This story originally appeared in TV Technology.
MELBOURNE, FLA.: During the recent announcement from Harris Corp. that it was putting its broadcast division up for sale created a stir in this industry not seen since Thomson’s divestment of its Grass Valley division several years ago. It also shined the spotlight on division president Harris Morris, who will help navigate the sale of the division later this year.
With more than $500 million in annual revenues and 1,700 employees worldwide, Harris Broadcast and Communications Division has built itself into the largest “pure-play” company in the broadcast and media creation business. Prior to this century, Harris was known primarily in our industry as a broadcast transmitter company, but it developed its broad portfolio via a combination of R&D and acquisitions over the past decade, from its purchase of Louth Automation in 2000 to its acquisition of Leitch Technology in 2005. The acquisitions were not only seen as a way to grow the business, but to also protect the division against the expected downturn in transmission technology purchases after the DTV transition ended in 2009.
The division has been under the microscope most recently when Howard Lance stepped down last year. Lance was seen as having a more vested interest in the broadcast business than his successor, William Brown, who, upon taking office, hinted that the company was considering getting out of the broadcast business.
TV Technology’s Tom Butts spoke with Morris about the pending sale earlier this week.
TV TECHNOLOGY: In last week’s conference call, Williams Brown, Harris CEO, referred to the sale of the Harris broadcast division, by saying: “A combination of a lack of effective integration by the company over the last decade—coupled with a market outlook that is not as promising today as once believed—led us to conclude that … the business is best owned by another party.” Can you address his comments on the “lack of effective integration?” Is he basically saying that the integration of Leitch, Encoda, et all, did not go well?
MORRIS: He was talking a little bit about both. What he meant was exactly what he said. He’s very specific. We see the strategy in BCD was to get into interoperable workflows and integrated solutions well ahead of where the market was. And while the good news is that I think we’ve made great progress on that in the last two years, and it’s starting to really show up in our products, I don’t think we made as much progress on that in the first five or so years after acquisition as we needed to. And that puts the business in a different place in terms of its evolution path. It’s still a good place, vis-a-vis the competition, who are trying to acquire their way into workflows and other things we already have, but it puts it in a different place than where Harris would like it to be.
Given the fit issues with the overall company, they expected the company to be more commercial perhaps, than they are today. And in a business that’s still heavily defense-oriented and very focused on executing well in that market, given some headwinds as Bill said, the continued transformation that we’re taking broadcast through—and that the broadcast industry needs us to lead it through—just doesn’t fit with where Harris is in focusing on in its core government business.
Broadly, the Harris business units are self contained. Every piece has what it needs to operate and move forward. They’re not inextricably tied.
TV TECHNOLOGY: What did Brown mean by saying the market was “not as promising?”
MORRIS: If you go back several years, during the DTV wave, we saw market growth rates in many products of 10-13 percent and then even pre-downturn, we saw averages that were bumping closer to 7. Transmission had that kind of growth during bubble waves, during the digitization waves or HD waves, and it still does in some places around the world. But in the aggregate, the overall transmission market, after the US wave (after the DTV transition in 2009), was much slower, more in the 3 to 4 percent range. And then in the overall broadcast equipment market, it was looking up to 7 prior to the recession.
I think we all believe that going forward, that’s now more like 5 percent. Now clearly there are faster pockets around the world and we believe we have a deeper presence and a broader presence in those places than many of our competitors. But in the aggregate, I think we’re still looking at a 5 percent growth, rather than a 7 or a 10 percent of the past decade and I think that’s just a realistic acknowledgement by Bill.
Bill’s got to look across his portfolio. He has some businesses like healthcare that they believe can grow quite nicely and where the underlying market growth may be stronger than that. And then when you talk about the headwinds in their more traditional government core, it makes those faster growth rates more attractive.
TV TECHNOLOGY: What part of the broadcast market do you see as the most promising and what part of Harris Broadcast has seen the most growth?
MORRIS: Number one, workflow, interoperable software-driven workflow, over time, becoming virtualized. We see a lot of great growth potential and promise there, particularly for us because of our presence along the key elements of the workflow. Number two, live and near live production, including news, sports and reality. And number three, multichannel playout—this notion of, ‘how do I get all that great content that gets created somewhere, managed through my interoperable workflow… how do I get it to customers across a multitude of platforms at the right cost per frame?’ And I think that’s a real critical piece.
Geographically, we particularly see growth in Latin America the Middle East, Eastern Europe and Russia and pockets of Asia and Africa. We see strong growth in a lot of those areas and we think we’re well positioned to keep investing in those spaces too. Transmission, for example, is growing very well in many of those spaces, where the economics of using that signal to put an over-the-air HD signal to a huge population that may be tough to reach, is still quite compelling.
TV TECHNOLOGY: How did the end of the DTV transition affect Harris Broadcast? Did it just affect transmission or were there other parts of business affected?
MORRIS: It affected more than just transmission because there were some upgrade cycles in infrastructure and kit and certainly associated things like networking and compression that went with it. But essentially the way to think about it was as a shift. We’ve been investing in international markets, trying to grow our presence and our business went from being predominantly U.S.-based to being about 55 percent international, and that’s really the shift we saw. It was obviously most profound in transmission but it definitely affected some other related areas as well.
TV TECHNOLOGY: How did the recession of 2007-09 affect business?
MORRIS:It certainly was a downturn for us; it was less of a downturn than for some of our competitors who were more exposed to the call-letter stations in particular, who suffered the most during that downturn, and whose capital expenditures went down the most. We still have great relationships with those folks and do great business with them, but we also serve the big 6 networks, cable networks in a lot of ways, MSOs, telco distributors and obviously global broadcasters, whether government-owned or private. So that helped to insulate us from feeling the worst of it, either as bad as it would have been, say, 7-8 years earlier when we were predominately a call-letter business.
TV TECHNOLOGY: What has been customer reaction to the announcement?
MORRIS: Most just want to know what’s going on and want to understand, and I think when we explain to them 2-3 things, it clarifies a lot of it. One, we explain that this is being sold as a business, not in little chunks, but the intellectual property will go with it, the product portfolio, the people. The R&D road maps, the sales and support are not changing. Those things are continuing. We’re finalizing our FY2013 plans, just like it normally would have been. We’re making it crystal clear that all of that is true and the fact that it’s a business sale, not an asset or piecemeal sale, is helping a lot of customers get quite comfortable.
This industry has a long memory, and it’s had some bad memories of deals like Pinnacle and Grass Valley. I think we’ve clarified for people that there’s little to no resemblance to either of those. It’s a far bigger, broader and more robust product line than a Pinnacle add for example. These products are going to be the anchor of the business and the industry going forward. They’re not going away. And they have huge installed bases of customers. And obviously, the contractual obligation will transfer to the new company or whatever that structure is. When we explain things like that people get comfortable and realize that it’s not something that’s small and could get absorbed and dissipated. We don’t have the same issues as Grass, for example, which had many liabilities being maintained by the French parent. We don’t have any of those issues, this is a clean carve out. We have a very seasoned investment bank that I worked with on another significant carve out before. I can’t announce who they are yet, but we will shortly. And we’re going to run an effective, clean process to sell what is a great asset to somebody who really wants to run it.
TV TECHNOLOGY: What effect could this pending sale have on product development?
MORRIS: Absolutely none. Over the last two years, we’ve taken a very responsible look at the product portfolio and we’ve eliminated skews or individual models that didn’t sell well. We’re very happy with where our portfolio is and where we’re making bets for the future. We’ll be announcing something incredibly significant at IBC, there’s no change in that roadmap. This is something we’ve shown and demonstrated with some of our customers so it’s going to be a big announcement for us. And in fact, it’s one of our bigger commitments.
TV TECHNOLOGY: It’s been reported that you are in talks with several interested parties already. Can you elaborate?
MORRIS: We really can’t speculate on buyers or any associate combinations. It’s going to be an open, transparent and well run process to find the best home for this business. There’s a whole range of potential buyers, from financial to strategic. At the end of the day, we’ll run a really strong process and we’ll let in those who can prove an ability to pay and an interest in doing the right thing to grow it.