Belden has divested its live media business, selling a majority holding in Grass Valley to Black Dragon Capital for an upfront payment of $140m with additional forms of deferred payment potentially reaching $493m.
Black Dragon Capital is Grass Valley’s fourth owner in twenty years, and its second private equity owner in six. Belden made its intention to divest Grass Valley known in October 2019, catching the eye of former Avid chief executive and current Black Dragon Capital CEO, Louis Hernandez. At Avid Hernandez experienced first-hand the company’s financial woes before eventually leading its transition to cloud-based delivery and a subscription-based business model. Both Hernandez and Grass Valley president, Tim Shoulders, made very clear that this acquisition is to enable Grass Valley to undergo a very similar transition to that of Avid: remodelling the company’s products into a SaaS portfolio tied to cloud-based subscriptions. Such a transition was not deemed conducive to Belden’s portfolio strategy; the network equipment manufacturer made no secret of its frustration at Grass Valley’s cyclical business model- where big capital investments were made by its clients following quadrennial and biannual broadcast and live event cycles. At a time when Belden was seeking $40m in savings, the firm would not provide the sustained investment to enable Grass Valley’s strategic shift.
Divestments to allow radical strategic shifts have a history in the broadcast industry. The most recent examples are Synamedia’s 2018 divestment from Cisco, which resulted in a more focused portfolio and MediaKind’s 2019 divestment from Ericsson, which gave the firm much needed breathing room to pursue a more iterative cloud-based portfolio. As with the Synamedia and MediaKind examples, the root of Grass Valley’s strategic shift lies in the spectre of the IT giants supplanting traditional brands- a threat accelerated in the live production space as infrastructure and production equipment continues its march towards IP. This places the production ecosystem within the sphere of influence of data centres and cloud service providers. FOX’s 2019 adoption of AWS’ live and linear workflow solutions illustrates how Grass Valley’s traditional market is entrusting IT ecosystems with increasingly valuable assets - once the strict purview of legacy broadcast brands. Grass Valley urgently needs a value proposition for broadcasters rebuilding their workflows around cloud ecosystems, especially for its MAM (media asset management) product. Broadcasters will soon be able to plug their libraries into instantly scalable, AI powered and constantly updated MAM solutions encompassing production, delivery and analytics under one solution; an increasingly likely prospect with low latency cloud ecosystems hosting live workflows. This risks Grass Valley retreating into a shrinking and increasingly commoditised market of dedicated live production hardware; A lesson taken to heart by some of Grass Valley’s smaller rivals in this space who have already incorporated sophisticated machine learning workflows into their MAM solutions with Dalet being a prime example.
Not to say Grass Valley has sat idly by while the industry shifts beneath its feet; the firm has successfully put itself at the heart of the live ecosystem’s shift to IP, spear headed efforts at industry standardisation of the protocol and cultivated industry partnerships through its GV Alliance program. Where Grass Valley lags is in adopting the software-centric innovation ethos that is fast becoming the new paradigm in broadcast. Broadcasters are getting used to being plugged into feedback loops with suppliers that power the highly iterative and near instant updates of products. Grass Valley will have to get used to the idea of augmenting their client’s resolution and compression capabilities through software updates and not waiting for quadrennial investments in new equipment.
Grass Valley wants to get this strategic re-alignment right as the firm has been on the wrong end of technological upheavals in the past. The company lost significant market share to Sony during Broadcast’s shift to HD production equipment in the early and mid-2000s and it seems Sony may have stolen a march on Grass Valley once again with its 2019 investment in, and partnership with, Nevion- a provider of virtualised (cloud based) production solutions.
What Grass Valley does have on its side is timing, a comprehensive product portfolio and a growing live market. In terms of timing the case for latency sensitive live production workflows hosted on the cloud has never been stronger. The advent of CDN edge networks in the past 18 months is providing the infrastructure to enable Grass Valley’s strategic shift; the firm will want to be able to exploit the powerful processing capabilities being located within milliseconds of clients to enable real-time remote editing of 4K video. This functionality will become even more pronounced with 5G networks enabling the same workflows for remote events. It stands to reason that the firm could offer a cloud product that meets the quality expectations of live event production from the get-go. The second advantage is the company’s comprehensive product portfolio ranging from cameras to playout, and coupled with its industry partnerships, makes it unique in its ability offer a fully integrated live solution- a much more attractive proposition for those without the resources to cherry pick and manage the interoperability of different solutions. The final advantage Grass Valley carries into this transition is that the live content market is growing, and margins remain healthy- a fact that will help the firm through near-term financial losses.
The upcoming transition for Grass Valley will not be easy but will be necessary. Success will ultimately hinge on adopting the software-centric product development ethos of its IT rivals while beating them to the punch in exploiting novel applications of low latency edge and cloud compute for live production.