Mixed Reactions to Alesis Financial Woes
By Bruce Borgerson

On April 27, Alesis sought Chapter 11 bankruptcy protection as part of the ongoing negotiations for pending sale of the company to a new entity formed by Jack O’Donnell, president of Numark Corporation. For more on the financial details, see related story by Chris Doering.

News of the Alesis bankruptcy filing has sent shivers through the recording industry over the past few weeks. Though some observers had seen the troubles developing over many months, others greeted the news with stunned surprise. Although Alesis markets a wide range of recording products, immediate concerns centered on the ADAT format which now relies on Alesis as the sole vendor. Reactions from Alesis dealers and ADAT users contacted by ProSoundWeb ranged from cautious optimism to serious apprehensions about future support of the ADAT format.

Dealers Cautious

Alesis dealers, most of whom had seen the storm clouds gathering, were not greatly surprised by the bankruptcy filing. The two I talked with were understandably circumspect in their comments.

Chris Tso, general manager of Dale Pro Audio in New York, sums up the dismay felt by many Alesis dealers: “It’s a real heartbreak that a company with such incredible leapfrog technology now is unable to continue under its own steam. Alesis was on a mission to provide an exceptional value to the customer, and they really broke the mold on a lot of products.”

At Guitar Center headquarters in California, Dave Angress expresses similar dismay, yet with an added hopeful note. “Alesis has been a valuable vendor for years,” he says, “and we’re sorry to see them fall into financial trouble. But we think they still have solid technology, and talented people working for them. We hope they will manage to come through so we can continue to do business.”

Users Taken Aback

In contrast, the ADAT users who contacted at random by ProSoundWeb had either heard the news recently—usually through a dealer—or were taken by complete surprise.
“I heard about it last week because I was talking to a dealer about the new Alesis hard disk recorder,” says Keith Harancher of KMH Studios in Lusby, Maryland, a project facility with four ADAT units. “I thought they were doing great. They have a great product line, and I can’t imagine how they could be in trouble—unless they were paying too much for their design engineers.”

Harancher admits that he remains “a big Alesis fan” and still plans to buy the new Alesis HD24 unit when it becomes available, though his dealer expects considerable delay in delivery.

Harancher’s dilemma is essentially mirrored by Frank Sullivan of Sullivan Recording in Ashland, Oregon. Sullivan is one of the ADAT originals, having purchased his three veteran blackface units shortly after they were first introduced. Although his old units had received periodic upgrades, Sullivan had not considered investing in a new ADAT system until he heard advance word about the HD24 hard disk unit. “It was exactly what I wanted,” he says. “It would be the perfect storage medium and the price was incredible. But then I started hearing rumors about the company’s problems, and quite frankly it has scared the hell out of me. This has put my whole decision into limbo.”

Backsliding in Austin

Down in Austin Texas, the situation is generally more relaxed at Bismeaux Studios. Owned by Ray Benson, front man for Asleep at the Wheel, Bismeaux had relied on ADAT as the primarily recording format through most of the 90’s. However, over the past two years the majority of recording activity has shifted to the Soundscape hard disk system or reverted to 24-track analog for basic tracks.

“A lot of our stuff goes into the hard disk system before the ADAT,” says engineer Bob Kellough. “It’s roughly fifty-fifty now, with maybe a slight preference toward analog. But as far as ADAT versus hard disk, ADAT is losing that battle. For one thing, ADAT is more expensive for the client, because they have to purchase their own tapes rather than just rent some hard disk space.”

Another Bismeaux engineer, Chris Burns, expressed more concern, primarily because he operates an independent ADAT repair business as a sideline. “Shoot, I wonder if I’ll be able to get my parts!” was his initial reaction to the news.

Burns confirmed the decline in ADAT use at Bismeaux, and he suspects that other similar “upscale” project studios are also moving toward hard disk, reverting to analog, or a mixture of both. “I talked to somebody in Nashville who used to sell a hundred cases of ADAT tapes a week, and now he’s down to a fraction of that amount.” Nevertheless, Burns expects to keep his ADAT servicing as a sideline, as long as there is demand and parts are available.

At the Tone Farm in Dover, Delaware, studio manager Eric Zoeckler reacted with complete surprise to the news. “This is the first I’ve heard of it. It’s really surprising. In fact, we just got in our fourth ADAT unit. We literally took it out of the box less than two weeks ago.”

Zoeckler admits that Tone Farm is “heavily invested” in Alesis products, including an Alesis mixing console and several effects units. “One of the things Alesis brought to the table is that they have established themselves as a quality provider. Their stuff is just top notch, particularly at their price point. It’s hard to beat.”

What Happened?

So how did a company with such a dominant market position and a base of loyal fans stumble so suddenly into such dire straits? Some expressed personal theories, while others realized that their own purchasing decisions were part of a troublesome trend for the company.

“They obviously ran into a serious cost crunch,” notes Chris Tso of Dale Pro Audio. “I suspect some of it was related to their move from an industrial section of Los Angeles to a much more expensive headquarters in Santa Monica. They felt compelled to do it in order to attract engineering talent, which was expensive and hard to get in the heyday of the dot com explosion.”

While costs were mounting, revenues were on a steep downslide—from $88 million in 1996 to only $45 million last year, according to the bankruptcy filing papers. This precipitous 49% decline was due to both dwindling sales on “second generation” ADATs and fierce competition in the company’s other product lines. The high-end ADAT M20 “did not fare well” according to Chris Tso, while studio owners such as Frank Sullivan declined to re-invest in the 20-bit XT line because of reliability concerns. “I couldn’t see any point in going 20-bit with all this 24-bit stuff going on,” Sullivan states, “and I’d heard all sorts of horror stories about how the XT’s were performing.”

Although studios such as Bismeaux in Austin had upgraded (in this case to M20 units), it didn’t stop the surging trend toward computer-based and stand-alone hard disk systems—a category in which Alesis has yet to deliver multi-track product.

“The industry is definitely moving in that direction,” says David Angress of Guitar Center. “We see that in our sales of Pro Tools, both in the low end MX-001 and the high end TDM systems. Now that you can get them with a control surface that truly feels like a console, you’re seeing sales trending away from equipment you bolt into a rack.”

While ADAT sales were trending downward, Alesis heavily promoted other product lines, from effects units and MIDI modules to keyboards and studio monitors. But competition was fierce in all of these categories, which forced steep discounting and led to shrinking profit margins.

“When a company makes a breakthrough product like ADAT and quickly dominates their market, they have to do line extensions in order to grow the company,” says Chris Tso. “It makes sense to offer total studio solutions, but you also have to temper your corporate ego with the hard realities of the marketplace.”

Numark, Yea or Nay?

What will the future hold for Alesis, assuming the Numark-led takeover is consummated in June? One dealer sounded a note of cautious optimism, while a loyal Alesis user expressed serious misgivings.

“This was a very aggressive move by Jack O’Donnell,” says Chris Tso. “I think he has done a brilliant job with Numark over the past several years. It is a very customer-focused operation, and I think that will make a good fit with the way Alesis has been doing business. I think the synergy will work.”

On the other hand, Eric Zoeckler at Tone Farm holds serious reservations, despite his studio’s major investments in Alesis. “We were seriously looking at purchasing a Masterlink unit, but the possible takeover by Numark gives us an uneasy feeling. Based on that news, we’d want to take another look at it. We have some Numark equipment for a DJ business we do on the side, and we’ve had some problems with that brand. I honestly don’t think it is in the same league as far as quality and value as the Alesis gear. So a sale to Numark would be a concern, it definitely would be.”

On an more confident note, despite all the uncertainties and “horror stories,” Oregonian Frank Sullivan insists he’s still hankering for a new Alesis HD24—despite entreaties from salespeople to switch over to a Mackie or Tascam unit for immediate delivery. “It’s exactly what I need for my system. I could maintain 24-bit quality all the way through, and keep everything on removable IDE drives. Also, the price is a killer. As for the XT’s, I hear those were mostly transport problems. I don’t know how you can screw up a hard drive in the same way, so I suppose it’s a whole different animal.”