Sony and Springfield: What went wrong.

Byline: Sherri Buri McDonald The Register-Guard

SPRINGFIELD - On Jan. 18, 1994, local and state officials reveled in Springfield's good fortune as Sony announced it would build a $50 million, 300-employee factory here.

"It really feels a little like Christmas today," gushed then-Gov. Barbara Roberts.

In the months that followed, local officials speculated that Sony might eventually expand the factory to a 1,000-employee campus. The possibilities seemed endless.

Fast-forward nine years: Sony, awash in financial problems, abruptly shuts the plant, transfers its remaining work to other U.S. factories and lays off all 277 Lane County workers.

How could things have gone so wrong?

The short answer: Sony, a savvy global consumer electronics giant, was whipsawed by the boom-and-bust technology industry of the 1990s. In the early '90s, CDs seemed to hold a long and prosperous future, well worth a $50 million West Coast investment. But by the late 1990s, the CD business was rapidly being elbowed aside by other technologies.

That swift change turned the factory into so much baggage for Sony. And continued weakness of the CD market suggests it's unlikely another CD manufacturer - or even a DVD manufacturer - will step forward to use the specially designed plant, experts said.

"There are a lot of plants with DVD capacity that aren't being used, and a lot of plants with CD capacity that can convert to DVD capacity," said Bob May, an entertainment industry consultant in Atlanta.

Sony officials haven't offered an explanation for the sudden closure, other than to say it was part of broader cost-cutting by the parent company.

A simplistic explanation offered by the recording industry and embraced by some in the Eugene-Springfield community is that consumers' illegal downloading of music over the Internet has annihilated the market for corporate-produced music CDs.

But that's just one small piece of the overall answer, industry analysts say.

In the short life of the Springfield factory, the music and entertainment industry underwent unprecedented change. It moved from the industrial to the information age - a change as profound as that from an agrarian to an industrial economy, May said.

In just two decades, CDs went from being the cutting-edge successor to vinyl records, to being a medium whose greatest value may be merely as a blank disc that consumers can use to record music they collect from a variety of sources.

In hindsight, it appears that even as Sony was building the Springfield factory, demand for corporate-produced music CDs was moderating.

At the same time, demand for multimedia CD-ROMs took off. But by 1998, CD-ROM software publishers were making it plain that they preferred to deliver their products over the Internet. And the thriving CD game business had gravitated to DVDs, which offered better graphics and storage capacity.

"The industries that contributed to big increases (in CD production) through the '90s were not delivering anymore, and there was nothing else to replace them," said Julie Schwerin, CEO of InfoTech Inc., a Vermont-based forecasting firm. Schwerin has followed the entertainment industry for 20 years.

"There's no reason to believe that CD sales are ever going to pick up again," she added. "They will never go back to the growth curve that they were on. They'll be superceded now by DVD-audio and downloading of tracks online."

Internet was an unknown

Back in 1994, however, Sony's decision to open a West Coast facility to produce CDs - mainly of Sony recording artists - seemed reasonable, Schwerin said.

"In 1995, everything was still expansive," she said. The growth spurts for music CDs, multimedia CD-ROMs and game CD-ROMs were staggered, which made it difficult to anticipate the end of the overall boom, Schwerin said.

At the time, the Internet was just emerging. "Even in 1995, it wasn't obvious how the Internet would affect the industry," Schwerin said.

Sony might have kept the Springfield factory open longer if the company had opted to use it for producing DVDs. But Sony has decided to keep its DVD production at its huge complex in Terre Haute, Ind. A small DVD plant on the West Coast made no sense.

Consumers have embraced DVDs more quickly than any other technology introduced to date, according to the Consumer Electronics Manufacturers Association, a trade group in Arlington, Va. DVD-video, the format used for movies, will continue to be a healthy business for at least five years, Schwerin predicts.

But beyond that, DVD's future is uncertain. It hinges on how manufacturers market the next generation of high-density DVD and how long it takes producers to agree on a standard for that format.

For years, Sony's Springfield plant was preparing to launch DVD manufacturing. In 2000, the plant even reconfigured equipment to accommodate DVD work. But top executives never gave the nod to start production.

Instead, Sony boosted DVD production at Terre Haute. The 678,000-square-foot plant produces more than 25 million CDs and 2 million DVDs a month.

Sony has a third U.S. facility, in Pitman, New Jersey. That plant makes 19 million CDs a month.

Springfield was Sony's newest, but smallest, U.S. plant capable of making 12 million CDs a month.

Sony also operates many CD factories worldwide, from Hong Kong and Mexico City to Sydney, Australia, and Toronto. Sony makes DVDs in Indiana, Austria and Japan. So the Springfield plant was a tiny - and ultimately disposable - cog in a huge machine.

A glut of DVD plants

As demand for DVDs has grown, the number of DVD plants worldwide has risen from 58 in 1998 to 234 last year, according to Understanding & Solutions, an entertainment research firm in the United Kingdom.

Just a few manufacturers produce most of the world's CDs and DVDs. Sony and its top two rivals - AOL Time Warner and Technicolor - account for roughly two-thirds of global production, according to Understanding & Solutions.

The factory glut has turned CDs and DVDs into commodities.

"CD manufacturing for the last eight years has been under incredible price pressure, because of low-cost Asian manufacturing lines that make it very difficult for manufacturers in developed countries to compete on the basis of price," Schwerin said.

Meanwhile, the music industry is losing money. Operating profit at Sony's music business fell 9.5 percent in the three months ended Dec. 31 from a year earlier, with sales declining 3.3 percent, Bloomberg News reported earlier this week.

CD album sales in the United States dropped almost 10 percent from 2001 to 2002, according to Nielsen SoundScan.

The recording industry blames people who illegally download music from the Internet, using peer-to-peer file-sharing services similar to the now-defunct Napster. Napster shut down in 2001 after a court ruled it violated record company copyrights. But other services, such as Australia-based kazaa.com, have popped up in its place.

Recording companies themselves have gotten into the online act, setting up fee-based services to download music.

"The way we want to buy music now is quite different from the way we bought music that supported these replication plants all over the world," said May, the entertainment consultant.

The concept of the LP record album, which shaped the baby boomer generation, holds scant allure for today's youngsters.

"Kids today don't think about albums; they think about songs; they think about tracks," Schwerin said.

The younger generation isn't even growing up with an album collection, May said. "They're happy to have a virtual music cabinet out there on some server somewhere," he said.

Plus, consumers now have more choices for how to spend their entertainment budget: interactive games, DVD-video, video games. "The competition for the consumers' entertainment dollar is much harder than it was a couple of years ago," Schwerin said.

CAPTION(S):

The Register-Guard, 1994 The groundbreaking of the Sony plant in Springfield on May 10, 1994, brought hopes for job expansion in a growing industry. But nine years later, the plant has closed its doors, putting 277 employees out of work.