IBC
It is the scale of the sale of Frame.io to Adobe which raised eyebrows and corporate envy.
https://www.ibc.org/trends/what-frameios-1bn-sale-says-about-video-production/7909.article
That a media asset management software product could be valued at $1.275 billion is astonishing.
Respected analyst Devoncroft was left dumbfounded, admitting, “We do not have an explanation for the valuation level.”
Especially when on the date of acquisition “it is unlikely profitability had been achieved.”
However, in an extensive analysis the firm’s Josh Stinehour, a former investment banker, details the business rationale for Adobe’s scoop and what it calls Frame.io’s “master class on building to a strategic exit.”
In this article, we’ll avoid the financials to bring out the macro trends that this deal signifies – namely remote, distributed, cloud video production and SaaS business terms – which more than one other vendor is spying as a route to mega-sized cash out.
Solution to workflow challenges
It’s a little disingenuous calling Frame.io a MAM although this is essentially what it is. They might prefer the term Production Asset Management since its software deals more with the front end of production, moving media from set to post, rather than from post to air.
Remarkably, the company has only been extant seven years and is still classified as a start-up. The initial product offered video review and collaboration by transcoding media into various resolutions allowing for quick scrub, playback and markup. It also maintained the original media for download, allowing Frame.io to also function as cloud storage. Until 2017 it worked principally with Apple’s Final Cut Pro, since then integrating with the Adobe Suite and other editing and VFX tools from Avid, Blackmagic Design and more.
It’s not unkind to describe Frame.io as ‘glue’ between various technologies and stages of the production process.
In 2014, VFX supervisor Emery Wells and chief scientist John Traver ran Katabatic Digital, a boutique NYC post facility. At the time, video was still predominantly transferred via FTP, and tape-based formats were still in full swing. A cloud native post-production process was something for the birds. “How do you upload huge video files,” “Who’s going to trust you with their content,” and “Is this secure?” were the most common questions people asked the entrepreneurs when they launched the product.
“John and I started building Frame.io because we were sick of being sold software that was overpriced and underwhelming,” Wells blogged five years later. “We set out to create a product that delivered the world’s best design, lightning-fast search, social media-quality commenting and communication, and hardcore professional video capabilities all in one.”
He added, “We aren’t just creating things we think filmmakers need. We’re innovating to solve the massive workflow challenges that we lived every day.”
Forward thinking
On the roadmap at that time was an ability for filmmakers to export original footage into a post environment as soon as it is recorded. To bring the product, called Camera to Cloud, to market they hired Michael Cioni, founder of New York post house Light Iron (at that time acquired by Panavision).
There could be no-one better to take the gospel of camera to cloud to Hollywood. Some six years earlier, Cioni had proclaimed that post houses turning out dailies overnight won’t exist by 2017.
He forecast that the traditional post – audio sync, watermarking, versioning, color space conversions and even the job of the digital imaging technician – “will itself go away by 2021 as ever smarter cameras finish each day’s projects and sends it to cloud servers.”
At the time, Cioni told journalist Dan Ochiva in an article reprinted on the Light Iron website, that the latest cameras had more in common with supercomputers than to film-based, analogue technology. Yet the production community, only concerned with the next job sitting in front of them, doesn’t know how to integrate that technology, he said.
“Digital cinema production will take advantage of these supercomputer cameras and connect out to our increasingly cloud-connected world,” Cioni declared. New devices will speed all of that up, marrying audio tracks to each take, applying colour LUTs on the fly to RAW footage, and uploading each take to cloud storage for everyone on the production to access.
“Digital cinema is getting closer and closer to becoming a real-time process, one that’s handled close to the set,” he said.
That is beyond prescient for someone speaking in 2013 before Frame.io had even launched.
Practical camera to cloud
Frame.io did not invent camera to cloud. The workflow was already possible by other routes, including via Sohonet technology. But Frame.io’s evangelism, led by Cioni, is second to none.
When the HPA showcased camera to cloud earlier this year (billed as a never-before-seen demo of how web-based technology can radically transform decades-old production methods) it was Frame.io which claimed centre stage.
“By 2031 a media card will be as unfamiliar as arriving today on set with a DV cartridge or DAT tape,” Cioni said during the live presentation. “You won’t have removeable storage from the camera. Camera tech will transition to become transfer systems to the cloud. It will take a decade [for RAW camera files] but the transition starts here.”
It’s a vision that has the backing of the Hollywood studios in the guise of tech thinktank MovieLabs. The momentum toward cloud production is gathering pace as the benefits of distributed and collaborative workflows become more widely understood.
There are huge efficiencies to made across the board, from not having to transport and house an army of creatives either on set or in dedicated facilities. The energy saved (to bottom line and sustainability goals) is just part of the value added equation.
Cloud native video and Pure SaaS
That Frame.io’s technology was designed from day one to be ‘cloud native’, rather than a ‘cloud-based’ adaption from legacy gear is another plus. The phrasing is subtle but important, especially if your tech is cloud native. Reprogamming a technology originally designed to work on bespoke hardware is generally considered to be less optimal than one written from scratch to work in a browser on any device, from anywhere.
Another element key to Frame.io’s success is its Software as a Service pricing model.
“With few exceptions, any suppliers with outside investors must transition to a SaaS business model as fast as possible to maximize shareholder value,” Steinhour says in his roundup.
“Any technology professional in the media technology sector (customer or supplier) dithering about moving to the cloud is likely harming their organization’s shareholder value.”
That’s strong stuff and the analyst knows it. “To the technology curmudgeons, we grant you there remain technical hurdles preventing all workflows moving there tomorrow,” he pre-emptively counters. “But to that same audience, we submit all the corporate value (budgets, senior executive attention, citations in investor communications, etc.) has or will rapidly transition to cloud-based workflows. For those suppliers (and those customers) wanting to enjoy the valuation levels of peers, you need to be in the cloud.”
Such corporate objectives reflect the deeper, operational benefits of cloud workflows.
“A successful SaaS business model requires more than a reference in sales collateral and an uncompelling purchase option in the price list. It is a lifestyle.”
As an aside, it is interesting to note that Frame.io achieved its $1bn+ cash exit barely without exhibiting at NAB or IBC. Its only sizeable booth presence at either event was a 2800 sq ft stall at NAB 2019. Its marketing was fuelled by social media campaigns, email automation, press coverage and an SEO optimized website.
“Depending on your viewpoint, you can view [that] commitment as the capstone or the aberration of the team’s trade show strategy,” Devoncroft suggest.
Adobe rationale
It’s not hard to see what Adobe saw in the cloud native one million user SaaS PAM. It had previously bolstered Creative Cloud with acquisitions such as the stock-content marketplace Fotolia and social-media site Behance.
The firm itself says Frame.io can boost Adobe’s Premiere Pro and After Effects applications for video editing with review and approval capabilities, and it can be incorporated into Photoshop.
In the most recent quarter, 60% of Adobe’s revenue came from Creative Cloud [per CNBC] Creative Cloud revenue was up about 24% year over year. Adobe has raised the price of Creative Cloud, pointing to enhancements over the years. At the same time, Adobe aims to add Creative Cloud subscribers.
Who is next?
Of course, Frame.io is not unique in paving the way to cloud video production. Every tech vendor is morphing toward this. But its fundamentals – cloud native, SaaS, collaborative video tool – aren’t shared by many older generation kit broadcast kit vendors.
One company that falls into neither start-up nor legacy vendor could be one to watch in this space.
Forbidden Technologies was founded in 1996 by British tech genius Stephen Streater, and launched FORscene in 2004 at a time when many people ridiculed the idea that professional video editing would ever be conducted online. In 2010 it was trialling a new video codec, called Osprey. The bones of that became Blackbird, to which the company rebranded in 2019.
Now, with customers including A&E Networks, Bloomberg and CBS Sports, it can claim to be the world’s fastest professional cloud video editing and publishing platform and is directly targeting Avid, Adobe and Apple.
Although its most recent financials for year ended 2020 report record company revenues of £1.57 million (compared to Adobe’s 2020 fiscal $12.87 billion) its growth is at 45% (Adobe’s YoY is 15%).
Consider that the value of the entire video editing software market is around U$700m. One researcher 2028 expects the market to reach U$779.8 million by 2028; another says the market already reached $779.8m in 2018 and is projected to grow to U$932.7 by 2025.
Even if Blackbird had just 10% of that market – which is not unreasonable – it’s current market cap of around $150m is conservative especially when you factor in its recent strategy which decouples the Blackbird product from the underlying technology.
Its recent strategy of working with third party broadcast vendors to integrate Blackbird into their tech stacks (see deals with Tata and EVS) and licencing the core IP (codec) for vendors to launch their own branded browser-based video editing platform (with LiveU a likely candidate) and Blackbird investors will be hoping to celebrate their own billion dollar payday.
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