However, this year, I've started to doubt my own rants because I, too, have been downloading music in spite of myself. It all started with my fondness for American Idol contestant Constantine Maroulis whose rock band, Pray For the Soul of Betty, has a Web site. I downloaded that music and from there … well, the rest is history. Now, in fourth quarter, with the holidays fast approaching, downloads are not the only thing affecting replicator business. Higher raw material and transportation costs have become the manufactuers' biggest concern during this crucial time. There's good news, however. In spite of it all, replicator business is up in both the U.S. and Europe.
"We are probably going to hit a disc volume at this facility this year that we haven't seen in maybe three or four years," says Inoveris president Melodie Gee. "We've seen an increase in CD demand that surprised me."
Inoveris is not the only outfit to report a rise in CD demand. "CD demand is like a tsunami wave moving over the industry," says Per Save, vice president of sales and marketing at Sonopress USA. While not as enthusiastic as my other two sources, Sean Smith, senior vice president, sales and marketing, JVC Disc America, also reports modest growth. "If you check out the retail sector, the CD format is down 50 million units year to date," Smith says. "However, since we are diversified over various genres, we have experienced growth."
On the music side, both CD and DVD have the potential to get a much-needed shot in the arm. Sony/BMG Music Entertainment told me they have committed dollars in the seven-figure range to market DualDiscs to consumers this fall.
With the exception of Star Wars: Episode III, Revenge of The Sith, which is due out this week, blockbuster DVD releases may be on the light side this year, but overall DVD demand is still up. "DVD has flattened at the theatrical level, but the console business continues to grow at low double-digit percentages," according to Smith. (Bad news for Hollywood, of course, but if you're a replicator, you're interested in volume, no matter where it comes from.)
Hermann Heemeyer, senior vice president, sales & marketing, Sonopress, Europe, notes the same trend. "We see strong growth for DVD in music videos and games," he says. "The games industry is beginning to move from CD to DVD format." Bob Hurley, executive vice president of Sony DADC, confirms that PlayStation 2 demand is also at least as good as it was last year.
Despite the fact that Hurricanes Katrina and Rita have devastated business in specific areas in terms of delivery, no replication plants were directly in their path. That has been good news in terms of disc supply which, according to replicators, seems to be just enough this year. However, the continuing rise in raw-material costs, exacerbated by the hurricanes, has caused problems in the disc packaging space. "Many polypropylene converters are located on the Texas Gulf Coast," Smith says. "As a result, many Amaray-style case and jewel-case suppliers are speaking about shortages next month. Prices have doubled over the past four months. The result is higher costs and allocation discussions." DADC's Hurley indicates that some commodity suppliers have already invoked force majeure for their inability to deliver their goods.
Packaging price increases over the past four months have been frightening, according to Sonopress' Save, "It seems those suppliers have taken for granted that replicators have no other place to go and will accept higher prices," Save says. "However, they may be surprised to see the industry begin importing more. We understand raw materials prices are squeezing them, but by the same token, our clients are expecting an improved price from the top. It's not good business on the part of our suppliers to raise prices on us five minutes before we are ready to drop a job."
Competition remains fierce for manufacturers. During the busy season, replicators have a better chance of getting reasonable prices for their work, but how will the rising costs affect them in the new year, when they are scrambling for business? "When replicators are hungry, they'll do a lot of goofy things for clients," says Cine Magnetics vice president Bob Orzack. "Clients, for the most part, have become very unforgiving. Everything is based on the almighty price. I lost a very large job last week over a nickel. And it turns out that the replicator I lost it to is only licensed by two of the three royalty companies. There's my nickel!"
I thought perhaps with transportation costs up, customers might be ordering product differently, engendering longer runs. That doesn't seem to be the case. Sonopress' Save says, "At the end of the day, transportation costs are really a small portion of the finished goods price. It costs more to have big orders that are ultimately unsellable."
Hurley disputes my theory as well. "Order sizes are actually getting smaller, and reorders more frequent," he says. "Shelf space is always an issue with so many titles available. Retailers want to sell what's moving, not what's sitting. Sell-through of a title is very high the first week, but then sales usually fall off quickly. I think if you do have a hit title, you are chasing it with reorders as opposed to chasing it with inventory."
All that said, are replicators worried about next year, and physical formats disappearing off the planet? Not so, it appears. "Look at all of the people who said books would disappear once they were available on CD," Inoveris' Gee says. "Or that newspapers would disappear since we now have the Internet. That's not going to happen."
And for the record, I just ran down to my neighborhood FYE entertainment store to buy Nickelback's new CD, All The Right Reasons, prompted by my initial download of the band's single "Photograph" for my new iPod. As easy as it would have been to download the whole thing, it was important to me to get the physical disc--for all the right reasons.