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Blu-ray Disc production increased by 60% in 2010 with more than 400 million
units sold, according to Futuresource Consulting, but the researcher says that
Blu-ray replicators will have problems meeting anticipated demand later this
year unless they improve investment plans.
Corporate
Development MD Jim Bottoms says, “The industry needs to spend more than £65
million in new plant and equipment, just to meet the current requirements of
the content community. When you get the sort of spike in demand that ‘Toy Story
3’ created for six weeks last year, you can see the need to ramp up capacity.”
The world
has been in love with discs since Edison recorded sound. By simply squeezing
shellac, vinyl or polycarbonate in a press, manufacturers can replicate every
lump and bump of the original master, producing millions of identical copies.
This mass production principle has proved so effective that it remains
unequalled to this day. Whenever a title exceeds expectations, disc output can
expand rapidly to meet demand.
In the
boom days of DVD, there were plenty of “second tier” disc replicators ready and
able to pick up overflow work when the unexpected hit came along. Today, few
companies are willing to spend several million pounds to mass-produce Blu-ray
Discs, unless there is guaranteed demand. The result of the slow-burning
success of Blu-ray sales is a logjam in capacity between September and the end
of each year.
Statistics
supplied by Futuresource show that UK households bought 14 DVDs for each player
they owned in 1999. This “tie ratio” for DVD had fallen to 10 by last year. The
Blu-ray tie ratio climbed from 3.7 in 2008 to 4.1 discs in 2010 and balanced
the reduced sales of the earlier format. In Germany and France, the tie ratios
of DVD and Blu-ray players in 2010 were almost equal, at about 4.5 discs per
player.
Overall,
this picture shows a gradual decline in DVD volumes as Blu-ray makes headway
both in absolute numbers and in value. In the German packaged media market last
year, one Euro in seven came from Blu-ray retail sales.
Bottoms
says, “One of the main drivers for Blu-ray is the triple pack, with a Blu-ray,
a DVD and a digital copy all in one box. Most homes have several players and
the fact that DVD machines won’t play BD discs has negatively influenced the
purchasing decisions of consumers. The triple pack adds all the value to the
Blu-ray and positions both the DVD and the Digital Copy as stripped-down
‘vanilla products’ for use away from the primary home screen. The marginal cost
of putting the extra discs in the box is small.”
Sourcing
the DVD and CD-ROM discs will be easy but the growth in demand for Blu-ray
alone or as part of a triple pack is a potential problem. “There have to be
more Blu-ray lines ASAP and, or, distributors have to advance pressing dates,
which is difficult in a business that is driven almost entirely by new
release,” Bottoms says.
The window
between theatrical and Blu-ray release gets ever shorter and to assemble the
assets and approvals becomes increasingly complex in the timescale allowed.
“Catalogue content on Blu-ray will be fine, that can be pressed during the low
season but unless capacity increases, retailers may not get the stock
quantities that they order. In the worst-case scenario, we could see titles
miss their street dates,” he says.
There are
four major Blu-ray Disc suppliers: Technicolor, Cinram, arvato and, of course,
Sony, the largest Blu-ray replicator, with a record of both high quality and
high quantity output.
Sony is
one of the founders of the format and has invested heavily in Blu-ray
manufacturing facilities in Japan, the US and Austria. The company takes the
lead position to promote Blu-ray and the PS3 remains the largest single player
park for Blu-ray Discs, although the “tie ratio” is higher for dedicated
players. In other words, games players watch fewer videos.
The
Salzburg factory could probably meet a large part of the European demand for
Blu-ray catalogue titles for nine months of the year. When Q4 comes along,
existing capacity is committed fully, however, and publishers without a
reserved slot must look elsewhere.
Despite
Warner’s move from Cinram, the replicator continues to be a major supplier of
Blu-ray Discs. CEO Steve Brown, who has transformed the company over the past
year, says, “Cinram is and will continue to be committed to the Blu-ray format
and its success in 2010 saw our capacity increase by 25%.” Although Brown would
not comment on specific plans, further investment in Bu-ray is likely in 2012:
“We'll continue to support the format on both sides of the Atlantic throughout
2011 in order to meet the demands of our studio clients.”
Technicolor
has done well from Blu-ray and although the company has remained silent on its
plans, there are rumours that it might be tempted to expand this year. How much
and how fast is not known.
The other
major replicator, arvato, has an excellent relationship with independent video
publishers. Whether the year-round demand for its Blu-ray services would
justify expansion is unsure, although it is placed well to gain from growth in
the German market if resources can be found.
Other companies have yet to join the Blu-ray brotherhood. In Hanover, EDC MD
and COO John Fitzgerald says, “As demand increases and outweighs supply, we
will certainly be investing in Blu-ray production. When we do, we might put
some value back into the sales of Blu-ray, which could encourage other
operators to enter the market profitably as well.”
Despite
the efforts of the studios to boost the format, Fitzgerald claims the machinery
is too expensive in relation to the potential earnings: “We wish the process
could be simplified, right now the economics for the replicator are not such a
great deal.”
One or two
independents have been tempted to install Blu-ray lines including VDC in the UK
and leading French supplier MPO, whose Marketing and Communication Director
Victoire Bastien says the company has invested €10 million in a complete
Blu-ray production chain over the past two years in response to customer
demand. He says, “This makes MPO the first independent manufacturer in Europe
to offer a full Blu-ray service, from mastering to packaging, including BD25
and BD50 replication. Over the past quarter, the group has pressed two million
Blu-ray Discs for 30 publishers and MPO plans to reinvest in new equipment to
stay ahead of new trends in the Blu-ray format.”
The
challenge for MPO and others that seek to expand or enter the Blu-ray market is
not only the current shortage of investment funds but also the fact that there
is only one credible alternative supplier to Sony for the replication plant.
And that company builds only to order with lead times of several months.
Singulus,
based in Germany, made its name in DVD machinery and in 2004 revenues stood at
€440 million. Entry into the Blu-ray business proved slow and expensive for the
company despite active support from the Blu-ray community, and by 2009 sales
had slumped to €116.6 million. The addition of a division dedicated to solar
energy has stabilised the company’s position but despite this, 2010 revenues
were static at €118.5 million. They need new customers to remain in the Blu-ray
market.
Many other
Blu-ray infrastructure suppliers including manufacturers of packaging lines are
in a similar holding pattern. Unless some significant orders are placed over
the next two months, the only source of Blu-ray equipment will be second-hand.
Potential customers should contact Des George at Add-Y-Pac in Switzerland…
Futuresource’s
Bottoms says, “More than 25 million dedicated DVD players were sold in the US
last year on top of stand-alone Blu-ray and PS3 sales. That’s the equivalent of
one in five of the population – not the world falling out of love with the DVD,
is it?”
It took
Edison a while to realise that the phonograph cylinder was doomed and that the
future lay with the disc.
The warning from Futuresource on Blu-ray Disc
capacity might have come just in time.
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