Sale and Revelation

Sale of software to Autodesk

As pretty much everyone knows by now, on 30^th August, Autodesk Inc announced, that they had signed an agreement to acquire the software product line from Media 100 Inc.  For $16 million in cash Autodesk's Discreet Division will be the new owner of Cleaner, Cleaner Live!, CinéStream, IntroDV and EventStream - essentially the products Media 100 acquired through its purchases of Terran and Digitial Origin. That sale completed on Friday October 5^th.

Autodesk intend the software acquisitions to form the foundation of their entry into the streaming media business. In fact, the hype from Autodesk is exactly that of Media 100 "…allowing Discreet customers to create, distribute, re-purpose and publish media content for consumption via the Internet, corporate intranets and IP-enabled devices such as cell phones and PDAs".

What was not included in the sale was the Media 100i or iFinish software lines, nor the MPEG technology from Wired nor the ICE technology.  Media 100 Inc retains control of all the hardware technology they purchased.

Was the sale a mistake?

For Media 100 it was a matter of deciding between the software products, and the "next generation" of their hardware and software product. the company felt that it did not have sufficient internal resources (aside from the money) to devote to two diverse product ranges. So, given their belief that the streaming market - the focus of Cleaner and Cinéstream - would not turn around for 2-5 years that it was the decision was made that it was:

"an opportunity best suited to a larger company".

It was also a pretty good deal for Media 100, Inc.  The sale happened in a week when Media 100's market capitalization dropped under $12 million, and yet the sale of the software products only was for $16 million!  The sale of part of the assets of the company was for 30% more than the total value of the company on the day.

By any measure that's a good deal. It also indicates a high level of confidence by the company's primary owners (shareholders) that the direction they are going is correct for the company.

The purchase makes sense

For Autodesk/Discreet the purchase makes a lot of sense.  The Discreet product range has had no native DV editing products which will become an issue as more and more content is sourced on the DV codec formats.

Autodesk/Discreet also has had no expertise in web publishing or web review, which are both areas of substantial growth albeit at a slower pace than 2 years ago. (See the discussion later about the streaming market.) This is another market they could not ignore forever.

In one purchase, Discreet add "streaming and web publishing" to their product line, and support for native DV editing.

Summary

Media 100 funds the development of their future by forgoing their current primary cash flow products, essentially "betting the farm" on their future product direction.  Autodesk/Discreet get technology that fills gaps in their own product range. As long as Cleaner and the Digital Original products were not crucial to the future of Media 100 Inc then the sale is a good one.

Cleaner is a crucial part of Media 100's Streaming Media solutions - it is thoroughly integrated into Media 100i and iFinish - and that can be reasonably expected to continue. Cleaner is an OEM product and Media 100 can OEM it from Discreet in exactly the same way that Avid and Adobe OEM'd it from Media 100 while Cleaner was owned by Media 100. For Media 100 and iFinish owners, nothing will change.

Interpreting from the financial results before and after the sales of the "streaming software" product, Media 100 expects to gross about $3 million a quarter less than before the sale, suggesting those products contributed about $3 million a quarter. Expenditures for the quarter before the sale were around $12 million ($8 million income; $4 million net loss). So there was no way that the software products could cover the expenses of running the company and developing their next generation products.

Selling them now, to fund the development leaves Media 100 in a solid position, with (currently) $20 million cash on hand and no debt.  At current 'burn' rates, they are in a very comfortable position to complete development on that next generation of products and bring them to market with sufficient resources to market and support the product as they build sales.

Taking this approach gives the company the best chance at a long term future.

'Announcement' of "Pegasus"

Pegasus - the long rumored 'next generation' product from Media 100 - was not so much announced as presented to the investor community in response to the sale of the software products to Autodesk/Discreet as required of a public corporation.

No announcement of any specific product has been made. In fact, "Pegasus" is the basis for a family of products and is a hardware and software project that Media 100 Inc have been working on since 1998. Because no announcement has been made it is difficult to determine what the products might actually look at when they reach the market sometime in 2002.

Later in the article I will attempt to describe and interpret what is known about the "Pegasus" project but in August John Molinari described it as a:

"new platform and software architecture for fast, fluid, interactive design - a new digital standard for quality and delivery".

And in October as:

"a new equipment category that will change the industry".

In the October address to the investment community, it became clear that Pegasus is not aimed at the same markets as the current generation of Media 100 products.

"Development of Pegasus adds to our existing product efforts which address the entry and middle range of the traditional NLE marketplace."

Pegasus, by inference, is not aimed at the 'entry and middle' range of the NLE marketplace and, as will become clear later, is definitely a much higher end product.

In his first to the investor community explaining the sale of the software products, John Molinari referred to:

"a new mission"

that would be the

"key to returning the business to growth and profitability - the focus of the next few years".

More was revealed in the October 11 "End of Quarter" teleconference with the investment community and is included in the "What is Pegasus" and "Where does Pegasus fit" sections.

If this is a "new mission", how successful has Media 100 been at the original mission?

©2001 Philip Hodgetts