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Ancillary Business a Mixed Bag

10 Apr, 2009 By: Chris Tribbey

Recent months have seen a combination of two things that are bad for any business: a drop in demand and clients who can’t pay. So says Andy Forman, VP of sales for DVD and Blu-ray Disc replicator Expedia Media in Anaheim, Calif.

“In general, January and February were horrible. March picked up pretty good, and it’s carried into April, but not enough to make up the numbers,” he said. “But the biggest problem has been collecting from clients. A big, good client for 10 years is into us for six figures.

“We’re getting beat up in that regard.”

DEG: The Digital Entertainment Group reported 2008 saw DVD sales down 9%. And 1,200 fewer DVDs were released in 2008 compared to the year before, according to The DVD Release Report. The drop-off is being felt by replicators big and small.

“It’s really a mixed bag,” said Paula Tait, EVP of sales and marketing for Precise/Full Service Media in Ontario, Calif. Precise handles replication, packaging and distribution. “Some of our clients are actually increasing both the number of titles and the volume … but some of the smaller replicators are in trouble. The cost of the physical goods, the licensing costs … it’s definitely hurting some people.”

Dublin, Ohio-based Zomax had to cut more than 100 employees in January. In November, Clearwater, Fla.-based Evatone filed for bankruptcy. Both Cinram and Technicolor posted big losses for 2008, with Cinram laying off 200 employees in March.

“The decline in EBITA (earnings before interest, taxes and amortization) was the result of lower average selling prices for DVDs, which coupled with lower unit volumes are the two main drivers of Cinram’s profit margins,” said CEO David Rubenstein, while reporting a $33.8 million annual loss. He resigned at the end of March.

“There’s been some consolidation,” said Ed Virgie, president of Biddeford, Maine’s Media Services Group, which sells replication equipment and helps with replication plant set-up.

He said that from 2000 to 2001, the per price replication costs for a DVD was halved from $2 to $1, due to the competition. Today a DVD-9 will cost less than 50 cents, he said.

“There’s definitely been consolidation in the market and price degradation,” said Ryan Anderson, director of North American sales for Carrollton, Texas-based replicator Duplium. He said that his company is doing well during this recession, thanks to Duplium’s diversification in services it offers.

“It’s gotten cutthroat out there,” Anderson said. “In this industry, you need to do more than the traditional.”

Those who seem to be doing well are offering suppliers a one-stop shop. If you can cut a warehouse shipment or two and do your replication, packaging and printing in one spot, it’s better business, replicators said.
“Diversify, get into fulfillment, packaging, anything to make you stand out,” Virgie suggested.

One thing that isn’t standing out with smaller replicators is Blu-ray Disc.

“The whole Blu-ray Disc cycle hasn’t really taken off yet, or filtered down to the smaller, mid-size replicators,” Virgie said.

That was confirmed by Technicolor in March when its parent company, Thomson, blamed a nearly 31% year-over-year drop in profit due largely to lower worldwide volumes and price declines in physical medias, not offset by the growth in Blu-ray and distribution. For 2008, Technicolor’s DVD replication volume was down 5%, and Thomson posted a loss of $2.49 billion.

Expedia Media is unique in that it has BD25 lines, and is getting ready to install two BD50 lines. Sony DADC, Cinram and Technicolor handle most of the Blu-ray work for the industry.

“It was cost prohibitive for us, but we needed to step up to keep our installed base, our key studio partners,” he said. “If the current trends for Blu-ray continue, it will help our business.”

One area that seems to be doing well: green packaging. David Beschen, president of GreenDisk in Issaquah, Wash., called his business “booming,” adding that in the past 18 months his company has added 150 or so clients in the home entertainment industry.

“Retailers are dictating it, but people are paying more attention to the environment, and as it turns out, being environmentally conscience is economically smart. You eat what you kill, and don’t waste anything,” he said.

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