DVD dawns, but CD replication profits press on

Emedia Professional, June, 1998 by Debbie Galante Block

Of course, Bill Gates said not 15 years ago that no one would ever need more than 681KB for anything, so the lesson here is that as capacity grows, content will grow to fit it. But such evolutions take time, and while the bulk of content providers work to catch up with DVD, the medium of choice for cheap production and mass distribution will remain good old CD-ROM.

WHAT ARE REPLICATORS BUYING?

The bottom line is that most replicators with a few dollars under their belt--or, more accurately, a few million for ramping up to DVD-ROM--will produce DVD if their customers want it. It doesn't appear that real research is going into improving CD, so R & D budgets are increasingly re-channeled to DVD. As Nimbus' Headrick says, "Prices have dropped so low on CD, there is little interest in putting more money into developing the product! However, that doesn't mean some well-directed tweaks aren't in order; replicators are always looking for ways to improve their cycle times, to increase their yields, and thereby to increase efficiency and quality. For instance, Cinram, replaced all of its equipment in the last 12 to 18 months, according to Rusty Capers, Vice President of Business Development. Kao's Mayman also says, "We gained some capacity last year--about 10 percent--by improving productivity of our machines."

Despite overcapacity, some CD manufacturers are still expanding. Most of those expansions come, however, when replicators have commitments from clients and they know they will need it. Other more cautious replicators outsource, Product during the busy season so as not to have idle lines the rest of the year.

If a replicator is expanding, they are likely buying machinery that can be used for CD now--to meet their primary demand in that arena--and then later switching to DVD when demand for that product picks up, says Nimbus' Headrick. That is the case with IPC which started up CD-ROM replication in 1993. "We've been conservative in expansion, but we've seen 40 to 90 percent growth every year, including 1997," according to IPC's Morgan. "Last year, our equipment ran seven days per week. We even had to outsource CD-ROM for two months of the year. In January, we moved into a new facility and purchased four new replication lines. Although the lines were built for DVD, we are likely to use them for CD at first. Even the in-line bonder can be used as a spin coater," according to Morgan.

Even the most DVD-aggressive replicators admit, CD-ROM is where their bread is buttered right now. Sean Smith of JVC Disc America says JVC's optical disc capacity in 1997 was 120 million per year; only 7.2 million of that was DVD. In 1998, the DVD number will almost double to 1.2 million; still, Smith says, "that is only a small percentage of what we do. We are adding a couple of additional machines to do standard CD--we expect that market to grow until the year 2000--there is too much of an installed base to ignore the format," he explains.

Nimbus has probably taken one of the deepest DVD plunges of any replicator to date, and even their numbers are heavily skewed toward CD-ROM. As Nimbus' Headrick says, "Our CD capacity is 170 million per year, but our DVD capacity is only 22 million per year." Kao's Mayman reports a similarly CD-heavy production set-up. "Our total North American optical disc capacity is 530,000 per day; only about 10,000 of those are DVD units." And Sanyo-Verbatim CD Company saw a 35 to 40 percent growth rate in CD-ROM last year, according to spokesperson Tom van Gessell. While the company's total optical disc capacity is around 65 million per year, only about 200,000 of those produced are DVD discs, he notes.