Native Instruments going bankrupt!

[Dave Merrill]

The plugins aspect of this is a weird situation.

As of right now, all those (many!) NI and PA plugins are already written. Yes, long term, they'll need support for OS upgrades, etc, but the heavy lifting for the existing products - the "circuit" designs, the UIs, the unique core of the IP - is DONE. The web site, purchase process, copy protection, installer, all that infrastructure is done too, and runs largely unmanned.

They invested in development, and over time, created a significant bundle of assets. It's hard to believe that somehow that's become valueless, or at least insufficient to sustain a business.

 

[Admin M@]

long term, they'll need support for OS upgrades

They'd ALREADY fallen behind in that regard.
If you're running macOS Tahoe, Kontakt can't even load all of the sample libraries that come with it.

 

[vangrieg]

They'd ALREADY fallen behind in that regard.
If you're running macOS Tahoe, Kontakt can't even load all of the sample libraries that come with it.

I think they’ve always been slow

It's hard to believe that somehow that's become valueless, or at least insufficient to sustain a business.

But they need cash to pay back their debts. Maybe iZotope can pay for itself, umpteen gazillion PA plugins I’m not so sure about.

 

[Dave Merrill]

But they need cash to pay back their debts. Maybe iZotope can pay for itself, umpteen gazillion PA plugins I’m not so sure about.

I bet the semi-anonymous BX branded stuff hardly sells, very little perceived mojo, regardless of how useful it is or what it sounds like.

 

[Intimo]

I have plenty invested in NI, iZotope and PA.

Public info and a bit of speculation:
$300 Million is a big number to owe. There has been scattered bloat within NI offerings.

Who might be willing to jump in and buy?

• Kontakt: InMusic, Yamah/Steinberg (Cubase) or Splice?
• Traktor: Pioneer DJ?
• iZotope / Plugin Alliance: back to original founders or Universal Audio?

Sure there is a fairly large user base, but is that a reality ($300 mil's payback) moving forward in the next five to ten years?
When you see what is coming down the pipeline - Most of this SW & Plugins are already looking dated like 1984.

[Newton's three Laws of Motion apply here...]

 

[vangrieg]

Sure there is a fairly large user base, but is that a reality ($300 mil's payback) moving forward in the next five to ten years?

Yeah, user base is good but how much cash is it generating really. I have a Komplete Ultimate Collectors something bundle but I don’t update it every year at all, there’s not much point in that. Same for iZotope.

 

[FractalAudio]

$300 Million is a big number to owe.

This is what Private Equity always does. The load a company up with debt and then pay themselves huge "management fees" with the borrowed money. The company goes bankrupt, PE gets to keep the fees because those fees can't be clawed back during the bankruptcy restructuring.

I'm surprised anyone lends money to companies that are owned by PE anymore. The playbook is always the same.

FWIW, Fractal Audio has zero debt and has never borrowed a single cent in the 20 years we've been in business.

 

[guitarcal]

FWIW, Fractal Audio has zero debt and has never borrowed a single cent in the 20 years we've been in business.

Cliff, this is incredible. As you know, most companies see debt as a tool for growth. What made you view debt as something to avoid entirely?

 

[AtomicJeff]

...As you know, most companies see debt as a tool for growth. What made you view debt as something to avoid entirely?

Because "debt" is debt.

 

[vangrieg]

most companies see debt as a tool for growth. What made you view debt as something to avoid entirely?

Does Fractal strike you as a company that is growing much?

Growth has benefits for founders but not everybody chooses to have it as a priority. Most pedal boutiques are lifestyle shops, I think Fractal is about the same.

 

[Dave Merrill]

Does Fractal strike you as a company that is growing much?

Growth has benefits for founders but not everybody chooses to have it as a priority. Most pedal boutiques are lifestyle shops, I think Fractal is about the same.

"lifestyle shops"?
Meaning what?

My impression is that Fractal, and many pedal and studio device builders, are in it out of passion, the feeling that they have some unique ideas and approaches, and that the resulting products have something to offer the world.

 

[vangrieg]

My impression is that Fractal, and many pedal and studio device builders, are in it out of passion, the feeling that they have some unique ideas and approaches

Well that’s pretty much what lifestyle business means. Doing something you like to do, and get some money out of it, without aggressive ambitions or goals to make a billion dollars or something. To have this, you want to keep full control and avoid risk.

 

[Dave Merrill]

Well that’s pretty much what lifestyle business means. Doing something you like to do, and get some money out of it, without aggressive ambitions or goals to make a billion dollars or something. To have this, you want to keep full control and avoid risk.

Yes, we're on the same page, it's just that the phrase "lifestyle business" seems to mean something different to each of us. No right or wrong, just pointing it out.

To me that means a company whose big sell is an association with some sort of elevated lifestyle. Hermes, Birkin, Rolls Royce etc. The products may or may not be worthwhile in themselves, but the market appeal is the perception that rich people use and value them. The companies seem more to be trying to make money and status than art.

Fractal and boutique pedal makers are in it because they love what they build and think others will too.

 

[Chris Hurley]

Yes, we're on the same page, it's just that the phrase "lifestyle business" seems to mean something different to each of us. No right or wrong, just pointing it out.

To me that means a company whose big sell is an association with some sort of elevated lifestyle. Hermes, Birkin, Rolls Royce etc. The products may or may not be worthwhile in themselves, but the market appeal is the perception that rich people use and value them. The companies seem more to be trying to make money and status than art.

Fractal and boutique pedal makers are in it because they love what they build and think others will too.

thats not commonly what "lifestyle business" means. You're thinking of a "lifestyle brand"

Harley Davidson is a lifestyle brand. I would argue that Marshall is a lifestyle brand at this point. It speaks to a lifestyle of the consumer.

A lifestyle business is one where the owner is able to make what they want to make living a life they want to live and aren't specifically concerned about going public or pursuing other business goals that dont mean anything to them. It speaks to a lifestyle of the business owner.

 

[Chris Hurley]

This is what Private Equity always does. The load a company up with debt and then pay themselves huge "management fees" with the borrowed money. The company goes bankrupt, PE gets to keep the fees because those fees can't be clawed back during the bankruptcy restructuring.

I'm surprised anyone lends money to companies that are owned by PE anymore. The playbook is always the same.

FWIW, Fractal Audio has zero debt and has never borrowed a single cent in the 20 years we've been in business.

At least some of the time, the mission of PE is to figure out how to earn more than stock market returns and to grow it for X years (with a variety of sometimes painful operational changes) before they sell it off to the next buyer, perhaps in pieces. I'm sure bankruptcy must be a tool they use in some circumstances but the tiny circumstances I've see personally were all aligned with the plan to sell it on to the next PE in a few years. I'm aware of a whale in the IT tools industry that seems to be having trouble finding buyers for their exit and have stuck around owning their brands longer than they wanted as a result.

 

[Dave Merrill]

thats not commonly what "lifestyle business" means. You're thinking of a "lifestyle brand"

The net agrees with you.
I'm igorant

 

[Chris Hurley]

The net agrees with you.
I'm igorant

Interesting that these two terms are so close

 

[guitarcal]

Does Fractal strike you as a company that is growing much?

Not at all. Its rare to find an individual not willing to go into debt. I'm hoping @FractalAudio will chime in with his input and wisdom in this area.

 

[Dave Merrill]

This is a good vid from an insider explaining the situation with NI and there very complex business model. I watched it all, but I just saw how long it is. Try and watch as much as possible.

It's also a conversation with some fairly high profile NI (Kontact mostly) users who depend on NI stuff for their creative output and livelihood.

One thing i wasn't aware of is that NI has made Kontact usable by folks with serious visual impairment. At least one of the participants is completely blind, and Kontact is literally his only avenue as a professional composer. For him, losing NI, if it comes to that, would mean tying himself to now-current-generation computers forever, so he can keep using it as it exists today.