Piracy and online alternatives are having a marked affect, and the future is uncertain. By JASON BAKER of IBISWorld.
By Jason Baker
The $1.03 billion CD and DVD manufacturing and publishing industry is having a wild ride. Over the past five years revenue growth has fluctuated wildly. The future holds only slow growth thanks to piracy and online alternatives.
In 2003, CD and DVD manufacturing and publishing industry revenue took at big hit, falling 18.3%. In 2004 it fell 7.7%. More recently buoyant economic conditions and a DVD boom have seen stronger growth and overall the industry grew at an average annual rate of 1.8% over the five years to 2007/08.
IBISWorld believes that growth has slowed as the publishing, printing, and computer and software retailing industries have all experienced diminished growth rates. Over the five year period up until 2006/07 establishments and enterprise numbers have increased only moderately.
The top three players in this industry are Sony, Technicolor and Regency Media, and they account for an estimated 23% to 25% of industry revenue.
These top three players have recently made substantial investments in new DVD manufacturing technology to produce DVDs for the music and film industry. Over the past few years, the major players have become increasingly differentiated from the rest of the players in this industry.
The other players are generally medium sized and smaller businesses that mainly focus on the duplication, mastering and authoring of CDs and DVDs (as opposed to replication) for local companies and organizations, and/or the duplication of demo CDs for independent local bands. These smaller companies may also assist in designing graphics, artwork and content.
Slow growth is likely to continue. IBISWorld forecasts the industry will grow at an average annual rate of 0.5% over the five years to 2012/13 to reach $1.07 billion.
The industry is coping with competition from CD and video piracy. Most consumers buy recorded media from retail outlets. However, many are now buying pirated versions of recorded media due to the accessibility of technology and relatively low cost of CD burners. Piracy will have a negative effect on industry demand and therefore sales revenue.
Competition from online products has a negative effect on product demand. This will have a negative impact on industry revenue because the manufacturing process is bypassed.
Continued strong demand for DVD movies, music videos and software will sustain moderate growth over 2007/08 and 2008/09.
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And the systems and technology utilised by the industry, especially in relation to digital manufacturing technology, can create better efficiencies and ultimately lower costs. These changes will have a positive effect on revenue growth and profit margins.
However, growth rates may decline towards the end of the forecast period as the online delivery of both music and movies becomes more popular. The digital phenomenon may hurt this industry; revenue will depend upon developments in digital manufacturing technology and the growth of online entertainment.
Despite CD sales being high in this industry, the continued decline within this segment over the past few years is expected to continue throughout the forecast period. As the industry enters into decline, IBISWorld believes that enterprise and establishment numbers will continue to fall.
Given changing technologies and the impact of technology on the industry, IBISWorld forecasts that firms within the recorded media manufacturing and publishing industry will consolidate.
IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au