Technicolor 'Last-Man Strategy' in Disc Replication 'Clearly Delivering,' Says CEO
Technicolor’s disc replication business produced 953.5 million DVDs and 303.7 million Blu-rays in 2017, both formats declining about 11 percent in unit volume from a year earlier, said the company in a Wednesday earnings presentation. Technicolor blamed a weak U.S.…
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summer box office and lower levels of “game content activity” for the declines, which produced a 14.7 revenue decrease in 2017 to 1.02 billion euros ($1.3 billion). For 2018, Technicolor expects revenue in its replication sector to be flat or slightly higher because of a late-2017 improvement in the U.S. box office that will translate to more compelling DVD and Blu-ray releases in Q1. Technicolor also expects a boost in its replication business from its recent outsourcing agreement with Sony’s disc manufacturing operations in Terre Haute, Indiana. Sony will permanently eliminate about 375 jobs in Terre Haute beginning March 23 by outsourcing operations, said the company in a filing Jan. 17 at the Indiana Department of Workforce Development. Technicolor only will start to “onboard” the outsourced Sony volume in Q2 “and we're onboarding it throughout the year,” said CEO Frederic Rose on a Wednesday earnings call. “So the reality is the full benefit of the onboarding will really be felt next year when it's fully operational. It's not as if we go from zero to 100 in one day. It's a gradual onboarding process, providing actually more visibility on 2019.” Year over year, “we all know the market” for physical media “is actually in structural decline” to the tune of 8-10 percent, “depending on which analyst you listen to,” said Rose. “On the other side, we know that a few blockbusters do make a difference to return to growth.” That Technicolor expects replication operations will be “generally stable year-on-year is a strong statement for a business which is in a secular long-term decline,” said Rose. “What we have done with the Sony agreement is we've given you assurances that we continue to be in this business, that we will continue to be able to generate significant cash flow moving forward.” The Sony outsourcing agreement is evidence that Technicolor’s “last-man strategy” in disc replication “is clearly delivering,” said Rose.