Entertainment Distribution Company (EDC), Replication of effort

Manufacturing in Action, Source : The Manufacturer US

CD and DVD replication and distribution company Entertainment Distribution Company (EDC) is growing its business despite a sagging worldwide market. Linda Seid Frembes finds out more

Ever since its debut, the compact disc (CD) has changed the way music fans and audiophiles listen to, carry around, and share music. The first CD standard appeared in 1982 as a joint effort from Philips and Sony called the CD-DA (or compact disc–digital audio). That same year, Sony also launched the first commercially available CD player, called the CDP-101.

Fast-forward nearly 25 years and digital audio, as well as digital video, dominate the entertainment industry. While album shipments fell from 666.7 million in 2004 to 618.9 million in 2005 (according to Nielsen SoundScan) due to the popularity of services like the iTunes Music Store, retail sales of DVDs will ring up $16–18 billion this year alone. In fact, the DVD market has grown at an incredible annual rate of 66 percent since 2000. “Our business is growing despite the rise in electronic delivery of music and movies,” said Cliff Brannon, senior vice president and general manager of Entertainment Distribution Company’s (EDC) Kings Mountain, NC, plant. Brannon, who joined the company in December 2005, manages all aspects of the plant using his 21 years of experience in the CD business.

EDC was established on June 1, 2005, as a result of the acquisition of Universal Music Group’s North American and central European CD and DVD manufacturing and logistics operations by Glenayre Technologies. The transaction included five manufacturing and distribution center locations. The business is headquartered in New York City and operates from four regional locations in the US: distribution centers in Reno, NV; Fishers, IN; Wilkes-Barre, PA; as well as the sole North American manufacturing facility in Kings Mountain. Overseas, there is one centrally located facility in Hanover, Germany, that handles both manufacturing and distribution for Europe. In total, EDC employs approximately 2,300 people worldwide.

EDC is a subsidiary of Glenayre Technologies, a provider of next-generation messaging solutions and enhanced services for wireless and wired carriers and MSO/cable operators. EDC’s growth strategy is to transform itself into the leading independent and autonomous supply chain service company to the entertainment industry and its retailers. “There is a movement in the industry for music companies to send manufacturing and logistics of CDs and DVDs to outside vendors,” said Brannon. “For example, for a company like Universal Music, its business is artist development, management, marketing, promotions, etc. Its core competency is not logistics and manufacturing. It makes sense to turn that job over to experts like EDC.”

EDC customers include the likes of Universal Music as well as other smaller companies in the music industry. The company is currently building the DVD side business by developing relationships in a push to acquire additional video content customers.

As part of the original acquisition announcement, it was disclosed that EDC also has an exclusive long-term supply contract for the next 10 years to provide manufacturing and supply chain services to Universal Music for 100 percent of its CD and DVD requirements in North America and central Europe. Under this contract, EDC will have the opportunity to assume responsibility for fulfilling the remaining portion of Universal’s requirements that are currently outsourced as Universal’s commitments to third-party suppliers expire over the next three years.

In July 2006 Glenayre acquired the shares of Deluxe Global Media Services Blackburn Ltd., via EDC. President and chief executive officer of EDC Jim Caparro stated: “Blackburn is a strategic acquisition that provides us with market-leading and profitable operations in one of Europe’s largest music markets. This transaction increases our customer base, expands our geographic reach, and allows us to further capitalize on our 10-year agreement with our largest client, Universal Music, by accelerating the reversion of their UK volumes. In addition, it allows us to avoid capital expenditures in our Hanover, Germany, location that would have been required to accommodate this volume in 2007. We expect Blackburn will generate annual cash flows from operations in excess of $4 million with margins that are slightly less than EDC’s as a result of its product mix.”

Blackburn is the largest CD replicator in the UK. Its customer base includes Universal Music Group, its largest customer, as well as Demon Music Group, Sanctuary Records Group, and Warner Music Group. As part of EDC’s international supply agreement with Universal Music, Blackburn’s Universal Music volumes were scheduled to revert to EDC in 2007.

The company is well positioned to take advantage of any market opportunity that presents itself, with 530 employees at the Kings Mountain manufacturing plant in 356,000 square feet of manufacturing and office space in one building. The plant offers end-to-end services from replication of CDs and DVDs to printing and packaging.

Recent investments include $16 million worth of upgrades to the facilities and equipment, including the addition of six new CD production lines and six DVD production lines, as well as a new printing machine and a new packaging line. Brannon noted: “Adding lines is unheard of in our industry since growth has remained flat, but we’re concentrating on acquiring new customers and new business, which is fueling our growth.”

While other companies may offer CD duplication, the process of CD replication is much more complex and involved. CD duplication applies more to smaller lots of CDs (from dozens up to 1,000 units), much like the CD copying that is done at home. In duplication, a blank CD-R is “burned” or copied from a master CD. This method is used for quick-turn operations but often offers a lower-quality product that may present playability issues in certain (older) CD players.

CD replication, on the other hand, is the process used for large quantities of manufactured commercial CDs. Replication has a lower per-unit cost, with the added benefit of a higher-quality, durable, and reliable product. According to Brannon, EDC receives the input data from its customers. In the not-too-distant past, that data used to arrive via tape but now is transferred via electronic means from the customer over a dedicated, secure line to the EDC server.

Incidentally, EDC’s lone IT department oversees the content transmission and connection to the customer’s system, in addition to oversight of the IT systems at EDC’s four distribution centers in North America. Data content is transmitted from the customer to EDC via WamNet, now known as Savvis Content Exchange. The content management and delivery service provider offers hosted applications for the media industry. WamNet was acquired by Savvis in 2003. “Unlike a virtual private network (VPN), this service offers true dedicated lines,” said Brannon. “They offer very secure data services, which translates into a high comfort level for our customers.”

The company uses a J.D. Edwards EDI system to receive and confirm customer order information and to send a shipment notification back to the customer. Brannon described it as a “very tailored system” for EDC’s needs.

The data are then sent into the mastering process, where the data image is cut onto a glass substrate or glass master. This process is similar to how a silicon wafer is made. The very delicate glass master’s surface is coated with a photo-resist layer and is then exposed to a laser that is turned on or off based on the data stream. The laser cuts pits and lands, the “bumps” on a CD’s surface and the means by which a player reads the data.

Processing continues by developing the glass master much like a roll of film. The master is sent into a chemical bath, where the areas exposed to the laser are washed away. The glass master’s surface is then electroplated to preserve the data. Next, a mirror image of the glass is taken to create metal parts for the final mold. Several generations are made prior to the actual replication process.

Once the stamper is placed in the mold cavity, melted polycarbonate (or clear plastic) is then injected into the mold, “thus forming the disc and the data at the same time,” explained Brannon. “The final steps include adding a thin aluminum layer and then a clear UV-cured lacquer, which is spin-coated onto the disc as a protective layer.” The process of creating a DVD is similar, except DVDs are created with two thinner discs bonded together.

The CDs or DVDs are then sent to the printing process, where the disc is silk-screened or offset printed with the chosen artwork. “In terms of packaging and design, we do work with our customers and their marketing departments on ways to develop better packaging,” said Brannon. For more creative packaging like cardboard slip cases or unique box sets, EDC has a dedicated staff that conducts hand packaging. As an additional service, EDC purchases, manages, and stores customer artwork in a dedicated on-site warehouse.

Customers use a variety of methods to predict the amount of artwork needed, using both historical data and pre-sale estimates. The large lots of artwork are stored in EDC’s bar-coded warehouse. Once a pick order is generated, the warehouse employees fill the order and stack the pallets onto an automatic retrieval and delivery system that will send the artwork straight to the packaging line.

To maximize warehouse space, EDC uses very narrow aisle (VNA) racking, thus significantly reducing the footprint of an aisle. Forklift truck technology has advanced so much that the special forklifts required for VNA racks can still be used in aisles less than six feet wide. VNA racking allows for heights up to 50 feet.

Turnaround times vary based on customer need and size of the order, ranging from 24 hours to seven days. EDC’s Kings Mountain facility churns out approximately 825,000 CDs and 100,000 DVDs a day, seven days per week. Laid end to end, the daily output of 825,000 CD cases, each 5.5 inches long, would stretch nearly 72 miles!

The plant runs on 12-hour shifts, so for each production employee there are four shifts that span the entire week. Distribution is handled by third-party trucks with daily pickups to move product to any of the four distribution centers.

Security is a major concern for the company—not just the secure transmission of the data content but also the security of the final product. EDC’s customers would not be happy if the newest CD from a major star were for sale on eBay several weeks prior to the official release. As such, EDC employs an independent security company to patrol the grounds 24 hours a day, seven days a week. All EDC employees have one exit point where all belongings are x-rayed to ensure there is no hidden CD/DVD in a purse or pocket. Employees are also subject to random scanning with a metal detector throughout the day to ensure the security of the CD/DVD material.

EDC currently uses just-in-time (JIT) techniques for its supply chain. Daily tanker shipments of polycarbonate pellets as well as trailers of jewel cases arrive at the plant, where very little inventory of supplies is kept. The company achieves economies of scale by working with the same vendors for each location.

“There is a belief here that continuous improvement has to be integrated into our culture rather than being a task,” said Brannon. “Last year we initiated an aggressive visual workplace campaign. We took a look at our value stream and every aspect of the operation. Once we moved to a visual model, we could immediately tell when a problem arose.”

EDC’s director of continuous improvement is currently finishing his black belt training and will soon implement six sigma projects at the manufacturing plant. The team’s goal is to focus on process, quality, and costs. “We were doing lean manufacturing previously and had a strong push to eliminate work in process between our three major processes: replication, printing, and packaging. We found that clutter adds to delays and slows turnaround,” said Brannon. “With six sigma there is additional ground to be gained. The six sigma philosophy recommends a dedicated team to implement the program, and that’s our goal. All the easy tasks are done. It’s the small, incremental improvements that make a huge difference.”

The continuous improvement team is working with the three distribution centers to help them migrate to lean, six sigma, and other continuous improvement activities.

Of the hundreds of CD replication plants in the world, EDC’s Kings Mountain plant was the first to obtain the ISO 9001:2000 certification for quality standards; of all companies in North Carolina, it was the first to obtain the ISO 14001 environmental certification.

EDC also hold the International Recording Media Association (IRMA) Anti-Piracy certification. The IRMA certification is the world’s first anti-piracy certification/compliance program for the manufacture of CDs, DVDs, and CD-ROMs. According to IRMA, this initiative is designed to help manufacturing plants establish procedures to reduce the risk of publishing pirated material. “This certification tells our customers that we take the necessary steps to ensure that the received content really belongs to the customer,” said Brannon. “We conduct a series of checks on the content. This remains a big problem in our industry. Sometimes pirated materials are manufactured by legitimate manufacturers who didn’t know the content was stolen.”

According to the IRMA Website, “IRMA’s Anti-Piracy Compliance Program is modeled after the ISO 9000 Program, which is a series of generic international standards for quality management and quality assurance. Unlike ISO 9000, however, the IRMA Anti-Piracy Compliance Program contains specific guidelines for the optical media industry regarding anti-piracy. Through internal audits and regularly scheduled surveillance audits, the IRMA Anti-Piracy Compliance Program is able to uphold the standards for self-regulation required by today’s customers.” There are 12 steps required to gain and maintain this certification.

In terms of the worldwide market for CDs and DVDs, Brannon added “Our time to market is so good that offshoring is not a big issue for us. The biggest pressure comes from the consumer end and the popularity of digital delivery.

The question is: how do you make the physical media a value for the end customer? There is still a demand for physical media for now. Music companies are looking to value-adds like CDs with DVD video bonus discs included. It may be video of how the album was recorded or some other extras to help sell the CD. As a manufacturer, we have to stay out in front of the trends. We must prepare for when our customers have ideas like that.”

In August Glenayre announced second-quarter 2006 results. According to the press release: “EDC’s second-quarter 2006 revenue of $73.6 million compares to revenue on a pro forma basis of $69.0 million for the second quarter of 2005, an increase of 7 percent. Manufactured unit volumes in the second quarter of 2006 increased approximately 10 percent over the same quarter last year. Approximately 48 percent of the revenue in the second quarter of 2006 was generated in the US and 52 percent internationally.”

“EDC continues to execute on a number of strategic fronts, which will improve upon our ability to serve our customers and drive profitable growth,” stated president and CEO Caparro. “Our Blackburn acquisition provides us with a local foothold in one of the largest music markets in Europe, which will enable us to further capitalize on our Universal agreement and seek opportunities to expand our customer base. In June our newly acquired DVD lines in the US went into full production, providing us with enough capacity to handle all of Universal’s current reversionary business. We continue to add additional customers, including Armington Entertainment Group, Cactus Unlimited, DHW Records, and DNA Music Entertainment. In addition, we are prudently managing our costs and driving operating efficiencies across our operations. We remain very optimistic about EDC’s growth potential, and we believe EDC is on track to meet our year-over-year growth expectations, excluding acquisitions, of five to 10 percent. Also, as previously communicated, we anticipate that Blackburn will contribute in excess of $4 million of cash flows on an annual basis, with the majority of this coming during the second half of the year.”

EDC remains committed to the surrounding community via the support of local schools as well as sponsoring a local math program and charitable donations to the United Way.

Comments on this story

click here to add a comment

Loading