Tewksbury, Mass., used to be known for its carnation industry. Now it nurtures something far more fragile—the images of Julia Roberts, Russell Crowe and just about every other actor. Located half an hour north of Boston, Tewksbury is home to Avid Technology, whose 1,700-plus employees are foiling the attempts of Japanese giants Sony and Matsushita (the parent company of Panasonic) to penetrate the fast-growing market for digital video-editing software.

Founded in 1987 by two M.I.T. graduates, Avid makes tools that allow editors of movies and TV shows to manipulate the images, voices and surroundings of the stars. Avid has won 45% of a professional computer-based editing and special-effects global market, worth $1 billion last year and expected to double by 2005. Its closest competitor, Discreet Logic, a division of Autodesk based in Montreal, has 30% of the market. Though Sony and Matsushita dominate electronics hardware, they have managed to win only 15%.

How does little Avid, with a market cap of $415 million, stay ahead of $80 billion Sony and $40 billion Matsushita? For starters, the company carved out its niche early by mastering the difficult art of making its product easy to use. "Avid is the most intuitive editing environment on the market," says Gene Munster, an analyst at US Bank Piper Jaffrey. Tim Squyres, film editor for Crouching Tiger, Hidden Dragon, adds that "Avid's software has gone through many revisions of being designed to accommodate editors."

Movies used to be edited by physically cutting and pasting together individual frames of film. Avid's Media Composer software, launched in 1988, offered a revolutionary alternative: film could be translated into digital information and edited on a computer screen. Media Composer, now in its 10th version, belongs to a host of Avid software that controls everything from sound to 3-D effects. But the company's original appeal is the same. Its programs incorporate elements like a rotating paddle—which mimics an editor's traditional Steenbeck device—and traditional language such as "The Bin," where scenes that have been cut are deposited.

To demonstrate, Avid computer specialist Kent Petersen clicks on a video clip of René Russo and Val Kilmer walking against a blue backdrop. Petersen points his cursor to a scene of a grassy field, drags it over the icon of the Russo-Kilmer clip, and suddenly the actors are strolling through the field. Something's missing, though. Peterson pulls down an editing menu and clicks, and shadows appear behind the actors.

At Avid's headquarters, a trophy case displays an Oscar, Emmy and Grammy awarded to the company's software. One wall celebrates the company's 108 patents. Posters of such movies as Crouching Tiger and Titanic line the halls, and the conference rooms bear names like The Matrix. Each title was edited on Avid equipment. Says company president David Krall: "You're able to trick the mind into seeing things that it believes are real. It's the highest art form." The Japanese competitors aren't giving up. Sony recently unveiled XPRI, for high-definition professional editing. Matsushita has focused its efforts on lower-end broadcast news. "Sony and Panasonic are like ocean liners. They turn, but they turn slowly," says Joseph Bentivegna, an Avid vice president. "By staying nimble, we've been able to keep ahead." For example, when actor Oliver Reed died during the filming of Gladiator, director Ridley Scott didn't panic. He retrieved discarded shots of the slave trainer and, with the help of Avid software, produced two scenes starring Reed.

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