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Replicators Face Capacity, Piracy Issues on Brink of Q4

18 Jun, 2004 By: Erik Gruenwedel

DVD replication companies are contending with seasonal capacity and piracy among challenges above and beyond the requisite processing of physical discs.

As home video continues to pay ever-larger dividends at retail, many replication companies have expanded operations to include design, packaging and one-stop fulfillment. More than 1.4 billion DVD units will be shipped in 2004, a 38 percent increase from last year, according to The DVD Release Report.

Beginning next month through the middle of October, DVD replication goes into overdrive as the studios begin to place the bulk of their disc orders earmarked for release during the lucrative winter holidays.

“Right now, if you need to get DVD replication, no problem,” said Sean Smith, director of marketing with replicator JVC in Tuscaloosa, Ala. “If you need it in August or October, however, it is a challenge.”

Major replication companies with contracts with the major studios requiring the capacity to produce millions of discs per title handle increased demand by expanding internally — about $1 million per replication line — or externally through second- and third-party replication companies.

“At this time of the year, anybody that has [legitimate replication] lines and a security guard can get offload,” said Ralph Tribbey, editor of The DVD Release Report. “Nobody builds to maximum capacity, because that doesn't make economic sense.”

Robert Freeman, CTO, optical media, with replicator Crest National, Los Angeles, said seasonal spikes in replication orders are forecasted in advance — with exceptions.

“If several big titles were to release at the same time, this could cause a local overcapacity situation,” he said.

“If there are continued theatrical hits, such as Finding Nemo, I would expect that there would be considerable offloading occurring this year,” said Joel Levitt, president of Action Duplication, a replicator in Philadelphia.

With retail clients that include Wal-Mart, Costco and Sam's Club, a Cinram spokesperson said the company opts to expand capacity internally when necessary.

“We work with the studios' forecasts to make sure it is delivered to retailers on the appropriate street date,” said Lyne Beauregard, Cinram spokesperson.

She declined to comment if the company outsources any titles.

During lulls in the production of entertainment DVD discs, some smaller replication companies focus on educational, medical and corporate clients, whose orders typically run less than 5,000 units.

“Right now, everybody is looking at 50 percent capacity, which really is not a good business model,” said JVC's Smith. “It's a matter of managing your resources properly and trying to make a small margin at the end of the day.”

With heightened scrutiny from the Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA), U.S.-based replication companies are taking the threat of copyright impropriety seriously.

“It is a concern that has caused great financial harm to both large and small replicators,” said Action Duplicator's Levitt.

“I see so much independent product that is coming in below the radar, and I get inquiries from some of the major replication companies saying, ‘where the hell did that company come from?' so I know they are not replicating the stuff,” said DVD Release Report's Tribbey. Despite an industry perception that DVD piracy is rampant in Asia and Eastern Europe, domestic replication companies say lower prices abroad are hard for content suppliers to pass up.

In addition to armed security present during replication hours, most companies have instituted electronic safeguards that track both product and employees.

“A computer verifies the number of copies made and who made them. And if we cannot account for all of the copies made, it starts a serious investigation,” said JVC's Smith.

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