Kodak and Panasonic form new venture to produce CD-R and DVD discs - Matsushita Media Manufacturing LLC of America - Company Business and Marketing

Emedia Professional, Feb, 2000 by Hugh Bennett

Keeping pace with the demand for CD-R and the growing popularity of DVD presents optical media manufacturers with a formidable challenge. It's not surprising, therefore, that some strange corporate bedfellows emerge in the ongoing hunt to stay competitive and remain positioned to take advantage of future market opportunities.

The latest pairing is long-time CD-R media producer Eastman Kodak Company and DVD disc replicator Panasonic Disc Services Corporation (PDSC), who have announced the creation of a new contract manufacturing company, Matsushita Media Manufacturing LLC of America. The new venture will manufacture and supply optical media to both parent companies.

Kodak's contribution to the union is intellectual property, engineering, and technical expertise as well as existing CD-R disc manufacturing facilities in Youghal, Ireland, and Guadalajara, Mexico. PDSC will provide technical and financial assets but, when asked, declined to be more specific concerning its investment. PDSC will hold a 51 percent controlling interest and Kodak will make up the remaining 49 percent. Operations will be overseen by a five-member board of directors comprising three executives from PDSC and two from Kodak, with Bob Pfannkuch, the current president of PDSC, serving as the president of the new company.

According to Cheryl Bianchi, Worldwide Product Marketing Manager for Kodak's storage group, the decision to partner its CD-R manufacturing with another company "goes back to 1997, when we decided to reposition the CD business." At that time, Kodak discontinued production of its six-speed CD recorder, shut down the related high-speed hardware development program, and set the wheels in motion to sell its CD-R manufacturing concerns. Fortunately, since then the prospects for CD-R have brightened tremendously. "With the introduction of strategic products like Picture CD," says Bianchi, "it just wasn't in our best interest to get out of manufacturing entirely, so we started looking for an ideal partner."

One was found in PDSC, says Bianchi. "Panasonic is a good heavy player who gives us access to intellectual property [through PDSC's parent Matsushita Electric Industrial Co., Ltd. (MEI)]. Both parties benefit from greater economies of scale in things like raw materials, which make our world-class manufacturing even more competitive." In addition to being the sole customer for ail CD-R discs produced by the new company, Kodak will continue to engage in product and process development, and carry on with its existing worldwide sales and marketing efforts. "We're extremely excited," says Bianchi. "We've accomplished everything we set out to do: we've removed assets from our books, retained all our employees, and put ourselves in an excellent position for the future."

Long-time optical industry analyst John Freeman of Strategic Marketing Decisions agrees. "It's good news. Kodak is still in the sales and marketing of CD-R discs, maintains its technology, and remains an industry contributor." The only down side, according to Freeman, is that "they loose a little control of manufacturing, but that's not a terrible thing."

So what's in it for PDSC? Manufacturing partnerships are nothing new to PDSC, which just last spring entered into a joint venture with Universal Music & Video Distribution to produce DVD discs in Universal's CD facility in Pinckneyville, IL. Although the current agreement with Kodak only covers the contract manufacturing of CD-R discs, it's expected that PDSC will install DVD replication lines in both the Irish and Mexican plants. Benefiting from ready-made facilities with an already-trained workforce, PDSC can quickly expand its regional manufacturing presence and gain access to the European DVD market, which is expected to grow significantly over the next few years.