Looking Ahead: Q&A with AV Luminaries
In April 2008, two AV integration giants consummated a pretty significant merger. Audio Visual Innovations and Signal Perfection Ltd. became AVI-SPL. So it was a fitting time to take stock of the AV industry. A virtual roundtable sheds light on a still-growing market.
ON THE AV BUSINESS
Credit: Ryan Morris/WPN
In April 2008, two AV integration giants consummated a pretty significant merger. After more than two years of wrangling, Audio Visual Innovations and Signal Perfection Ltd. became AVI-SPL, a company with more than 1,200 employees and 40 offices around the world (see “Anatomy of a Merger”).
This month, with the AV industry’s main event kicking off in Las Vegas, we’re set to enjoy the fruits of another merger, with InfoComm 08 and NSCA Expo housed under one roof, giving AV professionals unprecedented access to technology and education (see “Where the Pros Are,” page 44).
So it’s a fitting time to take stock of the industry—where it is and where it’s going. By phone and e-mail, PRO AV assembled a virtual roundtable of experts, asking questions designed to generate a snapshot of the AV integration business at a time when technology is enabling change, the nation’s leadership is turning over, and AV systems look more like IT every day.
Our panel includes Marty Schaffel and Chad Gillenwater, leaders of the combined AVI-SPL (formerly the leaders of AVI and SPL, respectively); Chuck Wilson, executive director of NSCA; Randy Lemke, executive director of InfoComm; and Barry Goldin, director of systems integration at Chantilly, Va.–based Audio Video Systems and chairman of InfoComm’s System Integration Leadership Council.
PRO AV: We see studies that seem to indicate that despite terrible economic conditions, the pro AV industry looks healthy. How would you characterize it?
GILLENWATER: Our biggest fear is fear itself. You read the paper and people start to believe that the world is coming to an end. But unless there’s a self-fulfilling prophecy going on here, the demand is real, the sales are real.
The amount of work we get every week through this point in the year, given that when you pick up a newspaper you want to slit your wrists, is amazing. We’re up substantially this year, and normally this is a slower part of the year. [AV] has become something that a business sees to make it more productive and profitable. And that’s attractive in a down market because it’s a way of overcoming the challenges of a potential recession.
LEMKE: I hear from design consultants that certain vertical markets, such as Wall Street firms and mortgage banks, are slowing their plans, while other verticals are holding up pretty well. The integrators work with a bit less backlog but they are, depending on location, doing well.
However, there is a cloud of gloom and doom hanging around, which I hear about from our members in Europe, Asia, and the Americas, that the U.S. economy is in jeopardy. If that feeling of doom turns into real economic stress, projects may get pulled offiine and even buildings halted in mid-stream. We are not there yet, and we all hope this is a shallow pullback.
WILSON: Well, the good news is we can’t find enough qualified technical workers in this industry to meet current demand, so we don’t have to deal with workforce reduction. The bad news is, we can’t find enough qualified technical workers in this industry, so if our members get any busier than they currently are, we are in big trouble.
Looking Ahead: Q&A with AV Luminaries
In April 2008, two AV integration giants consummated a pretty significant merger. Audio Visual Innovations and Signal Perfection Ltd. became AVI-SPL. So it was a fitting time to take stock of the AV industry. A virtual roundtable sheds light on a still-growing market.
ON CHANGEON CONVERGENCE
PRO AV: On the whole, the pro AV industry is made of a lot of small firms. In light of the AVI-SPL merger, will there be more consolidation in the future?
WILSON: Yes, but I really believe there is always going to be opportunity for the small- to mid-size specialty company. For some reason, niche companies in our industry that focus on superior customer service and highly trained technicians seem to do well even with mega-companies in the same city.
GOLDIN: Clearly a lot of the innovation and creativity in our industry has come from the fact that there are so many small firms where creativity is king. Alternatively, our industry has suffered from the lack of standardization and economies of scale that come from being in a larger firm.
InfoComm has started the task of developing standards to guide the development, documentation, and measurement of systems in our field, and this will go a long way. As our industry continues to grow, additional business consolidation will clearly occur. The question that remains to be answered is whether they will be more successful than previous attempts, which have not been great examples in the mergers and acquisitions market.
LEMKE: There are many opportunities to do business, and the AVI-SPL merger is one form that will project a national scope. Other alliances between separate companies such as [Professional Systems Network International] and USAV Group also work towards that national scope. The future is always determined by meeting customer needs; providing products and services that help the customer communicate. I am sure AVI-SPL aims to solve those needs just as other large companies and small companies seek to do. Who does it best will determine which model works.
SCHAFFEL: It’s very hard for transactions like this to take place. It took two and a half years to do this. … There have been so many attempts in the past by smaller companies in our industry to merge, and they’ve fallen apart because of everybody’s perception of direction, evaluation, other kinds of issues.
PRO AV: Is there something different about the AV market today that would cause established companies to merge, or would cause traditionally non-pro AV firms to enter the market?
GOLDIN: I think there is a large concern that the products are getting significantly commoditized and this has led many people to be very concerned about the future. Firms are beginning to re-evaluate their value-added services and use that to even further distinguish themselves from the box sellers and Internet sites that an end-user might go to for a specific product. Firms may merge in order to bring together some aspects they may not have focused on before in order to be able to provide the “total package.”
WILSON: Yes, mergers seem to be popping up due to either a missing core technology or skill set, or for the desire or customer demand to provide a nationwide delivery and service program. Entry into this marketplace by non-traditional firms stems mostly from network integration enabling a more seamless pathway from one technology to another. That and some firms see this as more profitable than what they currently do.
LEMKE: While not necessarily requiring mergers, the size and growth of the industry is getting more attention, as indicated in InfoComm’s market research studies. The opportunity to participate in growing markets brings in new players and provides existing companies the chance to grow naturally, or perhaps, as you suggest, through mergers and acquisition. In addition to the market size, I believe there is recognition that AV is now mainstream. It no longer takes an early adopter to buy the technology.
PRO AV: So then in general, how has the pro AV business changed in the last three to five years?
GILLENWATER: In 2002 and 2003 we [the AV industry] were successful, but you had to spend a lot more time selling it. Today it’s almost a given. Because the technology is better, the experience is better, and the industry is more mature.
In the last five years, the number of multimillion-dollar jobs, $5 million and up, has grown. I had no idea there would be projects that size. IP is forcing companies to come together internally and by doing that, they’re being driven to having a unified platform. They want collaboration on that unified platform, and these are big, big platforms, for companies with 90,000 people. … What we hope to bring to the table, at a time when this technology is moving from being investigated to being implemented, is a company that these organizations believe can complete a project like this.
LEMKE: In addition to the change in size and opportunity, AV-IT is at the very top of the technical changes. If companies want to compete, they need to apply their AV knowledge and skills over IP networks. That does not mean that AV companies become IT companies, it means either acquiring the skills and knowledge, or partnering with companies to provide the customer the benefits of IP-networked AV technology.
GOLDIN: Also, the most visible part of our solutions—the displays—have been improving at a dramatic pace, but they have also been devalued at a faster rate. This has caused concern to some that the total cost of the system is no longer headlined or dominated by the display. It’s now the total solution and the value-added services that have become more important to the overall solution and a corresponding large portion of the total system price.
PRO AV: More specifically, how has the actual work, the projects that AV pros work on, changed?
WILSON: The products have become harder to repair and the technical work is based more around troubleshooting and far less around bench repair. Our test equipment is now software on a laptop. The size and scope of projects has grown tremendously.
LEMKE: I think the most profound change, and one that needs to be embraced, is that our AV companies need to be engineering-led. Engineering knowledge, with skills in both design and install, determine company capacity in the era of AV-IT and highly integrated systems.
PRO AV: Has the AV industry been quick to embrace the convergence of IT and AV? What needs to happen to make that transition go smoothly (and profitably) from an AV integrator’s perspective?
SCHAFFEL: There’s clearly a requirement for our staff to be more and more skilled in IT and to be able to understand the combination of technologies. We’ve invested heavily in training … . But yes, there’s a big need for expanding our skill set.
Looking Ahead: Q&A with AV Luminaries
In April 2008, two AV integration giants consummated a pretty significant merger. Audio Visual Innovations and Signal Perfection Ltd. became AVI-SPL. So it was a fitting time to take stock of the AV industry. A virtual roundtable sheds light on a still-growing market.
ON TECHNOLOGY
GILLENWATER: It’s bridging, it’s WebEx, it’s video-conferencing on your cell phone, it’s understanding network QoS [quality of service]. But it’s also something else. It’s about changing internally how we operate our companies.
We have network experts, people with Nortel and Cisco certifications, all the Polycoms and Tandberg CVEs. And it can’t be a case of one person does this or that. You need to have a lot of people who can converse about IT and historic AV technologies. Because a room is not just a codec. There’s a lot of endpoints in a room with today’s technology. And once it touches a network, you better have someone how understand that network.
LEMKE: I think the industry as a whole is aware of the AV-IT phenomenon, and I’d say some companies have embraced it. Unfortunately not enough companies have taken the steps to be able to create a companywide capacity. This is probably because at the moment we are busy, and when training is offered it’s hard to take people out of the field.
But this is shortsighted, especially for any company that is worried about IT companies coming into our industry and taking away work from traditional AV companies. We have the advantage because our companies can learn and partner to be IT-capable much easier that IT companies can learn acoustics, the human factors of communication, and other information that makes the system much more than a bunch of connected boxes.
GOLDIN: There was a relatively slow start to convergence, due to a lack of trained personnel and relatively few products in the AV space that had any significant IT capabilities. Over the last three years, this has changed significantly and we are now on a very steep part of the transition curve.
ANATOMY OF A MERGER
It was two and a half years in the making. Industry observers note that similar deals have met mixed results in the past. Oh, and did we mention the credit market has been in the tank lately? So did the merger of AVI and SPL go as smoothly as both parties would have liked?
“Absolutely not,” says the executive chairman of the new company and former owner of AVI, Marty Schaffel. “We were faced with many challenges. First it’s a complicated merger, you’re bringing two companies together and tying in a private equity group, so that brings complications. Then you had the collapse of the credit market. Then you had the enormous recessionary fears. And all that just drives total panic into all the different parties that were participating.” As a result, Schaffel says, the drawn-out merger created anxiety among vendors, customers, and employees.
“Out of sheer perseverance and good intentions on both sides, we got to the finish line,” he says.
Schaffel and Chad Gillenwater, AVI-SPL vice chairman and the former CEO of SPL, say the combined company now offers a balanced skill set that’s necessary in a changing AV market. In addition, the new company’s large footprint (Gillenwater spoke to PRO AV from Cairo), puts it in a position to serve companies with international offices.
“One way you create great value with a combination like this is by bringing companies together that are similar but have traits that you can combine in order to grow the various businesses you’re in,” says Gillenwater.
“SPL has the opportunity to get a lot of benefit from [AVI’s] training, from their approach to small and medium-level businesses, how they approach procurement—a lot of things that bring value. We bring a large project approach, a lot of exposure to high-profile venues, and a lot of engineering capability,” he notes.
Schaffel and Gillenwater think the combined AVI-SPL can be good for the entire AV industry. Because IT and Internet protocol enable massive, global systems, such as videoconferencing, projects will continue to get bigger. AV companies that can operate on that scale will draw attention to the entire industry, they say. Already, according to Gillenwater, the company has seen increased interest from domestic and international enterprises.
“We believe the combination will be good for us,” Gillenwater says, “but also good for the business.”
Is there an initial public offering in the company’s future?
“It’s not out of the question,” says Schaffel.
Most AV systems today use significant technologies originally developed for the IT industry to control and pass information among the AV equipment. In addition, pro AV firms are adding IT experts to their staff and training existing staff in IT integration. Almost every new pro AV product released has an Ethernet port and all VTC systems now incorporate IP VTC in the standard solution. All of this has added up to a significant acceptance of IT technology in the AV space and the leveraging of these technologies to offer expanding integrated AV solutions to the customer.
WILSON: I think we take two steps forward and one back on convergence. The technology is there. The systems can do amazing things and convergence can enhance those systems immensely. However our collective industry story needs to improve. We have to prove why this is a good thing. We have to show ROI to owners and improved quality of life to those who use it. Until we can tell that story effectively, we are only part way there.
PRO AV: People talk about “disruptive technology.” Are there technologies out there in the AV industry that you find particularly disruptive?
WILSON: I thought disruptive technology meant the system didn’t work. Just kidding. I think digital signage is certainly disruptive; it has the potential to change not only our industry but also the traditional sign business. Likewise on the security side, biometrics, RFID, and recognition systems change everything. Video surveillance and instant access to stored digital images has huge ramifications in matters such as human rights and basic freedoms.
LEMKE: The big disruption that would fundamentally change everything we do is technology that needs no transducer to change it from digital or mechanical to analog. Right now we are able, through emissive or projected displays, to provide via the eye the information our customers want to communicate. If there were a more “direct connect” we would not need those display devices. The same holds true for audio—the microphone, processing, and speaker technology all focus information on the ear and a “direct connect” gets around the need to change mechanical or digital information into analog sound waves.
Looking Ahead: Q&A with AV Luminaries
In April 2008, two AV integration giants consummated a pretty significant merger. Audio Visual Innovations and Signal Perfection Ltd. became AVI-SPL. So it was a fitting time to take stock of the AV industry. A virtual roundtable sheds light on a still-growing market.
There will also be disruption at a lower level that changes the transducers we sell, and all components of the industry will need to look for those to succeed. But the company that produces a “direct connect” will be a different story.
GILLENWATER: It’s almost become a trite term, but the concept of unified communications. You’re actually looking at a total platform, you’re looking at how content is delivered, how people communicate within their organization and between organizations. Plus the reality that travel is a pain in the butt … . Where four or five years ago you had a lot of IT people and a lot of C-suite people who did not get it, today they get it.
PRO AV: What are some of the most exciting new AV applications?
GILLENWATER: Of course, [high definition] is a big deal, especially in the United States. People are growing used to watching sports in HD. That’s what they want and that technology has gotten a whole lot better.
Systems have become more complex in themselves, but easier to operate by users, which is a big deal. And without talking about content, because that’s a huge discussion, all the other interfaces people deal with on a daily basis, have improved. The hardware and software of how people communicate—through a PC, telephone, face-to-face, in a boardroom, in an audioconference, in a videoconference—all done on a real-time basis, with presence, in which everyone knows where everybody is and will be … it’s happening today, that technology exists.
GOLDIN: I agree, there are so many new exciting areas in AV, for example new capabilities in video processors, digital audio, videoconferencing over IP, and the increasing use of HD-quality video in all areas. But the most exciting part of this industry is the combination of these new technologies into much more powerful, efficient, and easy-to-use/maintain systems.
WILSON: This may surprise you, but I would say classroom technology in the K-12 education market. I’ve become really excited about simple things that help students learn in classrooms. It doesn’t seem exciting to most, but there is new technology that gives students greater access to information and interactive lessons. Distributing HDTV throughout schools and being able to equip more classrooms with interactive learning tools that use AV technology can really make a difference. What’s more important than that?
LEMKE: There are certainly many, but since I come from a distance learning background, I am pretty excited about HD and telepresence conferencing. The first systems I worked with were based on the Intel 386 chip. From there we have traveled miles.
