CINRAM NOW MIDDLE MAN IN DVD WAR VHS v. Beta: Part II

Discussion in 'DVD Video' started by Allan, Aug 8, 2005.

  1. Allan

    Allan Guest

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    08/07/2005
    CINRAM NOW MIDDLE MAN IN DVD WAR VHS v. Beta: Part II
    BY STEPHEN DAILY BY STEPHEN DAILY Staff Writer Staff Writer

    Two years from now, today’s fierce battle between two emerging DVD
    formats probably won’t mean much to consumers who just want to sit at
    home and enjoy a movie. Olyphant’s Cinram Manufacturing plant, the
    largest manufacturer of DVDs in the United States, has a restricted
    room in the back of the plant that is open to just a handful of
    employees. As in the main production room, it has large, expensive
    machines pumping out DVD after DVD. But instead of the 100 production
    lines in Cinram’s main room, the back room has just two. And instead
    of the thousands of DVDs being shipped out to customers each day,
    those being made in the room will never be viewed by the public.
    Two years from now, today’s fierce battle between two emerging DVD
    formats probably won’t mean much to consumers who just want to sit at
    home and enjoy a movie.

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    But in the meantime, millions of dollars will be spent, lost,
    reinvested and thrown all over the place — all in a concentrated
    effort by massive media conglomerates and movie studios to push their
    competing formats forward as the new and improved replacement for
    DVDs.

    The battle is between Sony’s Blu-ray disc and Toshiba’s HD-DVD. Both
    claim to have a superior next-generation DVD format, with Blu-ray
    citing larger storage capacity and Toshiba claiming a cheaper
    manufacturing process.

    As with the VHS vs. Betamax battle two decades ago, both sides have
    big-name supporters.

    The six major movie studios are split down the middle with Disney, Fox
    and Sony supporting Blu-ray; and Paramount, Universal and Warner
    supporting HD-DVD.

    HD-DVD will be hitting the U.S. market first with its first players
    expected on the shelves in December, Toshiba announced.

    The HD-DVD-supporting studios plan to release nearly 100 specific
    titles on HD-DVD, according to PC World Magazine in San Francisco.

    Sony will follow with a release a Blu-ray machine in April 2006, the
    company said. It will include Blu-ray disc compatibility in the
    PlayStation 3 video game system when it debuts next year. PlayStation
    2 consoles on the market today play DVD movies.

    Meanwhile, Microsoft, manufacturer of the rival XBox video game
    system, another DVD platform, has pledged its support to the HD-DVD
    format.

    “If both formats go to market, be prepared for mass confusion. After
    all, none of us buy our DVDs based upon the studio that produces the
    content. We buy our content based upon their stars, directors, or
    titles,” said Melissa Perenson, associate editor at PC World Magazine.

    The problem is the competing formats are not compatible with one
    another — if you buy one type of disc, you won’t be able to play it in
    the other type of player.

    Inside the lens

    The HD-DVD backers have repeatedly promoted cheaper discs and easier
    replication, while Blu-ray proponents have campaigned on technological
    superiority. A look into the technology behind the two formats shows
    why both sides have taken different strategies.

    The most obvious difference between the two discs lies in their
    capacity. Blu-ray Disc supports 25 gigabytes on a single-layer disc
    and 50 gigabytes on a double-layer disc, while HD-DVD supports 15
    gigabytes on a single-layer disc and 30 gigabytes on a double-layer
    disc. Twenty-five gigabytes of data translates to two hours of
    high-definition video and audio content.

    Blu-ray has talked about a 100- and 200-gigabyte discs already,
    evolving from dual-layer to four or eight layers.

    Both formats use blue laser technology, which has a shorter wavelength
    (405 nanometers) than typical DVDs’ red laser (650 nanometers),
    allowing them to read the smaller digital data “spots” and fit more of
    them onto standard-size discs, thereby increasing the discs’ capacity
    for video and audio.

    Another major issue is compatibility. The new players will be backward
    compatible with DVDs, meaning they will be able to handle both old and
    new DVD formats in the same machine. But the new discs will not be
    able to be played in the current DVD players.

    However, both sides are developing hybrid discs, allowing customers to
    use the DVD side in their current players, and the high-definition
    side when they upgrade their player.

    The initial cost of the new machines is expected to range from $1,000
    to $3,800, though prices likely will drop during the first year.
    Models currently available in Japan sell for $2,000 to $4,000.

    The results

    Although the Blu-ray disc is seen by many as the better technology,
    with more capacity and a clearer picture, that doesn’t mean it is a
    guaranteed win over HD-DVD.

    “The decision makers are savvy enough to know how much capacity they
    need,” said Cinram spokeswoman Lyne Beauregard. “Remember, Betamax was
    better quality than VHS.”

    Phil Leigh, president of Inside Digital Media in Tampa, Fla., said
    money played a significant factor in the VHS-Betamax battle.

    “VHS succeeded because the manufacturers of the player could obtain
    licenses of the VHS cheaper than Betamax,” Mr. Leigh said.

    Sony, which backed the Betamax, hopes the lower manufacturing costs
    doesn’t spell doom for it this time around. The company will continue
    to promote Blu-ray’s better capacity.

    Despite the public support of major movie studios, none of them have
    exclusive agreements with the camp they’ve backed.

    Tim Casey, analyst at Toronto-based investment firm BMO Nesbitt Burns,
    pointed out that despite all the alliances, if consumers decide one is
    better than the other, all the companies will follow suit.

    “None are totally committed,” he said.

    Warner Home Video officials declined to comment on the matter last
    week but issued a statement expressing its full support for the HD-DVD
    format. “However, we continue to work diligently with the consumer
    electronics, information technology and content industries with the
    hope of arriving at consensus on a single format, which will
    ultimately benefit consumers, retailers and studios in creating a more
    robust market,” the company said.

    Both sides were reportedly involved in talks earlier this year to form
    an agreement to push a single format, but subsequent statements have
    indicated that such negotiations are off.

    Ms. Perenson, of PC World magazine, said the Hollywood studios,
    hardware makers and consumers all know that a format war will only
    hold back the growth of high-definition distribution market. But that
    doesn’t mean there will be an amicable resolution now, she said. There
    are still a lot of copy-protection details to iron out before either
    format makes big strides.

    “In a worst-case scenario, they all go to market, and eventually — and
    this will be very expensive and difficult technologically to do — but
    eventually somebody will figure out how to make a single box that will
    play Blu-ray and HD-DVD,” Ms. Perenson said. “If everybody remains
    stubborn, and nobody nudges, that is what is going to happen.”

    Contact the writer: Olyphant’s Cinram
    Manufacturing plant, the largest manufacturer of DVDs in the United
    States, has a restricted room in the back of the plant that is open to
    just a handful of employees. As in the main production room, it has
    large, expensive machines pumping out DVD after DVD. But instead of
    the 100 production lines in Cinram’s main room, the back room has just
    two. And instead of the thousands of DVDs being shipped out to
    customers each day, those being made in the room will never be viewed
    by the public.

    That’s because these discs belong to the next generation of digital
    video. They’re test copies of two rival disc formats vying to replace
    DVDs: high-definition DVDs, called “HD-DVDs,” and “Blu-ray” discs. But
    the winning disc won’t be chosen by Cinram.

    Big media conglomerates and movie studios are waging a fierce battle
    to decide which disc will end up in video stores and homes around the
    world.

    For the moment, though, Cinram and its 1,800 workers here are taking
    the cautious approach of sitting on the sidelines to see who wins.

    “We have a lot of customers, and we don’t know which way they are
    going to go. We’re kind of in the middle,” said Dominick DallaVerde,
    senior director of pre-production at the plant. “This is the proving
    ground for new formats. We want to be ready to provide discs to our
    customers no matter what format we use.”

    When the dust clears in the format battle, Cinram wants to cling onto
    only one format: Toshiba’s HD-DVD or Sony’s Blu-ray. Until that
    decision is made, the company wants to be prepared to make both.

    Standing on the sidelines

    Since the format battle started, Cinram has maintained a neutral
    stance, not publicly stating its preference for either format. For
    now, its experts are using the prototype machines to test the quality
    of the new formats, the yield time, the estimated costs and potential
    defects in the manufacturing process.

    Lyne Beauregard, Cinram spokeswoman, said the company will not take
    sides but will wait for the customers’ orders before setting up
    assembly lines.

    “So far, there have been no orders from our customers,” Ms. Beauregard
    said. “The company is prepared to go forward with both. We have
    equipment for both. We could see some this holiday season. We will be
    ready.”

    Tim Casey, analyst at Toronto-based investment firm BMO Nesbitt Burns,
    said the more time that passes, the more pressure it puts on Cinram.

    “It will obviously work much better for Cinram if there was some
    clarity on who is going to win,” Mr. Casey said. “And the sooner, the
    better.”

    That’s because the sooner Cinram knows what format will win out, the
    sooner it can focus the manufacturing process and find the most
    cost-effective way to mass produce.

    Some industry analysts believe that behind closed doors, Cinram
    officials are pulling for HD-DVD to succeed as the dominant format.

    High-definition DVDs would make more sense economically for Cinram,
    said Patrick Tomalin, analyst at Toronto-based Orion Securities.

    With many new technology products, such as cell phones and computer
    screens, a matter of inches can mean the difference between old and
    new. The brick-sized cell phones of the mid-1990s have been replaced
    by succeedingly smaller and lighter phones each year. Lighter, more
    portable laptop computers are replacing traditional desktop computers
    in many homes.

    But in the case of DVDs, the new technology can be measured by a
    fraction of a millimeter.

    A HD-DVD disc uses a 0.6-millimeter plastic coating, while the Blu-ray
    discs uses a 0.1-millimeter coating. While that doesn’t seem like
    much, HD-DVDs’ thicker coating is the same used in current DVDs,
    meaning the production process for manufacturers like Cinram is
    similar. Blu-ray discs require an entirely new machine.

    Cinram would use the same machine to make HD-DVDs as it does to make
    normal DVDs — just with a few modifications. Those modifications will
    likely cost a few hundred thousand dollars, Mr. Tomalin said. While
    not exactly chump change, it is cheaper than the estimated $2 million
    to $2.5 million cost of a Blu-ray disc-maker.

    Also, the cost of HD-DVDs is more predictable because of the similar
    manufacturing process, analysts say. The investment required for
    Blu-ray is still in flux.

    “There’s no question if Blu-ray becomes the dominant format, there
    will be more retooling and more expenditures,” Mr. Casey said.

    The Blu-ray backers, though, contend they will bring manufacturing
    costs nearly in line with HD-DVD within a year.

    Fast forward

    While the big electronics companies and movie studios continue firing
    at one another, Cinram finds itself in the middle of the war zone.

    Cinram’s largest customer, Time Warner, is a supporter of HD-DVD,
    whereas its second-largest customer, Fox, recently signed on with
    Blu-ray. So what happens if different customers order different DVD
    formats?

    It is possible that Cinram’s Olyphant plant will make high-definition
    DVDs, while the company’s Huntsville, Ala., plant will make Blu-ray
    discs, Ms. Beauregard said. She said she doesn’t believe the format
    battle will hurt jobs at Cinram because the company’s investment won’t
    be large until a dominant format is established.

    Mr. Tomalin said Cinram, along with the entire industry, would benefit
    from having one format, but the decision is mainly in the hands of the
    media conglomerate and movie studios.

    “Some people believe the hardware manufacturers will have influence on
    the decision, but I don’t believe that. The ball is clearly in the
    court of the customers,” Mr. Tomalin said.

    Ms. Beauregard agreed with Mr. Tomalin’s assertion that the big
    decisions going forward are largely in the hands of the media
    companies. But she pointed out that the manufacturers do have some
    influence.

    “We don’t work in a vacuum. We’re always talking with our customers.
    They are interested in pricing, and they take that into account,” Ms.
    Beauregard said. And if a disc costs more to make, the pricing points
    are going to be higher for customers.

    And while the specific costs to make the new formats have not been
    determined, she said Cinram, which plans to make more than 1 billion
    DVDs in 2005, is being very careful about where it puts its dollars.

    “The initial investment will be nominal, and the market will decide
    fairly rapidly what format it wants,” she said. “There won’t be a huge
    investment in either format. Even if two formats are launched, I can
    assure you it won’t last. Retailers won’t stand for it, and consumers
    won’t stand for it.”

    No time soon

    Warner is talking about putting HD-DVD titles out by Christmas, and
    Cinram is anticipating its first order soon. But don’t expect to be
    seeing that high-definition picture quality anytime soon.

    First, industry sales show only about 10 percent of households have
    high-definition television sets, which are required to play the new
    DVD formats.

    Secondly, like the original DVD players, the new players are going to
    be too expensive at first for the mainstream public.

    “The first players will cost $1,000 a pop, and the discs will cost
    more also,” Mr. Tomalin said.

    Panasonic just released a Blu-ray player/recorder in Japan that is
    selling for nearly 3,000 U.S. dollars, with the discs ranging from $32
    for a single-layer disc (25 GB) to $69 for a dual-layer disc (50 GB).
    Cheaper Japanese models are selling for about $2,000.

    Toshiba said it will issue a HD-DVD player in December in the United
    State. Sony will release a Blu-ray machine in April 2006. The initial
    costs of the new machines are expected to range from $1,000 to $3,800,
    though prices likely will drop during the first year.

    “Initially, there will be two formats,” Mr. Tomalin said. “But it’s
    hard to believe five years from now every house will have two DVD
    players.”






    "Arguing with anonymous strangers on the Internet is a sucker's game
    because they almost always turn out to be -- or to be indistinguishable from
    -- self-righteous sixteen-year-olds possessing infinite amounts of free time."
    - Neil Stephenson, _Cryptonomicon_
     
    Allan, Aug 8, 2005
    #1
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