Reply To: Native Instruments Insolvency and Updates

[LinkedMusicians]

Following NI, legal, forum, and social media posts, it really blows me away — but I suppose it doesn’t surprise me — how many people profess to understand this situation when that couldn’t be further from the truth. If anyone is writing that this is no big deal, that NI will be fine, they don’t know what they’re talking about. NI is no longer in control of the business; an insolvency administrator from an insolvency law firm is in control of the business, NI staff is only keeping the business operating during this time. They don’t make strategic decisions anymore.

With regard to those who assert that Native Instruments is going out of business, they also don’t know what they’re talking about. I seriously doubt that this will result in NI going out of business. It could, but the reason that’s unlikely is that the administrator is acting in the interest of Native Instruments’ creditors, and a fire sale would leave them with the absolutely lowest rate of recovery. From the information we have on NI’s debt and earnings, the debt is far beyond the company’s earnings or worth. Consequently, investors are going to look to get back as much of their money as they can, that is why I suspect the most likely outcome is selling off the recently acquired companies like iZotope, Brainworx, and Plugin Alliance — and anything that is of value that NI has delved into that isn’t part of their core business / core competency that may be attractive to other companies, like their Traktor DJ products.

Something I didn’t spend time writing about, but I find very interesting, and in my wheelhouse, and incredibly important if you want to understand what led to the current situation, is the period of NI acquisitions. NI did a number of acquistiions from around 2021 -2023. 2023 was the year that major disruption occurred in the digital audio production world with plugins. Consider one long-established player in the digital audio production world (and physical audio gear, as well, of course), United Audio.

UA began dramatically reducing plugin prices in 2023. United Audio plugins that had been selling for $149–$299 were suddenly being frequently discounted to $29 or $39. So, NI was making their acquisitions just prior and in the midst of disruption in the effects plugin and sample library industries. Both of those events dramatically impact the worth of those acquisitions and the profitability of NI’s core business. NI itself had started discounting at deeper levels than it had before. I recall a few sample library developers — one of them pretty large — discussing NI ‘s new deep discounting practices with surprise.

So just imagine, NI, a small company — granted, the majority owner is a large company, but NI itself is a small company — goes on an acquisition binge just before and during a huge price disruption in the industry, so the high profit margins that were the norm when their buying spree began was no longer reality by the time they made their acquisitions. The company was saddled with massive debt compared to its earnings and value, and with the pricing disruption, there’s no easy way to start making profits big enough to cover all of that debt. The ones who made out here are the ones that sold to NI. Dirk Ulrich sold at a great time and I’m sure that he could buy his former companies back for a fraction of what he sold them for. As a customer, I would consider that an excellent outcome. Dirk founded those companies, and from everything I know, he seemed to do an excellent job of growing them.

I think the best of all scenarios is that NI goes back to only focusing on Kontakt and related products. It built an excellent and innovative ecosystem of developers that is unmatched. NI never had anything else that equaled what it accomplished with Kontakt and the Kontakt ecosystem. As a customer — and I use Kontakt more than another instrument plugin — I want the same people who developed and managed it to keep managing it. NI’s insolvency isn’t their fault. It’s the fault of senior management.

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