Harris Regroups With Multi-Pronged Strategy

Among suppliers of technology to broadcasters, Harris has one of the oldest and most venerable brands. But the Broadcast Communications Division of Harris Corp. has experienced some lean years of late, posting losses in revenue and profits due in large part to the collapse of the domestic transmitter business in the wake of the digital transition last year.

To turn things around, the division has been implementing a new strategy and undergoing a major reorganization. Directing that effort is the aptly named Harris Morris, who succeeded Tim Thorsteinson as president in February. Morris had been VP and general manager of the division’s media and workflow efforts.

In this interview with TVNewsCheck, Morris talks about the new strategy that will rely more heavily of international sales, repurpose existing technology in new markets and help broadcasters find new ways to exploit new technology.

I understand that the division has undergone some significant changes since you took over. Can you fill us in on that?

The key thing that we thought we needed to do was to increase the emphasis on four areas. One was international and making sure that we had the right level of global emphasis on the markets. So much is currently outside the U.S.

The second piece was to enhance and improve our operational execution in our most complex business, which is what we call WIN — workflow, infrastructure and networking. This is the business that is made up of people who were part of the Leitch acquisition years ago.

The third piece was to get a little bit better at strategy and marketing. As we look at the world out there and its landscape in television, we see, on the one hand, the challenges facing traditional linear revenue streams. On the other hand, we see a great deal of opportunity. So one thing we have to do is be very intelligent about making bets on these new technologies and about enabling our customers to cost effectively make bets.

And then just dialing up our financial rigor and discipline because we have a lot of different business models. We have hardware, software and services business models. We obviously employ a lot of capital in things like R&D and in deals with our partners and customers. Making sure we get a good return for shareholders on that financial investment is important.

The last piece is we want to put more emphasis on our growth markets, what we call EBOs, emerging business opportunities. This is taking our technology to adjacent markets.

So, with all that in mind, I actually put EBOs together as a business unit under one leader, Brian Cabeceiras. In the WIN business, we brought in a great leader named Doug Means from Motorola. On the financial discipline side we brought in a comptroller named Karen Sledge. Then on the strategy/marketing side we brought in Brad Turner, a former Bain leader who was at the Berkshire Partners private equity firm.

We also felt that we had some places where we had too many employees working in things that were slightly redundant. So we did announce some reductions. The good news is we were able to do more of that by taking out some contract or shorter-term employees versus full-time Harris folks.

How big of a head-count reduction?

It’s in the ballpark of a 140. Probably a better way to say it is 7% or 8% of the total.

And the center of the universe is now in Denver. That’s where you are, correct?

It is. Although to be honest, our center is pretty light. It’s myself and a few other key functional reports. The real gravity in the business is still in Toronto for WIN and Mason and Quincy [Illinois] for our transmitter business. We have also got a pretty significant presence in the U.K. as well as a few other places.

The division has experienced a 24% loss in revenue over the last two fiscal years. What are you doing to turn that around?

The best news for us is that we did see nice growth in the first quarter for the first time in quite some time.

First, it’s important for folks to know that the bulk of that 24% decline was in the North American digital DTV transmitter market. We were probably not as well positioned as we would have liked to be to capitalize on the growth outside of North America and backfill the transmission slide after the analog-to-digital switch.

So, one of our big investments and our big strategic pushes is to have the right teams in the right global growth markets. We have been doing that now for almost a year and a half, building up our sales, our service, our support in places like the BRIC countries [Brazil, Russia India and China], the Middle East, Eastern Europe and parts of Africa. That’s now starting to take effect. That’s a lot of the upside we did see in Q1.

The other couple of things we’re doing, though, [come down to] really focusing on our core. There’s actually a lot of nice growth potential in our core, even in markets like North America. We are very focused on reducing complexity, launching very compelling new products and continuing to drive, track and test quality improvements.

For a couple of years, our quality and our service and support were not at the level that we think the Harris brand should command. That’s going to remain a significant part of our push — to take share back in the core.

The other thing is we are doing is making a relatively focused, but aggressive, move into adjacent markets: out-of-home advertising; taking our video management technology — FAME system — into the intelligence surveillance and reconnaissance markets; and taking mobile DTV all around the world.

International is about 50% of your business now? Is that going to grow significantly?

Yes. I won’t put an exact number on where it will be when, but it will continue to grow as a percentage of the business.

So what are you going to be doing in core? What do you see as the growth areas? What kind of products will you be prioritizing?

I would say multilinear work flows for content management and advertising.

It’s not that linear programming is going away. Linear programming remains one of the most consistent and biggest sources of money in media. So, we don’t want to eschew that. In fact, some of our products are great at helping people optimize that, products like the Landmark and Vision traffic systems.

But at the same time, everyone’s having to face this really complex challenge of taking all that same good content — the content that’s being made for TV right now is some of the best ever — and getting it to people in a lot of different modes and modalities — mobile devices, on their PCs, over dozens of different over-the-top TV services. So products for us that help enable those multilinear work flows to happen simultaneously and with ease are really important. It’s things like networking and compression and encoding. It’s things like digital asset management. It’s things like the ability to handle nonlinear or advanced advertising formats in traffic and scheduling systems.

Anything else?

We think we can help them in analyzing the new multilinear world to see what’s working.

So, if you are a CBS, you’re going to do a number of experiments. You are now putting every single file into 30 to 70 different versions and sending it out to different media distribution types. You want to figure out which ones are working, which ones are getting consumer attention and which ones are getting monetized.

So we’re doing some work on tools and packages for analysis of things that work.

We’re also obviously going to continue to invest in things like transmission for those global markets. FM radio, of all things, is still incredibly popular and powerful in some global media markets, particularly in some of those BRIC countries.

What do you see as the hot products going into 2011, the products will you be emphasizing and putting your marketing dollars behind?

There’s still a great deal of need for really good products in that traditional broadcasting core — things like servers and automation, video processing and distribution products — so that [our customers] can put really high-quality signals out in whatever mode you’re in.

The second piece is what I would call these kind of more new nonlinear or file-based workflow products, things like digital asset management, things like solutions to do multiformat networking and compression and encoding.

I would say the third category is what I would call next-generation advertising management. A lot of people are finding that they’re still going to have to monetize content through advertising in a lot of ways. But it’s going to be more than just 30-second spots. It’s going to be things like pre- and post- rolls and interstitials and really targeted ads delivered with chunks of nonlinear content.

You do have a broad line of products. Any thought of getting out of some of them?

It’s a very fair question. We have looked hard at that and come back and said that there are no significant exits. What we did find in doing that was that there are some places where we are redundant or maybe where the product line positioning is not perfectly clear. So what I think you will see us doing is eliminating some redundancies.

For example, at one point we had had almost a half dozen ways to do baseband ingest. We’re migrating those to a more consistent kind of single and highly flexible approach or tool.

The other thing I think you will see us doing is just making sure we define product line boundaries and then also really continuing to invest in interoperabilities so that it’s increasingly seamless to put Harris products together with one another in a work flow and it’s also increasingly seamless to move up the chain, if you will. If you start with a product which might be of a lower cost or lower functionality and you want to upgrade or move to something that’s more robust, than that will be easy to do.

TVNewsCheck is focused on broadcast TV in the U.S. How do you think that particular business will do in 2011? What’s the outlook in that market for capital expenditures?

We do see a little bit of capital spending coming back. Obviously people, in many cases, have forestalled purchases and, as that gets longer, the gear gets longer in the tooth. There is a more pressing need.

That said, I think we see two things happening. One, is that there is a lot of pragmatism. So we don’t see some big resurgence. We see more projects becoming a little bit real, but, at the same time, the whole TV industry in North America has put in place a new set of disciplines, kind of a new paradigm on capital. There’s a high emphasis on returns. Are they going to get a return on investment?

There are probably a few more decision makers in the loop for big deals now and there’s a little more time and thought in the process. So, we had to appropriately adjust our business model and our selling and engagement models to kind of work with that. While we do see a little bit of the budgets coming back to being more real than notional, we don’t think it’s going to be some massive snap back where you’re going to backfill the lost spending from the last couple of years.

When you talk about more decision makers, do you mean CFOs and even CEOs getting involved in the big deals?

Where it used to be almost an entirely engineering-driven sale, there’s now almost always business and financial elements as well. Now the titles of the people that get involved and how involved they are depend on the organization, but you see a lot more CFO, CIO, COO involvement.

What about mobile DTV? Will that be a big business for you?

Sure. Yes. We hope it will be a big business and we have certainly made significant investments to try to support it, everything from helping to develop the ATSC mobile standard to making a lot of the products that are out there. The good news is we have more than 60 stations that are up and running with mobile offerings already.

I do think the formation of these two fairly large consortia [of station groups, Mobile Content Ventures and the Mobile 500] over the last several months is going to help. I think that is a particularly great thing for the business to put together the clout of several station groups and to think about how do you acquire the right kind of content model for these devices. That gives device makers, chip makers, etc., confidence that there really may be demand and adoption.

At around $500 million, your division accounts for about 10% of Harris Corp’s total revenue. You say your revenues are up, but it hasn’t been a particularly profitable piece of late. Is the corporation committed to you?

Absolutely. What we see is that our technology … is becoming more and more relevant across the corporation. That FAME example that I gave you before is just a small microcosm of how video is becoming more prevalent in so many things that Harris Corp does.

But at the same time we realize that Harris is a high-performing company and you have got to have all of the pieces be contributors in profit terms. That’s why we’re so laser-focused on getting BCD back into the black this year and showing that we can profitably grow the top line.