An industry executive speaks

In a series of Q&As, professionals in all facets of the packaged media industry share their views of things past, present and yet to come. It’s the turn of JOHN FITZGERALD, CEO of EDC-Entertainment Distribution Company, based in Hannover, Germany.

Given that EDC is a US-based company, how much of the experience gained in servicing the US clients is informing your strategy in Europe, as regard the supply chain?

EDC GmbH in Hannover is an independent European operating business unit of EDC LLC with a European strategy and focus. The US experience gained is less relevant to our current European strategy than before although we are continuing to service the European subsidiaries of US clients. We service several European clients also with shipments to their operations in overseas territories.

Where do you see EDC's comparative advantage in a fairly crowded market?

EDC has extensive experience in developing optical disc manufacturing products and custom supply chain solutions in Europe. EDC has a fully integrated replication and logistics offering from one pan-European location. Service and quality levels are among the highest in the Industry. Turnaround times are among the fastest in the industry and the IT structure is sophisticated and flexible.

Amongst the range of services EDC offers, which one did grow the past 2 years and which one was reduced?

Music manufacturing volumes in general are declining. We see an increase in volumes of audio books, software, video and games. Logistics, IT and business services will also be more and more the focus.

EDC is very active in the CD supply chain. How is the CD business evolving from the company standpoint?

EDC was the pioneer and the first company worldwide to begin the mass production of the CD. We manufacture for one of the biggest global music labels and therefore the CD business will be the focal point in our replication business in the future too. On the one hand, EDC is compensating for the declining CD business by increasing its DVD business. This entails the acquisition of new customers in the music business and in other sectors like audio book publishers, software publishers, home entertainment and games companies etc. On the other hand, we will have a strong increase in logistics services for the entertainment industry and other branches.

The description of EDC mentions it offers supply chain services to music, video and interactive media customers. What exactly do you offer to those interactive media clients?

From product design advisory, the development of new products and services such as business services like accounts receivable management, customer services for high-street and online retailers and fulfilment services. EDC is offering a wide range of services regarding entertainment products to customers in addition to CD and DVD manufacturing and distribution. We support our customers for the whole manufacturing and distribution process.

The EDC website makes no mention of BD manufacturing. Are you already doing it or are you still pondering if and when to move into this territory, and if so, what are the parameters you are considering to make a decision?

EDC offers BD replication services to our customers that we subcontract to reliable supply partners who have excess capacity. An investment in our own BD replication lines isn’t scheduled in 2010. Our plans for 2011 isn’t decided yet. We are keeping our eyes on the development of Blu-ray technology and the added features it offers. Supply and demand, growth forecast, market pricing and replicator economics are the parameters that we use to aid the decision.

The non-home entertainment, corporate market is a very substantial one as far as DVD is concerned, but rarely mentioned in statistics. Is EDC servicing this market segment as well?

Yes. With our supply chain strategy we are focussing strongly on the changing requirements in the marketplace. Our customer’s requirements are diverse and they need tailor made solutions. Our services are tuned to the requirements of several markets as well as the corporate market.

It is said that diversification is the best way of staying afloat in the face of market uncertainty. How do you see your company's range of services evolving over the next 2 to 5 years?

We will see an increase in logistics requirements for the entertainment industry, software and consumer goods industries. EDC will expand its customer base into new sectors by using our technological experience and our know-how in logistics.

Are there lessons in the development of the DVD format that could/should be applied to Blu-ray (pricing, positioning, marketing strategy, etc)?

The long battle between Blu-ray and HD DVD was counterproductive for a successful story. Blu-ray may very likely have a shorter life-cycle than DVD due to some of the factors you mention plus online delivery.

Do you think Blu-ray discs will eventually replace completely DVDs or will they only partially replace them, becoming a niche, albeit big?

The question is: How to convince the consumer that he/she needs a high definition disc? I believe that DVD and Blu-ray will co-exist for at least the next five years. It remains to be seen how the growth of household penetration of HDTVs and BD players will be substantially impacted other distribution substitutes like online services.

The unexpectedly rapid fall in price of Blu-ray discs, so early in the commercialisation of the format, makes the economics of BD replication/authoring very challenging especially in view of the heavy investment required. What needs to happen to make it a viable, long-term business for independents?

In fact, the market introduction of BD was handicapped by the format battle. Although BD replication is subject to free market forces, the BD replication market is also currently dominated by heavyweights. With the early market growth of the BD a very premature price decline occurred. Traditionally, higher prices in a launch phase are necessary in order to cover the high cost of investments made on equipment, with relatively unimpressive production parameters. I hope that the BD growth will accelerate and that the mass replication technology will promptly improve and become more affordable, so that a sustainable market and sustainable earnings in BD replication for independents becomes a reality in the mid- to long-term.

Interactivity and BD-Live, in particular, are Blu-ray's key unique selling propositions. Do you think enough publishers/studios will commit extra production resources to spread its usage? Which feature you think may become a killer app? Or do you see consumers mostly interested in no-frill 'vanilla' film-only – and cheaper – BD discs?

We do not see homogeneous consumers out there at the moment. Consumer tastes are diverse in this area and, at the end of the day, customers will decide if they need more and more content features and functionalities that are easy to use.

Some say that unless the entire home entertainment chain goes 'green' (reducing carbon footprint) – from film production, delivery, replication, printing, packaging, retailing – there is little point in going it alone in the absence of a level-playing field. Going 'green' only becomes a public relations exercise. Do you agree or disagree, and what should be done?

Waste reduction and careful use of resources will have a continuing impact on our society. EDC attaches great importance to its environmental management system, which is certified according to DIN EN ISO 14001. The environmental management system aggregates what has always been a modus operandi in the manufacturing area, namely, easing environmental stress through careful use of resources, recycling as an integral element of the company, advanced waste and hazardous substance management, conformity with statutory regulations.

EDC is the only replicator which, from recycling, produces good polycarbonate with a high optical quality from polycarbonate residue arising from the production process and from rejected discs. This recycled polycarbonate is fed into the manufacturing process. We recycle 350 tons of polycarbonate annually. In the same way, around 500 tons of polystyrene are recycled each year and used for the in-house production of jewel boxes.

3D has taken the market by storm, at least in terms of announcements. Given that Blu-ray has yet to establish a strong position in the market, with consumer having acquired a BD player and a HDTV screen fairly recently, is it your view that the industry is moving too quickly? Some sees this fast push for 3D as indication that it is the only redeeming value of the BD format.

At first, it is important that 3D is based on the BD technology. 3D movies for instance are currently very successful in cinemas. We will see several solutions for the home entertainment market in the next few months. A solution without glasses could be an interesting breakthrough.

One keeps hearing alarmist opinion about the quick demise of packaged media in the wake of online delivery. What is your view as to how long discs will be around? And how to you plan this transition?

The optical disc is still alive! And we believe that CDs, DVDs and BDs have a future for some years yet. However like everyone else we do see a decrease in packaged media volume and a substitution via online distribution. CDs, DVDs and BDs are emotional products and with interesting and exclusive packages there is no comparison with a download file or stream.

Films on solid state/Flash memory, Holographic disc, 4,000-line Super high-definition are advanced technologies at varying state of development. Do you see any of them entering the consumer market and, if so, what you reckon are their time frame?

It is still too early to see a new standard format for the future. With the new functionalities of the BD, the consumer will decide if he/she needs more and more content on a disc or if the access to a movie will be the essential factor of success. For the audio business I’m sure that the CD will be the only physical format in the near future.

An increasing number of manufacturers are moving into solar panel/cell segment, which they reckon has more potential than packaged media. Is there enough synergy between the two industry sectors to warrant such a move? Are you considering expanding your activities in the solar business as well?

EDC is looking for several new business areas. The solar business is a very competitive sector and one of the areas which is currently under discussion.

Biography
John Fitzgerald has over 30 years of international professional experience. He has spent the last 20 years providing financial management, strategic planning, and business development services to companies in the consumer goods industry. From 1989 to 2002, Fitzgerald served in various financial and executive positions within Warner Music Manufacturing Europe GmbH. Then from 2003 to 2009, he served as Managing Director of Cinram GmbH. He holds a Bachelor Degree in Business Studies from the University of Central Queensland.

Contact: www.edc-gmbh.com
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