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11-12-2010, 11:25 PM
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Whilst doing some online DVD research, I came across an extremely interesting look at how the optical industry had run from about 1989-2006, including the rise and fall of CD-R markets, and the early DVD-R market. This is probably one of the most interesting documents on CD/DVD blanks that I've read in recent years.

It appears to be the final research paper or thesis of a graduate student in Japan, and pulls heavily from Japanese research sources. The paper uses the optical media industry (OSMW, as he refers to it) as the case study for analyzing how businesses must change when the architecture of the industry changes.

SUMMARY: In the early days of CD, all media was produced with in-house equipment and methods, with most product originating from Japan. As time went by, third parties like Ciba began to cheaply produce pieces of materials/equipment needed to create CDs (stampers, dyes, etc), and companies from Taiwan would buy the pieces and do their own assembly (i.e., the final manufacturing). These new companies, like CMC and Ritek, heavily cut into the revenue and profits of the Japanese in-house methods.

IMPORTANT DVD NOTE: The DVD market is shown to be repeating history, with in-house methods being the only real way to create blank DVDs. Although the paper is from 2006, and includes information from 2005-2006, it seems to mainly reflect DVD manufacturing data from 2000-2004. I don't think the author was aware of all the changes happening at the time he wrote the paper, since he was working only from scholarly sources (given the bibliography) and not relying in original research. From about 2005-2010, the DVD recordable industry has mirrored CD-R's dispersion of supplies and manufacturing, with much outsourcing (and of varied styles).

Document attached below.
Original URL: gbrc.jp/journal/abas/pdf/ABAS5-1.pdf

You'll find my commentary and some key quotes in the follow-up post below.


Attached Files
File Type: pdf Optical Business ABAS5-1.pdf (108.5 KB, 8 downloads)

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Last edited by lordsmurf; 11-13-2010 at 12:04 AM.
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  #2  
11-12-2010, 11:45 PM
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Here's some key quotes from the paper. I've added some commentary, where needed:

Quote:
Ciba Specialty Chemicals developed the organic dyes, by which firms could produce good CD-R media using any equipment. Similarly, some equipment companies produced the manufacturing equipments, called in-line equipments, which yielded good quality CD-Rs stably in any environment and with any material. By using these dyes and equipments, ‘everyone can produce CD-R, if he can get the materials and equipments. No knowledge of equipments and materials is required.’
Quote:
In the early 1990s corporate customers bought good quality CD-R media, but in the late 1990s the consumers bought low price CD-Rs with famous brand names on it; they were not so concerned about quality. In addition to such qualitative changes, quantitative change also heavily affected sales activities of the firms. In the past, firms had sold millions of CD-R media, but now they sold from several hundred million to a billion CD-R media.
Blame gets passed to the stupid consumer here. Yes, that's an issue. But companies with ethics should have never sold inferior crap, all in the name of making another dollar. I can't say I fully agree with the author's assertion that consumers are to blame. They merely followed and bought what was provided.

Quote:
At first, let’s look at CD-R production business. As we saw before, everyone can produce CD-R media if he can buy dyes and in-line equipments from the market. So firms cannot get competitive advantage by possessing their own organic dye division or manufacturing equipment division. In addition, consumers as customers did not want differentiated CD-Rs but cheap ones, so production activity did not need integration between materials and equipments. Firms needed to focus their resources on CD-R manufacturing activity. Taiwanese CMC and Ritek took this strategy and got a total share of more than 70% in total production of CD-R. They entered the OSMW industry around 1996 by focusing on CD-R production. They exploited the Taiwanese stock exchange market and obtained a large amount of capital, and they invested it only in building CD-R manufacturing capacities larger than those of the existing firms. These huge investments on production capacities gave them economies of scale CMC and Ritek bought materials and equipments from other firms and started operation. They focused their resources on the efforts to make final roduction more efficiently. As a result, in the price-concerned consumer market, Taiwanese CMC and Ritek had competitiveness over Japanese. In 1998—only 3 years after their entry—CMC and Ritek caught up with the Japanese firms in production volume.
This closely matches my experiences from the 1990s, when media really turn a down-turn in quality starting around 1998-1999.

Quote:
The firms who had vertically integrated structures could not keep competitiveness without changing strategies. Mitsui Kagaku and Kodak tried to keep their vertical structures, but they were beaten by specialized firms in each area and withdrew from the OSMW industry. Taiyo Yuden focused on CD-R production and TDK specialized in CD-R sales, abandoning other activities. Mitsubishi Kagaku also focused their business on CD-R sales, but they maintained some CD-R production capacities and the R&D function for organic dyes and production processes. Mitsubishi Kagaku was concerned that otherwise it will lose media production knowledge though to maintain knowledge it would have required some expenditure. Mitsubishi Kagaku continued a little commercial production by selling its CD-R to niche markets, where qualitative differentiation could be desirable.
This is the wisest decision ever made by a CD/DVD company. MKM is MKM because of this sole decision to stay active in optical R&D. Had they not done that, who knows what sort of sewer slime we'd be forced to burn on. Without MKM, there likely would have never been a family of azoic (Azo) dyes for CD-R, DVD-R, DVD+R and DVD+R DL -- the key to many sucessful burns.

Quote:
The advent of writable DVD media made the process architecture of the OSMW industry go integral again. While everyone could make CD-R in 2000 if they can get materials and equipments, people had to have detailed knowledge of organic dyes and manufacturing equipments and integrate them in order to produce writable DVD media.
Quote:
In addition to realize strict specifications, the users had wanted DVD media to be better quality than CD-R media. ...So DVD media manufacturers tried to improve the product quality by adjusting the materials and equipments to respond to customer needs. On the other hand, the relationships between production and sales did not change drastically. Though users want quality more than low cost, basically the target market―the consumer―did not change.
Quote:
Mitsubishi Kagaku had integrated all its activities vertically in early 1990s, but it specialized in sales when the industry went modular. And then, Mitsubishi Kagaku succeeded in the technical integration of writable DVD in 2002. The profit rate of Mitsubishi Kagaku had not been announced, but about a half of our interviewees answered that Mitsubishi Kagaku is the best performer in the OSMW industry. Now Mitsubishi Kagaku had about a 20% share in final product sales, which is the largest in the world.
Quote:
Mitsubishi Kagaku developed the production system of DVD, which consisted of organic dyes and process equipments adjusted to each other. Mitsubishi Kagaku itself did organic dye production, and then, about the detailed design of process equipment, Mitsubishi Kagaku was helped by the other firms who specialized in equipment business. Mitsubishi Kagaku was also helped by Taiwanese media producers, especially CMC, in final writable DVD production. And Mitsubishi Kagaku bought writable DVD media from Taiwanese suppliers and did final product sales.
Don't confuse MKM being "helped" by CMC. CMC was simply a company with whom MKM forged an alliance, and where quite a bit of MKM's production was carried out -- using MKM's methods, equipment, supplies, etc, of course!

Quote:
Mitsubishi Kagaku could realize the integration of the architecture because it had knowledge of the whole system of production of writable DVDs. It was called as the ‘recipe’ of writable DVD media. Mitsubishi Kagaku kept the ‘recipe’ by keeping possessing some CD-R production capacities and the R&D function for organic dyes and production processes still in the modularity phase. Mitsubishi Kagaku outlaid some costs to keep these capabilities, but after 2000 those capabilities remained gave Mitsubishi Kagaku the chance to leap forward. Mitsubishi Kagaku’s ‘recipe’ was an aggregate of know-how for making good quality writable DVD media. By using that recipe, Mitsubishi Kagaku and an equipment maker jointly developed the dyes and the equipment. Mitsubishi Kagaku (and the equipment producers) obtained a large share in dye business (or equipments business). In addition, Mitsubishi Kagaku sold the dyes, the equipment and the recipe as an integrated production system only to some exclusive producers. They could produce better DVD media by that integrated system than by using dyes and equipment bought separately from markets. Mitsubishi Kagaku bought better quality DVD media produced from those exclusive producers and sold them. In this way Mitsubishi Kagaku succeeded in the DVD business.
Quote:
Taiyo Yuden chose final product manufacturing business in the late 1990s. Then Taiyo Yuden did not compete directly with Taiwanese makers. Taiyo Yuden focused their business on differentiated niche where the customers needed above normal product quality, so it kept integrated production way.
This is a nice way of saying TY refused to make junk for a purely profit-driven business, as so many inferior disc makers based out of China, Taiwan and other locales chose to do. Their primary interest was that of quality for those who need it, and not mass production. It's sad that TY announced in Oct/Nov 2010 a 40% reduction in output of blanks.

Quote:
But Taiyo Yuden did not have sales functions, so they could not earn more than Mitsubishi Kagaku.
This has always been their main weakness -- lack of brand recognition, with an inability to sell media at their desired priced. The JVC brand name buyout was obviously aimed at correcting this, but it probably came way too late. They needed that back in 2002, not 2008. I can only hope that their outsourcing will following the MCC/MKM model (outsourced, but to spec and with their recipe), as opposed to merely re-branding inferior or cheap landfill-grade media.

Quote:
Mitsubishi Kagaku’s success was attributed to the creation of effective business model that Mitsubishi Kagaku could exploit whole value chain by possessing the upper end (organic dyes) and the lower end (sales to final customers).
Quote:
Ciba Specialty Chemicals continued organic dye development by itself in the DVD business, but their dyes did not satisfy the customer’s quality needs.
Ciba is now part of BASF, and I don't know that they make any dyes -- not for a few years now.

Quote:
In DVD final production, CMC or Indian company MBI (Moser Baer India), who placed importance on cooperation with other companies, improved their performance. They introduced Mitsubishi’s or TDK’s integrated system and got orders from them, so they could produce better DVD media and achieved a relatively stable competitive environment.
This happened back in 2004-2005 or so, and Prodisc should have been listed, too. MCC/MKM began to utilize those other factories for creating media to their specs, using their equipment and materials, as I've said all along. (Some folks seem to disagree on certain forums, but this paper further proves they're full of crap. I'm right, they're wrong. The end.)

Quote:
Memorex and Imation still kept their profit by specializing in sales, because performance in this area was decided by sales capability, regardless of the strength of these companies’ other capabilities.
Translation: Memorex and Imation will re-brand anything that makes them a profit. Quality is secondary or entirely unimportant. That's something almost any DVD blank media buyer came to realized years and years ago.

...

This is the kind of stuff that I've been saying for many now, on this site and others. My own research came to the same conclusions, although I had approached the topic from more of a mixed marketing and science/technology stance. To have a purely business-based assessment of the industry come to the same conclusion is refreshing.

It's worth reading the full document.

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Last edited by lordsmurf; 11-12-2010 at 11:58 PM.
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