Half of the year is gone already, which means it’s a good time for a progress report on the replication industry in 2008. My assumption, when I started talking to replicators over the last few weeks, was that they’d tell me business was bad despite all of the hoopla surrounding Blu-ray Disc (BD). I thought most consumers were spending those winter months thinking about filling up home fuel oil and car tanks and saving the pennies they might otherwise use toward CD, DVD, and BD purchases.

The reality is that business has been somewhat of a mixed bag. Entertainment DVDs seem to be holding their own. CD losses are no worse than expected. And some replicators are slowly starting to invest in BD in the expectation of a decent long-term return. The Blu-ray Disc Association sent out a newsletter this week indicating that BD software sales had hit 11 million. Not bad, when you think about the low hardware penetration. All of which leaves me with a question: Up until now, the entertainment industry has been recession-proof; is that still true, and does it hold for the launch of a new format?

“History has shown that the entertainment business is recession-proof, but the difference is today it is much more fragmented than it’s ever been,” says Connie Comeau, vice president of business development at The ADS Group. “Sure, we as consumers will pay for a movie theater ticket, but I would be hard-pressed to say that based on the economy today, we are going to run out and purchase high-definition televisions and players.”

The non-entertainment segment of the disc industry has been affected by the pains of the economy, Comeau says. “Our markets—publishing, corporate, training, marketing, and promotions—have all have been affected by the doom and gloom of the economic situation. The ADS Group has positioned itself so we aren’t 100% reliant on any particular business segment and no single customer represents greater than 6% of our total revenue. If these factors were not our company’s strategy, I can guarantee you that the current economic situation would have a greater impact on our company’s sales performance.”

In the first six months of 2008, CD units have been down slightly and DVD units up, she said. A big drop in unit volume has not been experienced, but she has seen a drop in the price per unit for both CD and DVD.

Jim Twiggs, vice president, Blu-ray Research and Development at Sony DADC, says DVD is strong, maybe even slightly up so far this year. CD declines are pretty much as expected. Blu-ray demand, he says, is extremely strong, with capacities coming on line slightly ahead of schedule. (He wouldn’t be specific about what capacities are at this point).

There’s a lot of talk in the marketplace about possible Blu-ray shortages this Christmas. Most of the replicators who are adding equipment are doing it slowly rather than adding many lines at once. Although Twiggs says it’s too early to tell about possible shortages during Christmas, he doesn’t think there are going to be any problems based on forecasts and projections. “We are in constant contact with all of the major BD clients, and have a good idea where the market is and what their forecasts are,” he says. A lot depends on what is the “gotta have” item this Christmas. Could it be Blu-ray?

If any capacity issues come up, they are likely to be to a small extent in early summer. Twiggs says that’s because the format war ended abruptly. At that point, people were still deciding where to invest. When HD DVD was phased out, everyone had to think about switching, and the reaction time for purchasing equipment takes a while. Twiggs says that DADC is not only planning for what Sony clients are doing, but are planning and watching and helping the entire market from a capacity perspective, from a supply perspective and an offload perspective. “We’re taking an industry steward approach to BD,” he says. “We’re having open forums where multiple replicators come together to talk about how to improve our yields and process.” According to Twiggs, a lot of collaboration is going on amongst the players in the market.

SF Video, which has been offering HD mastering for some time, and even did some HD DVD replication, has just added a Blu-ray line at its plant in L.A. “Even without a recession, it’s always a weird time to introduce a new format,” says SF Video president and founder Steven Feinberg. “I don’t think that Blu-ray titles sales will be massive here this year because hardware penetration isn’t there yet for clients beyond studios. I think Blu-ray needs to get past the early adopters.” Maybe over the holidays people will buy machines, he says. Next year and in 2010, he believes it will be a lot more interesting for Blu-ray replication. In terms of SF Video’s CD and DVD business, he says he can’t complain, with business ahead of last year.

As someone who writes about these formats all of the time, I’m very excited about what I see. In a couple of weeks, I’ll have the chance to meet with Disney and be given a first look at its first BD-Live title, Sleeping Beauty. Neil Young’s Archives BD-Live title is really exciting to me too—it’s a great chance to hear good high-definition sound. I thought my chances were gone with the demise of DVD-Audio and SACD. And then there’s the interactivity—a nice bonus.

What about 3D Blu-ray? From what I understand, authoring those discs is not that much different from authoring similar content for DVD. Studios are really ramping up for more of those titles.

These are all aspects of Blu-ray that can keep physical discs alive longer than the naysayers expect. However, as a consumer, despite my excitement about the new format, my upgrade to Blu-ray is unfortunately going to be slower than it was for DVD. Paying off the HDTV comes first.

Of course, content is king when launching a new format, but retailers also need to come up with some incentives to make fourth quarter a success. As Comeau says, offering a cheap Blu-ray player with the purchase of several Blu-ray titles might be key to success. Debbie Galante Block (debgalante at aol.com) is a freelance writer based in Mahopac, N.Y.