Last month Avid announced its 4th quarter and financial results. It’s not something we often report on here at Pro Tools Expert but one stat jumped out at us, that there was a 54.9% year over year growth in subscription revenue growth in the fourth quarter. What this appeared to show is that there is a significant growth in subscriptions and this was something we wanted to investigate. So we asked Avid some questions and rather than give us a statement, Francois Quereuil who is now Vice President Audio, Product Management offered to sit and chat this through and we also discussed now Avid had restructured the business during the pandemic as well as future plans for HDX and the Hybrid Engine.

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You can choose to listen to our podcast extra podcast interview or read the transcript to get the story of the increase in subscription revenue and how that impacts what Avid is able to do.

We recommend that you read or listen to the interview IN FULL, but if your time is limited then there is a summary of the key takeaways from this exclusive interview at the end of this article.

Transcript Of The Production Expert Interview with Avid’s Francois Quereuil

MIke: Last month, Avid announced their fourth quarter and full-year 2020 financial results. Now, most of the detail was rightly targeted at financial investment communities, but one stat jumped out to us and it was this…

“The results said 54.9% year over year subscription revenue growth in the fourth quarter, driven by a net increase of approximately 27,000 paid subscriptions and strong enterprise subscription sales in the quarter”.

Now it was that headline we felt was of real interest to our community, as this is a significant increase in subscription revenue, rather than just the overall sort of financial figures and to help us dig into this headline I'm joined by Francois Quereuil who recently got a new job at Avid as Vice President Audio, Product Management. I'm not sure whether I need to stand up, kneel down or salute, but anyway, thank you for taking the time out of your busy schedule to be with us 

Francois: Mike, it's always a pleasure to have a conversation with you guys.

MIke: How's lockdown been treating you, have you been working from home, as most of us are? 

 Francois: Absolutely. We started doing that really early on. I think a little over a year ago, in mid-March 2020, Avid decided to keep everyone at home and to limit travel, unless there was a real imperious reason and it's been going on since then. 

We haven't been going to the offices except for some critical personnel who need access to servers and things like that.  And we've operated really, really well in this mode. For example, on the Pro Tools team, the development teams are geographically dispersed. We have people in California, across the US, and in Eastern Europe.  So it's something that we're already used to. In fact, we have been more productive than ever over this past year. A little claustrophobic at times, but it's been good on that front. 

MIke: Has this opportunity to be at home more enabled you to be more creative and perhaps, make some more music?

Francois: Not as much as I would've liked. I did quite a bit when we launched Pro Tools Carbon last year because I actually took it upon myself to be part of the beta testing team for Carbon, which was great.

I got a unit in July last year, and so I got plenty of time to try out the functionality and do some recording. But then we had the launch to prepare for which was a big undertaking for the whole company. 

Then we did several interesting things including reorganising the company and that's actually something that was a part of the financial statements you mentioned at the top of the podcast.

We went back to a business unit model and Audio is one of those business units. Video is a business unit and Media & Cloud are another business unit. This wasn't the case before, we had development teams that all reported into a central organisation. Now we have a  General Manager for Audio, who is responsible for the full financial picture of audio. Sibelius, our notation solution, was actually under a different umbrella. Now it's all back under the Audio Business Unit in one big happy audio family, but that took a while to get going.

We promoted a bunch of people to new roles and I got this new VP role.  I've been busy with that, rather than being creative, but I'm not despairing, I still have my Pro Tools Carbon, an S1 and all my rig is right in front of me and I hope I can get back to it very soon.

MIke: Before we get into the increase in subscriptions, how does your new role differ from your old job? Presumably more meetings?

Francois: A lot of meetings, that’s for sure and a lot of people are on the East Coast, so I get to start really early in my day. My role in audio product management is actually a fairly broad role. I still look after all of the product definition, product strategy, and complete product life cycle, for everything audio here at Avid. Whereas with my previous role, I was just focused on Pro Tools and our control surfaces, but now I also look after live sound and music notation. 

So I get to see the full picture of audio, but that extended beyond product management because I'm also in charge of product marketing. So that’s a team who are responsible for translating all the technology speak, that we have in product development, and make it accessible to people and create our communication strategy. They now also work for me now.  Then there is everything that has to do with alliances, third party developers and also business development. We re-energised our efforts to work with the plugin manufacturers and partners and this is also my responsibility.

All of this means that we promoted a few people. Sam Butler who used to run music notation for us, is now Director of Audio Software, looking after Sibelius and Pro Tools with a large team of people working for him and then Al Makino who used to run Live Sound for us is now looking after all our audio hardware, which includes Pro Tools hardware systems, control surfaces and live sound consoles. 

MIke: As I'm sure you're aware, views about software subscriptions are pretty binary. It seems you either love them or hate them. We have a phrase here in the UK, it’s like Marmite, you'd love it or you hate it. But I know that particular phrase doesn't necessarily translate across the different communities, but whatever we think of them, we really can't ignore the evidence from these 2020 figures with what is effectively a 55% increase in subscription revenue.

To better understand that headline figure, what is considered in these figures as subscription revenue? Is it just what I would call the rental subscription plans or are the support and update plans included in this figure? 

Francois: This figure is only what you referred to as rental subscriptions. It's the subscription plans that are either monthly, an annual commitment paid monthly or annual paid upfront.

I like to look at it through the following lens.  What you're subscribing to, both the usage of the software and the updates and the support, with a subscription you get all of this in one go.  So yes, those figures, you’re referring to, only include the rental subscription plans.

The support and update plans, which our perpetual users purchase, that is separate and it's actually considered maintenance revenue under our financial reporting and it all rolls up into what analysts call ‘strategic revenue’. So the combination of subscription and maintenance revenue makeup what investors look at and call ‘strategic revenue’.

MIke: The subscription revenue that we've just been talking about is for Pro Tools, Media Composer and Sibelius, as well as the things like Media Central and Nexis.  Do you have any figures for the breakdown of rental and support, in terms of these products as I am just trying to get a sense of what's actually behind these figures?

Francois: I'll give you some elements because there are some things I can't get into. What I can do is to share the things that have been publicly shared. At the time of the reporting, the number of subscriptions that we currently have that are active, and I'm just talking about the subscriptions, ProTools is nearing about 200,000 at this point. This is also the lion's share of the total number of subscriptions for the company. 

[In fact Avid has stated that as of December 31st, 2020, they had approximately 296,000 active, paid subscriptions to the creative software solutions. Of these approximately 190,000 are Pro Tools and it’s the fastest-growing subscription product line that we have, 60,000 are Media Composer and 50,000 are Sibelius].

And as you know, Pro Tools subscriptions are actually slightly more expensive than Media Composer. So as far as the revenue is concerned Pro Tools is the lion’s share and if you add to that, the Sibelius subscriptions, which are also quite strong, you have a pretty good audio picture in our subscription landscape.

If you look at the year over year growth, that’s the most staggering part, because the numbers for the company are pretty impressive. But if you dig down to the Pro Tools level, we had over 60% growth in our subscription revenue, year on year, which is pretty cool. 

[Avid has stated that subscriptions growth was strong, with Pro Tools up 66% year over year and Media Composer and Sibelius each up 44% year over year. Annual paid up front subscriptions grew 169% year-over-year in the fourth quarter, and now represent 26% of total subscriptions, up from 15% a year ago].

MIke: Is that increase in the subscription model pulling away revenue from the perpetual model? Are you seeing a move towards subscription and away from perpetual?

Francois: I actually don't have any real evidence of that.  Because our perpetual revenue is actually really stable, although it’s now smaller in comparison to our subscription revenue.

There are more people choosing the subscription model. I think a lot of people are embracing, first of all, the cost-effectiveness, it costs less upfront.  There's a flexibility to it that seems to be embraced quite widely, but our perpetual business remains stable and strong. Actually, it grew a little year on year, which means that our business in terms of the support and update contracts is also stable. So this is not where the growth is coming from but it's still a category of users that we very much cater for.

Then there's always the question, “are you guys going to ditch a perpetual to the benefit of subscriptions right now?” We don't have a strong business case to do that because it's still, a significant source of revenue for us.  So we have no immediate plans to make any change there.

MIke:  What about the recent 2021.3 release? For the first time, the loyalty rewards were targeted specifically at annual subscription users. So unlike all loyalty rewards, till now, anybody with a valid rental subscription or a valid perpetual license with an active upgrade plan was eligible to receive the loyalty reward. In this case [the IK Multimedia giveaways], you've chosen to target the subscription customers. Was this a focused, intended to sweeten the deal perhaps? 

Francois: Absolutely. I think there’s no question there that as a business, it makes more sense for us to focus on subscriptions. If you look at the figures, the subscription business is what allows us to invest in research and development, period.  

We still want to cater to our loyal customer base and folks who really want to go perpetual, the folks that are religiously paying the support and update will still have that option going forward. But what we do want to do, as much as possible, is to shift people to the subscription model because that enables us to invest more in providing better solutions for our users. 

It’s a model that's been widely accepted in other parts of the audio industry, but less so for the DAW side of things. People are seeing a lot of value in these plugin bundles or subscription services such as Output or Splice and offerings that include content as well as plugins, but the switch to a subscription model in the DAW world is still slow to happen. 

We've been sort of the precursor in this, but I think it's a direction that a lot of companies are eventually going to make, because of that constant revenue stream and higher growth that allows you to reinvest because of the Wall Street thing. Obviously, it's my job to make our investors happy as part of my job. But that side of the equation really means, that when your stock price goes up and when you get the possibility of more investment, that's when you can do more cool things for your users.

You can invest more in R & D, which by the way we are. The audio business unit has quite a bit of investment in terms of being able to beef up our engineering resources. So we hope that our users will see the benefit of that in the near future.  We are even looking creatively at partnerships, acquisitions and things like that. All of this puts you in a much better place.

So for us strategically, it makes a lot of sense to switch people to subscriptions or to encourage people to go subscription, which is why the loyalty reward scheme, which by the way, I think you're going to see more of and you're probably going to see a rebranding of what it's called. We're going to make that more of a part of what it means to be a subscriber.

If you choose to be a perpetual owner, you have a certain set of functions. You can use the software, you have the plugins, you have a certain arsenal at your disposal.  Whereas if you go subscription, you get a little bit more on a regular basis. 

You will get free stuff from our partners, which is not unlike the video games model. If you have a PlayStation or an X-Box, you can subscribe to their services and typically you get an actual tangible benefit. If you stay a subscriber, you'll get a free game here and there.

If you subscribe to the Plugin Alliance bundles, at the end of the subscription, you get a coupon to actually buy plugins outright And it's those kinds of benefits that we want to bring into the subscription model to make it really, really appealing and really worth people's money. Because it's not a negligible amount of money to pay every month or every year. 

MIke: Do you have any sense of the sort of people that are choosing a subscription over perpetual. I just have a sense, and I don't have the evidence to back it up, but I have a sense that people earning a living from Pro Tools, are more inclined to take a subscription model because the expenditure is not capital expenditure, it's operational costs and therefore is easier to offset in terms of tax and business expense. Do you have any sense of whether my theory has any grounds?

Francois: In fact, it's interesting because we're doing deep dives to try and better understand it ourselves. I think if you look at the makeup of Pro Tools Standard versus Pro Tools Ultimate within the realm of Pro Tools subscription, it's extremely heavily slanted towards Pro Tools Standard. I assume that a lot of professionals are going Ultimate, especially they're working in the post. So my sense is actually that there's a lot of hobbyists in there and probably a predominance of hobbyists and probably more focused towards the music as well, rather than audio post-production. So that's my sense, but I don't have sort of real, real data to back it up. 

My interactions with the community are typically that at least some of the people who have been around, who have been in our world for a while, and who are professional now are more connected to the perpetual model and are still going perpetual at this time.

When you look at the bigger enterprises, like the bigger post houses, then we're talking now about enterprise subscription, subscription deals where, it's basically on a yearly basis, we just say, you get 300 copies of Pro Tools for a year, and here's the price tag.  So it's a slightly different world.

[Note that Avid state that the subscriptions for the enterprise software solutions are not counted in the 296,000 subscriptions quoted above].

MIke: What about the removal of the reinstatement plans? Do you feel that that has contributed to more and more people moving to the subscription model? Because obviously now, with it not being possible to come back onto an upgrade plan, instead you’re offering a cross-grade option to subscription.

Francois: I would have hoped so.  When we did that, I was anticipating that the outcome would be that, but I don't really have evidence to back it up. It doesn't seem like it's driven a lot of people to make a switch, so to speak. The cross grades are still fairly limited. So I'm assuming that people bought new perpetual licenses, just to stick with the model and that may be what's fuelling a pretty healthy perpetual business. So as of now, I don't really see an impact. 

I also know that there's a large population of Pro Tools users who like being in the past. They have something that works, that they're happy with, their computing platform works, their Pro Tools works and does what they need it to do. So they're not making the jump and they're staying with Pro Tools 12 or older versions, which is why I think you will see in the very near future some more aggressive pricing actions for those folks with real functionality that they will want, that will encourage them to get current and get on a subscription and we're working on certain things for this quarter.

MIke: We are certainly aware of a proportion of the community to whom I would apply the phrase “if it ain't broke, don't fix it”. They may still be running Pro Tools 8, ProTools 9 or Pro Tools 12, because it does what they need it to do and they own it and they continue to use it, but at some point sooner or later, there's got to be offerings that will mean they say “I could really do with that feature” or, “that's something I've got to consider”.

Francois: I'm not going to make any timeframe promises because I can't do that. But when we launched Pro Tools Carbon, we introduced new functionality for Pro Tools, and Carbon specifically, that we call the Hybrid Engine. The Hybrid Engine is very powerful in that it decouples the DSP hardware from the native mixing engine. So you have the ability to run your sessions, natively and just call upon DSP tracks when you need them. And as many of your listeners know, it's a fairly big sort of limitation of HDX, where on HDX everything has to exist in the DSP world. So your voice counts, your track count, the complexity of your mixer, all of that is bound by the amount of DSP that you have. 

[If you want to know more about Pro Tools Carbon, then check out our article Pro Tools Carbon - Everything You Need To Know].

And yes, you can put native plugins on your mixer, but that creates a lot of roundtrip latency going back and forth between the cards and in the computer. We said when we launched Pro Tools Carbon, that that functionality was coming to HDX and it's coming to HDX sooner than later. 

And I think for the folks that are not on a current plan who have HDX, they will see immense value in that functionality being available to them. So I'm hopeful that we can bring that to market in very short order because that's going to make a huge difference for a lot of our users.

MIke: Talking of voice count for HDX. Is there any news on the horizon in terms of getting beyond the 256 voice ceiling that we still have? 

Francois: Yes, with the Hybrid Engine.

 MIke: So actually, the Hybrid Engine will be the solution to that.

Francois: It will shatter those limitations. 

MIke: Now to Sync X. That obviously came out and, as we described it here on Pro Tools Expert it was very much the sync tool for the 21st century in terms of providing a solution that was much more appropriate, in many respects, to a non-tape-based solution, which was really good to see, but one of the things we have noticed is a few queries about certain protocols that are not supported, the ST 2110  one or two other protocols [like AES67, AVB and PTP], are there any plans to extend that?

Francois: So I am far from the synchronisation expert on the team. So forgive me for that.  Sync X is one of those products where I should know more but I will humbly say that I am not the expert here.

Generally speaking, the intent with Sync X was to modernise the Sync HD. So very specifically targeted at exactly what you said, more modern workflows, but also because Sync HD has come to the end of its life. It's been around for a long time, a lot of components weren't available anymore. So we wanted to make a product that would be more usable, higher quality, higher precision, with more capabilities like the built-in video reference generator, those kinds of things.

MIke: You almost preempted my next question, was there an intentional aim to provide a product that was targeted at the smaller facility or even the one-man-band working at home. Obviously, with this, you don't need a black burst generator and you don't need any other black boxes. You've got a Word Clock DA. So presumably that was very much again aimed at a target of what we describe here at Production Expert as the cottage-isation of the industry, where you've got more and more people working from home, and this was pre-COVID. This was very much a workflow we are seeing in the industry as a whole.

Francois: Absolutely and I think to your point of other new protocols, this is something that we're looking at very closely, anything that is actually network-related is something that we're looking at very closely too. You guys will have obviously noticed that our newest audio hardware [Pro Tools Carbon] is network-based. There is a lot of work going in that direction. 

I would say on the synchronisation front, that's something that we want to look at a lot more closely because we think that in many respects using an ethernet network as the basis for synchronisation is going to be the future. It has a lot of challenges attached to it and really doing it right.  So that's one of the next challenges we are embarking on, but for now, and for the foreseeable future, I think Sync X is it, as we start looking more in-depth at all the new technologies.

MIke: Well, the time has run out. So thank you very much Francois for taking the time to be with us and for sharing all about how the subscription model is working for you. Great news. 

Francois: Thank you so much, Mike. I really like chatting with you guys. We should do this more often. 

MIke: Definitely. 

A Summary From This Exclusive Interview

• One of 3 Financial Result Headlines for 2020 released on March 9th 2021 was “54.9% Year-Over-Year Subscription Revenue Growth in the Fourth Quarter Driven by Net Increase of Approximately 27,000 Paid Subscriptions and Strong Enterprise Subscription Sales in the Quarter”

• During the pandemic, Avid has restructured the business into business units, Audio, Video and Media& Cloud. This means Pro Tools Software, Hardware, Control Surfaces, Live Sound and Sibelius are now in one department under the oversight of Francois Quereuil who is now Vice President Audio, Product Management.

• The increase of 55% in subscriptions revenue, year over year is purely rental subscriptions, that are either monthly, an annual commitment paid monthly or annual paid upfront. It does not include upgrade and support plans they appear in the Maintenance Revenue section of the financial results Also the subscriptions for the enterprise software solutions are not counted in these stats.

• As of December 31, 2020, Avid had approximately 296,000 active, paid subscriptions to the creative software solutions.

• As the revenue is concerned Pro Tools is the lion’s share. Numerically, 190k are Pro Tools, 60k are Media Composer and 50k are Sibelius.

• Pro Tools is up 66% year over year and Media Composer and Sibelius each up 44% year over year.

• Annual paid upfront subscriptions grew 169% year-over-year and now represent 26% of total subscriptions, up from 15% a year ago.

• Pro Tools subscriptions are actually slightly more expensive than Media Composer.

• There is no evidence that subscription sales are having a negative impact on perpetual license sales, in fact, perpetual sales have come up slightly in the same period.

• Avid still want to cater to their loyal customer base and folks who really want to go perpetual.

• The removal of Re-instatement Plans hasn’t contributed to the growth in subscriptions as the cross-grade takeup has been small.

• It looks like the growth in perpetual license might be because people are choosing to buy a new perpetual licence instead of moving to a subscription.

• Most of the subscriptions are for Pro Tools Standard rather than Pro Tools Ultimate and would appear to be weighted toward music users rather than post-production users.

• People are seeing value in plugin bundles or subscription services include content as well as plugins, however, the switch to that model in the DAW world is much slower. 

• Expect to see more Subscription-Only Loyalty Rewards. Avid plan to reward those you are contributing most to the bottom line.

• The increased subscription revenue is allowing Avid to invest in research and development. “When your stock price goes up and when you get the possibility of more investment, that's when you can do more cool things for your users”.

• They are investing more in R&D, enabling Avid to beef up their engineering resources.

• Expect to see these improvements soon. This will include the introduction of the Hybrid Engine, used to power Pro Tools Carbon to come to the HDX platform and “will shatter those limitations” of 256 voices that we currently have with HDX systems.

• Avid is looking closely at network-based protocols “because we think that in many respects using an ethernet network as the basis for synchronisation is going to be the future”.

• They are also looking ‘creatively’ at partnerships, acquisitions and more.

What We Think

It was really great to see Francois offer to do this interview, rather than just provide a statement from an Avid Spokesperson. As we said in April 2019, for us, this is yet another example of changes to Avid that CEO Jeff Rosica has put in place since his appointment.

It is clear that Avid is going to focus on subscriptions. As a business answerable to shareholders they need to go where the money is and the increased revenue, thanks to subscriptions is enabling them to reinvest in new tools and products.

They continue to support both subscription and perpetual licensing models, and although there is no sign of Avid abandoning Perpetual licensing anytime soon as there isn’t a business case for it, they are clearly going to proceed with a carrot model to encourage users to move onto subscriptions, with free gifts and more, because they appreciate that “it's not negligible amount of money to pay every month or every year”.

Although it may not be news, because Avid announced it with the launch of Pro Tools Carbon, it is great news that Avid is working hard to bring the Hybrid Engine to HDX and finally to be able to say goodbye to the 256 voice limit.

That’s what we think. What do you make of what Francois shared with us? Do say in the comments below.