Medicine for Ailing Discs11 Dec, 2003 By: Erik Gruenwedel
Libby Cleveland, owner of Shipley's Video Shack in Frederick, Md., was on a mission. An 18-year veteran of the day-to-day challenges of running a rural business with six employees, Cleveland attended the recent East Coast Video Show in search of supplementary income.
“My competition is Netflix,” said Cleveland, citing a neighbor and former customer who had switched to the Internet-based service. “For $20 a month you can watch an unlimited number of titles. Why go to your video store? It's a sad thing [for me], but it's the way things are turning.”
As an antidote to wayward customers, Cleveland was at the show to purchase a disc repair device.
“I want to use [disc repair] as a side business,” said Cleveland, who downsized her two-store portfolio about three years ago. “Make unplayable product good, and bring new life to them.” She is not alone in her quest.
Tom Hannah, owner of Video Quest in Joliet, Ill., said the purchase of a disc repair device afforded him a positive image with customers.
“In the past we've sold many used DVDs that had scratches,” Hannah said. “While those DVDs still played fine, they were perceived by our customers as being not as good as new product.”
After spending about $200 a week outsourcing its damaged rental discs, House of Video in Portsmouth, Va., recently upgraded to a “more user-friendly” machine and “may start this soon as a convenience to our customers,” according to president Scott Tompkins.
Damage to CD/DVD discs -- typically in the form of scratches, dirt and gouges -- costs the average rentailer $1,845 per year, or an estimated $50 million annually nationwide, factoring in repairs and cost of make-good services, according to Video Store Magazine market research study conducted for disc repair device maker Digital Innovations.
Twenty-three percent of rentailers with disc inventories of less than 1,000 units discard damaged product, resulting in an annualized cost of a damaged disc of 27 cents. That compares to 5 cents per disc for rentailers with inventories of more than 3,000 units, who are more likely to repair damaged discs in-house.
Sixty percent of rentailers surveyed by VSM said they experience damage to their disc rental inventory on a weekly basis. The majority of rentailers (64 percent) repair their discs in-house, while about 10 percent sent their damaged inventory out for repair. Nineteen percent discard their damaged inventory.
More than 50 percent of retailers who have owned a disc cleaner for more than a year begin to offer the service to their customers, according to Canada-based Disc-Go-Tech.
Educating David & Goliath
Driven by the margin potential of used product sales, including video games, independent retailers are also refurbishing DVD discs as a competitive edge against big-box operations such as Blockbuster and Hollywood Video, say industry experts.
“Disc repair done inhouse can be a means of separating an independent store from the national chains,” said a representative from Lincolnwood, Ill.-based RTI DiscChek, which manufactures several devices. “The big chains have been able to negotiate a better deal on their buying/replacement of product from the studios because of their volume.”
He said retailers should look at the purchase of a disc repair device as any other kind of business investment.
“If you buy [a] machine, your business is worth more,” said the representative. “You are able to put product back into service.”
That's what prompted Jim Evans, owner of Make It Play Again in Mount Sterling, Ky., to open a disc repair service two years ago.
With the advent of graphics-laden video games for Sony's PlayStation 2 and Microsoft's Xbox, the discs have to be spotless, Evans said.
“The old PlayStation games didn't matter: You could run them over with a truck and they would still play because there wasn't much data on them,” said Evans.
When the owner of a local video store didn't want to invest $10,000 in a disc repair device, Evans figured he would fill the void. He charges up to $3 a disc, and said the process is as much an art as science.
“You can't take an hourly employee and stick them behind one of these devices and expect them to produce a polished disc,” said Evans. “Not in a productive manner.”
A typical repair device removes about one micron to two microns of surface material from a disc, which is then buffed or polished for clarity. Cleaning techniques include sanding, cutting and liquid abrasives.
Evans, who said he repairs as many as 500 CDs, DVDs and game discs per week, laments the occasional retailer apathy regarding disc repair. He said he has advertised his services in the trades for free “to show them what I do.” The response was negligible.
“A lot of these people just don't want to be reached,” said Evans, who admits he hasn't found a way to combat the dilemma. “Once I get a customer, though, they are tickled to death.”
Retailers looking to purchase a disc repair device can expect to spend from $1,000 to $3,000, according to Scott Hence, owner of Compass Distribution in Fountain Hills, Ariz., which markets several brands.
With just 25 percent of independent rentailers engaged in disc repair, according to Hence, he said the market potential for devices costing more than $10,000 is good because of automation.
“Labor is expensive,” said Hence. “And most devices can repair up to 12 discs an hour, if the operator knows what they're doing.”
Cleaning 10 discs an hour at $7 per hour costs about 80 cents per disc in labor. Add up to 45 cents in cleaning materials per disc, and it can cost about $1.25 a disc to refurbish, according to Hence.
“If you buy an expensive machine, it keeps you at the material cost and not the labor cost,” he said. “It's either pay me now or pay me later.”
At the high end of disc repair machines, Azuradisc, in Chandler, Ariz., in January will bow at the Las Vegas-based Consumer Electronics Show a $20,000 device that can clean up to 180 DVD discs simultaneously.
Disc-Go-Tech, which sells a $60,000 disc repair device, services more than 3 million discs annually, according to Rick Mathers, VP of sales and marketing.
“We consider the higher end of the market,” he said.
Todd Trust, whose Damaged DiscRepair manufactures a $999 device in Bourbonnais, Ill., questions the need for the expensive machines.
“The big boxes when they get a bad DVD they turn it back for a credit,” said Trust. “A $60,000 device … who can afford that?”
In a market that offers disc cleaners that range from $30 handheld buffers to fully automated industrial devices, separating manufacturers' claims from reality can be a challenge.
“Everybody says they have the best product,” said Fred Saghian, whose JFJ Disc Repair in Van Nuys, Calif., markets a $799 device. “It's basically a marketing game.”
Marketing on the Internet and through mass merchants is just what Audio Video Supply (AVS) in Phoenix and The Disc Doctor in St. Louis have done.
The companies market an assortment of buffers, brushes and cleaning solutions for less than $100 to give consumers the option of cleaning CD and DVD discs at home.
Ed Lalli, VP of sales at AVS, admits his device is not designed for industrial use.
“The industrial products are either service-based or equipment-based, and are designed to help video stores and game stores take care of large quantities of disc repair,” said Lalli. “It's more of a business-to-business transaction.”
Libby Cleveland at Shipley's Video Shack located a repair device but did not purchase it due to the unit's $2,400 price tag, among other concerns.
“I really did like it, but … at that price it would take me a year to pay for it,” said Cleveland. “I would have gotten the machine if it had been $500 or $600 less.”
She was irked the manufacturer never brought up financing options, especially during follow-up calls after the show.
“If somebody would have said to me, ‘Do you want to pay X amount per month?,' I might have considered buying,” she said. “It would be nice to have a machine to buff out DVD discs. I am a busy store, especially on weekends.”
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