DVD dawns, but CD replication profits press on

Emedia Professional, June, 1998 by Debbie Galante Block

Perhaps replicating the 100,000th copy of Jumanji on DVD may sound glamorous in an advertisement or press release, but is that work really paying the bills of today's replicator? Like the rest of us, replicators may get caught up in the frenzy that surrounds DVD, but it's cranking out covermount CD-ROMs and Internet-provider freebies that keeps a plant's production lines humming and electric bills paid.

Many replicators say new CD customers continue to proliferate, particularly as CD-ROMs use as a sales tool becomes ever more prevalent. Brian Wilson, Executive Vice President of Sales and Marketing for Hauppauge, New York-based Allied Digital Technologies is among several replicators who have identified this unabating upsurge of CD-ROM usage. Although most discs replicated at Allied are CD-Audio, Wilson says, "we still saw an increase of 2 to 3 million units of growth in CD-ROM last year not only because customers are increasing order sizes, but because we continue to gain new customers."

While some industry soothsayers see CD-ROM falling by the wayside as bigger and better technologies like DVD emerge, most replicators expect their CD-ROM production demands to grow until the turn of the century at least, with another couple years of good business expected after that. Avrum Mayman, CD product manager for Kao Infosystems, Fremont, California, says, "Customers will not move to DVD until they see what it can do for them. Moving into DVD is like moving into a big house. At first you don't know what do with all of the room."

DVD hasn't eroded CD-ROM demand for several reasons, ranging from a staggering cost-of-goods differential to a much smaller installed base to the fact that the two technologies are playing into different markets at present. The biggest early DVD push has been in the video and movie market, while scattered DVD-ROM titles have focused mostly on making single-disc versions of formerly multidisc CD-ROM databases--which leaves CD-ROM all the multi-application, multimedia real estate in between, plus probably a good chunk of the data-oriented DVD market while DVD-ROM drives remain relatively scarce.

As a result, many replicators are readying themselves for DVD technologically, but still preparing for predominantly CD-oriented business. Bob Freedman, Vice President and General Manager for Hollywood-based replicator Crest National, says that Crest, which started up CD replication in 1996, started with output of 150,000 discs. That number moved up to over 15 million in 1997 and Freedman expects to replicate 18 to 20 million discs in 1998. Crest is in the middle of an expansion, and if completed this year, capacity could go up to 37 million discs this year. "Only about I percent of that is DVD," Freedman adds. During the busy season last year, Freedman says, "we had the opportunity to do 8-12 million more discs than we did, but because we didn't have the capacity we had to turn business away."

Bob Headrick, President of Nimbus Information Systems of Charlottesville, Virginia, says, The 1997 holiday season was a clear indication that there is still huge growth in CD-ROM. Lower-priced computers continue to offer growth to the installed base."

Infotech, a Woodstock, Vermont-based market research firm, says that worldwide unit sales of CD-ROM drives increased 27 percent in 1997 to 74.1 million, contributing to today's 200 million worldwide installed base of CD-ROM drives on PCs and videogame consoles. Compare that to 330,000 DVD-ROM drives--all installed in 1997--and compare 60 DVD-ROM titles in print to nearly 46,000 CD-ROM titles in print, and it's not hard to see why CD-ROM remains the replicator's meal-ticket medium. Even Microsoft vaunted Windows 98--which now supports DVD-ROM-friendly MPEG-2 video file types and is what most feel will give DVD-ROM legs--will be released on CD-ROM, and that title alone is likely to keep CD manufacturers working day and night. DVD-ROM will not likely replace CD-ROM until about 2002, Infotech forecasts. But, projections aside--only by looking at genuine replication numbers can we realistically gauge the relative stature of CD-ROM and DVD in today's optical disc production market. How much of a replicator's business is CD and how much is DVD?

Most of today's leading replicators say about 1 to 5 percent of the discs they produce are DVD, and the rest is CD-ROM. According to UK-based Understanding & Solutions Ltd., which offers specialty information and consulting services, "The CD-ROM pressing industry has continued to experience growth with output increasing by 35 percent last year. In terms of CD-ROM production, it is expected that worldwide output will expand by 18 percent this year, to reach dose to 2.7 billion discs." Although Understanding and Solutions estimates that 43 percent of the CDs produced worldwide come from the United States, the Asian market has enjoyed the most growth in the last two years, and that market is likely to continue to expand even as U.S. growth begins to level off, sources say.