Yaking Cat Music Studios
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Paul Bertone

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The Strange Death and Possible Resurrection of New England Digital

by Robert L. Doerschuk

Keyboard, October 1992

New England Digital is out of business. The New Hampshire-based company, whose Synclavier systems defined current trends in digital hard-disk recording, ceased to exist on July 1, 1992, the deadline by which NED was to have paid back a $3.6 million note owed to Bay Bank in Boston. When payment wasn't made, the bank assumed control of the company's assets. At this issue of Keyboard went to press, several parties were conducting complex negotiations in efforts to purchase NED before August 1, when the bank indicated it would begin auctioning NED's assets piecemeal.

Opinions vary on what led to NED's demise. Most observers agree that the recessionary economy and persistent crises faced by New England banks played a critical role, as did a failure to deliver new products, such as the highly-touted DSP option and Zip RAM expansion cards. Others outside the company charge that bad management, excessively high excessive salaries, and poor customer relations contributed to the problem.

In any event, the debts borne by NED, including approximately $750,000 in back salaries and taxes and $500,000 for lease of CACDAM programming equipment, finally became too great to bear. "We should have had more equity capital to use for expansion as opposed to debt financing," admits NED President Brad Naples. "In early '91, we did a good job in renegotiating the bank loan. But we were still too undercapitalized to get through the next 24 months."

The roots of NED stretch back to 1974, when Cameron Jones, Sydney Alonso, and Jon Appleton founded the company. Appleton left after six months; Jones, a software specialist, and Alonso, whose focus was on the hardware side, were the foundation on which a powerful R&D operation soon grew. Their showpiece product, the Synclavier, premiered as a 16-channel digital synthesizer with a 32-track sequencer. In the years that followed, the instrument went through dramatic upgrades, including a sample-to-hard-disk option, Mac-based post-production software, an optical disk sample library, and other features. Many leading producers, soundtrack composers, and recording artists found the package too powerful to resist, and invested hundreds of thousands of dollars each in studios built around NED systems. As of last July, more than a thousand Synclavier systems had been sold, to the tune of about $200 million.

For these customers, the company's foreclosure is cause for great anxiety. At issue is the question of service. Access to hardware and software fixes is crucial to those who have built their livelihood around NED equipment. With the company's fate in the hands of Bay Bank, many who had sunk half a million dollars of more into these systems now confront the possibility that the service they have come to expect may no longer be available.

Within days of the foreclosure, Bruce Nazarian and Martin Royer of Gnome Productions in L.A., and New York producer Mike Thorne spearheaded the formation of a Synclavier Owners Consortium. With most of the 300 active Synclavier users in the U.S. lined up as members, the Consortium negotiated temporary agreements with NED technicians that would allow hardware service to continue at previous pay levels. At the same time, independent sources of parts and service cropped up; in Los Angeles, Craig Huxley, who had stocked his studio, The Enterprise, with four complete Synclavier systems, quickly made two staff technicians available for repair work and began selling peripheral gear at what he described as "a fractional markup, like ten percent."

More critical is the question of software repairs. While the company was in business, debugging problems were handled by staff programmers. But as of July 1, the operating code used for these jobs became the property of Bay Bank. At that point, apparently, no one could legally service Synclavier software. The implications were clear and, to many Synclavier users, frightening.

"I would imagine that most top-end owners are in the same position I am", says longtime Synclavier owner Frank Zappa, "in that they bought software service contracts from NED, and are entitled to repairs and software updates, which recently have become semi-annual bug fixes. But now these bugs can't be fixed, which means that even though I've got a humongous amount of money invested in my machine, I've got about 500 compositions in it that I can't deliver. All my future output lives in this Synclavier."

The operating code is clearly a big part of the NED assets. So too, are the human resources represented by the staff specialists in charge of software service. For that reason, a surprise move by a major audio company in the wake of the foreclosure threatened to have a major impact on the question of NED's survival.

Days after New England Digital closed its doors, Fostex International hired 30 of NED's 32 R&D specialists, including co-founder Cameron Jones, and put them to work as the Fostex Development Corporation in Hanover, New Hampshire, near the NED offices. Speculation about this action raged as we went to press. One prominent member of the Synclavier Owners Consortium suggests that the company intended to use the former NED staffers to develop its own disk-based system: "They're going to save about a hundred man-years and three million dollars," he points out. Others disagreed: "If they wanted to do high-end stuff," says another user, "they would have bought NED whole and used it as leverage to break into the Who's Who of the recording and post-production industry." Still others fear that the company does plan to buy NED, but only after driving the price down, without necessarily keeping Synclavier service operations alive. (General Manager Bob Veri, Fostex's assigned spokesperson on the NED issue, did not return our phone calls over a period of several days, then went on a vacation that extended past this issue's deadline.)

Two things are clear, however. With the NED staff onboard at Fostex, the actual value of the assets held by Bay Bank is less than if the staff were part of the package. and no matter who winds up buying those assets, they will not bear any legal obligation to honor service contracts bought from NED.

Members of the Synclavier Owners Consortium insist that even in that worst-case scenario, they would be able to create and sustain a software repair service similar to the hardware service they had put in operation by mid-July. Spokesperson David Klein of RMI in New York acknowledges the possibility that the organization would challenge the right of whoever bought NED to withhold access to the code. "The question of whether they would have complete and sole legal access hasn't been fully determined," he notes.

Still, it seems obvious that an independent Synclavier software service would not be easy to sustain. "Very few people spend $3000 a year for NEDCare," says Shelton Leigh Palmer, who uses a Synclavier in his New York-based music production work. "Most of them just buy service at $125 an hour as they need it. But that means that you're looking at $300-400 per system per year. You can't get rich off of that if you own a service company. You can make that much by just putting a million dollars in the bank. Since there's only a problematical hardware and software future, why move into what's obviously going to be a self-liquidating business?"

If service is to remain available, it apparently must be supported by income generated by some sort of revived NED. Beyond the question of whether the company gets back on its feet again, Synclavier owners are therefore paying a lot of attention to who might be the company's savior.

This is not a new concern. New England Digital has already been through one difficult transition in ownership. In May 1991, while renegotiating its loan with Bay Bank, NED was purchased by Granite Partners for approximately $1.8 million. With Terry Morton of Granite installed as CEO and Brad Naples staying on as president, the company struggled through a final year amidst a rising chorus of customers dissatisfied with the changes instituted by the new owners, which ranged from neglecting the company's traditional market to, ultimately, choosing not to seek protection from creditors under Chapter Eleven or Chapter Seven of the bankruptcy law.

During these difficult times, complaints about Naples's stewardship in particular began to mount. Two artists with whom we spoke - Palmer and Jon Appleton - independently recall Naples dismissing their complaints about service problems with the words, "It looks like you're left with a very expensive boat anchor." Other users claim that they weren't able to contact Naples or Granite executives at all. Says producer/keyboardist Walter Afanasieff, "If you buy a Rolls-Royce for $100,000, you would not only be able to talk to the people who sold you the car, but there would be 24-hour-a-day service for anything you needed. They would kiss your ass until the day you die. With NED, here you are plunking out half a million and you can hardly get past the receptionist, let alone vent your frustrations to the boss."

Even so, Naples maintains that throughout the company's final year, his chief concern involved finding enough financial support so that NED could avoid the expensive process of filing for bankruptcy and instead link up with an investor who would guarantee that Synclavier owners could expect continued service. With that in mind, he called Harmon International, who had distributed New England Digital products in Germany and England. Here, Naples reports, he found hope. "When I spoke with Sidney Harmon about this, the first thing that came out of his mouth was, 'Who's taking care of your owner base?' That," Naples observes, "was not the first thing out of Fostex's mouth."

In mid-July, representatives of Fostex, Harmon, the Owners Consortium, and Bay Bank met in Hanover, New Hampshire, to assess the value of the NED assets. According to a source at Bay Bank, bids were expected from both Fostex and Harmon, as well as from a party known only as the 66 Group, whose identity remains undisclosed. Practically the only common interest expressed at this meeting was that whoever ends up owning New England Digital have nothing further to do with Naples. As noted in an internal Owners Consortium memo, "We have been in constant touch with him and value his immediate help. However, we have told him that we do not wish him to be involved further."

As of July 21, when we went to press, despite rumors that a $500,000 bid from Harmon International had been submitted to Bay Bank, no bids have been publicly accepted. If none is received by August 1, it is likely that the assets of NED will be sold by auction. Most parties express incredulity that a phenomenon like the Synclavier, and the massive investments of hundreds of owners, could be effectively wiped out in the very near future. But Palmer's take on the situation is as cold and clear as a New England winter: "Regardless of what comes out of Fostex, regardless of what Bay Bank does, it's really over. The 300 people who use the Synclavier every day, and the 700 people who own one, are basically fucked and far from home."