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Khar is director of New Medium Enterprises (NME) and head of its optical division, which for NME is the franchise. The pink sheet-traded, Nevada-based company that also has offices in London and R&D facilities in this city is behind the Versatile Multilayer Disc (VMD), a dark horse entry into the still-nascent high-definition disc derby. It’s January, and still fewer than half of Americans polled even know about the two frontrunner formats, Sony’s Blu-ray (BD) and Toshiba’s HD DVD. It is a couple of weeks after Warner Home Video announced at the CES Show in Las Vegas that it would back BD over HD DVD, and days after Netflix announced the same, putatively tilting Hollywood and its treasure trove of content towards that format at the expense of HD DVD. (A few weeks later, HD DVD would drop out of the race entirely, but at the time of this minivan ride, HD DVD’s demise is still en route from rumored to real.) Khar is having none of it. “Not everyone is behind Blu-ray and precisely because there is no one single format, there is still opportunity in the [high-definition format] space,” he states. “If BD were a success, there would be no space for us to enter. There is no winner yet.” Compared to Sony and Toshiba, which are rumored to have spent as much as $150 million per studio lobbying for the backing of a partisan Hollywood, NME is the mouse that roared. The company’s market cap is a scant $24 million and its share price on the volatile OTCBB bourse (symbol: NMEN) has plunged along with many others in the recent market vortex. Sony has its own huge vault of movies to tout BD with, along with those from Fox and Warner Home Video. VMD, on the other hand, has a chunk of Bollywood, disparate clumps of foreign films (if you’re into Finnish cinema, boy, are you in luck) and a couple of U.S. film distributors, such as SME Entertainment, offering a relative handful of movies that ring a mass-market bell, like Alexander, Apocalypto, Blade Trinity, Passion of the Christ, Pulp Fiction, and Saw. Another is Anthem Pictures, which adds Mother Ghost, 8th Plague, Enigma With A Stigma, Cutting Room, and Naked Ape to the pot. Just as well, since there is only one VMD manufacturing line in the world, at NME’s R&D facility in Eindhoven, in the former Toolex factory, now owned by Dutch technology company VDL, NME’s research and manufacturing partner. Of the 3,300 or so titles that Khar says are committed to VMD, only a few hundred have actually been sent, authored and mastered, to replication. And VMD’s planned holiday season, official rollout was rescheduled for Q1 of this year by manufacturing delays in Eindhoven.
 But Wait, There’s More…
If this sounds like a scenario that would have Jim Kramer creating new sound effects for on Mad Money on MSNBC, NME does have some serious stuff going for it. Chairman of the board Michael Jay Solomon brings significant street cred: He is the co-founder of syndication giant Telepictures Corporation, which later acquired TV superpower Lorimar, which gave the world winners like Dallas. Warner Brothers bought out Lorimar-Telepictures and installed Solomon as Warner’s president of international television. He came onboard at NME in August 2007. But most of all, NME has an interesting technology, and it’s found in the “M” in VMD. The format can keep adding layer after layer of digital real estate to each disc; the standard production model has three layers offering 15GB of storage, but four (20GB) are almost as easy. Theoretically, they have taken the process to 10 layers. (BD uses one and two layers, though, theoretically, it can also go beyond that.) This means that VMD can use red lasers to read the discs, the same as are used for DVD and CD. BD, by contrast, uses the narrower-aperture blue laser to scan smaller pits on its discs (same with the late HD DVD). BD is more expensive than DVD to manufacture, has lower yields (still, reportedly, in the 80%-plus range), and requires a completely new manufacturing infrastructure. VMD’s manufacturing is more similar to the upgrade some replication facilities used for HD DVD, which involved using existing DVD lines with additional stations inserted. The core of the one extant line is VDL’s Dex DVD line. But the combination of red laser and a huge existing manufacturing infrastructure, says Khar, gives VMD a powerful edge, as well as a 90%-plus manufacturing yield, since the VMD is basically a DVD on steroids. Thus, the manufacturing expertise is already in place. Just add NME’s new bonding station. Khar says VMD will also maintain control of the format vertically. In addition to owning the patents (he will not comment on VMD patent royalties or any arrangement with the DVD patent holders, such as 6C and 3C, regarding underlying DVD patents that VMD uses) and selling manufacturing lines. For $10,000, they are also selling the authoring tools they developed (no buyers yet).
 In addition, NME is manufacturing consumer VMD players, which Khar says will retail for $149, or $199 bundled with five titles. BD manufacturers have been lowering their player prices, and HD DVD players dropped as low as $149 before Toshiba pulled the plug, but Khar twists the knife when he notes that “VMD players are not subsidized to stimulate the market,” referring to a famous CNET study that analyzed an HD DVD player and found its components to cost more than its retail price. According to Solomon, 20,000 VMD players have been shipped as of late January to two retailers in the U.S. and Europe and he projects 500,000 by year’s end. (PC Rush is the American distributor). The packaging for the VMD, dubbed the NL box (for Netherlands), is designed and manufactured by Scanovo.
“It is all about the value chain,” says Khar. “We author and manufacture the discs and the players in the beginning, so content owners can see the process.” Eugene Levich, NME’s CTO, says that manufacturing lines have been sold to two replicators: POD, in Dubai, and Orava, in Slovakia. He expects the Slovakia facility to come online first. Sidebar: How VMD Works
HD VMD technology is an extension of DVD-9 technology and largely utilizes the existing DVD-9 manufacturing infrastructure. DVD-9 discs have two information layers: L0 and L1; 3L VMD discs have info layers L0, L1, and L2; 4L VMD discs have info layers L0, L1, L2, and L3. DVD has 3L and 4L discs: the rarely seen, low-yield/high-cost DVD-15 and DVD-18. But they have only two layers on one side, and to access all layers it is necessary to stop the player and flip the disc. 3L and 4L VMD discs have all info layers one side, and like DVD-9 their production cycle time is below three-seconds and their production yield is over 90%.To go beyond a 4L VMD disc, the process becomes somewhat more complex, but NME CTO Eugene Levich says the process can be contained in the matrix module bolted on to a standards DVD-9 line, and the costs remain low. |
Reaction to Toshiba
NME took a sanguine outlook on Toshiba’s capitulation of its HD DVD format in February. “In our view, this is the best thing that could happen to us,” says Levich, “because Toshiba was actually trying to take the market that we are after, not Sony. And they failed because the production costs and technical difficulties were in contradiction with their attempts to sell cheap.”Levich elaborates, estimating that Toshiba’s subsidization of its consumer players cost the company cost it nearly $200 million. “Sony resisted the temptation to follow suit,” he says. “Their CEO clearly explained that this pricing policy is not acceptable and undermines the market.” Levich compares the cost of blue-laser discs and players versus their red-laser counterparts, emphasizing the additional expense of the former, as well as the time and cost needed to build out a BD infrastructure. “Sony will have to build hundreds, if not thousands, of new and expensive production lines that still have [issues such as] low yield, long cycle times, and extremely difficult and expensive mastering,” he says. “VMD is now the only viable format for fast adoption by the HD market. It can go to mass production overnight since everything is based on the existing DVD industrial infrastructure.”
 Content Is Still King
But it’s really about the content. Can VMD come up with enough compelling content to give the format traction in the most critical home video market in the world? The major Hollywood studios have already coalesced around Blu-ray Disc, and even as Khar and I spoke in Eindhoven, Singulus, the largest manufacturer of optical disc lines in the work, was preparing to announce that the German company would acquire the Blu-ray equipment activities of its nearest competitor in the HD manufacturing space, Oerlikon. (In fact, Oerlikon announced that it was getting out of the CD and DVD manufacturing line business altogether, to focus on other thin-film activities such as solar panels.)
Michael Jay Solomon points out that VMD has major-studio content, via distributors, but that they are limited to territories outside of the U.S. He also acknowledges a lack of compelling content for the American market. However, he expects that to be rectified after he holds talks with Hollywood studios in March and April. “I’ve been in the [movie] business for 52 years and I have personal relationships with many of the studio heads,” he says. “That doesn’t guarantee that we’ll get all the titles we want, but I expect to have major studio titles available on VMD by the end of the year.” “’Compelling’ is a relative term,” Khar states. “We have enough compelling content to launch the format worldwide and we’re acquiring more every week. The advantages are clear: VMD uses proven red-laser technology, the manufacturing infrastructure is already there, it’s backwards-compatible with DVD and CD and the player can upscale standard-definition DVD. True, we don’t have a [major] studio, but we are teaming up with many independent [studios]. VMD gives them an affordable and reliable platform into HD and when it becomes successful with them, the major studios will look at it, as well.” That, in a nutshell, seems to be NME’s market strategy: Use VMD as a high-def pathway for indie movies and niches, build up the installed player base, then hope that the majors will provide content and not give it solely to a single format. This is how much of entertainment media is playing out anyway; incompatibility hasn’t stopped either iTunes or MP3 from thriving. Charles Adelman, president of Anthem Pictures, believes VMD has a fighting chance. “From my perspective, it’s an opportunity,” he states. “The cost for authoring and mastering in HD is enormous for an independent studio like mine. Then the manufacturing costs for BD are around $3.50 per disc. The VMD disc costs about a dollar to make. The difference is that it uses red laser technology. Also, the VMD player and disc load instantly, unlike the HD formats, which take quite a while to boot.” Adelman envisions other applications for VMD on the professional side. “We’re also producers, so I would enjoy having a cost-effective way to get dailies in true 1080p,” he explains, adding that he is in talks with NME about partnering on content production in the future. But ultimately, he acknowledges, “We don’t have much to lose. We can’t afford the licensing and mastering fees associated with BD. But for a microstudio like us, it’s positively subversive, and I like that. It’s an underdog type of thing, not a clash of the titans. We’re looking for a portal to consumers, and so is VMD. With them, I can feel like we’re in this thing together.” Dan Daley (danwriter at aol.com) is an experienced journalist and author, covering the business and technology of the entertainment industry for over 20 years. His work has appeared in numerous publications, both trade and general interest, including Billboard, The New York Daily News, Mix Magazine, GRAMMY Magazine, American Way, Spin, History Channel, TravelHost, International Business, USA Today, ArchiTech, and many others.
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