The media manufacturing industry is on the verge of another milestone in its history. The introduction of the next-generation format of the optical disc is imminent, and I take a tremendous amount of satisfaction in having participated in the entertainment industry’s participation in this format, from the introduction of the CD in 1982 and a decade later with DVD, as Senior Vice President and General Manager of Warner Advanced Media Operations (WAMO), where I led WAMO management and engineering as it developed and marketed the DVD format worldwide. I was later the CEO of Ritek Global Media and President of Deluxe Global Media Services.
That’s why I feel that I have to speak out at this point. In order for people and companies to invest enormous amounts of money, effort and intellectual capital developing new products and formats that will move the industry forward, they need accurate information and data to make an informed, objective assessment. And as someone intimately familiar with the economics of physical media manufacturing, I can tell you that the numbers I’m seeing – or more importantly, not seeingâ€”don’t add up for a proven manufacturing process. The rate of DVD sales is beginning to flatten. That’s inevitable, as it is with any format over time, and the average price of DVD discs continues to decline, as it would with any commodity product. At the same time, major film studios continue to reap increasingly larger percentages of their profits from DVD home video sales. Why, at this critical time of transition, would an entire industry want to radically alter its manufacturing infrastructure, incurring massive new tooling capital costs and a huge new learning curve in the process?
Is Blu-ray really superior?
The Blu-ray Disc Association (BDA) has long asserted that its Blu-ray (BD) format is superior to the rival HD DVD format, and BD’s “revolutionary” buzz has understandably caught the fancy of certain technologists. But CEOs should be wary, because what the BDA does not sufficiently address is what lies behind those assertions. The numbers are stark: manufacturing BD discs will require an estimated US$1.7 million cost per manufacturing line. Per line!
Then, each major manufacturing facility would require the implementation of a minimum of two mastering systems, at a minimum cost of US$2 million per system. DVD, at the height of its success, resulted in an estimated 600 manufacturing lines globally. Even allowing for a decline in systems costs over time as the manufacturing base expanded, the tab for radically overhauling the media manufacturing industry would approach a billion dollars worldwide or more. Already-beleaguered CFOs will be challenged to raiseâ€”and riskâ€”this significant amount of capital.
Compare this to the estimated cost of retooling for the HD DVD format compared to BD. HD DVD is able to utilize virtually the entire existing manufacturing infrastructure. The cost of upgrading an existing DVD line is about US$150,000â€”less than a tenth the cost of a BD line. A DVD mastering system can be upgraded for US$145,000. Basically, HD DVD is a DVD-9â€”a version of DVD we have enormous manufacturing experience with alreadyâ€”with a denser pit structure.