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Currently, blank CD-R prices are up across the board to about 19 cents per disc, versus 15 cents in spring 2003. Maxell Corporation says it will increase prices on all of its CD-R media products, effective immediately. The company added that the amount of the increase was still under consideration, but expects it to be from 10% to 15%. Don Patrican, executive vice president of Maxell attributes the increase to escalating demand for DVD media which has forced factory capacity to shift from CD-R to DVD-R production. Mitsui Advanced Media-America is expected to increase prices 10 percent in December, and Prodisc has already implemented increases in the same range. One duplicator told EMedia that Taiyo Yuden prices have actually gone down, as they are trying to gain marketshare, though another duplicator said it has seen an increase in Taiyo Yuden's prices. (The media manufacturer did not return phone calls.) Memorex also intends to increase prices, and that should spread across the industry, according to Brad Yeager, senior product marketing manager for optical media. Due to skyrocketing oil prices, freight costs have risen as much as 40 percent. Couple that with the crunch in foreign exchange rates, and you've got the explanation for price increases, Yeager says. Memorex's rationale for the higher costs differs from Maxell's. Royalties, Yeager says, play a big part in media price increases, with Philips paying a lot closer attention lately to enforcing licensing fees that amount to about 6 cents a disc. Maxell and Memorex sources say that in the consumer market, CD-R demand is greater than supply, with the need reportedly being in the vicinity of 9 billion a year, and capacity at around 8 billion. "That change has been happening in the last year. CD-R, however, is still 75 percent of the recordables business in dollars, says Yeager. Joe Silvestri, CFO of SRT, a duplicator in New York, says he has seen price increases in the last six months of around a penny per unit each time they order. Silvestri also speculates on yet another reason for rising costs: "We've been hearing that for the longest time there was a disconnect in the market. All of the suppliers in the Far East were shipping to the U.S. and ignoring the European market, where they could charge a premium." Suppliers figured that if they could sell CD-Rs in the U.S. for 10 cents but could sell the same product in Europe for 20 cents, then they should shift their focus to selling in Europe. Not only will they get more money, but it will drive up prices in the States, Silvestri adds, by putting supply and demand into better balance. In the second quarter of 2003, about 1.7 billion CD-Rs were sold, compared to only 60 million DVD-Rs, says David Bunzel, managing director for Santa Clara Consulting Group. "You could take 3-5 percent of CD-R capacity and convert it to DVD-R and you could have demand satisfied," he says. "But I don't think people are doing that. I get the impression that it is more efficient to buy lines that are designed specifically for DVD-R. It's hard to know whether or not some of these converted lines were older ones that need to become more cost-effective. If so, this will put pressure on supply." "A slow build," is how Jeff Starfield, president of duplicator CD Works, characterizes DVD-R growth, adding that the company is still gaining new CD-R customers. DVD-R runs tend to be shorter, thus any increase in duplicating product occurs slowly . "We're still more likely to do runs in the hundreds than in the thousands for DVD-R," he says The changeover point where it makes sense to do replication rather than duplication depends on the printing and the turnaround times. While CD-R runs are usually between 500-2000 units, with DVD-R replication may make more sense for orders over 200 units because the media is a lot more expensive, he adds. On the consumer side, Maxell's Patrican is optimistic about recordable DVD media's future. "It's an easy path for people to move from VHS to DVD, and I think that's why recordable DVD will grow very quickly," he says. "Since there is no history behind DVD, it is difficult for retailers and resellers to predict how many drives will sell. However, for the media manufacturer, it makes sense to move to DVD-R, which offers six or seven times the revenue of CD-R. Hopefully, the move to DVD-R will balance out supply and demand in the market."
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