That offers were lining up at the door for USL was not a well-kept secret. In the 1980’s, Jack Cashin, owner and CEO of USL, was the first and only person to beat infringement of Ray Dolby’s A-Type noise reduction. He cleverly did this by designing a mathematically equivalent circuit with identical response using a method overlooked by Dolby’s patent. That, plus USL’s own flavor of matrix decoding, elevated USL’s popularity for cinema sound processors. Over the years, USL expanded its product line into measurement tools and media blocks. But the clock was ticking. Mr. Cashin was ready to sell, and QSC scored. The deal closed September 30, 2016.
QSC is well-known as a manufacturer of loudspeakers and amplifiers, targeting all aspects of commercial sound. To be fair, it’s product line has expanded significantly into mixers and other digital signal processors. It has a popular cinema line, including not just speakers and amplifiers, but sophisticated digital signal processing and network delivery of audio. QSC didn’t jump on the DCI-compliant bandwagon during the digital cinema rollout, instead happily selling amplifiers and speakers as cinemas upgraded. But QSC needed to do more to shore up its future in cinema. Immersive sound requires secure signal processing, and while QSC had been successful in providing DTS MDA decoders, they weren’t secure.
This makes USL a strategic acquisition. USL brings substantial expertise in secure, FIPS-compliant design to QSC that it otherwise doesn’t have. With the acquisition, QSC now supplies every piece of hardware needed for cinema with the exception of the projector.
In terms of competitive positioning, the USL acquisition opens new doors. Just as server companies found themselves on the tail of projector sales, QSC finds itself on the tail of immersive sound sales. To understand this better, one should think of the key element of a sale. Prior to immersive sound, it was the exhibitor’s desire to upgrade speakers or power amplifiers that drove the sales process. With immersive sound, the sale centers around the selection of immersive sound processor. Today, that positioning puts Dolby in charge of the sale, as its Atmos system is the most popular immersive sound system. But that will change as immersive sound distributions become interoperable, opening the door to competitive systems.
In this regard, QSC’s timing couldn’t have been better. This month, Dolby introduced its own amplifier and speaker systems for Atmos. The acquisition not only gives QSC new technical chops, but it also turns QSC into the key manufacturer of secure immersive sound processors for Barco/Iosono and DTS MDA. As a standard for uniform immersive sound distribution emerges, QSC will be uniquely positioned to compete head-on with Dolby.
But taking on the role as king of cinema hardware only goes so far. Strategic thinkers in the industry know that long term relationship with exhibitors will be built through software. QSC has not entered the cinema market with software solutions, such as a TMS or a monitoring system, but it’s not out of the question. To be wildly successful in software requires the ability to scale rapidly, which in turn requires capital. The current mix of companies in the software space, such as AAM and CES/Cielo, are somewhat constrained in this way. In comparison, QSC has a diverse product line that fuels expansion into other product and service areas. QSC already has substantial software capability for product development. If QSC chooses to move into enterprise software for cinema, it should be able to do so in a big way, with its strength in cinema hardware as its backbone.
In terms of integration, QSC and USL should be a good fit. QSC brings capital and solid engineering management to products under development within USL, just as USL brings new expertise to QSC. USL is located in San Luis Obispo, California, and is expected to remain there for the time being. QSC already operates in Costa Mesa, California, and Boulder, Colorado, so already manages satellite operations.
No acquisition is without its challenges, but none standout as significant problems for QSC and USL. These two companies should fit together as hand in glove. If QSC plays its cards right, this acquisition could be looked back upon as a visionary step in building a true market leader.