financial Officer ("CFO") on August 10.
What is the big deal with July 2? That is the day after the end of Avid's second quarter. The COO and CFO are, usually, the people providing "guidance" to Wall Street analysts about their expectations for sales, profits, and future growth. Their departure, coupled with the seemingly hasty announcement of cash sales of significant parts of the business (at what some might term "fire sale prices"), would lead many people to suggest that Avid's 2nd quarter financial results, which are due to be announced on July 30, will not be pretty.
On May 8, 2012 Avid explicitly cautioned investors in its disclosures that its ability to "execute on its strategic plan" (Wall Street-speak: "do business") is limited by cash flow. Since that time, Avid's cash position has only worsened.
Avid is a publicly traded stock. One of the firm beliefs of Wall Street (or any financial market) is that stock prices will reflect changes in the management of a company; if things are looking bad, the stock price will reflect it. The paragraphs above are based entirely on Avid's public disclosures from their financial reports; securities analysts read those too. In this context it is remarkable to note that since 2005, Avid's stock price has plummeted from over $66 in February 2005 to a now all-time low of approximately $7 (end of July). Blum Capital Partners, Avid's largest shareholder, lost nearly $ 100 million on its portfolio of Avid stock in one single quarter (third quarter of 2011). Apparently financial markets have no more confidence in Avid's management than its employees or the users of one of its flagship products, Sibelius. Incidentally, Avid's poor financial performance did not stop the Board from raising Avid CEO Gary Greenfield's remuneration from $687,901 in 2007 to $4,854,927 in 2011. A bonus for poor performance?
In all of this, the bitter irony is that Sibelius is one of the few if not the only Avid product that still generates a net profit of $18 million annually. That should be no surprise, given the huge and loyal Sibelius user base and the relatively small research and development staff in the UK. But it does make Avid's decision to close the very office that has been such a contributing factor to Avid's own bottom line, all the more incomprehensible.
In the meantime ...
Unrelated to Avid's woes, but remarkable in terms of timing: On July 15, 2012 MakeMusic, Inc. ("MakeMusic), maker of competing software notation product Finale, received a proposal from LaunchEquity Partners, LLC ("LaunchEquity"), its largest shareholder, to make a bid for all of the operating assets of MakeMusic. If the bid is accepted, MakeMusic will be reorganized in a new entity, with a fresh injection of capital. The existing company will be liquidated, and the shareholders will be paid back a little over the current stock price of MakeMusic. In its letter to the board of MakeMusic, LaunchEquity states the following:
"[MakeMusic] is facing a difficult road ahead as a new leader needs to be hired with the recent departure of [MakeMusic]'s latest chief executive officer at a time when the company is in the midst of an expensive and difficult refresh of its products while also facing intensified competition. While we have considered remaining a large minority owner, the reality is that we have not seen enough evidence that the rewards of such a strategy outweigh the risks. For the reasons described below, we cannot simply sit idly by any longer. The lack of material revenue and profit growth, the steep decline in the company’s notation product line, the recurring turnover of senior leadership and the accelerating level of spending during the six years that LaunchEquity has been a shareholder has led us to conclude that [MakeMusic] is in need of aggressive strategic leadership."
A sign of the times, and perhaps a scenario that may be in cards for Avid as well?
Who knows.
In the meantime however, as Sibelius users we cannot sit still and wait until Avid management have figured out what they want to do with Sibelius. We have to be proactive and do everything we can to save Sibelius, while it is still alive. There is now a good video on YouTube presenting the issues well.